Equinor ASA (EQNR) 2004 Q4 法說會逐字稿

And welcome to the fourth quarter earnings presentation for Statoil, this time from London. I am Mari Thjømøe, Head of Industrial Relations Team at Statoil. And I also want to give a warm welcome to those participating through the Internet.

Statoil’s results were published this morning at 8:30 Central European Time on our web page statoil.com and the presentation used for this meeting is available there.

Please note that we have included a disclaimer in front of the material as we are going to make forward-looking statements. And may I also remind you that all of our participants are very welcome to send us questions during the presentation for me to read aloud here afterwards. Also on the security side, if the loud bell rings or if the fire alarm rings, it is not a test and we should then exit slowly through the 2 emergency exits in the back here.

Helge Lund, Statoil’s President and Chief Executive Officer will take us through the financial results for the fourth quarter, and he will comment on the strategic development for the group. After the presentation, Helge together with our Chief Financial Officer, Eldar Saetre will be available for questions.

So please Helge, the floor is yours.

Thank you Mari. Ladies and gentlemen, welcome to our presentation and thank you for your interest in our group. I am pleased to announce record annual earnings for Statoil for 2004 amounting to NOK24.9b after tax. That is 51 percent higher than last year. And return on average capital employed at 23.5 percent and that is definitely competitive with the best in our industry. It’s fair to conclude that Statoil’s financial position has never been stronger, and we have a net debt to capital employed at 19 percent.

Statoil’s Board on Friday decided to recommend to the General Assembly to pay dividends over NOK5 and 30 [inaudible] 5 share consisting of a special dividend of NOK2.10 per share, and then the NOK3.20 for the ordinary dividends.

I don’t have to tell you that we are living in a very dynamic world out there, and the changes are happening at more rapid speed than ever in our industry. The commodity prices are high, and to a certain extent volatile. Costs are definitely edging up generally in the industry, and I think our growth and replacing reserve is at the top of everyone’s mind in our industry.

Also I think the relatively scarceness of OCD low-risk reserves and opportunities are a fact that we see in the industry right now. I think also in the last year, we have seen the national oil companies being more aggressive than they have been in the past outside their own countries making the competitive climate even more challenging than it has been in the past.

Nevertheless, despite this rather challenging situation for the industry as a whole, I feel that Statoil is well positioned against these changes. First of all, we have a high, strong ENP exposure. Roughly 70 percent of our capital employed are associated with the upstream business. We have a sizable project portfolio, that even true in detail at the Capital Markets Day in Stavanger before Christmas that will deliver 8 percent annual growth from 2004 to 2007.

We have a relatively, compared to most other, a strong position in the OCD area with low risks and I am pleased also to announce today that we have in 2004 replaced our reserves by 106 percent. But perhaps, even more importantly I think after the out-buy [ph] bill, the organization is getting stronger and stronger, more and more fit, and I think that the Statoil people are more able to change and improve than they were at the out-build when it was 100 percent government-owned entity. And in a way, all or most of those people that delivered progress during the last 3 years, I think many of those have celebrated during the weekend, but today it’s Monday, and it’s time to look ahead. And as all of you I think know, we have developed even more challenging targets for 2007, both when it comes to return and growth and costs.

Let me move into the quarterly earnings. Record EBIT of NOK18.7b, that is 48 percent higher than last year, mainly driven by 36 percent higher oil prices measured in Norwegian Kroner, 15 percent higher gas prices, natural gas prices. Our refining margins are significantly improved by 74 percent. This is partly offset by NOK.4b increase in the D&A costs, and some cost increases due to insurance changes in accounting practices, roughly NOK.4b as well.

Net income increased 134 percent. It is mainly due to NOK3.9b higher net financial income due to realized currency gains on cash management and cash currency gains on long-term debt held in U.S. dollars. The tax rate was very low in the fourth quarter at 57.2 percent, but adjusted for a gain of NOK1.4b due to a new tax law in Norway, and NOK.4b improvement as a result of the tax authorities accepting Statoil’s way of treating or allocating these costs to other of our facilities. The fixed [indiscernible] for those factors, the tax rate had been 64.7 percent in the fourth quarter. It is also low, and that is driven primarily by a high level on that financial income in the quarter.

Looking at the year as a whole, an EBIT of NOK65.1b, that is 33 percent higher than last year, again driven by 25 percent increase in the oil prices measured in Norwegian Kroner, 8 percent increase in natural gas prices, NOK1.2b in reversed rig accruals due to increased activity and improved market conditions in the rig market, 2 percent increase in oil and gas liftings, and as you have seen already significant improvement in petrochemical margins by NOK1.3b. This is partly offset by a NOK1.2b in increased DD&A, again explained by the factors I indicated earlier.

Statoil continues to deliver high capital efficiency at almost 24 percent for 2004, and very competitive compared to our peers. The single most important target 3 or 4 years ago was the return on capital employed, and we see here that we have delivered 12.3 percent of normalized assumptions, i.e. oil prices at $16 compared to the target of 12 percent. This is in fact no small achievement for a Company that had prior to the IPO a return on capital employed of 7.5 percent, and I think it speaks well for the organization’s ability to respond on improvement measures.

The improvement from 7.5 percent to 12.3 is primarily driven by 3 factors. One is increased production; two is divestment on non-strategic assets, like Statoil Energy, the business in Taiwan, Viet Nam and also later on divestments of the upstream activities in Denmark, the VNG, [inaudible] and so on and so forth, so quite effective capital management throughout this period.

In addition to that, since 1999 we have had improvement programs that have improved our earnings by, or performance by roughly NOK7.6b. At the IPO, management launched an improvement program that I think all of you know quite well. The target was to deliver NOK3.5b where two-thirds of that was supposed to come from cost reductions, and the remaining from revenue-generating activities. We have achieved NOK3.2b, which is close to 92 percent of our target.

The M&M part of the business delivered more than their target of NOK1.2b. Natural gas spot on the business in Norway upstream delivered NOK100m lower than their target. International upstream delivered NOK.4b as against the target as you see here of NOK.85b. And this shortfall in that business is partly driven by higher production costs and partly driven by somewhat lower production volume than that of 4 years ago.

All in all, nevertheless I feel confident and satisfied with the amount of improvement that has been made. But perhaps today when we look forward, it’s more important to look at the new improvement program that we discussed in Stavanger in December.

Moving into production, all in all 1,106,000 barrels per day, that is 2.4 percent higher than in 2003, the increase primarily driven by the international activities that are producing at a 29 percent higher level than we saw in 2003. The 2004 production is 14,000 barrels per day short of the target and reduced for the Algerian acquisition made in 2003; it’s 27,000 barrels per day short of the targets that was announced back in 2001.

As you know, there have been some extraordinary events in Norway the last year with the rig strike, and a gas leakage at the Snorre and [indiscernible] fields, and those 2 incidences, they amount to roughly 7,000 barrels per day. And the international production built up somewhat slower than we anticipated back in 2000. And we are delivering 115,000 barrels per day compared to 120,000 that was the plan. But it is not a delay where we can talk about years in delay. It is rather months as in the fourth quarter we produced at more than 140,000 barrels per day. In the first 2 weeks of 2005, we have produced 160,000 barrels per day, so in that way I feel confident that we are well underway to deliver the production target for 2007.

[Indiscernible] production costs for 2004 as you see here was at $2.96 per barrel against the target of $2.77. That is short of our target of $2.70 dollars, again primarily driven by higher international production costs and lower production than anticipated when we initiated the plans 4 years ago. In addition to that, again lower liftings due to the rig strike and the smaller incident at the NCS. Nevertheless, compared to our competition, I think we are well placed as we have calculated the average in our industry of roughly $3.7 per barrel for integrated oil and gas companies.

At the end of the fourth quarter 2004, Statoil has roughly 4.3 billion barrels of oil equivalence in SAC oil and gas reserves, of which roughly 60 percent of that is gas. That means that during 2004 we replaced our reserves by 106 percent mainly due to bookings in Nigeria, Azerbaijan, and Norway. And if you exclude for the PSA effects that ROR ratio had been at 130 percent for 2004. If you look at the 3-year average, the reserve replacement ratio is up 101 percent, and again excluding for the PSA effects 109 percent for the 3 last years. And I think also that compares very well with those companies that have announced their results so far this year.

Moving into the CapEx, the total gross investment for 2004 was at NOK42.8b. Of this, NOK6.8b was paid in 2003, and the CapEx spend on the step-up is primarily driven by the acquisitions of the In Salah and In Amenas Fields in Algeria, as well as the buy-back of the SDS shares that we did during 2004. Adjusted for acquisitions, organic spend from 2001 through 2004 was in the area of NOK92b, and this had NOK95b at the IPO 4 years ago.

For 2005, we expect to invest roughly NOK35b and we indicated that the level the next 3 years would be between NOK100b and NOK105b altogether, as we discussed at the Capital Markets Day in Stavanger.

We have a debate on the technique and challenges with the F&D cost as a measurement of performance at the Capital Market Day in Stavanger. I will not go into that today, but we have moving forward abolished these targets for those reasons. We believe that the more, or a better indication of the performance of the organization in this area is the CapEx over recoverable resources, and we have estimated that for the 17 fields that we have or are going to put on stream before 2007, the cost will be or the CapEx will be a little bit lower than $4 per barrel for those projects.

The funding and development costs were $8.5 per barrel for the last 3 years. If you adjust for the PSA effect, it is down to $7.8, and then there have been significant changes in the currency that also brings it down further to $7.1 per barrel. And that is a little bit higher than the level we indicated to you earlier between $6 and $7 per barrel.

Financial items NOK5.2b for the quarter, that compares to NOK1.3b for the fourth quarter 2003, mainly related to realized currency gains and cash management on short-term U.S. dollar balances and unrealized currency gains on the U.S. dollar long-term debt of Statoil.

I have already commented on our financial position. Clearly, we have never been in a better position in terms of balance sheet strength, gross debt at NOK36.2b versus NOK37.3b at the year end in 2003. And net debt is up NOK20.3b and virtually all of that debt is carried in U.S. dollars. Net debt to capital employed 19 percent versus 23 percent in 2003.

The strong earnings for 2004 and the robust financial position provides for returning excess cash to shareholders, and the Board decided on Friday to propose a dividend of NOK5.30 per share, and that will be put forward to the AGM in May this year. That brings the total payout to shareholders with an increase of 80 percent from last year. 2.10 Kumud of this dividend is a special dividend and the remaining is ordinary dividend, and we see an increase of 8.5 percent from the ordinary dividend level from last year. And the Board’s movement here is primarily driven by the fact that we have adjusted our long-term view on oil and gas prices.

The yield is competitive in our opinion, and the stronger year-end 2004 share price, the yield is roughly 5.9 percent.

Moving into the different business areas, first E&P Norway EBIT was up to NOK15.2b. That is 49 percent higher than last year driven by higher oil prices, 39 percent up from last year, 6 percent higher gas sales and some offset of lower oil liftings, roughly 10 percent reduction from last year.

Looking at the activity level in the fourth quarter, very active and it has to be because we have quite ambitious plans for the next 3 years. And our plans call for increase in our production of 10 percent from 2004 level to 2007, and in fourth quarter, the highlights are mentioned here. We were awarded 8 operatorships and 3 partnerships in the APA round, 5 of these in the Halten/Nordland area, 5 in the North Sea and the remaining 1 close to the Snorre field up in the Barents Sea area. We have submitted a new PDO for a field called Synfox [ph] -- it’s almost impossible to pronounce it even in Norwegian. And that is scheduled to come on stream in November 2006 through a tie-back to the Guildfox [ph] field. And I think a very good example of those kinds of field developments that you will see as we move forward.

I am also happy to announce that the Board decided last Friday, or approved the stop-short late-life project, and we will take that to our partners over the next few weeks, and we hope to deliver that PDO February 25 and start planning immediately.

Two exploration wells were completed, and we made a discovery in Topas and I’ll just go through that. It’s located close to the Guildfox and Visund fields. It was a wildcat well, then from the Guildfox platform with a total length over 7,400 meters, and it’s roughly 20 million barrels of oil equivalent of recoverable resources. And the S&D cost is about $1 per barrel. It’s a nice little project, and I think we will be able to start that project already first quarter in 2005.

We also plan to develop another small field close to the same infrastructure, the so-called Gulltopp project, and we hope to start oil production also this year in fourth quarter of 2005. Expected resources in that area is roughly 25 million barrels, so these are examples, I think prominent examples of what kind of technology development that we are doing or that are opening up for that kind of opportunities. And I was pleased to see that Statoil was awarded the RER [ph] price from the operators in Norway for good work at Guildfox, and bear in mind that the initial plans for recoverable resources at Guildfox back in 1985 was 1.3 billion barrels, and now we are building it to a level of 2.5 billion barrels, is quite a fantastic story.

Moving to the international area, EBIT was NOK1.1b, that is 237 percent higher than last year mainly due to higher lifting over the natural gas, and also higher oil prices, 18 percent higher than last year measured in Norwegian Kroner. EBIT is down from third quarter mainly due to this period we had unusual discounts to Brent for some of the oils that we are selling, particularly from Alba and the Kasamba-A field in addition to the turn-around on the Syncore [ph] project in the fourth quarter. And much of the production in that period we sold as diluted crude with a lower value than the syncrude that we normally are selling.

Significant step-up of production in the international area, it’s starting to be significant for Statoil. It’s a 29 percent increase vis-à-vis 2003, and a 47 percent increase compared to fourth quarter in 2003. And I think we are well underway to deliver the targets that we announced for 2007 already having a capacity of roughly 160,000 barrels per day going into 2005.

Also here, I would say high activity level in fourth quarter 2004, 3 new fields in production by year-end in In Salah, Kizomba A, and Alba Extreme South as we call it. We made 2 discoveries on the Rosebank and the Tiger in Gulf of Mexico. And we started January 1 to drill the first well in Venezuela offshore, and we hope that will be completed by the end of March.

We won 3 new operatorships in the Faroes Island and 1 partnership. We got exactly what we applied for. And finally, our partner was able to get the development plant for Corrib approved, and we hope to have that gas field in production in 2007, probably late second quarter.

Natural gas, EBIT for fourth quarter was at NOK1.7b, 3 percent higher than last year mainly due to higher gas sales, 14 percent higher and 15 percent higher gas sales prices to the market. But it is, of course as many of you know offset by a higher internal price from the Norwegian upstream activities to the gas business area, and that price increased 41 percent in the period.

The CS study same scope for natural gas is up 19 percent for the year as a whole, and our equity gas sales increased by 10 percent to 21 BCM, well ahead of the 2004 target of 20.5 BCM.

Moving finally to the manufacturing and marketing area, EBIT was at NOK1.4b for the fourth quarter, 140 percent higher than last year mainly due to a 74 percent increase in the refining margins, 85 increase in petrochemical margins, and increased throughput, both at Mongstad as well as the petrochemical plants. And we see as an offset a continued pressure on margins in the marketing area, particularly in the retail area.

Looking at Mongstad, 20.7 million barrels was processed at Mongstad fourth quarter. That is an all-time high for this part of our business. And the 4Q margin very, very high, significantly higher than the standard SAC margins due to the fact that the low fuel production of Mongstad in this period. Also the methanol production at Tjeldbergodden achieved a very high capacity of utilization in fourth quarter. The contract prices for methanol was 21 percent higher than last year.

Borealis production was up 19 percent compared to fourth quarter 2003, and the petrochemical margins as I said was 85 percent higher than in the same quarter last year. Health, safety and environment continue to be a core focus for Statoil, it has to be both for ethical reasons but also for commercial reasons. And I’m pleased to see that the development on the numbers are moving in the right direction. Nevertheless, we have had a few incidents that have been negative for the group the last 6 months. For instance, the gas leakage at Snorre, and that really indicates how important it is to stay focused on this area. Ultimately, in my opinion good HSE performance is really about quality management that eventually leads to better performance for the group as a whole.

Key performing targets for 2004, I think it’s fair to say that most of these targets were considered to be ambitious when they were launched by the 100 percent, at that time, government-owned company. And 3 years later I feel that the Company and the organization have been able to deliver very well on these targets level-wise except for the F&D target that we discussed earlier. And that makes me confident that we have a strong platform also to build on in terms of delivering, also on the 2007 targets. That is the growth, 8 percent annual growth from 2004 to 2007. The drivers there are 17 new projects at NCS and internationally.

We have also challenged the organization on improvement in capital efficiency moving from today’s level of a little bit above 12 percent up to 30 percent by 2007, and we will drive the costs further down and have a production cost target, as you know, of NOK22 per barrel in 2007.

I believe Statoil all in all is starting the next leg in its development from a strong position. We have clear targets also for 2005. There is a keen focus on delivery on those projects that we are working on, those 17 projects. We have a production target of 1,175,000 barrels per day in 2005. Exploration activity at roughly 4 billion, a little bit more than 50 percent of that activity outside Norway and a little bit less in Norway. And we have indicated to you and we reiterate that today an investment level of roughly NOK35b for 2005.

As a summary, we are definitely living in a very dynamic world. Nevertheless, I believe Statoil is well positioned. We have been ordered to improve further, launched very specific improvement programs to attack the short-term challenges of delivery that we discussed in Stavanger, and also 5 longer-term initiatives that is focusing on the longer-term growth for Statoil. And our ambition is to run a good balance of growth, higher level of capital efficiencies than we have seen in the past, and also attractive and competitive yield to our shareholders. In that sense delivering on our targets in 2007, I think Statoil is quite unique investment story, but eventually that is up to you to judge.

Thank you for your attention. Mari.

Thank you. I will now invite the audience to take the opportunity and go through specific issues with management, and we appreciate it if you can state your name and company when you ask your question. And there is also a microphone that you will need to use.

It’s Edward Westlake at CSFB. If I take that 130 percent reserve replacement number before pricing effects and adjust it for the acquisitions in Algeria, you’ve got something maybe closer to 80 percent for organic reserve replacement. Obviously, you’re trying to grow the business at 8 percent in 2007, so unless the reserve replacement picks up, the reserve life is going to fall. Now, how do you think the reserves are going to get booked? Is it because you feel you have more resources that you haven’t booked because of SEC guidelines? Is it because you’re confident in your exploration? Or is it because you’re envisioning some additional form of M&A?

I don’t think it can fit under any one label. We are working diligently with all of them, but definitely as you point to, this is a key issue for ourselves and for I think all other oil and gas companies these days. And therefore, the reserve replacement unresourced addition is the key for management.

Of the short-term, of course, the exploration will not give immediate effects. We also have to see some developments on some of the other aspects.

Ian Reed [ph].

Ian Reed (ph) from UBS. Just a question on the dividends. Do you have any kind of formula in mind, maybe similar to BP in the sense that could you perhaps indicate that if our prices are say similar to what we achieved last year, are you prepared to payout say up to 50 percent of earnings on that basis? And so could we expect perhaps a special dividend if we’re in the same environment this year as we were last year?

And then another question perhaps on exploration, there’s obviously some exciting exploration laws coming up in Norway over the next couple of months. I wonder whether you could give some indication as to how optimistic you are on the wells which are in progress at the moment.

In terms of the dividend, I would like to say a few things. One, there is no changes to Statoil’s stated dividend policy where we say that we are going to return between 45 and 50 percent to our shareholders over a cycle.

Secondly, we have stated, and I think also very significantly at the Capital Markets Day that we would try to find a balance of delivering growth, increased return, and that we should have an attractive and competitive yield to our shareholders. So those are the guiding statements, and over and above that, I think it’s far too early to invite the Board into a discussion on giving guidelines for 2005.

I think in terms of maybe one more comment in terms of the ordinary dividends you see somewhat higher increase than you have seen recently, and that is primarily driven by the fact that the Board also adjusted their view on the long-term oil and gas prices. So that is the basis for that, so you should not anticipate that we see the same kind of growth every year in the ordinary dividend.

In terms of our exploration, I think we have had quite good success at the MCS in recently, and we are exploring significantly around existing infrastructure because that is very profitable. If you find resources and resource there, and I think some of the examples that we mentioned here on Topas and Gulltopp are good examples of very profitable projects.

And also are combined with I would say high-risk, high-impact opportunities in the Norwegian Sea and the Barents Sea. Perhaps Statoil is somewhat more optimistic on the Barents Sea than a number of other oil and gas companies, and I think predominantly the reason for that is to, one is that our incentives for finding more resources are on [indiscernible] to be able to build another train. I think we see that opportunity and many others do not have that sort of opportunity, so they need to find much bigger resources in order to make commercial viable discoveries.

Secondly, perhaps is that many others I think look at the 61 wells that have been drilled and they conclude if we drill another 3 wells and they’re not successful, they will give up. I think Statoil takes a little bit different view on that, and this is a vast area. And if you look at the Norwegian side and the Russian side and we look at this as one new entire region, I think it’s far too early to conclude that this is not an attractive area, even if we are drilling dry holes in the campaign that we are running now. And bear in mind these are high risks. There is perhaps between a 15 and 20 percent chance that we will be able to find a big discovery.

Hi, it’s Mick Aldridge from Duetsche Bank. Two questions if I may, one on the international upstream. You highlighted the upstream margins under some pressure there. Can you talk a little bit about the trends you’re seeing in unit DD&A going forward?

And then secondly a more specific question which is Kristen has been in the headlines once again. I wonder if you could give an update on exactly what’s going on there as far as budget and time.

I can speak to the second one, and perhaps you can take the first one Eldar. In terms of Kristen, there are a few points. One is that the execution of that project moves very smoothly on the platform side, and our plan is to take the platform from the [indiscernible] marks, and there are no changes in those plans.

Then there is a very challenging reservoir, and we have had very challenging draining conditions the last 3 or 4 months due to weather. So it’s a very complicated drilling and reservoir situation. And perhaps it is the most challenging situation in terms of technology and development we see right now in the oil and gas industry right now globally with high temperature, high pressure combined with the subsidy (ph) solution. Nevertheless, as we see it now, there will be no delays in production start-up. The platform will be delivered when we had planned. And then we have said to the market that we will come back regarding potential cost implications of the challengers of our technology development and the normal sort of project estimates that we do 2 times a year.

Perhaps Eldar, you will take the other.

Yes there were 2 comments. One was on the international, if you would like to do a comment maybe on that. You mentioned it in your presentation, but what we have seen is over a few months the demand-supply balance on fuel oil, which has sort of led to an increase in the spread between fuel oil and gasoline. So that all has to have some impact on the crudes, right? And in the third quarter, we had 2 qualities, which are in our heavy category from Kizomba A, which came in heavily in the fourth quarter. Also from Alba, and there has been some significant discount that we had to take on these crudes in this quarter.

That is a major implication for us, and in addition, and actually these qualities represent one-third of the international total volumes in the fourth quarter. In addition, you know the Sinkor [ph] has been shut down for maintenance for quite a few days, and the crudes that have been sold into the market have been very heavy and with a significant discount. So this combination has really created a very special situation for us in the fourth quarter. That is the main thing on the international in this quarter. In addition, we have seen some increases on the cost which is purely the consequence of the increased production and also increased exploration costs.

On the DD&A, I think your comment was more on the general statement. There is a trend, you know in terms of access cost and development cost, which is increasing. And we are part of that trend in our numbers. As you see them now, there are no major items on the DD&A. We have a write down on the [indiscernible] fees due to, you look on the reserve and the remaining lifetime of that project, some increases in removal costs, and that is the sort of the main reason, beyond sort of why the volumes lifted up. But that is common for this time of year.

I’d like to take a couple of questions from the Internet. This is from [indiscernible], and he’s got one question related to NP International comparing third quarter with the fourth quarter, and he said that given that both oil prices and volume rose sequentially compared to third quarter, can you explain why EBIT is lower than the third quarter 2004?

That is pretty much the answers I just gave. I think the international average oil price went down by approximately $3 U.S. per barrel while Brent [indiscernible] increased by approximately 2, so this spread is definitely increasing. And in addition, the Norwegian Kroner has depreciated during the quarter, and the increased cost that I mentioned on the exploration. So that is the explanation.

That is actually outlined in the glossary to the report on page 14.

Second question, regarding reserve replacement rate. Does the 106 percent reserve replacement rate this year include acquisition of In Salah? And if so, what will be the organic rate excluding the acquisition?

Yes, well it’s 106 percent, that is our actual reserve replacement rate and that is what we are going to produce into the future on the basis of that. So I mean if you exclude the Algerian transaction as Helge mentioned on a 3-year basis that would indicate something like 90 percent reserve replacement rate. But then again, we have sort of also the PSA effect so if you really start on an exercise of amortization, you get pretty much back to 100 percent increase in reserve replacement. But that’s set for this year, 130 percent that is the effect including the Algerian transaction, which by the way was a very profitable, very close to organic type of profitability. So we are very happy with that and enjoy the production that comes out of that transaction.

One follow up on the reserve before I leave, and that is to Helge on the SEC reserve booking -- this is from [indiscernible] -- are you more conservative in your reserve bookings now than you previously were as a consequence of the SEC proven reserve discussions we had last year?

I guess I’m not the best guy to judge what has happened previously, but I can only say that my experience with the teams at Statoil that are working on these issues are very, very positive, and they are extremely professional people under no pressure from management to change their professional judgment. And we are using external consultants as well, and there almost no spreads in the overall judgment on reserves.

I think it’s hard to say that we are conservative because I think really as far as I can see and based on discussions I have had with these team, we are where we should be in terms of quality.

Tom Yako [ph].

Hi, his is Tom Yako from Citigroup. Just on your performance metrics, you commented on the shortfall in EBIT in terms of the improvements. Also that you have come in ahead on your return on capital target. What was it that you did better on the capital employed side, but was it just by the reduction in CapEx, or was your disposal program better than you had anticipated?

Do you want to comment on that Eldar, just on the performance metrics?

I cannot really, you are touching on sort of a part of the answer, the portfolio rationalization and what we’ve done on the portfolio obviously had a positive effect. And they are also seeing other elements outside of the improvement program, which is not a positive effect. That is the general answer.

Helgem it’s [inaudible]. I just wanted to get an update on the gas market equities in [inaudible].

As you know, we are working to establish opportunities in the Turkish market for part of the volumes there, and there is really no specific update other than what we discussed at the Capital Market Day. It is a long-term sort of exercise of our security, the volumes from the Chartres to Nice [ph] field to the market in Turkey.

I would like to read a question from [indiscernible]. It’s also related to international, the price of international crudes. Statoil’s internationally realized oil prices at $37.2 U.S. per barrel, $2.5 lower than the OPEC average basket price. Earlier, Statoil has been realizing in line or even higher than the same reference price. Can you please give an explanation on this decline and maybe some guidance on the price realization going forward?

I mean I gave an answer and then I made the [indiscernible] reference. It would be sort of the same kind of answer to the other basket. On guidance, what I indicated in my answer was there were some circumstances on the Syncore side and on the fuel oil side which we, well what goes into the picture we don’t know, but we don’t expect to see (indiscernible) stream price differentials that we saw during the fourth quarter. So, and in addition, we are getting other crude spread qualities into the portfolio, so overall, I would expect to see the spreads narrowing down really.

[Inaudible] Hewitt, [indiscernible]. Two quick questions, First on manufacturing and marketing, clearly a much better performance in quarter 4 obviously helped by physical benefits from chemicals and better performance from refining and marketing. If you put it on the retail side there, we still seem to be a bit weak, and obviously now I’ve got a few months’ worth of the combined SDS business. Can you just maybe update us on how you are progressing with improving returns in that business area?

And the second question quickly was on [indiscernible] and whether there’s any update you can give us on that please.

On the return, it’s very clear that the margin pressure is very tough in many of the markets, specifically the Danish and the market in Ireland. Our response to that is really to drive a very tough synergy program through the new retail organizations where we attack that business as one Northern European business rather than a multitude of independent operations in different markets. So we try to take those areas that we can take a central approach and move them to headquarter, and then have a [indiscernible] business down in the different areas, and you’re running more similar campaigns, development of different stations, concept and so on and so forth, IT solutions as well. But clearly, it is a tougher market in terms of margins, and the business needs to I think expect to run at lower margins into the future.

We’ve really given you a quite detailed breakdown on the progress and how we are attacking this restructuring in the abbreviated Capital Markets Day in June. The challenge previously was really to take out all the synergies because it was not one Company. And I clearly see that as a big advantage of doing as we move forward.

In terms of the [indiscernible] project, it’s really not a big update. There are the challenges of the [indiscernible] Yard in Spain, but I see a picture from there every week of Inbounder [ph] and we are progressing. And there are no plans of changing our schedule or taking the [indiscernible] during the early summer, or Temptation Island as the guy called it up in [indiscernible]. It has been a very tough winter, very windy, but through I would say very efficient planning of the exercise, we are keeping the momentum of that and we are trying to preplan as much as possible in order to receive the barge during the summer up in Norway.

And in terms of costs, there are really no updates compared to what we told you a few months ago, and we shouldn’t expect that either.

I just have one follow-up question to you Helge. You referred to the Board using a higher oil price assuming higher ordinary dividends. And someone asked you to be more concrete there.

Yes, but as you see we increased our assumption I think from $18 to $22 in August reflecting somewhat better trading conditions than we anticipated earlier on. And we have also therefore, adjusted more or less in the same range, the long term, or the ordinary dividend. I think it increased roughly by 8.5 percent.

Eldar, do you want to comment?

Yes, just an addition there that we changed the exchange rate from 750 to 675. So putting that together it’s approximately less than a 10 percent increase.

It’s not more scientific than that.

Tom Bergen from Reuters. May I ask you a question about your strategy on M&A, would it be required to enable you to meet your aspirations on reserve replacement? And just more specifically then, vis-a-vis, First Calgary heard that that oil was in talks on that. Just wonder if we can get an update on that, where we stand at the moment.

And just a second question on the SEC reserves rule. You mentioned there is a big variation in terms of whether one takes count of PSAs or not. Given those sorts of variation, do you think the SEC rules should be observed by people? Do you think people can actually use them very usefully? Or do you think they need to be changed?

I think we discussed that a little bit during Capital Market Day in Stavanger in December. I think at this stage I’ll only comment to say there is discussion in the industry on exactly your topic.

On the first question, as I tried to indicate earlier on, I think any company today has to work on all levels in order to create growth opportunities. We are specifically targeting increased oil recovery and performance of our existing fields. We have stepped up our exploration activities significantly over the last few years, and most notably for 2005 we are working all the time on trying to position vis-à-vis national oil companies that possess a large amount of the resources that you see out there.

And finally, I would not do my job unless we all saw all the time surveyed and looked at also inorganic opportunities. But I don’t think you’re very surprised when I say that I don’t want to comment on any specific situation.

[Indiscernible] ABN Amro. You mentioned the Syncore shutdown. I was just wondering, there’s a number of moving parts there, obviously we see the plant back up expanded. There has been the government’s proposal to increase tax, and then those sorts of comments to Syncore to make it go ahead later this year. I was just wondering if you could comment on the overall position of Venezuela and also if Syncore II goes ahead with Pedevesa at a majority stake.

As you know, our excellent guy from the U.S. will move to Venezuela very shortly to take responsibility for that business. Perhaps you want to offer a few thoughts, Terje, on Venezuela.

Okay, yes a few thoughts about it actually. Clearly, we have expressed that we have an interest to participate together with Total and Pedevesa actually in the expansion of Syncore. And we have been discussing that with the government for some time. And we shall see whether we then will proceed. It all depends on the commercial conditions which we can achieve, and so far we haven’t been presented for anything in particular, so we will wait and see until we have a real concrete case to evaluate.

I guess that’s basically where it is right now. The changes that have so far taken place on Syncore and the royalty agreement changes is still making the product very interesting for us, and so the existing operation that we have in Venezuela today including the [indiscernible] are not changing anything on our long-term view of operations in Venezuela.

I just wanted to add that there are many challenging markets these days, and Venezuela is no exception. And I think any company in this industry needs to be able to operate and assess risk and evaluate what kind of investments you want to do from time to time. And you know, there are challenges in Angola, there are challenges in Nigeria, there are challenges in Venezuela and Russia and so on and so forth. And that is simply the way the business is. You have to evaluate all the time what kind of exposure you take. So I don’t see Venezuela very different.

There is a question in the back.

This is Vassons [ph] Enencourt [ph] from JP Morgan. Just a question about something that you mentioned earlier during your presentation when you said that over the next years you will be able to add recoverable resources at [inaudible] on 17 fields. Are you talking about funding costs at [inaudible]?

This was development costs over the cycle if you divide it over all the resources that we’re going to recover over the life of the project for these 17 projects.

And what sort of proportion those 17 projects represent for the overall portfolio of development for Statoil?

How much of the total production or --

Future additional resources for Statoil that you expect to add in your portfolio.

In addition to what we are adding all the time, our existing projects we are in for the time being, these are only, these are the 17 projects that we bring on stream in this period from 2004 to 2007. And then they have said that we have additional, together with our partners, we have additional 14 projects for the years between 2007 and 2010. I don’t know whether we have calculated exactly the CapEx per barrel on those.

No, I mean if you look at our DD&A for that today, it’s in the range of $4 U.S. Don’t you think actually that kind of level if you are looking at specific named projects that would be ahead of us, that can be approved they have a CapEx per barrel in the same range. That’s what you’re saying.

I have one question here from Connie [inaudible] where he comments on rather high realized gas prices in the fourth quarter and asks where do you expect the gas price to go over the coming quarters, and could you please explain the drivers for the gas price? I guess this is a question for Eldar.

Well it’s nice to have high gas prices, so what we’re talking about is really the piped gas I guess. As you know, that goes into the pump lines in the European markets and the UK markets, so in the continental long-term markets, we have price [inaudible] we left in these contracts which constitutes from different alternative energy products. And typically we would see gas, oil, and fuel are in there. And gas has been very strong, so I do believe that really explains the main part of the increase that you see in the gas market. And I don’t think you see very much apart from the fuel markets and the gas prices. Also some support from the UK gas market and the currency. I’m not sure which is more or less neutral in this period.

Guiding for into the future, I think sort of what I said now is official guidance for you I think.

I would like to add one thing, and that is as I see it one of the big advantages that Statoil has and Norweigan gas has vis-à-vis the European market is that we have made quite significant investments over a long period of time into the very efficient and flexible pipeline system where we can serve the European markets very efficiently. And we talked to you during Capital Market Day one specific initiative in Statoil in terms of improvement, and that is finding more gas reserves in and around Norway is very meaningful seen from a competitive point of view, as I believe we are one of the players with the absolutely lowest margin of cost. And that always gives some sort of advantage at least.

I have no more questions from the Internet. Are there any more from the area? I can see one.

Marty Stewart from the Simpson Company. I wonder if you could split out the reserve replacement international versus Norway. And also on the PSE fax, I think you talked around 25 percent for roughly 100 million Boe. Was that mainly in Algeria the purchase of reserves that you grouped in there seem to be at the lower end of the indicated range?

In terms of booking on new reserves in 2004, it was primarily Algeria and Azerbaijan and Norway. And I think we indicated that in our presentation. In terms of the 3-year average, or the ENP activities in Norway, it was roughly .80 and international in the area of 3.6, but of course at a much lower area altogether giving those numbers that we indicated earlier of 101 percent ROR.

Well, I cannot see any more questions. I want to thank you all for coming here and for your interest in the Company. Thank you. Have a good afternoon.