Equinor ASA (EQNR) 2006 Q2 法說會逐字稿

Ladies and gentlemen, welcome to this Statoil second quarter 2006 earnings presentation. In addition to welcoming the audience here in Oslo, I would like to welcome the audience listening in on the internet via the webcast.

As usual, in the event of an emergency, there's emergency exits there and it will take you straight through the lobby and straight into the street. And the meeting point is across the street from the main entrance to this building. There are no fire drills prepared for today, so if the alarm goes it is real.

This morning at 8.30 Central European Time, the material for this -- or for today's earnings presentation was published on the web as usual, on the www.statoil.com website.

I would like to as usual again, to direct your attention to the disclaimer, which explains forward-looking statements and non-US GAAP measures used in this presentation.

With these words of introduction, I would like to pass the word to Statoil's President and Chief Executive Officer, Mr. Helge Lund, who will present the second quarter numbers. Helge, the world is yours.

Good afternoon and good morning to those of you that are following us on the web from the US. At the capital markets day in June, we reviewed the five years of development of Statoil since delisting in 2001. We talked about the industrial achievements, the growth and also the improvement in performance.

The strategy that we have outlined in 2004 is executed in the rather dynamic global environment. And certainly the trends in second quarter of 2006 has confirmed the rather dynamic climate that we are operating in.

You are very familiar with the issues that are facing the industry. There are intense competition for new resources and new industrial positions. There are pressure on the service industry and I believe that part of the industry is operating at almost full capacity. Increased competition for human capital and resources also in that sense. And we see also due to the higher oil prices an increase derived from governments for higher government [tax] around the globe.

The oil market has also in the second quarter been strong. It is continued as we see it -- a continued tight capacity. Not only in the crude market but also related to transportation issues. There are prevailing uncertainties and the risks related to future -- or connected to operations and thereby future deliveries from the global oil and gas industry. And we have seen perhaps an increased political -- geopolitical risks particularly related to Iran. And also recently in the Middle East.

On the demand side, we see a continued growth in China and also in the Middle East. Weak growth but still growth in the US. And we see a decline in Europe and also in Japan. Altogether we believe that the uncertainty related to future deliveries will continue as seen by the market. Also due to the fact that we're moving into the hurricane season.

So in summary, as we see it in Statoil, provided that the geopolitical uncertainity prevails or continues, we believe in a continued strong oil market also the rest of 2006.

On operations and moving to Statoil more specifically, we have had a very hectic and demanding summer, with a heavy maintenance program and several complex well operations. This has impacted quarterly production and costs that I will review in more detail later. However, despite the operational challenges this quarter and the rather dynamic global climate, we confirm the long-term strategy as well as the 2007 targets reviewed with you at the capital markets day.

Very quickly on the highlights. We have a record second quarter in Statoil. Maybe more importantly, we have reached important milestones in the international build up here illustrated on the chart by the BTC pipeline from Azerbaijan through Georgia and Turkey to the coast. We have a continued high exploration and project development activity. And notably, this quarter also excellent performance in the downstream business, particularly at the Mongstad refinery. And personally, I'm pleased to see that we are successful in continuing to hybrid the portfolio through the divestiture of the retail operations in Ireland where we believe that others can make more value than Statoil of this operations.

In the second quarter, we had revenues of more than 100 billion Norwegian krone -- 106 billion Norwegian krone, confirming Statoil as the biggest -- largest company in the Nordic region and also number 70 on the Fortune Global 500 list. The operational results or EBIT was up 36% from second quarter 2005. Oil price up 33%. Gas prices up 34. And as I've already mentioned, strong downstream results while lifting were down roughly 3%.

At the capital markets day, we informed that we would no longer report on normalized ROACE because it really didn’t give a lot needed to us -- or not to us and not to yourselves, due to the special climate in the industry. But of course, return on capital is very important for Statoil and we will continue to report on actual ROACE and also measure ourselves with our peers. If you then look at the 12 months actual ROACE, this is for the first time above 30% and up to 30.4% ROACE. I believe we are in the absolute top class in the industry and we do every effort to stay on the top of the list as we move forward.

Moving to oil and gas production and this quarter the production has been impacted by several factors. Extensive maintenance programs, particularly at the Norwegian Continental Shelf. We have had roughly 49,000 barrel impact on the Norwegian Continental Shelf for this quarter. If you add that with 6,000 from the international business, the total effect on maintenance in this quarter is around 55,000 barrels per day. In addition, and this is slightly higher than we guided last quarter, roughly 5,000 barrels per day higher. And all of this higher maintenance is -- or impact of maintenance is stemming from the Norwegian Continental Shelf.

Then we have some delays in the drilling program on Tampen. This is temporarily. We have a PSA effect for the quarter of 23,000 barrels per day for second quarter. And as you very well know, the off-take for gas in the summer is lower and there is the impact of that as well. In addition to these factors, we see the expected decline from mature fields compared to 2005.

To be even more specific on the guidance or on the explanations, I will also compare it now between first quarter 2006 and second quarter 2006 and explain the reduction.

Roughly 95,000 barrels per day is explained by a drop in gas sales due to normal seasonal reductions. Roughly 40,000 barrels per day was due to turnarounds that I already talked about. 10,000 barrels per day roughly was due to expected decline from mature fields from last quarter. And then in addition, around 15,000 barrels per day due to delayed drilling programs particularly on the Tampen field.

During the summer and the last few weeks our expectations for ramp up of production from Kristin and the progress and start up of the Gulltopp well in particular and the progress of our drilling program in Tampen in general have been changed somewhat. After running reservoir models this summer at Kristin, we have seen that the pressure is being depleted quicker than we had in our original estimates. That is leading into a situation where we need to produce at lower rates until all the wells are completed. And on that basis, we will not reach a plateau for Kristin before -- at the year end. This compared to roughly the guidance earlier of early October; roughly three months delay.

As you know, moving to the next factor, Gulltopp is an extremely far reaching well with a measured depth of more than 10,000 meters and a horizontal reach of more than 8,000 meters. This is the most complex well ever drilled at the NCS and we have experienced some challenges that have delayed operations, but it is achievable to solve it. We have a fix and the Gulltopp will be up and running at full capacity also at year-end.

Due to these factors and a few minor issues, we expect an effect of overall guiding for 2006 production compared to previous guidance of minus 1 to 2%. And we have guided on a range between 1.175 million barrels per day to 1.2 million per day for 2006. We have again reviewed the 2007 targets of 1.4 million barrels per day and provided we solve the Gulltopp and Kristin as outlined, and we believe we will, provided that we can compensate for the delay in the drilling program at Tampen and of course continue to deliver on the project that I will talk to, where we see no reason to change the target for 2007.

The reason for that you see here, we will have a significant introduction on new projects in 2006 and 2007 and onwards. You are familiar with the projects; Shah Deniz, In Amenas, Ormen Lange, Snohvit, Statfjord late-life, ACG and a number of other fields. And we have earlier indicated, and I repeat that today, a ramp-up of production that is expected to be in the area of 200,000 to 250,000 barrels per day based on these projects. The expected decline will be in the area of 60,000 to 90,000 barrels per day and we have indicated in the $60 per barrel world that the impact of PSA will be in the area of 50,000 to 60,000 barrels per day. So none of this has changed compared to what we have said earlier.

Moving to production unit cost. As we have guided earlier, there is -- we now see a slight increase in our production cost and normalized production cost increases with 1 krone per barrel from 22.7 to 23.7 in the period from first quarter 2006 to second quarter 2006. This is not explained by that we are more relaxed on cost, rather to the contrary. But we can explain roughly 50% of this increase by quarter specific activity including repair and modifications, particularly on Statfjord and [Oscar]. Roughly 35% of this increase is due to new fields starting up where we had not reached maximum production, but taken in all the costs and that is impacting the unit costs. And finally 58% of this 1 krone increase is due to lower volumes and increased service industry costs.

With later ramp-up or production from new fields during the second half of 2006, production unit costs will slightly increase to the 25 [kilometer] level at the end of this year before the new fields are coming up at full speed and then taking down the cost again, down to the 24 krone per barrel that we have as a target for 2006.

Looking at the input factors to our operations, I just wanted to mention one thing on the rig side. We have said earlier that we have good coverage on the rig side for 2006 and 2007. In 2006 so far we have further improved the situation also beyond 2007 by adding so far this year 23 additional rig years. So the coverage also for 2008 and 2009 is enhancing steadily, improving, and we are continuously working to further improve it also for the longer term. We do this in addition to introducing some more work with light well intervention. This is cost effective but it also releases rigs for more important activities.

Financial position is strong. The net debt from first quarter to second quarter is affected by a tax payment of 29 billion Norwegian krone on April 1, and a dividend payment of 18 billion Norwegian krone to our shareholders that were paid May 30. And if you look at the capital structure, moving forward, we expect the net capital -- net debt to capital employed to be below 10% at year end, and we try all the time to balance strategic [inaudible] considerations, shareholder return and appropriate financial flexibility in order to be able to drive our very ambitious growth program.

Moving then a little bit more in detail to the different business areas, E&P Norway is increasing their earnings by 26% from second quarter 2005 and this is roughly 4.5 billion Norwegian krone compared to second quarter 2005. The reasons for this are mainly an oil price increase of 32% contributing 5 billion Norwegian krone, 30% increase in the gas transfer price contributing 1.6 billion. And this is partly offset by lower lifting, that is a reduction of roughly 1.5 billion Norwegian krone.

A still high activity level, industrially, at E&P Norway; we completed three wells in the second quarter, made discoveries in Gudrun and Apollo. We have also reported discoveries at Morvin and Valemon. We have announced a new project, the Sleipner B compression to take out more resources from Sleipner, and we are also developing now a subsea compression for the [Oscar] field that we believe could increase production by 25% at the Oscar field from 2012. And this, if it succeeds, could also be applicable for other projects like Troll, Snøhvit and also perhaps other bigger projects for example in the Arctic area without going into specifics on individual projects.

Moving to international E&P. EBIT is up 34%, oil price up 42% in this area. Oil and gas lifting up 7% and we had -- you should take into considerations when you analyze the result that we had two additional cargoes in transit at the end of June and this impacted the results negatively by roughly 0.4 billion Norwegian krone. In addition to that, you will see an increase in depreciation of roughly 0.5 billion Norwegian krone. This is related to a faster decline in our reserves due to the PSA effects in our contracts. I think the oil price at the year end 2005 was roughly 58 krone and it's impacting or gaining a faster depreciation of our resources -- impacting depreciation.

Key milestones. We discussed already In Amenas in Algeria is the second field for Statoil in Algeria. We are in the process of ramping up production there now, in Algeria. It's a more and more important area for our international activity and for our gas business; the first lifting from the BTC pipeline and from the ACG field. And it was reassuring, not unexpected but reassuring, that we got the FERC approval for the expansion of the Cove Point terminal in the US which is an important factor and building block for the long-term expansion of our gas business in the US.

Also in the international part of our business, we had high activity levels with five exploration and appraisal wells completed in the second quarter, all being reviewed now.

Moving to natural gas, EBIT was up 2.4 billion Norwegian krone and it was more than a doubling of our earnings in the second quarter compared to second quarter 2005. Again this is increased by an increased gas price of 34%. Gas volumes up 7% and partly compensated for that was also the transfer price from UPN up 30%.

Gas offtake is, as you know, normally much higher in the winter quarters; fourth quarter and first quarter, and lower in the summer and spring quarters. And the drop from first quarter to second quarter in gas offtake is largely as expected and the sale of equity gas in the second quarter 2006 corresponds to the sale of equity gas in the second quarter 2005. Realized gas price is 1.77 krone per standard cubic meter and that is up 34% from last year. Equity gas, as I mentioned, is unchanged since last year with 5.7 bcm and third party volumes more than doubled 2.7 bcm in the second quarter.

Finally, the downstream area. Excellent is a big word but I think that is the right word for the downstream business this time. EBIT goes up 2.5 billion Norwegian krone, that is plus 76%. And it is the best result ever from this part of our business, even though we have sold both [Narville] and Borealis earlier. The main reason for this is strong results from the oil trading, partly due to FAS 133 and LIFO effects. But also a very strong performance from our refinery business with high regularity and strong margins.

I think this is particularly positive in the refining world that is struggling to keep up the capacity utilization and regulatory due to the fact that they are run very hard for the time being. We continue to high grade the portfolio and we will book the sale of our business in Ireland in the second half of this year, and we estimate that we can book a profit in the area of 600 million Norwegian krone.

So for guiding and targets, as I said earlier, production guidance for 2006 is reduced by between 1 and 2% due to the reasons that we have discussed in detail earlier in my presentation. Our guiding for exploration spending and CapEx is unchanged. In terms of 2007 targets, they are also changed and there we believe that if we are able to solve the issues that we discussed today on Kristin, Gulltopp and also compensate for the delay in the drilling program, we will be able to deliver also 1.4 million barrels per day from our operations in 2007, and also deliver on the cost side.

Summary and outlook. The key points for this quarter; continued strong results; important milestones met in the international business; strong downstream performance and continued high exploration and project activity. In terms of second half outlook, continued high activity, extensive maintenance schedule in third quarter, it will be roughly 35,000 barrels per day from the Norwegian part of our business and around 10,000 barrels per day from the international part of our operation. And we continue to implement measures to secure project execution and 2006 ramp-up of our projects, particularly related to those that we have discussed today, Kristin, Gulltopp and generally Tampen.

Given the macro economic environment with geopolitical uncertainty and still uncertainty related to future supply, we expect energy prices to stay -- to remain high and together with increasing production, we believe that Statoil's earnings for the next two quarters will be let's say reasonably strong.

Thank you for your attention.

Thank you, Helge. We will now invite the audience here and the audience listening in from the internet to ask questions. In addition to our President and CEO, we also have Statoil's Chief Financial Officer, Eldar Saetre with us to answer questions.

I would remind the people listening in on the internet that there is a possibility of submitting questions and I'd get them into my PC here and I'll ask your questions on your behalf to the gentlemen present here.

So if I could ask the audience here to wait until they get a microphone so the listeners on the internet actually can hear what you say. Thank you very much for that. And I'll take the first question from the audience here. Anne Gjoen.

Anne Gjoen, Handelsbanken Capital Markets. Could you please explain why tax related to financial items this time is particularly high?

And if you've changed your guiding going forward, 50% tax rate related to financial items.

I could give you the highlights and perhaps if you want to go more into detail Anne you can take it. Generally, we had most of the financial gain in a high tax country like Norway by some of the cost associated or in this area, where from areas with a lower tax rate, so that we go with less efficiency to that effect. That is the explanation for this quarter.

More particularly I don’t know whether you want to elaborate on the more general direction?

It has to do with the allocation of the currency impacts really. And as you said whether -- what kind of tax regime the cost is allocated to and where the currency gains are allocated. And that gives us a pretty high average tax rate. And overall, if you look away from that impact, this quarter actually tax from our operating income is going down this quarter compared to last quarter. So the main explanation is related to the [histories] that Helge mentioned.

In terms of tax more generally from our operations, we have said earlier that we would see, as the national part of our operations is growing, you will see a gradual reduction of the tax level. This is still the case. But it will from quarter to quarter vary as to where the increased production is coming. And it could also be that the current drive from some of the governments around the world for increased taxes for the oil and gas industry can impact how fast the reduction of taxes will be implemented in Statoil.

I've actually got a question on the internet here that is adding to that. It's Michele Della Vigna from Goldman Sachs who asks can you give us guiding what the tax rate going forward in the international segment is going to be?

I think referring to the points that Helge mentioned, we could expect a slight increase this quarter and last quarter. We saw approximately 50% -- 40% segment tax on the international. And I believe that is a pretty good estimate for what we could expect going forward. It has to do with the allocation of our [inaudible] to gradually higher tax regimes, like Angola and Algeria. And also the uplift that we have seen in Angola as the impact of the uplift has been introduced. So the overall picture is in the range of 40% I would say.

Bjorn Inge Tonnessen?

Bjorn Inge Tonnessen, DnB Markets. On the exploration, you're stating high exploration activity. Could you state which wells in the next quarter or maybe two quarters having the highest impact on your growth in reserves? Probably high impact and high risk as well.

Well, we have several important wells that we need to conclude over the next year. If you look internationally you have the Shah Deniz deep well that we're drilling currently. We are resuming our drilling operations during the fall in Algeria in the Hassi Mouina area. We have secured two rigs for that area now. Then we have very positively received an eight month extension for the platform at [Altama], license Bloc 4 in Venezuela. And we will also start drilling operations on three wells there during the autumn.

In addition to that we are awaiting the outcome of the assessment of the Jack well and generally the wells that we're drilling in the Gulf of Mexico. You might be aware of in addition to that, that we are drilling a well in the Faroe Island, which is also a high risk, high impact well. So those I guess are the key wells outside Norway, if I didn’t forgot. I think those are the key wells.

Then there are more. In Norway there are the [Tounolose] well, that will be important for a potential phase two for Snohvit. You have also additional drilling with our partners for the Hans and Onyx well. So I think in Norway those are the most important wells on the short-term.

We have a question from John Olaisen but in the meantime, while the microphone gets over there, there's a question from Mark Hume at CSFB. Can you give us some confidence you can in fact meet your 2006 and 2007 targets, particularly if you should come in at the low end of production guidance, which is the 1.175 million barrels per day in 2006?

Also if turnarounds were more extensive this year, how will this affect your outlook for maintenance on the NCS next year?"

If I talk about the maintenance first, generally we do not see a general trend of increased maintenance. But there are of course, separate individual platforms that need more maintenance as they grow older. But of course in every platform we assess whether it's economically feasible to prolong the life of the platforms and hence perhaps in certain circumstances more maintenance.

In terms of the guidance or the targets for next year, we have tried to be as specific as we can related to first the ramp-up of new production. That will be in the area of 200,000 to 250,000 barrels per day. Then we talked about the expected decline between 60,000 and 90,000 barrels per day. And a PSA effect at $60 per barrel -- between 50,000 and 60,000 barrels per day at the end of 2007.

I just remind you that we currently are not operating in the $60 world but more operating in 70 to $75 world. So far, this has not had a lot of impact on our production. But if these worlds continue, of course it will have some impact as we move forward.

John Olaisen from Carnegie. Regarding the depreciation charge internationally, it was $13.8 in Q2 per barrel, which was sharply up year-on-year. But it was also up significantly from the first quarter of the year. Firstly the technical -- the way you're technically estimating those results per barrel, I assume that is based on the reserve estimates you have at year-end last year. So that you haven't lowered your estimated reserves internationally. So what then explains the sharp increase in the depreciation charge internationally?

Well as you said compared to last year, the change -- the main changes related to the reserve adjustment that was made at the end of the year. Actually the impact was taken into account from the fourth quarter last year. When it comes to sort of the changes between this last quarter and this quarter, there's no specific reasons. There are no sort of special items or this has to do with the allocation and the composition of the portfolio assets producing actually and shouldn’t be any sort of underlying changes. And the volume of the lifted number and the lifted volumes that is being taken out. So there are no specific issues on depreciation beside what you talked about related to reserve issue.

So we should expect the depreciation charge internationally per barrel to stay at its current level going forward as well?

Yes. As I said there would be variances depending on which fields are actually producing. I know this quarter Girasol for instance has been shut down for 37 days so that could have an impact. But I don’t have an exact answer to the sort of deviations that it might have on the first quarter. No specific issues really beyond the composition of the producing assets.

And if I may, a second question regarding the production from Norway. In the 1990s and the beginning of this decade, there used to be every other year, you had a high maintenance season. It was one of those years last year. You seem to have had just as high maintenance year this year. And next year should be a high maintenance year again. What kind of maintenance levels have you put in your forecast -- production forecast for next year?

And also you said that the decline you've seen in -- from the [inaudible] so far this year, is like a natural decline. Does that mean that the decline rates we've seen over the last six months or 12 months, those are the kind of decline rates we should expect going forward in Norway?

I can talk to you the decline, perhaps you want to prepare an answer on the first one, Eldar?

Part of the decline that we see this quarter is more related to that we have drilled less wells than we anticipated due to the delayed drilling program that we have talked about, particularly related to Tampen. When it comes to the general picture, it is really hard to talk about one figure for the decline as we have discussed earlier, depending a little bit on -- from field to field and new fields coming into production [IOR] activities and so on and so forth. But we still maintain that if you look at these in a global portfolio as we see now from the Norwegian Continental Shelf, we look at in the area of 4 to 5%.

On the maintenance issue, I think it's -- going back in history, there were some fields which had a big impact on Statoil's production and producing -- production numbers. And the timing of the maintenance activities for those fields had a big impact. I think now our portfolios are bigger and you will get a more even picture when you look at the level of maintenance activities. And so the issue at the portfolio level looking at every second year as big and every second year as low isn't as relevant as it used to be.

Talking about next year, I think we should expect a high level of maintenance also next year. But I haven't got any details relating it specifically to this year's activity.

Thank you.

And then there are a couple of questions from the internet here. Both Michele Della Vigna from Goldman Sachs and Rory Stewart from Simmons & Company, they both have questions about can you provide us an update with regards to the review of financial terms or fiscal terms being undertaken by the Algerian government? And if you expect any changes to your position there?

Well, first of all, we have seen the debate in Algeria but we have not seen yet a formal decision so this will be -- at this point in time, more directionally interpretation from our side. As far as we understand the current discussions, they want to introduce a tax on super profits, to call it that way, over and above a certain level. I think they're discussing around $30 per barrel.

In the existing agreements we have there are already clauses like that included in our agreements. So at this stage, we do not anticipate that this will impact in any material way the profit of In Salar and In Amenas.

Generally, we do also have clauses in the agreements there that we should be protected from material changes in laws and regulations in Algeria. So our best assessment today, without having a formal decision to relate to is that this will not in the medium term impact Statoil materially.

[Berning Jansen], [General Markets]. In Algeria and In Amenas in particular, could you guide us a little on how the pricing of the products [inaudible]. Is there any domestic prices etc.?

And also in more general terms, the gas prices in the international business. How is the price? Is there a lack of variations from the European contracts?

Well, in terms of the access we have to compensate on products in Algeria, this is priced in the normal markets. We get possession of that and we market it on that basis. When it comes to the general gas pricing from the rest of our business, if that was the question, [Berning], then of course it's derived by the price formulas in the long term contracts. And over and above that we have a more short term or optimization business that is more and more important for Statoil as we have a broader and broader portfolio; more liquid points that gives us more ability to also optimize prices on the shorter term horizon. And that is partly impacting our results.

But also a little more specific on the 50,000 or 40,000 barrels oil equivalents you have in gas in the international portfolio. Is that different to the European or the gas you sell out of Norway?

Well, that's determined by long term contracts which is the dominating part still at the Norwegian Continental Shelf.

Well, there's a follow-up question basically to that from Iain Reid, UBS. What proportion of gas was sold on a spot basis in Europe this quarter?

Well, I don’t think we are in a -- or would like to be precise on that.

No, I don’t think there are any changes -- major changes from last quarter in terms of volumes as such.

We’ll take a question from Nick Pope in Lehman Brothers. Can you explain the weakness in the international E&P profit? Even adding back the 400 million for cargoes and transit, profit was 3.4 billion. This was lower than in Q1, even though production was the same level and the oil price was over $7 per barrel higher.

I guess the other key factors we already discussed I think in quite a detail was on the depreciation driven by the PSA effects and the longer [inaudible] of the reserves due to the high oil price at the end of 2005.

[inaudible].

A couple of questions. Jack, I thought that that had been -- the testing on that was done. So surely you -- as a partner you have some clue as to the results of that? And you maybe can indicate what that is.

Secondly, you said that provided you execute the projects that you want to or new projects coming online in 2007, that you think you will meet the 2007 target. Can you outline perhaps some of the potential challenges you see in executing some of the more difficult projects? Obviously we have the Snohvit, which is challenging. And we've had the Kristin, which has been challenging. Are there any other projects where you see potential challenges to execution?

And finally about maintenance for 2007. You said you had no details for what you expect on that, but you think that that won't affect 2007 target. Can you clarify about how it is you can know that it won't affect target if you don't know the details?

Well, on the Jack well, then the operator is Chevron and they are exclusively to talk about that well so you have to await any communication on this from that operator.

In terms of our projects, there are several important projects in the portfolio. We did not mention the Snohvit project today in our review and that is simply because there is nothing new to report. There have been extensive and massive activities there throughout the summer. And there is really nothing new to report. Those that are working there, both from our suppliers and our team is doing a very good job on a challenging project. But this project will be as I said before, challenging until completion. There are no news from this project.

As you might know, Statoil are reviewing our projects two times a year; typically early fall and during spring. And should we have anything new to announce around our projects in general and Snohvit more specifically, it will be in the context of that review.

Other important projects you see here [Millonga]. I have no reason to believe that that will be changed based on the communication from the operator. Shah Deniz is important and you can more or less rate the project in terms of plot for production as it is illustrated on the chart that I gave in the presentation.

In terms of maintenance, I can only comment unless you have more to say Eldar that of course if you review both the income side and the cost side including maintenance, then we set our targets. So any maintenance that we will do, planned maintenance is factored in, in the targets that we are focused on in 2007.

So basically what I said was that I don't know it here as I stand but the organization knows it's included.

May I just clarify on the projects. The projects that are due to come on this year and next, are there -- besides Kristin and Snohvit, are there any that you see particularly to be challenging?

If you look at the production ramp-up in 2006 you have full -- it has nothing to do with the project but you have full production on [Viesen] that has been down for a while as you know. You have the Kristin increase that will gradually increase, but not to reach plateau before year end as we discussed. You have [inaudible] ramp-up, continued ramp-up there. And you have the Gulltopp that we discussed extensively earlier.

Internationally we have important projects like In Amenas we talked about and the ramp-up there. Shah Deniz will be put on stream I think it's in October. You have Dalia that is announced I think start-up late fourth quarter by the operator. And you have a continued ramp-up of the ACG field in Azerbaijan. So those are the key projects for 2006 and the list for 2007 you will see in the book.

We have a couple of questions on the internet about shareholder policy and dividend. Jean-Philippe Lavenir from Societe Generale and Theepan Jothilingam basically asked the same question. Can you update us on your shareholder policy between dividend and share buyback given your very low gearing?

Well the last two years we have had a decent I would say increase in ordinary dividend, and due to the special market circumstances we have offered and paid now a special dividend. The basis for this is the long term dividend policy that we have and that was launched at the IPO of Statoil to return over a period between 45 and 50% of net income to our shareholders. There is no change in that other about the fact that we have introduced one more element [inaudible] that we can use to return cash to our shareholders. And that is the buyback; that gives us more flexibility and also makes Statoil more comparable with all other oil and gas companies that we have that instrument as well. And we will continue -- you should expect to see a continued growth in the ordinary dividend and provided you see the rather special circumstances we have now, that we pay a special dividend. And part of the thinking would be that we replace part of this special dividend with the share buyback directly from our shareholders. But we will not give you more in terms of how we want to operate that because we are afraid that that will impact the market.

There's a question from Iain Reed, UBS. Given the current over supply of gas in Turkey, are you confident you'll be able to deliver as planned and at planned rates when the Shah Deniz field starts up?

Also, are there any plans to re-export the gas to Greece and onwards to Central Europe?

I cannot go into the detail on the different mechanisms that we can use, but there have been discussions related to the potential of our supply in the Turkish market as we move forward. I think from our side we feel that we are fairly well covered in terms of marketing options for gas in Turkey.

There's actually a follow-up question to this from Peter Nicol, Tristone Capital. Can you say more on how you see the build up of volumes from Shah Deniz this year and next? And the type of buyers and pricing of the gas?

We cannot be more specific other than the fact that the market's predominantly for the Shah Deniz gas. Also if you are thinking several phases -- additional phases of that project is predominantly in Azerbaijan itself domestically, you have Turkey. And if you think longer term and provided that we find sufficient resources also related to the well we are drilling now, you could also potentially look at taking more of that gas out of Turkey and into other markets, for instance to Europe. But that is an extensive project that we have to work together with our partners on.

Mark Hume from CSFB. How much, if any, of your 2006 volume target is dependant on an increase in Norwegian gas concessions as part of the new gas contract year in October 2006?

We have based our targets on the concessions that we have and are not estimating anything over or speculating in anything over and above that.

Theepan Jothilingam from Morgan Stanley is wondering how much -- can you give an exact guidance on the maintenance impact on volumes for the third quarter?

I think I did that in the presentation. I think we indicated roughly 35,000 barrels per day from the Norwegian part of the operations and roughly 10,000 barrels per day from the international operations, perhaps a little bit above that but not much.

There's a question from Alastair Syme at Merrill Lynch. You refer to confidence in the plateau gas sales from Shah Deniz. Can you say when that plateau will be reached? And has there been any change in the near term outlook for sales?

Well I don't think there have been any change in the first phase of that project in all the [reservoirs] and we know what it takes. We already discussed the marketing options and what we're doing there. In terms of potential new phases and the volumes there, I think we have to come back to when we have completed the well that we are drilling now even deeper than we have been before, before we can go more into that.

Another question from Tim Whittaker, Lehman Brothers. Your oil sales and trading profit in the second quarter has risen from 0.3 billion Norwegian krone a year ago to 1.2 billion in the second quarter 2006. Is this all related to oil and gas trading? How much is trading as principal registered parties?

And what is your average daily var or risk -- value at risk? How much potential do you see to grow trading profits from the current level?

I think I'll refer that to you Eldar.

Well as we mentioned in the presentation there, part of this profit is coming from the ordinary market to market business and there is an additional 500 million coming from so-called FAS 133 derivate effects; currency losses on our stocks due to a depreciation on the Norwegian krone. And also a gain on stock actually coming from the increased oil prices during the quarter. So that had been a positive of 500 adding to the normal business of trading oil and gas. And it's not gas, it's oil and oil related products.

When it comes to the risk level, I could say in general, I haven't got the var numbers. We do have it again as an organization but I don't have it. It's not a very high risk level that we're operating our trading business on in general so that's what I can say in general on that.

I can assure you that we have a dedicated team that are working on assessing risk throughout the portfolio, an independent team that is reporting to Eldar. And Eldar is the chairman of the risk committee where they have the [inaudible] devaluations on the risk that we're taking in the different businesses every month.

Ian Talley?

You've been increasing your access in China in terms of LNG. You signed an MOU recently and also I think there was something about cooperation on terminals, I don't remember what. But where are you looking to potentially source that gas? And does it have anything to do with your relationship with ONGC, the Indian organization?

Ian you're asking questions that I cannot answer, you know that. I'm not commenting on individual business development initiatives that we're taking. There are numerous initiatives that we take every month, something are being a success, others just disappear. But I can confirm that in the longer term we are interested in also building -- developing a gas business in Asia. But that is the key point in our gas business now, is to further develop and strengthen the European part of the business, develop the Atlantic LNG and while we're gaining experience on the LNG business, to gradually also look into other areas including Asia.

There's a question from Peter Nicol at Tristone Capital. Can you expand on the Brugdan well on the Faroes what is the timing and what is the cost for the well?

I cannot give you individual numbers on costs but it's a deep well. It's a new [play] and it's quite a complicated well that we have started to drill and I expect that we complete that well during the second half of this year.

There's a question from Alastair Syme at Merrill Lynch. Is Statoil still actively looking at asset acquisition opportunities in international E&P?

I can say what I've said before. That we have extensive initiatives to find growth options. We have talked about the exploration program today. We are working hard to do what we call business development and that means that we try to partner with people that already have resources but need competence and capabilities to mature them to the market. And one example of that is what we're doing in Russia with the Stockman field. We could find others for instance in Algeria for instance. And in addition to that we have teams that are working to look at M&A opportunities. I can only say that since we did the [Encana] acquisition in April 2005, we have been involved in numerous M&A activities more on a general basis. But we have not yet come across opportunities that we feel we could add value based on our assessment of the development in this industry. But we continue to search for opportunities and are proactively involved, and I think that is part of any organization's responsibility.

And there's a follow-up question from Alastair here. He asks what's our view on the M&A pricing and the pricing in the M&A market?

Well I think another way of saying that is to just repeat that we have been involved in a number of situations and we didn't -- we were not successful. And part of that was the fact that we didn't see value on the prices that these transactions were executed at, at the end.

John Olaisen?

A quick question regarding the production targets for this year. Firstly you said next year $30 in oil price changes your production internationally by 50 -- to 60,000 barrels per day. Does that same sensitivity go for the second half of this year because the spot price -- the future prices are about $15 above your assumed oil price of $60 which you're using in your production target for this year.

I guess we have indicated that at the $60 level the PSA effects will be roughly 25,000 per day for the year 2006. We have not made a detailed calculation on what if you saw 75 but just to indicate maybe, if this market continued towards the end of this year, I think you could see an additional PSA effect of up to 5,000 barrels per day. Is that a fair assessment Eldar?

Yes.

A question from James Gooder at Argus Media. How do you see the UK gas supply outlook for the coming winter?

Well I guess that depends partly on the weather. I think short medium term I think you could see periods of both over and under supply. Clearly there are enough capacity plant and in the process of being executed that you could see over supply in periods. But longer term nevertheless we believe that this will stabilize and regardless of a potential over supply situation we feel that Norwegian gas is well positioned with a low cost of supply into that market.

There's a question from Daniel Fitzgerald from Investors Group International. Operating costs per barrel in the international E&P business grew by 29% versus last year. Would you consider this as a satisfactory outcome? And how would you expect these expenses to progress through to the end of the year?

Talking about the rest of the year, I wouldn't provide any more guidance than we have talked about on aggregate level for the Group as such. So we could see an increase continue to a level of approximately 25 Norwegian krone per barrel for this year. Looking at the international and the growth in international, there are some explanations beyond -- underlining that. One has to do with the increased PSA effects, we have to pay for all operating costs and have fewer barrels to divide it by, so the unit cost increases as PSA effects increases. We have the overall cost pressure, that also is not only hitting the Norwegian part but also the international side. In addition to that we have seen some tax increases and royalty increases in Venezuela which are also impacting the numbers for this year. We're not happy about that but that's also part of our operating costs on international.

So I think that's the broad overview of what has happened between the quarters.

If you look at 24 krone per barrel target for 2005/2007 I guess the production unit cost for the international operations is slightly above that and therefore the Norwegian part of the operations is slightly below that. That is just as a reflection.

Then we don't seem to have any more questions, neither here nor on the internet. So I'll just say thank you very much for your attention and goodbye.

Thank you.