Equinor ASA (EQNR) 2005 Q2 法說會逐字稿

Good afternoon ladies and gentlemen. Welcome to this presentation of Statoil's second-quarter results. I am Mari Thjomoe from investor relations, and I am also very glad to welcome those of you listening in over the Internet.

Statoil's results was presented this morning at 8:30 Central European Time, posted on our Web page, Statoil.com, where you can also find the presentation material for this meeting. Before we start, please note that we have included the disclaimer at the start of the presentation as we might also make some forward-looking statements. Helge Lund, Statoil's Chief Executive Officer, will go through the results and comment on the strategic development and progress for the group. After the presentation, Helge, together with Chief Financial Officer, Eldar Saetre, will be available for Q&A.

Thank you, Mari, and good morning, good afternoon. I am glad that so many of you gave priority to Statoil's second-quarter presentation instead of completing your summer vacation.

I can now conclude, at least next Tuesday, that I have been at Statoil for one year. And for me personally, but I think more importantly for Statoil, this has been an extremely active and eventful year. Not only have we delivered record operating profit every quarter since the third quarter in 2004, but I think more importantly, we have strengthened Statoil's industrial position at the NCS and internationally.

Since the second quarter last year we have developed and are in the process of implementing a very aggressive development plan, a strategy plan on the NCS. We have established internationally a new deepwater core area in Gulf of Mexico. We have taken decisive and important steps to develop the Barent Sea into a new oil and gas province in Europe.

I think also over and above the high project activity level, I think the divestment of the petrochemical business completed in the second quarter gives increased momentum and even more focus on what I believe is Statoil's core business, and therefore, will in the longer-term give positive effects industrially.

And maybe most significantly, we have increased our international production with more than 70% since second quarter last year. And I think this year (indiscernible) very much is a breakthrough for Statoil in terms of developing the international link of our operations.

The picture you see here is the production facility, the process facility coming from Spain and into the Hammerfest area. It was as you know docked there according to time line. It worked exactly as we had predicted. And we now have not only this in place, but also the tower. And we have completed this year a CO2 injection pipeline, and that means that all energy can now be focused on the (indiscernible) area as we move forward on those (indiscernible) projects.

If we move to the overall highlights for the quarter, we delivered best-ever result in terms of operations and profitability in second quarter, driven by strong production. It was up 5% from second quarter 2004. And that, combined with solid execution, high regularity in the refinery area, and of course not at least favorable market terms, gives a record return on capital deployed of 25.5%. And that is up by 2% compared with 2004.

And I mentioned already that we have had a very active six months and a very active second quarter in terms on the project level. We have sanctioned nine projects in the first six months of 2005 at the NCS, six of those in the second quarter, and we have never had more activity level at Norwegian Continental Shelf. (indiscernible) newspapers recently, I think those that have included that NCS is already dead (indiscernible) premature conclusion. There is much more potential in our home market.

Let me make a few brief statements and comment on the market conditions that we're seeing right now. And I just repeat what I said at the capital markets day before the summer -- there is little today that suggests that the oil and gas prices should go significantly down on the short to medium-term perspective, and that is what we are basing our results on, short to medium-term. Longer-term, there are no changes in how we are viewing the market. We are measuring our projects longer-term on an oil price of 25 to $30 per barrel for the longer-term. The reason why we are doing that is that we are taking into account that we are working with a raw material, and the raw material prices tend to fluctuate and (indiscernible), and therefore, we need to take this long-term view to make sure that our projects that we put onstream are robust even in the dramatically different market conditions that we are seeing today.

Earnings before interest and tax have increased by 54%, reaching almost 22 billion Norwegian kronor in the second quarter, and the financial results reflect underlying earnings and is without substantial non-operating items. We have increased realized prices for oil and gas in the range of 30% measured in Norwegian kronor and unrealized oil price this quarter of more than $50. We have higher lifting (ph), 8% higher lifting, and we have as I have already mentioned improved regularity at our refinery operations at (indiscernible). Net income of 6.8 billion Norwegian kronor is up by 2.4 billion kronor, and EPS reaching 3 kronor and (indiscernible) per share for the second quarter in 2005.

12 months rolling return on capital employed is at 25.5%. It has never been higher and this number is diluted by 1.6% due to the Gulf of Mexico transaction that was completed in the second quarter of this year. If you look the normalized (indiscernible) measures, it is up by -- from 12.4% to 12.5%. But under normalized (indiscernible) measure, we have adjusted for the Gulf of Mexico transaction as we have talked about earlier.

As you already know, Statoil will have strong production growth in the next few years, and we are on track to meet the goal of producing 1,175,000 barrels per day in 2005. And we're steadily progressing towards the target for 2007 of 1.4 million barrels per day. In the second quarter, Statoil achieved 77% increase in international production, 5% overall production growth. And as you have seen from the numbers this morning, we have an increase in the gas production offsetting a temporary dip in the liquid or the oil production for 2005 at the NCS. A slightly lower oil production has been expected due to planned maintenance and lower production from our maturing fields at the NCS. But bear in mind looking forward that at the NCS, the oil production according to our plans will be roughly at the same level in 2007 as it was in 2004. The oil production at the NCS will remain at the same level in 2007 as 2004, but we will have a temporary dip in 2005.

The reason why Statoil has a slightly different profile in terms of growth than most other oil and gas companies you see here. We have a strong portfolio of development projects in Norway and internationally that will deliver 8% annual projected growth that we have talked to you about at the capital markets day towards 2007, and to maintain the momentum also after 2007. And all of these 20 or so projects that you see here have been sanctioned and will add to the oil and gas portfolio as we move forward.

At the NCS we will have a new project in all of our areas from the mature (indiscernible) area in the south, and also in the Barent Sea where we are introducing the (indiscernible) project in 2007. Internationally, new projects and new production will come from countries like Angola, Algeria, Azerbaijan, Ireland, Nigeria, and of course also now from the Gulf of Mexico.

Volume is important but it is as important to make as much money as we can on our volume, and therefore, a continued focus on capital discipline and cost improvement is important. And I'm therefore glad to see that our average costs of 22.5 Norwegian kronor per barrel for the last 12 months is an improvement from the same period last year where they had an average of 23.3 kronor per barrel. And you see also that both costs at the NCS and internationally is going down from the comparable period last year. And we continue to target costs very strongly and we're confident that we will reach our target of 22 kronor per barrel in 2007.

Net financial costs amounted 0.9 billion Norwegian kronor for the second quarter, compared to a cost of 100 million last year. And the US dollar appreciated by 22 Norwegian kronor per US dollar during the second quarter, giving a currency loss of roughly 1.5 billion Norwegian kronor, related to the long-term debt and short balances and cash management. And the loss was partially offset by high dividend received and increased income from securities.

In the second quarter, Statoil has had a few substantial cash expenditures in addition to the organic CapEx program. We have paid a dividend to shareholders of roughly 11.5 billion Norwegian kronor and have paid taxes for 23.3 billion Norwegian kronor. And finally, we have settled the Gulf of Mexico acquisition, amounting to 13.3 billion Norwegian kronor.

Despite these substantial payments, Statoil's financial position continues to stay very strong and it is currently at 28% net debt to capital employed, and we expect the year-end debt to capital employed to be in the lower teens. That is slightly lower than we have guided previously. At the end of the first quarter we indicated (indiscernible) or 11 over the mid-teens. And our robust financial situation was also reflected in the recent operating upgrade by Moody's from their previous A1 rating to AA2. That is two notches up.

I am pleased to note in the HSE area that we are continuing the long-term trend of improvement. This is an area where you can only reach strong results and development over time. (indiscernible) improvement in this area's incident frequency from 3.2 incidents per million man-hours in 2004 to 2.1 incidents on average during the second quarter 2005, a significant improvement. Also, total recordable injuries are down from 5.9 recordable injuries per million man-hour in 2004 and down to 5.1 injuries in second quarter 2005. These are very positive results and we will work very hard to make sure that this is sustainable and improved even further.

Nevertheless, we have had also in this quarter some issues in the HSE area, and you have read about the lifeboat issues we have at (indiscernible) and (indiscernible). They have led to a (indiscernible) and a shutdown of production at these fields since the 23rd of July. But we are working to mitigate this, and as we see it now, we are probably and it's most likely that we'll have these fields up in production within the next two weeks.

Moving from the overall corporate picture to the business areas, starting with E&P Norway. And this part of the business continues to grow earnings and delivers 17.1 billion Norwegian kronor in EBIT, an increase of 5.5 billion from the second quarter last year. And the main driver here is a 33% increase in oil price measured in Norwegian kronor and a 50% increase in internal gas transfer prices from this part of the business to the natural gas business area. Gas lifting is up 15% and oil lifting is down by 8%. And due to much higher exploration activity, exploration expenses were up to 514 million Norwegian kronor, and that is up from 149 in second quarter 2004.

The activity level is certainly very high and as I indicated earlier in my presentation it has in fact never been higher on a project level. And since first quarter, six new (indiscernible) been sanctioned by Statoil. These are the (indiscernible) template, the (indiscernible) project, two in the South (indiscernible), and finally, the last project that was sanctioned and sent to the authorities, the Tyrihans project. They add to the three projects we completed or sanctioned in Q1.

When it comes to the Kristin projects, the semisubmersible platform was successfully installed on the field in April, as you know. We have now completed two production wells successfully, and a third well is progressing very well. And the project is now at 82.5% completion. We are currently operating at the minimum manning at the Kristin platform due to the problems with the lifeboats used at Kristin. And this is affecting our preparation for a test production, but it's so far too early to conclude whether this will impact the start of oil production that is anticipated in October.

In terms of exploration, activity continues at the very high level and we expect to have work done and have a activity on 16 wells this year, of which four of these wells are likely to be ongoing at the end of this year. The slight reduction in the number of completed wells is not caused by any change in plans or priorities, but is rather a result of well testing and delayed rigs, some caused by discoveries. And this has kept the rigs busy longer than expected on other fields also affecting the number of wells we are able to complete in total in 2005.

When it comes to the forward looking in the exploration area, we have a strong focus on the (indiscernible) licensing (indiscernible) that is particularly interesting in the northern part of Norway, notably in the Barent Sea.

Speaking about the Barent Sea, we are running a big Frontier project (indiscernible) LNG project in Hammerfest, and we have met very important milestones this quarter, and the project is now at 82% completion. And the process plant was successfully transported and installed at the Melkoya site in July, and equally the cooling power is put in place and the CO2 pipeline, enabling the project to reinject CO2 from the process back to the reservoir has been finalized this quarter. And now all of our activity on this project is centered at Melkoya, and that gives a much better focus of our management attention as we move forward.

Nevertheless, and I want to highlight this as I've done in every product quarter, this is a very challenging project in the Frontier areas, so we cannot relax on our attention to this project before it is up and producing in 2007. And it requires absolute dedication and top management focus as we move forward from here.

I'm very pleased that the Tyrihans project with us (indiscernible) tied back to Cristan was sent to approval to the authorities in July, and I think it is a good illustration of what kind of project you will see Statoil deliver as we move forward at the NCS. We really know our putting upstream project -- projects that were impossible to implement earlier due to a lack of technology and experience.

Tyrihans represent an investment of roughly 14 billion Norwegian kronor. There will be a total of 12 wells and the wellstream is transported to a 43-kilometer electrically heated pipeline, the longest in the world of its kind. And pressure support is insured by an ejection of gas from (indiscernible) and also by injection of raw seawater through pumps installed at the seabed. And the bid -- or the field is developed with extensive use of multilateral wells and smart wells technology.

Tyrihans is expected to yield recoverable reserves of about 182 million barrels of oil and condensate and roughly 34.8 billion cubic meters of rich gas. This project will come on stream in 2009 when there is spare capacity available on the Kristin platform. This also of course contributes significantly to the profitability of the Kristin project.

We are delivering record results from the international operations and the international production is in a period of quite phenomenal growth. And the buildup is the result of many years of hard efforts and, I think, a number of setbacks.

For the second quarter of 2005, the strong volume growth in combination with favorable market conditions gives an earnings before interest and tax of 2.2 billion Norwegian kronor. This is up 147% compared to the same quarter last year. And the main driver is of course higher lifting, up 83% from last year, and oil prices up 27%.

And the breakthrough we see in the international production, I think, is equally well illustrated by volume figures. And a milestone was reached in the end of June following the restart of Lufen when international production reached 200,000 barrels per day. But this will be adjusted downwards as the Lufen field will not produce at this level for a very long time.

But last week we produced actually 209,000 barrels per day from the international operation. The increase is predominantly explained by a new project, Kizomba A, in the central (indiscernible) part of the ASG field in Azerbaijan. Lufen I talked to already, in addition to Insala (ph), the gas field in Algeria, and with Ksamba B as the last successful start-up.

So these are the short-term pictures in the international area but we are working very hard to further develop the long-term perspective of this business. And the key event in the second quarter was of course the acquisition of the Gulf of Mexico business from EnCana. And the more we work on this asset, the more we like it.

In addition, we are working very hard on establishing a position in the Barent Sea, first of all through the (indiscernible) project and additional opportunities there, but also concentrating very hard on positioning Statoil for a share in the huge Stockman field, and there is a very good dialogue and interaction between Gazprom and Statoil in this area.

As we understand it predominantly the Russians are after offshore technology and operational experience and access to the US LNG market, and I think Statoil is one of the few companies that have both angles. And I think we are well-positioned and a quite relevant partner for the Russians.

Also in the exploration area we have another very active quarter and we are -- (indiscernible) the going and planned exploration program is characterized by a very high activity level. Four wells have been finalized so far, three in Angola and one in China, and in total we plan to have activity in the international area on 16 wells this year, of which four are expected to be in progress by year-end. And this is according to previous guidance.

Just a few words on Angola. This is a very very attractive area for Statoil, and it is currently Statoil's biggest international producer. And now it is producing at the rate of 80,000 barrels per day. The average was 59,500 barrels per day in second quarter. And we expect Angola to deliver to Statoil at the end of next year roughly 100,000 barrels per day. And in Block 15, Kizomba B came on stream in July. That was five months ahead of plan and less than one year after Kizomba A. And the next developments to come on stream in Angola will be the (indiscernible) and the Rosa projects, both in block 17.

In 2005 we are planning nine wells in Block 31, 15 and 17, and we continue to do discoveries. And just recently I think you saw that we announced a seventh discovery in Block 31, the Juno 1 discovery, and the well is drilled in deepwater 165 kilometers off the Angola Coast. And we are greatly encouraged by the discoveries in Block 31 which may provide sufficient reserves to further increase production from our quality assets in this area.

Moving to natural gas, EBIT was realized at 1.1 billion Norwegian kronor compared to 1.2 billion in 2004. The transfer price between E&P Norway and the gas business was up by more than 50%, allocating a growing part of the profit from the upstream -- to the upstream business. And Statoil as a whole of course benefits greatly from the strong European gas market and from the increased gas production in Norway. The realized gas price was 1.32 Norwegian kronor per standard cubic meter, and that is up 30% whereas equity gas sales increased by 16%. The strong offtake is very satisfactory in the second quarter and gives Statoil an opportunity to improve capacity utilization and maximize our positions in the market on a day-to-day basis.

Here you see that we have continued high gas sales at high prices. And as we discussed already, we expect gas to be an increasingly significant part of Statoil's overall sales portfolio. The strong performance of our M&M segment has continued in the second quarter 2005. This quarter, high regularity and margin improvements (indiscernible) for a very satisfactory result in manufacturing. And EBIT and in second quarter 2005 came in at 1.6 billion, up by almost 1 billion Norwegian kronor compared with last year.

The results for oil sales and trading, marketing in Borealis were broadly in line with last year. Borealis has, as you know, been sold, and we expect this sale to be finally closed by the end of this year. We are very satisfied with the deal. It gives more focus to the portfolio of Statoil, and we have sold it to good owners. And the sales price was, as you know, roughly 1 billion Norwegian -- sorry -- euros. And we are expecting to book again --- (indiscernible) roughly 1.7 billion Norwegian kronor.

Finally, looking out to 2005 outlook is really quite boring. There are no changes. We expect the CapEx level to be at 35 billion kronor, excluding the Gulf of Mexico transaction. The exploration activity will be at the 4 billion level, could be slightly higher if you look at the level we had on the first six months. And the production will be at the level we have indicated to you earlier at 1,000,175,000 barrels per day. Also for the 2007 targets there are no changes, and we are well on track on what we have communicated as targets to yourselves earlier.

Key messages. Again, record results to Statoil, but maybe more importantly, very active industrially on the project level and through the two big inorganic transactions that we have made -- the acquisition of Gulf of Mexico and the divestiture of Borealis -- I think our portfolio -- business portfolio altogether in Statoil has also been stronger and high graded during this quarter, which speaks well for the longer-term development of Statoil. So, thank you for your attention.

Thank you, Helge. May I now invite the audience to take this opportunity to go into specific issues with management. We ask -- usually we appreciate if you would introduce yourself and your company before (indiscernible) question. And to give you some time I will start with a couple of questions from the Internet.

The first one is a question to Eldar Saetre from Iain Reid, UBS. He asks --

The international E&P unit operating expenses and DD&A are up sharply this quarter compared with Q1. Should we use this quarter's units cost to forecast future costs in this business?

Thank you. First of all, I'm not sure I would subscribe to the characterization of a sharp increase. But there are an increase in the DD&A per barrel. I would rather say we saw a lower than normal level last quarter. So if you move back to the two previous quarters before third andfourth quarter last year, I think we had the DD&E per barrel at approximately the same level that we had in this quarter. And the same goes actually for the operating costs. I would say the level that you saw in the second quarter is pretty much what you could expect to see going forward, without issuing any guarantees on that.

I have a second question from Dave Thomas (ph), Standard & Poor's Equity Research. He says --

Regarding full year production of 175 million barrels of oil equivalent a day, and given Kizomba B start up five months earlier than forecast, what will be the split between E&P Norway and E&P international?

And for a change I will answer one of the questions myself. We're not providing a split on the target between E&P Norway and internationally; however, we have said that (indiscernible) actually last week we are producing at a rate of 209,000 barrels a day. We're not promising that rate to continue since there is going to be maintenance work over three of our international operations in the third quarter, which is Syncor, (indiscernible) and in our UK operations. But obviously, a strong production in the second half.

Also, maintenance on the (indiscernible).

We have only -- from the Internet we have received four questions so far, so if you should please raise your hand when you have a question from here. Please?

(indiscernible), independent analyst. You mentioned your production target on the NCS, and that the liquid production would be about the same in 2004 and 2007. And do you include condensate and NGL in that prognosis? That is the first question.

The second question regards Snohvit and whether you can comment on the possibility of further cost increases.

Thirdly, I'm still curious on oil price sensitivity of your PSA contracts, and the impact on your production target internationally in 2007.

Thank you. Should we start with liquids?

The NGL and condensate, that has been and continues to be part of what we define as liquids. So it is included in all of the numbers that we have (indiscernible) split between. So it's oil in our split between oil and gas as we define it.

The Snohvit question adds one from Dave Thomas and Standard & Poor's, who asks for an update on the Snohvit project.

There are -- in terms of schedule there are no changes to development on the projects. And I think we took away some of the uncertainty here in the second quarter due to the milestones that I talked about. In terms of the costs, there are no changes to our estimate which I think runs as 51.3 billion Norwegian kronor. And the line again, and I've done that every quarter since we started, that this is a Frontier project with high complexity, and that there are also weather conditions that, particularly in the tough periods of the year, would impact the productivity and the progress that we are making. So there are always the uncertainty related to weather on productivity that we will have also in the next coming six to nine months. But as we see it today, we have allocated for that in our planning, and there are no changes to (indiscernible) schedule or the costs on the Snohvit project.

One last question on oil price sensitivities. I think Eldar.

I think we heard that question before. We have been careful not to go into details on any of the PSA contracts, but it is true that there are some impact, obviously, on some of these contracts related to oil price developments. Regarding our targets and our production target, we have taken care of some of that, but it's obviously if we see some extreme developments in oil price I couldn't guarantee that there would not be any impact in relation to the target as such. But we are taking care of the some of the uncertainty that is implicit in these PSA contracts But I cannot give any more details and quantify this uncertainty any more than this.

Thank you. And then (indiscernible) please?

(indiscernible) capital markets. First a question on oil price realizations, if it is possible to give some comments on the oil quality going forward. I'm thinking of the new project with the Kizomba B and other international start-ups. What about the oil quality there. And also, question number two. SG&A cost of 1.8 billion Norwegian kronor in second quarter. Is it possible to give some comments on the level going forward there? Thank you.

(indiscernible) on the international on the oil quantities. First of all, on the Norwegian (indiscernible) portfolio is underlying pretty much on average what I could refer to as a (indiscernible) type of quality, and that also goes to some extent into the future. When we we're looking at the international portfolio we are getting the Kizomba-B into the portfolio now. That will be mixed with the Kizomba A quality, and we do expect that that will sort of improve the market value of that quality to some extent. But beyond that I don't have any more details on that.

On the other sort of increases that we see in the portfolio, the (indiscernible) growth is high-quality crude, and that compares very well with the (indiscernible) crudes. And beyond that I have no sort of detailed guidance on what we could expect. What is obviously important for the international portfolio is how -- what kind of values we can take out of the heavy crudes or heavier crudes that we see in the marketplace, and to what extent we can sort of market those with the minimum discounts to (inaudible) plant.

Is that the follow-up (indiscernible)? Then I would like to have a question from Joe Morris, Morgan Stanley. He asks us please to update on the (indiscernible) field production. There (indiscernible) -- the reports (ph) field is back on full production. Also, can you comment on the press reports that Statoil will be involved in the biofuels plant in Denmark?

When it comes to the Snohvit field, the rig and the processing plant is back to normal operations. So due to availability, we are producing only at the 95% level of the potential of the wells, and we are (indiscernible) well work over on five production wells. So you can anticipate the production to be below the original plans for 2005. But the rig and the processing plant is up and running at (indiscernible) capacity, so there are some work on the wells to be completed. On the biofuel areas, we are involved in some small-scale projects in Norway and -- but not at this point of any significance.

Thank you. Please.

(inaudible)

Several companies operating in Venezuela have said that they will reconsider future operations there based on new terms that are wanted. Both the new terms that are being asked for on any new projects and your current Syncor back royalty issue -- has that curtailed your ambitions to make Venezuela a core are in any way, shape or form?

First of all, the decision to enter Venezuela a few years ago were cautious decision by Statoil at that time, and we have increased our business since that time. We are now involved in Syncor 1 and we have been discussing Syncor 2 with our partners and the authorities recently. And as you know, we are involved offshore on the (indiscernible) project. And we continue to focus on business opportunities in West Venezuela.

Having said that, with a long-term business like this we greatly appreciate stability in the conditions and the framework around which we need to take long-term business decisions. And there had been some uncertainty around that recently. We are for the time being studying the letters that the Syncor partners have got from the authorities, and I cannot speculate in any outcome of that as we speak today. But we continue to be sharp to focus on (indiscernible) opportunities in Venezuela.

Let me read the question from Barry McCarthy (ph) (indiscernible) BNP Paribas. He has a question regarding the Tulipan well in the Norwegian Sea and asks if we are now at the evaluation stage.

We are in the middle of the process on that, so there's really not much more to say about that. We expect it to take another four or five weeks to complete it and then we have to come back out to (indiscernible) results and the authorities have looked into.

I will read one from Huw Williams at Cazenove. He asks --

On Borealis, could you comment on the margin and volume outlook for that business into the second half, and what were the trends in the second quarter?

Generally, we are very careful not to guess into the future on market outlooks, and I won't do that. But I can comment generally on the trend during the second quarter on the petrochemical side and what we saw as really a drop and a decline in the margins during that quarter. But beyond that I couldn't add any additional guidance for the second half of this year.

As you are aware -- you might be aware that we are going to keep Borealis in the books until we have all the decisions. So it will probably stay in the third quarter.

Just to comment on that. There are competition approvals needed in Brazil, Europe, and the U.S., I think. But as we see it, it's more like a formality, but it takes time.

(indiscernible). I see two questions now from (indiscernible) please.

As you know, in Russia, Kommersant newspaper reported that you are into Stockman in a partnership with Norsk Hydro and Japanese Mitsui on the upstream side. What would you think of a roll like that that would be limited to the upstream side of that project, and what would you think of that kind of a partnership?

I just conclude that this was a newspaper particularly in Moscow. We do not relate to newspaper articles when we are planning our projects and business development. And we discussed this directly with Gazprom. So I cannot actually comment on the validity and such that is in that article.

What I can state is that all the communication that we have got from our Russian friends on the authorities is that there are predominantly two things that the Russians are looking for. One is offshore technology and experience, including harsh environment experience. And the second is market access for LNG to the U.S. market. And on that basis, I conclude that Statoil would be a relevant partner to discuss with on the Stockman field. And having said that, over and above that I cannot give any assurance that they will be elected in the final phases. But I think we are a relevant partner that can add value to this project for ourselves and for Gazprom.

(indiscernible) has a question. Please wait for the microphone. Thank you.

I see from the accounts that exploration expenditure is up this quarter to 1.3 billion from 0.7, so it's nearly a doubling. And you also state you drilled four wells in this quarter. My question is how much of the increase is sort of the cost escalation on exploration, and how much can you sort of describe to more advanced wells, other items, etcetera?

I think I cannot give you a precise figure, but this is more or less in line with what we planned. And we have been very careful in stating that we will upgrade and improve the activity and will increase the activity (indiscernible) both at NCS and internationally indicated roughly (indiscernible) billion, (indiscernible) 2005 and beyond. And this is a combination of increased seismic, more work to prepare fields coming on stream, (indiscernible) development, as well as well costs and drilling. And part of that is of course also reflecting the pressure we see in this area. But bear in mind that Statoil has been quite early on in securing rig availability for 2005, 2006, and also for the most part of 2007. And that has been extended this quarter to the rig cooperation between Statoil (indiscernible) Shell and Hydro, but also give more (indiscernible) not only on the level of availability but also on costs for the next two to three years.

Related to exploration, Alastair Syme at Merrill Lynch has a question on that for Helge Lund. Could you please -- could I ask for an update on the forward work program of the Gulf of Mexico? When are key appraisal wells on the existing discoveries being drilled and are there any other key exploration wells to be drilled soon?

We approved in the (indiscernible) on Friday (indiscernible) development project, and that will be sanctioned hopefully with the partners next week, I think, is the 5th of August, and that is exactly as we planned in our acquisition calculations. And then we are working or will be working on three to four additional wells in the Gulf of Mexico in 2005 also in line with the plans that we put forward when we decided to acquire (indiscernible) portfolio. So there will be active work on these assets in 2005 and into 2006 and 2007. I was not exactly clear whether the last part of the question was related directly to the Gulf of Mexico or was more a broad-based question?

Gulf of Mexico.

Then I think I have answered the question.

Are there any more questions from here please? I have one question from Jean-Philippe Lavenir related to dividends, capital structure, to Helge Lund. Given the current pricing environment and your very low gearing (ph) level, do you plan on paying in 2005 extraordinary dividends, or do you want to implement the share buyback program?

We have a dividend policy where we are indicating (indiscernible) to have a payout ratio of between 45 and 50%. We are realizing and are basing our decisions (indiscernible) dividend when you move forward on the fact that we are working in a competitive environment and we need to be competitive also in our allocation. As you know, we have to find a balance between a very extensive CapEx program, the need to have continued financial flexibility to keep a sufficient and optimal rating level for Statoil, and stay competitive in terms of return to dividends to our shareholders. I cannot give any further guidance other than what you can calculate yourselves, that if you make more profits you will through the dividend policy get also more dividends. And there are no plans as we speak for share purchase arrangements.

Thank you. One more question.

You said that on some of the more mature fields in the NCS there was a slightly faster decline than expected. And looking at your NCS production figures, you can tell that -- it appears as though that -- are the big fields -- Stafford, (indiscernible), (indiscernible) -- can you say how much faster those fields are declining than you originally expected? Are you only getting a -- I don't know -- a 55% recovery rate as opposed to a 57%, or is it going -- can you quantify that in any way?

The decline in the production on the big field is more or less in line with expectations, and there are no changes to our targets when it comes to recovery rates. The total production in the second quarter of 2004 was also impacted by the (indiscernible) incident, and of course on our maintenance in addition. The 2005 will be a little bit special year, as even come to liquid production as these fields are coming on plateau and we have no new update additional new fields to put on stream. That picture will change in 2006 and 2007, and therefore, we are guiding yourselves and the fact that the liquid production total will be roughly on the same level in 2007 as 2004. In terms of our plans, when it comes to recovery rates there are no changes to those plans.

I'm just looking to quantify the statement that you did make that there was a faster decline on some of your more mature fields. Just if you could quantify that?

If I said that, that was not my intention; it was just to explain that part of the reason for the lower production in (indiscernible) when it comes to oil and liquids in the second quarter was due to the maturity of the field and is more or less in line with what we anticipate it to be (indiscernible) thing that we did not anticipate of course (indiscernible) was the (indiscernible) impact. But as you have seen, we have a hard flexibility on the gas side that gives us confidence that we stick to the target we put forward on total production for Statoil in 2005.

Finally, Iain Reid from UBS asks if you can say the realized gas price we have for the international production. And unfortunately we're not able to comment on that due to confidentiality agreements. We will have to pass on that. Is there any more questions from here? Yes, please.

Ulf Leinebo, Handelsbanken Capital Markets. I had a question on natural gas. Third-party volumes seems to be declining quite rapidly. Could you give us some guidance going forward and what is happening on the volumes on third-party gas?

Ulf Leinebo asked us to comment on the decrease in third-party volumes and LNG that are in our figures for this quarter?

This is going to vary from quarter to quarter. In the last -- it's depending on sort of what kind of flexibility we see in relation to the long-term contracts. So on the LNG, the volume that we are seeing is approximately 250 to 300 million bcm a quarter to support our position at (indiscernible), and that has been pretty much stable since we started on that position. And beyond that we have some volumes that we trade in the UK market, and I can't give any sort of guidance other than it's going to vary from one quarter to the next quarter.

Mari Thjomoe I would like to read one question from Simmons & Co. from Roy Stewart (ph). Are you still comfortable with the expectation of drilling 14 to 15 exploration wells on the NCS and 16 internationally given the progress year to date?

As I said, we expect to have -- or we expect to have activity on 16 wells at the NCS in 2005. And as we see it today, of those 16, four of those will be worked on as we go into 2006, i.e. it is not completed when we (indiscernible). And that is more or less the same figures internationally, working on 16 wells, of which four of those as we see today will not be completed. And that is more or less in line with our guidance. The first one is slightly lower than we anticipated in June due to the reasons I explained in my presentation, not due to change in priorities or plans but rather due to the rig availability and due to some delays and some of the other programs that the rigs are working on.

One question from Mark Hume, JP Morgan.

Good afternoon. Two questions please. Your press release highlighted the resumption of production of the (indiscernible) asset in China. Clearly the improved market environment has aided the attraction of such a move. However, given your lack of critical mass in the region, do you plan to divest of the asset? And if not, will you be seeking to increase your exposure in this region? Will the focus be gas if this is the case? Briefly also, he asks us to confirm our latest expectation on the timing of any decision on the Stockman field in relations to its potential award. Many thanks.

On the second question, I think the Russians to us and publicly is stating that they aim at making a decision on Stockman partners before the end of this year. But to qualify that, you have to ask Gazprom themselves. But that is what we are basing our assumptions on. But as I said earlier, this is a big project. It's a big decision. It's a complicated project. It's important for Gazprom and for Russia. So I don't think we should be surprised if there are some uncertainty as to exactly when the decision is made. But I can only state what the Russians are saying publicly. And to us that decision could be made in 2005. When it comes to the (indiscernible) field I can only say that this has been a positive experience for Statoil, and we're going to produce more volumes than we anticipated when the project was approved. It's certainly a small field, and there are for the time being no big plans in bigger expansion in this region.

Well then, I can say thank you for you for all the attention and for a number of good questions. Thank you very much.