Equinor ASA (EQNR) 2006 Q3 法說會逐字稿

Hello, Oslo time. Welcome to the Statoil third quarter 2006 earnings presentation. My name is Lars Sorensen and I'm the Head of Investor Relations. In addition to welcoming you in Oslo, the audience here, I would like to welcome the audience listening in from the Internet.

For you in Oslo, in the event of an emergency, the emergency exits are there and straight through reception and out into the open. A meeting point is in front of the cinema across the street. There are no fire drills planned for today.

This morning at 8 o'clock Central European Time the presentation material and all other material regarding the quarterly presentation here was made public on the Internet. I would like to point your attention to the disclaimer that we have in front of the -- in the front of the presentation set. We have this disclaimer which is concerning forwarding-looking statements and the non-US GAAP measures that we use throughout the presentation.

With these words I would spend no further time on introduction but to introduce our Executive Vice President and CFO, Eldar Saetre, who will take us through the presentation. Eldar, please, the floor is yours.

Well, thank you, Lars, and good afternoon to you all. It is a pleasure for me once again I would say to welcome you to this third quarter results presentation.

The third quarter this year has been influenced both by changes in the geo-political picture and also oil and gas related issues which have impacted the expected supply and demand of our core products. These developments have led to a rather volatile, I must say, oil and gas prices decreasing from their peak levels at the beginning of the quarter. And this has happened in spite of continuing political tension as exemplified by the escalating conflict in the Middle East and the nuclear issue expanding from Iran to Korea, North Korea.

The oil price reductions have also contributed to OPEC for discussing and concluding on production cuts to stem further declines in oil prices. To us, this is an indication that there is now more spare capacity at current prices than what we have seen lately.

In addition, the industry has experienced issues with production and capacity challenges in the service markets which have contributed to reduced estimates of future production in several companies including Statoil.

For Statoil, the third quarter has been a quarter with an extensive maintenance program and, as always in the summer season, of lower gas off-take. Nevertheless, the operating result is amongst the best quarterly results in Statoil's history and we are going to place further important building blocks in our effort to secure future and profitable growth.

In the third quarter we have further strengthened our position in the deepwater Gulf of Mexico. The Langeled pipeline is now open, strengthening our access to the UK gas market and we have pilot more exploration and appraisal work than we previously used to complete in a whole year.

Even though we see costs increasing as a result of the tight service markets the margins are still highly attractive based on an oil price at the current levels.

We have had, as I mentioned, extensive maintenance activities also in this quarter. In addition the gas off-take in this last quarter of the gas year have been on the lower side of our expectations due to weather conditions in Europe. Even so the operational result is above NOK30 billion for the quarter with solid results from all our business areas.

The exploration activity has been very high with nine completed exploration and appraisal wells on the Norwegian continental shelf and seven wells internationally. Eight wells are ongoing at the end of the quarter.

And I would like to add the continued improvement in our downstream business has led to increased regularity and the ability to produce at a maximum capacity in a market with strong margins. The result within the manufacturing, and also encouraging results from our oil trading and within the retail business, make the overall earnings in this business segment especially worth mentioning.

NOK31 billion in EBIT for the third quarter is an increase of 36% from last year. We have an underlift of 22,000 wells per day in the quarter and total oil and gas lifting is down 3% compared to last year.

Oil pressures, measured in Norwegian kroner, were up 13% and gas prices increased by 33% compared to the same quarter last year. The net result is on par with last year mainly because of financial items and tax.

In the third quarter last year financial items were positive with NOK0.6 billion while they were negative with NOK2.2 billion this quarter. The corporate tax rate was at 68.4% this quarter compared to 63.5% last year. And the main reason for the higher tax rate in this quarter is the fact that the income from the Norwegian continental shelf with a marginal tax rate of 78% is proportionally higher this quarter than it was in the same period last year.

Earnings per share is consequently also slightly down from -- to 3.97 this year compared to 4.01 in the same quarter last year.

Oil and gas production in this quarter has been affected by the following, and I will mention five issues.

First, a hectic summer with extensive maintenance activities, mainly on the Norwegian continental shelf but also internationally. The effect of these activities is estimated to 37,000 barrels a day for the quarter as such.

Secondly, the expected decline from mature fields has not fully been replaced by new production in this period. New production is coming gradually into our production numbers but somewhat later than we originally planned for. This is illustrated by the slower production build up on the Kristin field and also delay -- the delay that we have seen on the Gulltopp well.

Thirdly, the drilling program on some of our fields, mainly in the Tampen area in the North Sea, have been delayed, mainly due to technical and capacity-related challenges within the drilling, completion and well maintenance in that area.

Number four, the negative PSA effects amounted to approximately 35,000 barrels per day for the -- this quarter and, on a year-to-date basis, approximately 26,000 barrels a day and it's all based on a $60 oil price.

And finally, we have experienced slightly lower than expected gas off-take in this quarter, which is the last quarter in the gas year.

Total production is 1,076,000 barrels a day, where 657,000 barrels is liquid and 419,000 barrels is gas oil equivalent.

Let me also remind you that we, end of September, adjusted our production guiding for 2006 to 1,140,000 barrels a day and the target for 2007 to 1.3 million barrels a day. Both guiding targets are now based on a $60 oil price.

The estimated production level for 2006 is challenging. We did not anticipate the lifeboat repair issues and we are working to solve this problem permanently. In addition, we need to see customer off-take or gas returning to normal and expected levels for the season quite soon. Despite these issues, we maintain our expected -- maintain our guiding for 2006 and our 2007 target implying a 14% production growth from 2006 to 2007.

Production cost per barrel continues to increase. Lower production explains parts of this increase. We also see increase in costs related to preparations for future start-ups and new volumes.

Furthermore, we have, as we have previously reported, there is a significant pressure on competent people and resources and equipment from the [service issue]. This does not only result in reduced flexibility but there is also a price pressure gradually influencing the production costs.

Normalized production costs have previously been estimated just above NOK25 per barrel for 2006 before being reduced to a level of NOK24 for 2007. The revised production forecast for 2006 and the adjustment of our 2007 targets directly affect these figures. So adjusted for the forecasted production of 1,140,000 barrels a day for 2006 we estimate normalized production unit costs getting close to NOK26 per barrel for this year.

For 2007 we see an increase in cost pressure and are now in the process of reducing this impact in addition to the implications from volume adjustment that I just mentioned and additional efforts to reduce costs. We will therefore revisit the 2007 production cost targets and we will come back to you on this issue in connection with our fourth quarter results presentation in February.

We maintain, as you can see from this illustration, our position as one of the most competitive integrated oil and gas companies with regards to return on average capital employed. The actual return on capital employed for the last 12 months is at 24, 38.4%. So even in a period with a significant -- building significant growth platform for the future with a high both exploration and development activity we have been able to maintain high profitability and capital efficiency. So, our ambition is to retain this position in the years to come with a continued focus on profitability and capital discipline.

Not surprisingly, our financial situation is robust; our gross long-term debt is at a level of $5 billion. The net debt to capital employed is at about 10% when adjusted for half of the tax payments that we made of almost 39 billion on 2 October.

With the current oil prices cash flow generation will ensure that the net debt to capital employed, most likely, will be below 10% at the year end.

Our dividend policy is unchanged, meaning that we will return 45 to 50% of the net earnings to shareholders through a combination of ordinary dividends, special dividends and share buyback.

Under the authorization given by the AGM in May we bought back 2.4 million shares in the quarter with an obligation to buy another 5.9 million shares from the Norwegian state. The total of 8.4 million shares are included in the Treasury shares this quarter.

So, let me know move to discuss briefly each of the business areas starting with E&P Norway. In the third quarter oil lifting was down 2% and gas lifting up 3% compared with the same quarter last year for the Norwegian continental shelf. This implies total oil and gas lifting is on par with last year. Both oil price and the internal transfer price for gas increased substantially in Norwegian kroner leading to a total EBIT increase of approximately 30% providing actually the highest EBIT ever in the history of this business area.

Let's now take a brief look at the highlights for E&P Norway this quarter. On the Norwegian continental shelf, as I already mentioned in the introduction, nine exploration wells have been completed this quarter of which four were discovered, these were; Morvin, Valemon, Trost and the Tornerose discovered. The discovery in the Tornerose field in the Barent Sea has sort of strengthened our view on [Tromso] [inaudible] as a future region with large potential both related to oil and gas. Four wells are ongoing as we speak and these are the Goliath South, the Biotitt/Albitt in the Gullfaks area, Astero and Onyx 2. We are working continuously to secure sufficient rig capacity beyond 2007 and 2008. Year-to-date we have contracted 22 new rig [inaudible]. The Transocean Leader and Stena Dawn was announced in July and we are now also extending the contract for Ocean Vanguard for two more years.

In this year's awards in the predefined area Statoil has applied for new exploration licenses in all three regions of the Norwegian continental shelf close to established infrastructure and awards are due in December.

Moving to the international business, the EBIT from our international E&P business fell by 15% compared to the same quarter last year. The main reason for this reduction is the 16% lower lifting due to lower entitlement volumes as a result of the high oil prices and the PSA effect.

Exploration costs increased by approximately 600 million from the same period last year; mainly driven by the higher activity level and also high -- rising costs. Depreciation increased 0.4 due to lower volumes coming from the same PSA effects.

The PSA effects on a year-to-date basis amounts to 26,000 barrels a day, as I mentioned, based on a $60 per barrel and the quarterly PSA effect is 35,000 barrels.

Outside the Norwegian Continental shelf we completed seven wells in this quarter of which two were discoveries. These are the -- these are both in Angola; in Block 17, the [Orcadia] well and in Block 31 the Titania Discovery.

As previously announced we acquired interest in two discoveries and one exploration prospect in -- from Plains Exploration and Production in the Gulf of Mexico during the quarter. This acquisition has further strengthened our deepwater position in the Gulf of Mexico. No pre-emption rights have been made so Plains Exploration and Production have now accepted our bid on the following three assets; first the Shell operated Caesar discovery in the Greater Tahiti area in which Statoil will have a 17% -- 17.5% working interest. Secondly the Chevron operated Bigfoot Discovery in which we will have a 12.5% working interest; located in the northern part of the Walker Ridge area. And finally the Chevron operated Bigfoot North Prospect in which Statoil also will have a 12.5% interest, also located in the Greater Tahiti area.

We are rapidly building now our organization in Houston bringing with us relevant experience and technologies from the Norwegian continental shelf which will contribute to the future development of complex deepwater projects in the Gulf of Mexico.

In this quarter, Statoil and our partners Chevron and Devon have also successfully completed the production tests in the Jack II well in the prospective Walker Ridge area. These are -- there are also plans to drill a second well, a new appraisal well, in the Jack structure in 2007 where we hold a 25% working interest.

Within natural gas we saw an increase in earnings of 143% to be exact, corresponding to NOK1.1 billion compared to the same quarter last year. Gas price increased by 33% and together with slightly increased equity volumes and a positive FAS 133, as it is called, adjustment of short-term derivatives of NOK0.5 billion. This accounts for the increase. The increase was partly offset by a 32% rise increase in the internal transfer price for gas from the Norwegian continental shelf.

In this quarter, Statoil has also finalized two important building blocks for the longer-term perspective. We completed our task as the contractor for Norsk Hydro when the Langeled pipeline, southern leg from Sleipner [inaudible] was opened or operational on October 2 this year. The project was finalized, 3 billion below budget and on time. The full utilization of the Langeled pipeline with occur when the Ormen Lange field is in production one year from now. In the meantime the southern leg of this pipeline gives us additional flexibility to send volumes into the US gas market.

In addition, this quarter we received a Notice to Start Construction from [inaudible] in the US which represents the formal approvals for Dominion to start construction of the expansion of the Cove Point LNG terminal.

The average gas price in the third quarter was NOK1.82 per standard cubic meter. This is an increase of 33% from the same quarter last year and up around 3% compared to last quarter. The volume of gas sold in the quarter was in line with last year while the equity portion of this gas increased by 0.2 BCM to a level of 5.9 BCM in this quarter.

In our manufacturing and marketing business we saw an EBIT of 1.9 billion which was 34% higher than last year. As I've already mentioned the regularity at our processing facilities remains very high and in a market with high margins regularity is crucial to capture the maximum value creation.

The FCC margin in the third quarter was $8 per barrel compared to approximately $10 in the same quarter last year. And the methanol price was at EUR250 per ton compared to EUR220 one year ago.

The total operating result from our manufacturing business 1.2 billion which is up 0.3 compared to last year.

Oil trading delivered another solid mark-to-market resource of NOK0.6 billion, so after a negative accounting effect on inventory and positive effects from derivatives and currency effects on our inventory, the trading results this quarter is booked at an EBIT of approximately NOK300 million.

In the energy and retail segment we see continued improvements. The result this quarter was that NOK400 million which is doubling compared to the same quarter last year. The main reasons are lower costs and improved conditions in some of our retail markets.

This quarter we also received final approval from the Norwegian Authorities for the Mongstad combined heat and power plant. This project is an important step to improve energy efficiency at Mongstad. Energy efficiency is a critical issue for the Mongstad refinery and the most important driver actually for improving the cost efficiency on this refinery. So the combined heat and power plant at Mongstad will both strengthen the competitiveness amongst our refinery significantly and deliver stable electricity to the operations of the Troll field from 2010. The project also provides an opportunity to continue the development and [use of field] to capture technology where Statoil is already recognized as the world leader.

So having reviewed each of the business areas I would now like to offer a few comments to our guiding for this year and targets for next year. As already mentioned, our production guiding for 2006 is maintained at 1,140,000 barrels a day based on a US$60 oil price for 2005 and 2006 and 2007. Even though I should mention this has become slightly more challenging, I should mention to you.

Our year-to-date forecast for exploration spending this year is increased slightly from NOK6.5 to NOK7 billion due to the high activity level. We have previously indicated that we would complete between 30 and 40 wells this year and our current estimate is actually to get on the higher end of this estimate, it's closer to 40 wells at year end.

The CapEx forecast is maintained at NOK110 to NOK115 billion for the period 2005 to 2007 which indicates in the range of NOK40 billion in CapEx for this year. This forecast excludes the purchase price for the recent Plains transaction of US$700 million. The revised production target is 1.3 million barrels for 2007 and both this target and the guidance, as I mentioned, is based on a US$60 oil price per barrel. Our production unit cost target for 2007 would be directly influenced by the volume adjustments that we have recently announced. We are now in the process of reviewing this target and we'll revert with a revised 2007 cost target in connection with our fourth quarter presentations.

So to summarize my presentation, the third quarter has been characterized by a continued, strong financial result. A very high significant step-up in our exploration activity but also industry issues like the availability of service personnel and equipment. We completed 16 exploration wells in this quarter adding six new discoveries to our resource base, like in the second quarter manufacturing and marketing is performing particularly well delivering continuous improvements and maintaining high regularity in their operations.

Looking into this quarter -- the fourth quarter, new projects are in the pipeline for sanctioning and important projects like the ACG Azeri East, the Shah Deniz, Dalia, In Amenas, and the [inaudible] on the NCS are expected to deliver new production volumes. In addition maintenance activities would be lower than they have been in the two previous quarters and we also expect higher gas off-take in this quarter compared to previous quarters.

During 2007 even more projects are planned to start up including the Ormen Lange, Statfjord late-life, the Snohvit [Volder], [inaudible] projects, [Arosa] in Angola and the [Torness] project. So all these projects will contribute to meet our ambition of 14% production growth from 2006 to 2007.

This basically concludes my presentation so thank you for your attention so far and I think I will leave you to Lars to take on the Q&A session.

Thank you very much Eldar. I would now invite the audience to ask questions. With us here in addition to Eldar and myself is now the Senior Vice President for corporate planning and control, [Torgrim Westrom] and he will also be available for providing answers to your questions.

The audience listening in from the Internet, it's possible for you to ask questions, if you press the button in the right-hand corner of your screen, there's a little button saying submit question. If you do that I'll get it in on my screen and I will try to ask the question to Eldar or to [Torgrim] as you put to me.

When asking questions here in Oslo please state your name and wait for the microphone and then everybody on the Internet can listen to what you're saying. So anybody here wants to start with a question, otherwise I'll take one from the Internet first while you think about that.

It's from Iain Reid at UBS, he's got a number of questions. First one is, can you quantify how much of the reduction in production in this quarter compared to the third quarter last year was due to PSA effects and how much due to operational or other issues?

Well in terms of PSA effects basically in this quarter last year there were, I can't actually recall they were present at all. So the whole number of PSA effects that we are talking about now is making up the difference compared to last year.

When you're talking about operational issues, I think basically the main operational issue is related to the drilling area where we have struggled to produce sufficient capacity to drill up a sufficient number of wells to compensate for the declines that we see on a mature field. That is a situation which has emerged gradually but I would say last year we were in a very comfortable situation on that but this is a situation which has emerged basically during this year. It started from the Spring and moved to this situation and also expect -- this is not a situation where you can compensate very quickly so we will see impact on this situation also going into 2007 and that explains part of the downgrading that we did on 2007.

And to continue with another question from Iain Reid, can you say exactly when you expect Dalia and Shah Deniz to start up in the fourth quarter?

I am not in a position to be precise on that, I think we will leave that to the operator. But in both cases we are talking about the fourth quarter, but precise dates and margins this quarter, I'm not ready to do that.

And when do you expect [meaningful compensate lawyers] from In Amenas to begin?

Well that -- hopefully that could be in place during November so that -- that's a definite.

Okay. [inaudible].

Regarding your gas -- new gas export to the UK, Langeled, it seems that the gas prices there have been dropping probably also to a lot -- extent towards your entrance into the market. What is your strategy for providing gas through Langeled? Will you continue to pump as much as capacity or your fields behind it allows? Or will you hold back in order to try to keep up the gas price in the UK?

I think it's not proper of me to articulate a strategy for that really. Basically this adds additional flexibility and opportunities to sell gas into London, we have also construction obligations in the UK that we need to fulfill. So that is the starting point. On the overall UK situation this winter I think at least we expect that the market will be slightly more balanced than it was during last winter. But to be exact on what kind of volumes and strategy behind, from our side is something I wouldn't comment on.

I'll take one more question from the Internet and then you can join -- you can get the microphone afterwards. It's from Theepan in Morgan Stanley. He asks, the third quarter NP Norway results supported by an EBIT increase of 1 billion from other income, similar benefit of 800 million in international E&P. Could you please give a little bit color on this?

Well on the Norwegian continental shelf I think what you're referring to is that, you know we do -- we allocate, we write down to production cost for the volumes that we keep in our own stock, the volumes that we produce, they are written down to production cost within this business area. But this time we thought like the decrease in the oil price and slightly lower volumes in stock was to down -- the write down in a way so that's been the cause of this EBIT defect of approximately 1 billion Norwegian kroner.

Now I've just got to mention that there is the hypothesis of that, that is on the downstream side on the oil trading business, so that will be looked on with a -- different [inaudible] on elimination issue and turn things that we do and the effect of this on our account is zero because these volumes that we've have never been sold out in the market. So it's in a way pure accounting transaction.

There was also a question on the international side. I don't see any special items or income adjustments on the international. What we have that there's always an issue on the international as to what kind of volumes that we have lifted which basically has not been sold. And last quarter, we had four cargoes in transit, that means they were accounted for as lifted volumes by us but we haven't sold them so we have never had the revenue. So we just highlight to you how -- what is the number of these cargoes; in this quarter it was -- you're talking about one cargo that was basically lifted where we haven't had the revenue. So that makes a sort of reconciliation between the lifted volumes and the revenue.

Two questions please, first to the tax rate of the international business in the quarter was 52%, up from roughly 40 from -- seen on the last couple of quarters. Can you give a comment on that please?

And secondly you said you have some projects coming up for being sanctioned in Q4, could you mention which fields you expect those sanctions in Q4 please?

I think I'll let Torgrim Westrom take the tax question and then I'll look up the fees for the [inaudible].

Okay, yes you're right there's segment tax on this 52% for this quarter and first off, we just want to point out that the tax -- the segment tax is kind of an imputed tax, it's not based exactly on the tax accounts. So you really see fluctuations from quarter to quarter related to it. But there are some specifics to the general trend. In the high price environment, the value of the uplift within the international business becomes lower in relative terms. So kind of on the margin of income the tax is higher, so that is something you will see in the high tax regime as such.

There is however, a specific to this quarter that this at least explains somewhat of it. The legislation on the UK side increasing the taxes is effective from January 1, 2006 but in accounts we are not allowed to put it into there before it is finally approved by the parliament in the UK. So what we've done this quarter is to take the nine months' effect of that into this quarterly announce.

That explains quite some of it but then of course, it is -- as we move forward as such, we have stated earlier that you will probably see a slight decrease in the taxation within the international business and that is right, a kind of normal level of receipt would be -- would say would be not in the 50s but at least slightly above 40, which is a more normalized level of the taxation. But there are in this [inaudible] environment of course, you know that the host governments have a view on the government take and then all the time, if this continues, it is likely there might changes elsewhere as well.

Then to your question on the application that we expect to make during this quarter. And I think basically we're talking about the year since, the Camilla Belinda and the [inaudible] B hopefully and [Alvats] in the non area and also [inaudible] could be decided once we review this quarter.

On the international side we don't see any fifth project we [inaudible] decision in this quarter.

I've got another question from Theepan in Morgan Stanley. Can you give more on what projects have encountered greater start up costs please, and what amounts they are?

Well, I can definitely provide amounts certainly on this. It's not really so much an increased startup cost. You see that on some things but that's not the basic element. What I was talking about is really that you know, the expense, or what costs related or preparation for operations and the place we are in at the moment, we have quite a lot of fields which are exactly in that phase. They are preparing for operations so the volume of costs which is related to that type of field have increased quite significantly actually while they are not producing barrels. So that gives us a push on the cost side but its not an issue of really increasing significantly the cost per field but it's the number of fields that we're talking about which is the issue.

Okay, another question from Colin Smith in Dresdner Kleinwort. First part of the question is, can you provide more details of the startup exploitations for In Amenas, Dalia and Shah Deniz in the fourth quarter? I think you already answered that in Reid's question, but could you -- and then he continues, could you clarify the risks around the revised full year '06 production target?

Yes I'll do that. Its -- you can never foresee unexpected events and I have to say the [inaudible] issues that we've encountered was in that category, but now we are back in production on all the installations due to that issue. But we need to fix that permanently so we -- we don't want to see more surprises from that side nor any other interruptions that we didn't plan for and didn't expect in our operations.

That's one key issue for us and also the gas side. On the gas pipe we are very much depending on the customers taking the gas volumes and they have a lot of flexibility in the fourth quarter which is actually the first quarter in the gas year and as you know, temperatures could definitely impact their willingness to take gas in this quarter. So basically we need to see a reasonable gas off-take -- based on what is typically the seasonal pattern in this quarter.

So that means that there isn't much cushion on the guidance that we have given you. On [inaudible] as a whole but to the extent that these assumptions are [inaudible] and then its realistic [inaudible].

Next question there?

It's Peter Ramsay from Argus. In your most recent breakdown, the two projects you were talking about were obviously Kristin and the Troll [inaudible]. Kristin, you were talking about full production in Q1, can you say when in Q1 you might expect that and also give any guidance on how much you might produce in Q4?

And then, on Troll [inaudible], can you give us some sort of clarification on what problems are at the moment on Troll [inaudible] and how much less you might produce in Q4 than you were expecting?

Well on the Kristin field, there is not really much more to say than we need to take care now a careful approach. We have reviewed this and believe now we have got a view on the production build up which is robust. But in terms of being specific, on more specific field for a specific quarter, I am really not prepared to do that. But our best guess is that this should be in production during the first quarter. That is a plateau projection during the first quarter of next year.

When it comes to the Troll [inaudible] we haven't mentioned that in specific issues but that -- we mentioned that in connection with the downward adjustment of the production numbers. If it's -- this is not a big issue but it has to do with the overall system of unavailability to deliver and the way the system is optimized to put it that way. So it has to do with the capacity utilization and beyond that I have no -- I haven't got the technical specification to explain that to you really.

Alright, there's a question from Alastair Syme at Merrill Lynch. Eldar, the 2007 production volumes have been revised down by 8%, is it wrong therefore to believe that the production cost target will go up by a comparable amount or are there other factors to consider?

Well, I tried to cover that in the presentation but, as a starting point, you are quite right. The adjustment in the production volumes is not sort of -- does not in itself lead to any changes in the cost base as such so that will be more of a direct impact into the production cost numbers.

Then we are now in a quite comprehensive planning process so we take this opportunity while we sort of are in the process of adjusting the numbers because of the production volumes but also look at other factors. So we are reviewing the cost pressure that we are seeing and trying to update our view on that and see to what extent that really comes into our numbers and at what speed and with what impact. And we are also quite extensively [inaudible] prices. What kind of actions, what kind of compensating measures can we really take in addition to those that we are really working on at the moment to control and really prevent the costs from increasing just from outside factors.

So it's a combination of the cost pressure, what the impact -- the volume impact, also looking at our own measures to compensate for this. So hopefully that is going to end up in a new number which is as low as possible but I -- there are definitely -- definitely the increase coming from the volume numbers that we [will make].

A little bit of a related question here from Theepan at Morgan Stanley. What level of cost inflation are you seeing in the industry?

That's a big question and it's -- then you have to sort of really start talking about each of the individual components of our industry costs and I think that will go too far really. But, basically, I think Statoil is in a pretty good situation. We have a huge portfolio, we are a big operator, we have long contracts on many of our supplies. So we can operate in a flexible way, but, no, as we have -- I have talked about the operational cost where we see this more or less coming in in a creeping way.

When we look at the new projects we typically see this into our new projects, we don't see it to the same extent into our existing project where we have sort of most of the contract in place already and have control of that. So our CapEx guidance of 110 to 150 should be pretty robust, but into new projects that we look upon you typically see a step-up compared to what these kind of projects were costing nearly a couple of years ago. And, on the drilling rig side, we will see that through the rig.

There's a question over there.

Yes, if you look into your explorations activities, you mention you have 11 discoveries in 29 drillings or -- and exploration wells and last year, at the same time, you had 11 finds from only 15 wells, so have you this year targeted more high, high spec, high risk projects or are you a little less successful this year?

Well, first of all, the number of discoveries is 13 based on 29 wells being drilled. To be honest, not all of these wells have been concluded, so some of these are actually being evaluated so that they could either be dry or discoveries. So the final number is really not in place to see. But you have one point there. I think this year we have drilled more high impact but also high risk and some of these wells have also been delayed into next year so next year is also going to be a quite an exciting year in terms of exploration activities on our side. And particularly on the international side we still see some high impacts that have to be drilled in the -- actually in the fourth quarter. So -- but you're right. I think the results should be looked in -- you cannot just count wells and to the extent you are drilling a higher number of high impact, high risk wells you could expect the number of discovery in terms of well counting to be lower than it is when you are using high, lower risk wells.

So I think we should wait for the conclusion until we can discuss the actual volumes and the resources coming out of this. And that, as you know, is something that we have established an additional [1.2] billion worth of new resources including 2007 and we will come back to you and report on that.

[inaudible] here.

On the same question then, you were talking about four wells being, awaiting result and I assume that is the Benbecula North, the [Kinnearn], [Teva] in Angola and one of the Gulf of Mexico wells, is that correct, and do we -- can we expect results within Q4?

You know, in particular -- particularly when it comes to Gulf of Mexico wells it's really hard -- it's a new game for us and a practice that we aren't used to really but what you see is basically that it takes time to get to the conclusion, and I'm very strict on the operator being the one to announce on that so I wouldn't speculate on when these kind of announcements could come really.

Okay. I'll take a question from the Internet and then [inaudible] afterwards but first Colin Smith from Dresdner. I think we've answered most of it but can you explain the issues at Kristin in more detail and provide visibility on the ramp-up rate?

Well, there are different ways to explaining this issue but the simplest way I can think of is really, this is an extreme reservoir with extreme high pressures and temperature as you are aware of so that means that the [director well] behaves different from what we are used to originally and what happens, in this case, if you -- basically we have sufficient well capacity today to produce peak level. So if we wanted to take that risk we could do it. We could simply turn up at maximum wells that we have in place at the moment and we would produce at peak, but we couldn't guarantee that we were not ruining the reservoir close to the well because of the pressures and [temperatures of drilling the wells] and the change in these factors. So basically that is that -- this is mitigating risk really. We don't want to risk to ruin our wells because they could collapse and we could be left with a non-producing well if we sort of pushed it too hard. So basically we want to do this very careful and we want to have also the operation and service that we really can have this well at capacity or [inaudible].

[John Aker] from Reuters.

Can you update us on the Russia strategy in the aftermath of Gazprom's decision not to select you as a partner for Stockman?

Well I think obviously the conclusion on the Stockman was basically a disappointment for us but then we just have to accept that conclusion and go on, move on further. So I think our strategy, I think I know our strategy, is to continue to try to get into business opportunities in Russia, working together with Russian companies and based on the framework that is established for that kind of corporation and that means working together with companies, continue to work together with companies like Gazprom and others and I think that's our basic approach and if it gives us new opportunities in particular I would say related to offshore type of activities and [inaudible] related activities.

Anne Gjoen.

Thank you. Anne Gjoen, Handelsbanken Capital Markets. In international E&P your gas production is very low and the explanation is due to disproportionate PFA effects and related [inaudible]. If the oil price and gas price should be the same in fourth quarter should you have the same effect there so we could conclude that the gas production will also be very low in fourth quarter?

And a second question in relation to financial items. A while ago you 50% tax related financials last quarter and this quarter the tax rate related net financials is very much higher. Is there some particular reason behind it?

I could try to do the tax on financial question but I think I'll leave that to Torgrim and he'll try to do that and I'll come back to the [gas].

Thank you. On the -- I don't think it's an easy way to kind of give that explanation as such. Kind of on the things that is related to the long term debt and so on, you're probably right, that it's around 50% and it has kind of been that. But what we see is that if we are in a kind of situation where we have a profit or a loss due to [AGU] effects outside the Statoil [inaudible] part of the financial result it can have a very large effect on the taxation.

We have -- there are a lot of flows going around the world due to financing of our business and the taxation of it is not straightforward to say, if for instance 50% is the right number. So I think from a tax point of view that we -- you need to kind of be prepared that the taxes on the financial items will vary quite a lot from quarter-to-quarter especially when we see large changes in the currency.

Just to add to that, I think on average, I would say, basically for us 50% is not very much wrong but we have seen much more volatility for the reason that Torgrim mentioned.

On the gas side, on the international it's -- but what I can say is that the In Salah contract is a very complicated contract. It's actually not a production sharing agreement, it's an earnings sharing agreement, really. The factor which is coming in now is something which is called an upside correction factor which is technically slightly different from the ordinary PSA type of adjustment. But basically it's the same kind of adjustment, so you get a certain level of profitability and you hit a new level of production. So for the fourth quarter you should not expect a higher number from this factor.

Now also I guess in the In Salah contract it's a question of the customer off-take and customer off-take has been on the lower side. So what you see, there is not only PSA effects, to put it that way, but it's also a seasonal effect on the In Salah contract. And I cannot split that up for you exactly but that's also the kind of element. So we might sort of -- the cold weather in Italy could help I guess also for that in volumes the fourth quarter.

And basically Mark Bloomfield from Citigroup has got more or less the same question but he asks, can we expect -- should we therefore expect to see an [inaudible] production bounce back from In Salah? Can we see the production bouncing back from In Salah?

I wouldn't -- there are theories where we could get back some of this actually so I wouldn't exclude that. But that's not the best guess that we would get much back from that, that will be based really on prices and how often they would look into the future. So I suppose there is an element of estimation into the future in the end. But basically I don't think we should take that into our [red] catch.

I'll continue with a question from Mark Bloomfield from Citigroup again. Can you comment on the potential of the [Turner] Rosa discovery and on the timing of the full program?

We are still in the process of evaluating the Turner Rosa discovery so timing is a little bit premature I think. It's definitely a gas discovery and it definitely supports a second development -- a second train on the service but our best guess is that we definitely need more volumes to happen [inaudible] for a second LNG train . I think that's the best guess but you never know [inaudible] their evaluation from.

I think we've got basically three questions which are more or less that same, it's from Mark Hume in Credit Suisse and it's from Iain Reid at UBS and it's from [Neil Morton] at Man Financial. And basically it goes, recent press comments have suggested that Statoil has found significant quantities of gas in the platform of Deltana in Venezuela. Can you say when you will be in a position to give more information? And does Statoil have an automatic right to the Venezuelan discovery?

We are still drilling on this one, so I think we need to complete the drilling and do some evaluations before we are ready at all to say anything about the size of it. It is true that we have had a problem [inaudible] so we can confirm that. But you know it's impossible to say anything more about the volumes or nor say anything specifically on the -- when that kind of information will be available. But basically I think our main target is to start on the next well platform [inaudible] in the fourth quarter -- the end of the fourth quarter in December I think. So this well in effect should be completed not very far ahead.

On the rights here, we have a contract here so basically I think there's going to be -- we have the right to do this, to develop this [inaudible]. To the extent that that's the basis for agreement.

And there's a follow-up question from Mark Hume in that context. Have you been able to gain guarantees from the Sincor project and what can we expect -- well when can we expect further updates from the platform in Deltana?

Well I'll just commented on the platform in Deltana. And on the Sincor projects we are in the process of discussing this project and it's probably also into a second project on Sincor and beyond that there is no information I can give you on negotiations.

There's another question from Theepan at Morgan Stanley as regarding the Snøhvit project. Can you give us an update on the Snøhvit project, how much is completed? And can you confirm start-up date?

The exact completion level, I haven't got the exact number but it's getting quite high, in the 90s I think in terms of percent completed. Start-up dates, there is no change to that, that's December 1, 2007.

A question from [Argus] there.

With regard to the Snøhvit project I believe that the Snøhvit partners have recently delivered Egyptian LNG to Spain as part of a contract to supply Snøhvit gas. Do you know -- can you say how many more cargoes you're going to have to secure on the LNG spot market to meet these obligations before Snøhvit actually comes on? And do you know how much that's actually going to cost?

You know we are in pretty good shape, we are comfortable. That's what I can tell you on mitigating the Snøhvit situation in terms of getting cargoes. And we might choose to have a component of spot cargoes also as a part of that, that would be a deliberate strategy to do that. So what I can say is that we are feeling comfortable in terms of the mitigation activity but we have been doing it.

Then a question from Barry McCarthy at ABN Amro. Could you please quantify the production loss net Statoil from the lifeboat related stoppages?

Yes that's approximately, I think, 6,000 barrels something like that on a quarterly basis and some 1.5 on an annual basis. So that includes the very short production on two days I think on hydrogen and ten, 12 days on [Snoreh] and [inaudible].

And Mark Hume from Credit Suisse has got a little bit more on production. As a follow-up to several questions earlier, what confidence level can you give us on future production guidance?

What are you doing differently from previous years in terms of contingency planning and improved maintenance of old assets particularly on the NCS as this clearly has a major impact on your aspirations to hit 1 million barrels per day from your Norwegian portfolio?

Well I think -- both our guidance for this year and our target for next year is -- could say challenging but they are also realistic. I mean the development -- there is not much cushion. I would say previously we used to have a lot of -- some cushion on the target. I think our approach to this is now really to dive into the issues and try to improve the quality of our estimates on each of the individual assets, and also look at this at a portfolio level. But I think that's my answer. It's not a question of how much cushion you can establish but you have to understand the quality of estimates and start to add cushion. And our approach has been to try to get the best approach and the best understanding for each of the individual assets in the production. But then you still have some uncertainty in terms of irregularity and what could happen, and so on. And you need to take care of that when you make your assumptions on irregularities because that's really a risk approach that we need to take on from that. But there are definitely learnings in that from [inaudible].

Theepan from Morgan Stanley, again. Exploration expenditures seem to be slightly ahead of your guidance of NOK6.5 billion for the full year, and I think we already answered that in the presentation, that's now 7 -- NOK7 billion for the full year of 2006. But where do you think you'll -- sorry, what do you think your exploration costs will be in 2007?

It's not going to be lower than NOK7 million, so we will expect to see a step up. And we have also, compared to previous guidance I think we have also transferred some of that into 2007, as well. Some of the high infrastructure is really now into 2007 so that adds to the cost. The Japanese well, for instance, is moving into 2007. It's a very high cost well to drill and so on, so I think we should expect a lower [inaudible] and a higher number [inaudible].

Another question from [Keith Peterson] at Citigroup. Statoil's balance sheet has dramatically improved year-over-year. Do you believe you're under levered? If yes, would Statoil be most likely to use its balance sheet strength for acquisitions, increased drilling activity, share repurchases or other?

I don't think there's any doubt that our top priority is really to get good investment projects and good exploration projects, so that's really what we're working hard every day to get into new business launches. And we have also said that we are considering continuously inorganic opportunities, but they have to be right both in terms of value and in terms of the strategic fit into our thinking and growth strategy. So that's also a part of this.

Share buybacks, we have established that, but that is included in our dividend policy as we have previously talked about. So what is left then is really to see where this is taking us, and we are not getting into -- turning into a bank, so basically we need to have a careful look -- a continuous look at the capital structure and take a view on that.

There's a question from Peter Nicol at Tristone Capital. Algeria. Can you say what, if any, impact the new windfall tax above $30 a barrel will have on In Salah and In Amenas?

Yes. I mean there are no conclusions from the Algerians on that type of the windfall tax, whether it's [beta] or discussions on which fields such that should be within this, so it's too early to conclude on anything. But what I can say, and what Eldar has touched upon that, for instance, on the In Salah contract we have this upside correction factor, which actually limits the profitability when prices rise high within that. So when they have stated that it is actually a windfall tax to capture -- to pay a profit in the high price regime.

Another question from Neil Morton at Man Financials. Can you give more details about the recent MOU with Pertamina? When might a formal agreement be reached, and which countries outside Indonesia might it involve?

You know this is an agreement where we're discussing both opportunities in Indonesia and outside Indonesia. To be more specific on actually when this could materialize into concrete projects and which countries, I have no information. We're still at the very early days in terms of developing the relationship based on this MOU, so it's really too early to say. But I think in terms of which countries there is a broad set of opportunities, really, from that perspective.

Another question up there from Nordea.

John [inaudible], Nordea. Two questions. It was reported one of you -- I think it was [inaudible] one of the information managers said -- commented on an acquisition -- potential acquisition in Canada. Could you comment on what your plans are or are you -- and potential investments of $10 billion I assume not on Statoil's [hand]. So maybe comment on if Statoil has plans on going on big spending there?

Second question is, your plans on filling up Cove Point after Stockman seems to not be for Statoil. Any progress around the world on filling up Cove Point?

I'll take the first one on the heavy oil side. I don't think there has ever been mentioned any number from our side, so whatever number has been mentioned has come from outside of Statoil and it's not based on any kind of reality.

So what is a fact is that we are looking into it, from a strategic perspective, and I think that's an obligation we have, as an ambitious oil and gas company, to look at the kind of opportunities that are out there. And heavy oil is definitely one of those. We are into heavy oil already in a project in Venezuela, which hopefully also is going to be expanded. So we are looking into others. There are benefits that we could take from our [card] business, let's say from Venezuela, but also from our Norwegian point of view. We have trading competence. We have upgrade and refinery competence, and we have reservoir competence. So that kind of consideration, is this something we should really try to access in one way or another? But it's purely on a strategic level and we are evaluating this from that perspective.

So when it comes to Cove Point, obviously the Stockman was a disappointment from that perspective. But it's an example of what you try to use that position for really is to enhance business development opportunities. Now we didn't success on the Stockman but we are definitely working on other opportunities. And one of those actually I also talked about, which is the potential expansion of the [inaudible] -- potential expansion of the -- or a second train on Snøhvit, which is hopefully something -- at least that's something that we are pursuing aggressively. And we are also pursuing other opportunities based on LNG like Algeria, for instance, and also other opportunities that I'm not prepared to mention at the moment.

One last question from Peter Nicol from Tristone Capital. The Snøhvit oil zone. Can you give us background on the Snøhvit oil zone, timing for start up? Is it dependent on success of Goliath or could it be a standalone development? And what impact will it have on the gas production for the Snøhvit?

It's -- in relation to the gas production, it's not going to have any impact. It's more the gas production impact on the oil production, so it's -- what we are doing now is to evaluate it together with our partners, [inaudible] partners, and basically I think we will conclude whether we should need to drill another well. And it's nice to know how much reserves you're talking about before you make a decision like that. So it could be necessary to drill another well, and in that case we would do that probably in the first quarter of next year, because time is critical in something like this. But that is the best case. There's no conclusions, that's the time schedule. When it comes to Goliath, and [inaudible], if that is the case then we will have to look into that, but that's not the basis at this moment. That's not [inaudible].

I have no more questions registered on the Internet, and I've got no more markings here. So with these words, thank you very much for coming. If there is anybody who suddenly should think of a question they haven't asked today then please make contact with the Investor Relations. And basically all our numbers are available, all our details are available on the website, but also on the last page of this presentation. And there are also details about our Investor Relations website where a lot of information can actually be found.

Thank you very much for listening today. Goodbye.