Equinor ASA (EQNR) 2005 Q4 法說會逐字稿

Ladies and gentlemen, welcome to this fourth-quarter and full-year earnings presentation for Statoil. My name is Lars Sorensen, and I'm the Head of Investor Relations. In addition to welcoming the audience in London, I would like to welcome the audience listening in and following the presentation via the Internet.

This morning at 830 Central European Time, the presentation material was published on the Internet through the stock exchanges. And it is the presentation that we will use for this afternoon. I would like to point your attention to the disclaimer concerning the forward-looking statements and the non-U.S. GAAP measures used in the presentation.

With these words, I would like to pass the microphone to Statoil's President and Chief Executive Officer, Helge Lund, who will present the fourth-quarter and 2005 results (technical difficulty). Helge, the floor is yours.

Good afternoon, ladies and gentlemen. I'm pleased to welcome you to the announcement of the 2005 figures. And in 2005, Statoil delivered record production at 1,169,000 barrels per day. I think in this perspective, especially encouraging was the increase in our national operations. When we left 2005, we actually had the production from the international part of our operation of roughly 200,000 barrels per day.

The operating results yield a record of 95 -- 95.1 billion in the region kroner, and that is an increase of 46%. We've had I think the most active year in terms of exploration and product development ever in Statoil's history. And that's important because that is really what's driving our long-term growth.

10 projects came on stream in 2005. Among them, the very technologically-challenging Kristin project that is now up and producing. In addition to that, important projects like Snohvit LNG; Statfjord Late Life; the big IOR, an increase gas recovery project in Norway; as well as the Tahiti Field in the Gulf of Mexico are now under development.

We actually sanctioned 17 upstream projects in 2005 -- 12 on the Norwegian Continental Shelf and 5 internationally. And over above that, 14 exploration and extension wells have been completed on the NCS and 11 in our international operations in addition to the new acreages that we got from the acquisition of the Gulf of Mexico acquisition. I think also in the longer-term perspective, it's worked in all that we have replaced even in a year of record production more reserves than we produced. And our reserve replacement ratio is at 102. Last Friday on the latest seal we put on production, Kvitebjorn, we increased the resources at 50%, which are not covered by this figure.

In my view I think also during the year, we have strengthened the portfolio of Statoil. I think the portfolio is more focused than it was when we entered into 2005 in the sense that we have made the deepwater acquisition in Gulf of Mexico. We have sold our stake in the petrochemical business in Borealis. Also after year-end, we completed the sale of our 30% stake in the gas-fired power plant, Ringsend, in Ireland.

All of this I think drive towards a very strong operating and financial results. Our financial position has never been stronger. Therefore, we have also proposed to the -- or the Board has proposed to the General Assembly to pay a record dividend that I will come back to as we move forward.

In fourth quarter, the EBIT increased by 48%, of course mainly driven by high oil and gas prices, increased production by 3% compared to fourth quarter in 2004 and continued strict cost control in our business. Net earnings dropped by 16% as you have seen, primarily caused by currency adjustments on our U.S. dollar debt and one-time effect from tax change in the fourth quarter of 2004 that I think some of you recalled; a detail of this is in your material.

Moving to the full-year 2005 figure -- all-time high, an EBIT increase by 46% and the net income by 23%. I think also it's worth to note here; I come back to that that we have managed to have a firm grip on the cost side. But also, we feel the general cost pressure from the industry. And as we see it today, there are more or less bottleneck in all parts of the value chain in the service industry.

The total production grew from 2004 to 2005 by 6% to last quarter as I mentioned with 3%. Most notably here, we have a strong growth in the international operations that I already talked to.

We have seen as predicted a temporary dip in liquids production at the NCS. This has materialized as predicted, but this was partly -- or was compensated -- more than compensated by the high gas production. But I reconfirm what I said at the Capital Markets Day in June that we expect Statoil's liquid production to be back in 2007 at the same level that you saw in 2004.

We delivered on our production guided target for 2005. And the target for 2007 is as you recall 1.4 million barrels per day based on an average oil price of approximately $30 per barrel, and that target stands firm.

Again, we were able to replace organically more reserves than produced, and the average reserve replacement rate on average for the last 2 years as for 2005 isolated is about 1. The international reserve base was exposed to PSA effects due to the high oil price, and these numbers had been even better if you did not have to account for the PSA effects. I think it was particularly encouraging to see that the new reserves that was discovered and matured in Norway was significantly higher than previous years. At the end of the year, we have as you see classified research of roughly 4.3 billion barrels; this is roughly at the same level as last year. And we have roughly 59% gas and 41% oil in liquids.

I talked a little bit about costs. Already, we feel strong pressure from the market, but we're working extremely hard to keep costs under control. And today, in the Norwegian newspaper, there was an article about a separate initiative. They are attacking the administrative costs in total as many -- as one or many initiatives, and this is important in the environment that we see today.

The production costs per barrel on a normalized 12-month rolling average basis fell in the fourth quarter 2005 to record low of 22.4 kroner; this is roughly $3.30 per barrel. Our target for 2007 stands at 22 kroner per barrel, adjusted for exchange rate changes. We have almost reached our target already. But, given the current industry climate, it will be challenging to keep this level another 2 years. However challenging, I think it can be done.

I think in a cyclical industry like the upstream business, you cannot blindly look at or measure your performance on the EBIT level. You have to look at how your operating metrics are doing and that we are improving these metrics from year to year and also faster than the competition. And in this area, I think we did well in 2005.

We are running a growth strategy. In the heart of that strategy is a first-class investment program. Basically, if you talk about Statoil strategy in its simplest form, it's about taking out the maximum potential at the Norwegian Continental Shelf and effectively is to gradually build up international positions using competence and technology we have developed from the NCS.

Previously, we have guided in the period from 2005 to 2007 of 105 billion Norwegian kroner due to increased exploration efforts and higher costs in exploration. The exploration forecast is increased to 6.5 billion Norwegian kroner for 2006 compared to what we indicated at our Capital Markets Day at 4 billion per year. Furthermore, as I already talked to, there is a general cost pressure -- we have seen it in steel, we're seeing it in rigs and we see it more and more in other parts of the value chain as well. And on this basis, we are increasing our guiding for CapEx in the same period 2005 to 2007 at between 110 and 115 billion Norwegian kroner.

We look at the financial position at the end of 2005. The long-term debt was at $1.5 billion U.S. This is some $600 million U.S. less than the year before. And our net debt stood at 19.5 billion Norwegian kroner at the year-end. Statoil has a strong capital structure with a debt to capital employed of 15%. And we find this very comparable compared to our rating objectives. The actual return on capital employed has again showed progress at 27.6% for 2005 and then normalized RoACE decreased as guided and ended at 11.7% for 2005.

In the current high oil price environment, the fields with PSAs generate more cash. And with that increased profitability -- but the high oil price has negative effect on production and reserves as you know very well. With an increased exploration activity, increased CapEx in general and PSA effects, we would most likely deliver a normalized RoACE in 2007 below the target of 30% in 2007. We will on this basis consider all aspects of the normalized RoACE target and give you further update on our Capital Markets Day -- I think is the 15th of June.

The total dividend for 2005 is proposed at 8.20 kroner per share. This comprises an ordinary dividend of 3.60 kroner per share in addition to special dividend of 4.60 kroner per share, reflecting the high cash generation in 2005. And subject to the AGM's approval of May 10, 2006, this suggested dividend equals 58% of the net reserves for 2005. As to paying dividend for 2005, the payout ratio since the IPO will be at 45%. As you recall when the IPO stopped early in 2001, we announced the dividend policy of [Oras] Mikkel returning between 45 and 50% of the net results to our shareholders. Now, we are delivering on that [post].

Moving into the different business areas, starting with the upstream business in Norway, the fourth-quarter EBIT was 22.5 billion Norwegian kroner. This is up from 15.3 billion in 2004. For the whole year, it was up 45% compared to 2004.

Average day delivery increased by 15,000 per day compared to the same quarter last year. Daily gas production increased by 37,000 barrels basically due to higher customer offtick and the long-term contracts earn increase in long-term contracted volumes. Lifting of oil was down by 22,000 barrels per day, and we had an oil lift for the quarter at 19,000 barrels per day. To me, the 2005 results for E&P Norway clearly tells us the story of a highly vital Norwegian Continental Shelf, far from I think the set mold that many people in the industry had only a few years ago.

We have talked about a revitalization of the NCS, as I came in in Statoil in 2004. And I think now, we are delivering on that rejuvenation. We have brought six new projects on-stream in 2005, and we have as I said already sanctioned 12 projects for development. And our 2005 exploration program delivered a total of 9 discoveries from 14 completed wells. We drilled 9 regular exploration and appraisal wells, resulting in 6 discoveries. In addition, we drilled 5 extension wells, resulting in another 3 discoveries.

We are working actively to secure new acreage. I must say that the Norwegian government over the last few years have been quite responsive to the call from the industry already releasing new acreage. In the latest round of what I call award of pre-defined areas, Statoil was awarded 10 operatorships and 6 partnerships. We have submitted a quite broad -- you can delete the sentence "quite" or the words "quite" -- a broad application for new production licenses in the Bering Sea and the Norwegian Sea for the 19th offshore licensing round. I believe Statoil has had and continue to have a quite unique position in an attractive Norwegian oil and gas province.

Looking back at Statoil's history, we have been an early adopter and early user of technology. And as all the easy barrels are gone -- as you very well known us that follow the industry closely, I think we call for an even more intense and active application of new technology. Three are three examples of technologically-advanced projects that we have to forward over the last few years.

First to the left-hand side, you see the Kristin project that we had discussed earlier. It really represents a technological leap for Statoil. And in this field, we have 170 degrees Celsius in temperature and 911 bars in the reservoir that makes it extremely challenging to work on it with our material. And we have even sourced technology and material from the space industry to be able to deal with this, and now the project is up and running.

Second here is a project that was really -- that has been now approved by us. And it includes a 43 kilometer record long, electrically-heated pipeline. It has an innovative system for injection of raw seawater that is placed on the sea above. In addition to that, we have new well technology that sets a new standard for improved recovery from sub-sea fields.

Finally a rather small but I think in IOR -- in the IOR dimension, very important project the Statoil -- or the Tordis IOR project. And this is the first field in the world to adopt a full-scale sub-sea separation that will boost recovery from 49% to 55%. And I think this is an example of projects you will see more of at the NCS and that make me more optimistic than we can address even more forcefully in the area of increased oil recovery.

I think you would agree that 2005 has been a breakthrough year for Statoil in terms of international licensing our activities. Our revenues more than doubled compared to the same period in 2004 if you look at the fourth quarter. However, the EBIT for the year and for the quarter have been heavily influenced by the 2.2 billion Norwegian kroner impairment [hold] Statoil share in the South Pars project in Iran.

Production from our international assets increased by 43% to 204,000 barrels per day in the fourth quarter. And, that increase was mainly due to a ramp-up of production from the new fields in Azerbaijan and in Angola.

With higher prices as I mentioned, many of our international projects are starting to face PSA effects. And they are moving from cost recovery to a production-sharing mode [ticker]. However, PSA effects in 2005 has been immaterial, and then they will be bigger as we move forward.

International E&P is now a substantial contributor to Statoil's overall results. And if you look at results after-tax, it will be someplace between 20 and 25%.

The growth I talked to already, it increased by 60% in 2005 and ended at 184,000 barrels per day in average. We have several new fields that commenced production that I already talked to. And with the sanctioning of Tahiti and Gulf of Mexico where we have 25%, Agbami in Nigeria with ChevronTexaco and the two -- and Marimba in Angola, we added three more contributors to reaching our 2007 targets. In addition, two other fields, Mondo and Saxi and Batuque in Angola have been sanctioned by Statoil.

Extensive business development efforts are targeting future core areas for Statoil. Of course, there have been a lot of focus on the Stockman Field. I cannot give you any further update on that today because we are in the middle of a negotiation process. Gazprom is saying that they will pick eventually the final shortlist by the end of first quarter. And based on the record or the track record so far in this process, I have no reason to believe that this will be delayed. They are also actively pursuing new business development opportunities in Algeria, in Venezuela, in Kazakhstan -- other issues or opportunities in Russia as well as the Middle East.

Looking at gas, natural gas achieved an EBIT of 2.4 billion Norwegian kroner in fourth quarter in 2005. And this is due to the highest gas volume sold by Statoil in any one quarter at the highest gas prices. And the average gas price in fourth quarter 2005 was 1.74 kroner and increased by 45% from fourth quarter in 2004. Throughout 2005, you have seen the lag effect that (indiscernible) we have talked about at some quarters. Now we see the prices; they are coming.

The gas sales for the Statoil Group increased by 4% from fourth quarter 2004 to 8.2 Bcm in the fourth quarter 2005. Of the whole year, total sales was 29.6 Bcm. And again, we have never sold as much gas during one single quarter or over a year as we did in 2005. We have also signed three new gas sales contracts with ScottishPower in Scotland, [Newum] in Holland. And we have even made a significant contract with the Norwegian electricity providers that [cropped], and the latter is the first contract signed by Statoil on competitive terms in Norway.

In addition to record sales that is important, we have strengthened the value chain for future gas deliveries in order to be able to grow further. And the capacity at our core steel processing plant has been expanded by 20% and was completed on time and 1.6 billion Norwegian kroner below budget. In addition to that, we are expanding our flexibility with improving and expanding the gas storage facilities in [Epsel] as well as in Aldbrough. I believe the divestiture of our 30% stake in the Ringsend gas-fired power plant also was a right move for Statoil in terms of our portfolio.

Moving then finally when we talked about the business areas to the manufacturing and marketing. It delivered its best quarterly results ever with an EBIT of 7.6 billion Norwegian kroner. Oil trading sold 2.2 million barrels of crude oil in the fourth quarter 2005 and maintaining them our position as one of the largest crude oil sellers. And EBIT from oil trading was 0.4 billion Norwegian kroner, up 100% from fourth quarter 2004.

Manufacturing delivered an EBIT of 0.8 billion in the fourth quarter; that was up 33%, driven by two factors -- one of course excellent refining margins even in historical terms but also very encouraging is the high capacity utilization at [Munster] during 2005.

We have continued the restructuring of our downstream business, and the sale of Borealis was finalized in fourth quarter 2005, booking a tax regain of 1.5 billion Norwegian kroner. In our retail segment, we're looking also to divest the retail outlets in Ireland.

Performance in safety and in HSE in general is important for any oil and gas company, also for Statoil. And I'm therefore pleased to see that we are improving on most metrics, particularly the most important one -- the serious incident frequency that you can see it here. And we have also for the second year in a row been awarded the prize for the best oil and gas company in the world in terms of sustainable operations. And I think that indicates that we are on the right track. But we can't of course never ever stop concentrating and improving in this area. This is not only a thing that you have to say as a CEO. It is extremely important to get new licenses in most countries, where we are operating. And the only ethical and moral obligation we have in delivering in this area, it is also a bit deep business issue.

We are on track reaching our 2007 targets of 1.4 million per day. The target was set in 2004 as you recall at our Capital Markets Day in Stavagner, where we used $30 per barrel oil assumption and this target still stands. Here, you can see -- on the right-hand side, you see the guiding for 2006 of 1.2 million barrels per day. If you add 25,000 barrels per day that you'll get if you use the same normalization assumptions as in 2004, you would add up to 1.225 million barrels per day. Then, we have a step-up on existing fields as well as new fields coming on production in 2006 and 2007, and you see them here. You have heard In Amenas Field in Algeria; the Shah Deniz Field in Azerbaijan, where BP is the operator. You have the Dalia Field as well as the Fram East Field at the NCS. And then subsequently in 2007, you have significant fields as Snohvit, Ormen Lange, Statfjord Late Life and smaller fields at the NCS, Skinfaks/Rimfaks -- it's even hard to pronounce in Norwegian; that's where that has Volve. And that step-up in new fields indicating between 200 and 250,000 barrels per day in increased production. Then you have decline in existing fields, and then we are adjusting for the PSA effects of between 50 and 60,000 barrels per day, assuming that we see the current oil price level of roughly $60 per barrel in 2006 and 2007.

Finally, looking at the guiding and targets for 2006 and 2007 respectively, production in 2006 at 1.3 million barrels per day. 2007, the target stay firm at 1.4 million barrels per day. Exploration activity will increase to 6.5 billion Norwegian kroner for 2006. And CapEx as I indicated in my presentation earlier will increase from the previously-guided 105 billion Norwegian kroner in the 3-year period to between 110 and 115 billion Norwegian kroner. The production cost target for 2007 is maintained at 22 kroner, and the normalized RoACE target for 2007 is capped at 13% but increasedly the difficult delivery of them if at all possible with the current normalization factors.

Statoil is delivering on the strategic gross monthly percent at the Capital Markets Day in December in 2004. We are developing our NCS business from a very strong position to be even stronger, and we continue to build in international platforms for long-term growth. We have stepped up as indicated already them, our restoration and business development activities. And we continuously take steps to improve and high grade Statoil's portfolio, and the most prominent examples of this is the acquisition of EnCana's deepwater portfolio, the Borealis divestment and now also in January 2006 the divestiture of Ringsend.

And finally, we maintain capital discipline as we strive for continuous improvement, running a cyclical industry. Again, we cannot only focus on the EBIT because that will go up along, depending on product and market prices. Therefore, the only metrics that really matters to me is whether we are improving the underlying operational performance indicators.

There are three main messages from this presentation I think delivered today is a prerequisite for delivering into the future. And I think we deliver today in terms of results, production, activity level with shoulder replacement and new quality exploration levels. We build additional opportunities for longer-term growth in 2006 by drilling between 30 and 40 wells, altogether roughly 50% at the NCS and 50% outside Norway. And we completed two mature business development opportunities for longer-term growth.

In 2007, you will see the ramp-up of production that we have indicated over the last couple of years as new projects like Snohvit, Ormen Lange, Statfjord Late Life, Volve and others will come on stream.

In summary, I believe there are few oil and gas companies today that have a more interesting strategic agenda than Statoil. So thank you for your attention. And I think we are ready for some questions, Lars.

I would like to invite the audience in London of course to ask questions. And with us here today, we also have in addition to Helge Lund, we also have our Chief Financial Officer, Eldar Saetre, to answer questions. The audience listening in via the Internet can send in questions also, and I will get those questions passed over -- I will ask those questions on your behalf, the ones that are listening in. So I invite the audience -- Iain Reid.

Iain Reid, UBS. Helge, two questions. Firstly, your 2006 production target, you talked about the impact of PSAs. But in the last few weeks, the NPD also gave some rather gloomy forecasts for Norwegian oil production. I think oil production fell in Norway last year by 8%, and they forecast it's going to fall by about 5% in 2006. Can you say what the impact on that was if you like for Statoil?

Secondly on gas prices, you talked about the impact of oil prices rising with a lagged effect. But a dollar -- I'm sorry kroner 74 still seems significantly higher than you would've expected if it was just a continental gas price. So presumably, you've got a fair amount of U.K. gas in there. Can you say how much that was and what's the profitability you are seeing from the U.K. part of your sales?

When it comes to the situation at NCS, it is clear that we have seen a quite significant decline, particularly in liquid production at the NCS over the last few years, particularly in 2005. But, we talk about the sum or the totality of liquids as well as gas. And we have said and I repeat today that we will have the same -- in Statoil the same liquid production in 2007 as we had in 2004. In addition to that, I have challenged the organization with an ambition in Norway to deliver 1 million barrels roughly; that was the production we had in 2004 also in 2015 -- another 10 years into the future. We have worked extremely hard on that over the last 1.5 years to understand the potential in each field. And I think now that this is a realistic ambition to have for the Norwegian part of the upstream business. I think that paints a quite more ambitious agenda than what you can read from the public statistics.

Having said that, if you look beyond that time horizon, new oil also dependent on -- that the authorities in Norway continue to give acreage to the industry. And, that has been in my view very positive the last few years, and I see no signal that it will not continue. You can also see that the public support for oil and gas activities in the northern area in Norway is more positive now than it has ever been. I think that is because they see the local impact of the Snohvit Field.

When it comes to the U.K. gas, you are right. Part of this is driven by our sales into U.K. market at NPD prices. I think we have an average price there of roughly 3 kroner, but I cannot go into segment details on profitability. But that is part of the reason why probably why you see a higher average price than the market has anticipated for fourth quarter for gas prices.

I will just take a question from the Internet first; then, I will let you ask questions. There's a question from [John Rolison in Carnegie] in Oslo and also Sven Del Pozzo from John S. Herold. And that basically goes then, what will your RRR look like, given an oil price at your normalized level?

Well, I think I didn't catch the question. But if it was a question about the PSA impact on the RRR, I think you can assume it will have been roughly 20% higher than what you see today. So, I wish we had fewer PSA agreement, even though this has not been a big issue for Statoil so far.

Joe Mares, Morgan Stanley. If I just add up in 2006, 2007, these projects on your slide, I get to around slightly over 300,000 barrels a day. I presume that this straightening and plateau and also leaves a little slacking system. But can you confirm that?

Also on the PSA effect, if you can just clarify the impact transition from cost of property into the more normalized PSA impact. It looks like you could take on 2006, you said it's 25,000 barrels a day impact on a little over 200,000 barrels a day of production. And then it goes to a 50, 60 on 300,000 barrels a day. Is that new contracts coming on, or is that if you will a shift in existing contracts moving toward a more owner system as you've already recovered your costs? And is that something which we should expect to see going forward, i.e., if we take the percentage of 50 to 60 on 300,000 barrels a day international production, is that not as bad as it's going to get at about 16% impact 60 bucks, or is that moving up to 20 (inaudible)?

When it comes to the step-up on the new projects in 2007 -- are between 200 and 250,000 barrels. I can confirm that it is -- the fact that it's not at full volume that we indicated is that they are coming in at slightly different periods of time in the year. But this is the best estimate we can make today based on them -- the different fields are coming on-stream.

When it comes to the PSA agreement, it's really hard to talk about averages because all of them are different. As you know, there are one type in Angola and they can vary from field to field. They are different In Amenas, Algeria. And finally, there are Azerbaijan and other countries -- are very different. So I refrain a little bit from commenting on averages. But I think what we can see in general and beyond PSA -- the PSA discussions I think you will also see when you are out end licensing the industry that the current high oil and gas prices, there is a tendency you know the resource holders they take a tougher stance in negotiations.

[Nick Aldrich], Credit Suisse First Boston. Two questions if I can -- first of all on your 2007 volume target, again on that slide, you show a range of 200 to 250,000 barrels a day from new fields. What are the factors that will determine whether you are at the top or bottom end of that range? In particular, is the lack of flexibility in the rig market a concern to you over the next 2 years?

Then secondly and unrelated, on Stockman, you talked about the fact that Gazprom will make a decision at the end of March. How far down the line are you as far as discussing commercial turns on that project? Or is that something that will happen after they decide who the partners are going to be?

In terms of your first question, I think it has very much to do related to whether or not the different projects came in on the dates that we have assumed in our assumptions. And it is not so much availability because most of these activities are covered for 2006 and 2007. So it has more to do with the project execution and the tightening of when the different projects come on-stream. And then there is of course also step-up from fields that we have put on-stream earlier. You can maybe have some impact on oil drilling activities if some other rigs are delayed on other fields. But, this is the best estimate that we can make today, and I am pretty confident on those.

On Stockman, I will give you a boring answer. We are in the middle of a process at Gazprom. And I think I don't want comment on the discussions in detail. As it is, there are no negotiations.

I will take a question from the Internet. It is [Champelie Levenier] from Société Générale. Can you give us some guidelines regarding CapEx and exploration expenses beyond 2006?

Well, I think we guided in the Capital Markets Day on roughly 4 billion Norwegian kroner per day, and we have guided also for 2006 an increase of 6.5 billion. I will not give the precise figure for 2007. But, it's -- if we continue the activity and if you see a continued development in the industry as we see it today, it's more likely that it's on the same level that it goes back to where we indicated previously.

In terms of CapEx, I have no further to add other than the guidance that we give for the third period. But as I see it in the industry right now, there is pressure on the rig side. There are pressure -- fabrication, engineering, most technology providers. And there is maybe even more serious pressures on individual experts in the recruitment market, which is very, very tough even in Norway.

So, all of this I think if the market works, there will be a continued cost pressure that will impact -- I'm not talking specifically about Statoil but generally in the industry that over time it will impact of course the CapEx level as well.

[Hugh Williams], [Cataneau]. Just two questions -- one on the exploration budget for next year. Mikkel, you mentioned you are pushing it ahead next year from the '05 level. Maybe give us a feel for how much of that is driven by underlying cost increases and how much is driven by an increase in the number of wells to be drilled? And maybe you could give us an idea of the target number of wells to be drilled for '06, split by domestic and international?

The second question is on the dividend. Clearly, you are pushing your guidance limits now with a combined special and underlying dividend. Maybe you could give us a feel for dividend policy going forward in terms of the split between the underlying and any special dividend, especially against the background of a rising CapEx build for over next year?

When it comes to the exploration level, we're generally moving towards a higher activity level. And we're indicating for 2006 between 30 and 40 wells, roughly 50% of those in Norway and 50% outside Norway. We are drilling wells with our partners on Azerbaijan, on the Shah Deniz Field. We are drilling wells at [Hosa Muyi Noff]. We are drilling outside the Faroe Island. We are drilling in Venezuela. So they are in addition to what we're doing in Gulf of Mexico. We have a quite aggressive program also going on in Norway, starting from the North and also going South.

So, there are a number of high impact wells that we're going to drill in 2006. So, part of it is higher activity level, and part is definitely also what I talked about already -- you know significant increase in rig rates.

When it comes to the dividend, I have no further update on that than the dividend policy that was negotiated very hard on the introduction of Statoil to a capped market in 2001. And we say that we're going to pay back every cycle between 45 and 50% of net income to the shareholders.

I will take one more question from the Internet. It's [Anna Yearn] from Handelsbanken Capital Markets in Oslo. If you are assume an oil price of $60 instead of US$30 in 2007, how much should that impact your production?

Well, I think what we said was that if you assumed a 60

50%.

$60 per barrel in 2006 and 2007, you are estimating a PSA effect of between 50 and 60,000 barrels per day.

[Martin Monroe], Lloyd's List. Can you update us and qualify delays on Snohvit?

Well, we have no news on the Snohvit project as such. We released in September -- I cannot recall the date a new time schedule as well as a new cost. And we said there that we will have the first gas regularly in June 2007 and subsequently have full commercial delivered in December of 2007, and there are no changes to that.

You might have seen that there have been a hurricane, extremely tough weather over a couple of weeks in Hammerfest -- toughest year conditions you have seen for many, many decades there. So that halt -- we had to send 1,100 employees off the island for a couple of days. But, this of course will impact a couple of weeks, but it will not hit the final deadline.

So we have from September reorganized the project, and we're working much closer now with the key suppliers, which in this context is ABB [and Octa Kerner and Linda]. We're working hard on each discipline to deliver the project according to schedule. So, apart from that, there are no news on the project.

Tony Eccles, Citigroup. I have got a few questions on costs to update them. I just wondered if you could in any way quantify an annual cost inflation for Statoil or just for the industry in general. And second question, specifically on your depreciation charge in the international E&P division even when you exclude the right of the South Pars, there's quite a sharp increase in unit depreciation charge. Could you just let us know whether that's going to be an ongoing feature or what contributed to the increase in Q4?

I'll leave the latter question to Eldar, and you can think about that while I am answering -- or try to answer the first one. I think it's not so meaningful for me at least to talk about the general inflation level because it varies so much from discipline to discipline. A key factor for us and for others are of course the steel prices and the contracts you have in that area. The rig -- the rig market is important. It's very important how the sub-sea deliveries are being impacted as we move forward as we're going to deliver a lot of sub-sea fields as we move forward. And of course, there are significant operations also related to marine operations. As I said -- I just repeat that -- in all part of the value chain, there are pressures. But I do not dare to give you one general figure on that.

Thank you, Helge, for the opportunity to think through the answer on this one. There is a couple of elements in the fourth quarter on the international, which I should mention, and the most important one you mentioned actually. We saw during the third and fourth quarter that we would have an impact you know from the oil prices on our reserves. And that again would impact the rate and the speed that we would have to write down our assets. So, to take care of that, we increased that by approximately 300 for the fourth quarter. I guess the best guidance we can give going forward, given the oil prices that sort we saw at that time is in that range.

Now, I should also mention that we have a slight adjustment on our income because we have two cargoes that we have taken title to; thus, we haven't sold yet or sort of looked as sold. So we had to write those down to production costs, taking down revenues by approximately 200 million in this quarter.

[Jeff Ropers], ABN AMRO. I did my Ph.D. in Finmark; it's no surprise to me there should be wind in Hammerfest. But could I ask about the central question? Seems to be that outside Norway, where you have a special advantage, isn't the key to oil and gas production collaborations -- some of it in Norwegian? And would you consider building a refinery in Russia, where there are no proper cracking refineries on the sea, for example in Murmansk?

Well, we have no current plans for building refineries. We're concentrating our efforts in operating and improving the two refineries that we have. And I think we are spending roughly 500 million a year to improve and debottlenecking and improving the existing refineries in Denmark and Norway. I think though that one of the advantages with working with Statoil is that we have I think significant experience in building value chains, not only in gas but also when it comes to refinery. And we have seen in certain countries that we have been invited as others to look into refinery projects in Africa and in the Middle East and elsewhere. But to make a decision to invest in a refinery as you know, it's a tough one. So, there are no current plans to do that for time being.

I will take one more question from the Internet. It's from [Lars Mariofulu] in [Forcfirnent] in Oslo. We're talking about PSA effects a lot here. Which important fields are now left in the cost recovery phase?

Well, I don't think I want to go more into detail on individual fields. This is the best analysis that we have made on an overall debt portfolio level, and I think we'll stick to that.

Jason Kenney, ING. You envisaged an impact for CapEx before 2010 because of the Kvitebjorn reserve upgrade. Secondly, the Deltana platform gas of Venezuela obviously subject to negotiation between Venezuela and Trinidad, I noticed is not in your 2009 timeframe anymore. When do you envisage the start of production there?

I'm not sure I catched first question. Perhaps you want to -- did you understand it, Eldar or (multiple speakers)?

I'm sorry.

The reserve upgrade announced last week on Kvitebjorn; sorry for my pronunciation. Will there be an impact for CapEx -- group CapEx before 2010 or extra development expenditure because of that reserve upgrade?

It will not impact materially and not impact the forecast that we have given on CapEx for the next 3 years. And this is entirely driven by the fact that the partners have understood there is award better -- and it was I would say a positive surprise for all of us that it happened. I think it gave also some of us even more belief that there are more to be had in even in quite mature areas in Norway.

When it comes to the platform of Deltana, the first priority there is to drill the wells that we have committed to the Venezuelan authorities. As you know, we have to suspend the first well in June 2005, so we are delayed on completing that those three wells. But we are working hard to secure rigs and make sure that we complete the work program according to plan. And we will start drilling again hopefully right after the summer. I think it's too early to go into detail on the CapEx program and the development of the field as such before we have done the drilling.

[Owen Feld], [Nargas]. Are you concerned by the number of operational problems in recent months on the NCS, such as the [flair tire] problem? And secondly, have you had any contact with the Iranian authorities since the government threatened to review contracts following the cartoon scandal?

On the second one, we have not had any prior contact with the Iranian authorities, no other government either in the countries that we are operating. Of course, we have close cooperation with the foreign ministries, the embassies and also of course the security and police in Norway. But, so far, we have not seen any impact on our operations on that, and hopefully this will gradually get less attention. This was partly also driven by one newspaper in Norway, and the editor of that newspaper has made an excuse on television that was broadcasted also I think on [Agjesera] on Friday. Hopefully, this will calm the issue a bit. But so far, no impact on Statoil, and we are operating as normal as we can under the circumstances.

In terms of the operational issues, of course we have the issues on the Visund recently. This was most likely I cannot -- the investigation part is not yet concluded. But, it seems that there is one design issue. So, therefore, all the operators at the NCS had got a letter from the petroleum authority to check their operations. And we had to do that with Kvitebjorn and Heidrun. The Kvitebjorn was fixed I think over the weekend, and I think now [Ortomort Nitz] have been producing -- is building up again. So it's a relatively limited issue that you have to fix.

But, this really goes back to what I indicated earlier that I don't think I as CEO should look too much on the EBIT number. I have to look at the operating metrics and see whether we're improving. In general, we are but there have been certain relatively you know issues over the last 1.5 years, including Deniz I think that was a design issue and also the [Sonora A] gas leak that we had in November 2004 that we should have avoided. So I can assure you that we are working extremely hard to make sure these are not happening again.

I will take a question from the Internet again. We've got a couple of questions down the same road. There's one here from Anna Yearn, which is what was your organic (indiscernible) replacement rate in 2005?

If you look at the 3-year ROR organic, it would be 85. And it will be 101% if you look at 2005 in isolation.

[Salus Desam], Merrill Lynch. I was just interested in the EnCana transaction. You've had the assets now for 6 months, and you have got your teeth into the data. What sort of opportunities are you seeing emerging from that (technical difficulty)?

Well as you are well aware, the acquisition of EnCana was a result of a strategy that was drawn up a couple of years ago that started -- the first thing we did was to [form and rechannel on the Tiger Rope]. And then we have done the EnCana acquisition. Subsequently, we have done reforming with Exxon in the same area. And I cannot for obvious reason not go into detail. But I can just say that we like what we see.

Martin Monroe, Lloyd's List. You mentioned about the technology, sub-sea technology. Can you see more of these sub-sea separation modules going down in the NCS? And how much further do you think this sort of technology can take you?

Well, as I said, this is the Tordis IOR; it's a quite small project. So it's not so material in an overall Statoil context when it comes to operating results. But it is the first project of this nature in the world, and I think I have high hopes that this will be an important element in how Statoil is continuing to attack IOR opportunities. And as far as I see the world, I think IOR will be a more and more important part of any Western oil and gas company's tool books because there are some challenges in getting access to the areas where we have the most abundant oil and gas resources.

So I think already Statoil has a very strong track record in terms of IOR. I think this brings us further. If you take the Statfjord Late Life project -- is really a project that will drive the recovery rate of oil beyond 65%. And it will take the recovery rate for gas to 75%. So I think there are few others that see those results right now. This is partly due to that we're concentrated on this area for many years but also of course the nature of the field and their [SORs]. It is interesting to see that for instance on the Tahiti Field -- and I'm not indicating that we will reach those figures -- but it's interesting to see that there the SOR on Tahiti had some similarities with the Statfjord Field, which make it even more meaningful that the guy we now sent to head up our use in operations have been responsible for the Tampen area that includes Statoil for many years.

We will take a couple of more questions from here; then we have to close. Are there anymore questions? All right. That was today's last question then. All of you asking questions via the Internet who have not got an answer, we will get that from Investor Relations. And now, we will close today's Webcast. Thank you very much for coming. Thank you.

Thank you.