Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Investor Day (September 2006)
119 slides from Norsk Hydro Asa's investor day presentation, Sep 28, 2006
Slide 1: Capital Markets Day 2006
Capital Markets Day 2006 www.hydro.com 2006-09-28
Slide 2: Cautionary note in relation to certain forward-looking statements
Cautionary note in relation to certain forward-looking statements Certain statements contained in this announcement constitute “forward-looking information” within the meaning of Section 27A of the US Securities Act of 1933, as amended, and Section 21E of the US Securities Exchange Act of 1934, as a
Slide 3: Use of non-GAAP financial measures / Cautionary note on oil and gas reserves
Use of non-GAAP financial measures/ Cautionary note in relation to oil and gas reserves With respect to each non-GAAP financial measure Hydro uses in connection with its financial reporting and other public communications, Hydro provides a presentation of what Hydro believes to be the most directly
Slide 4: Eivind Reiten
Eivind Reiten President and CEO 4
Slide 5: Strategy for future growth
Strategy for future growth z Build on strong position in industries with attractive market outlook z Manage cost inflation challenges in both industries z Grow our resource base in oil and gas - Strengthened resource base - Continued high exploration and selective acquisitions - Robust production an
Slide 6: Strong and volatile price environment
Strong and volatile price environment Oil price in USD/bbl Aluminium price in USD/tonne 80 Brent FOB Dated LME (3 month avg.) 3 000 Brent forward LME forward 70 2 800 2 600 60 2 400 50 2 200 40 2 000 1 800 30 1 600 20 1 400 10 1 200 2000 2002 2004 2006 2008 2010 2000 2002 2004 2006 2008 2010 Source:
Slide 7: 5-year forward price at record-high levels in 2006
5-year forward price at record-high levels in 2006 USD/tonne 2 400 2 200 2 000 1 800 1 600 1 400 1 200 1 000 2003 2004 2005 2006 7
Slide 8: Maneuvering in a more difficult landscape
Maneuvering in a more difficult landscape 8
Slide 9: Hydro has what it takes
Hydro has what it takes z World-class technology and competence z Proven high-quality operations z Cooperation tradition – Hydro and Norway - Commercial partnerships - Experience in cooperating with local and national authorities and communities z Strong positions in key basins z Systematic risk man
Slide 10: Increasing industry cost
Increasing industry cost Dayrates ultra deepwater drilling rigs Average fixture rates Steel prices USD/day Index (1994=100) 400 000 200 300 000 150 200 000 100 100 000 50 0 0 2001 2002 2003 2004 2005 2006 2001 2002 2003 2004 2005 2006 Sources: Fearnley Offshore (rig rates), CRUspi.com (Steel prices)
Slide 11: Hydro's cost increase well below industry average
Hydro’s cost increase well below industry average Hydro versus industry peer group* z Rig rates up more than 200 percent since 2004 Index based on USD/boe operating cost**, 2001 = 100 200 z Steel up 80 percent since 2003 Industry peers z Drilling services up 50 percent Hydro since 2005 150 z Logisti
Slide 12: Distinct project skills more valuable than ever
Distinct project skills more valuable than ever Gimboa Ormen Lange Sunndal Qatalum 12
Slide 13: Climate change – the biggest challenge of all
Climate change – the biggest challenge of all 13
Slide 14: Performance update
ft a Performance update
Slide 15: Key messages last year
Key messages last year z Hydro - Maintain financial strength - Build on technological and operational leadership z Oil & Energy - Profitable production growth - Strengthen resource base z Aluminium - Prioritize upstream investments and repositioning - Reduce downstream exposure – focus on cash gener
Slide 16: Safety improving
Safety improving Total reported injuries per million working hours (TRI) Rate 15 10 5 0 2000 2001 2002 2003 2004 2005 2006* * 12 month rolling Oct 2005-Oct 2006 16
Slide 17: Improved returns
Improved returns Return on average capital employed – RoaCE 16.8% 14.9% 14.4% 13.0% 8.4% 2003 2004 2005 2005 2006 Jan-Sep Jan-Sep Jan-Sep figures are not annualized 17
Slide 18: RoaCE by business area
RoaCE by business area First nine months 2006 18.4% 15.9% 0.9% Oil & Energy Aluminium Metal Aluminium Products Figures are not annualized 18
Slide 19: Competitive share price development
Competitive share price development 1 January 2004 to 31 December 2005 1 January to 1 December 2006 Statoil 111% ExxonMobil 37% BG Group 101% BG Group 36% Hydro 95% Chevron 29% ConocoPhillips 85% RepsolYPF 22% RepsolYPF 55% Statoil 22% ENI 50% Hydro 20% ExxonMobil 44% Alcan 19% Total 39% ENI 18% Che
Slide 20: Competitive payout to shareholders
Competitive payout to shareholders Payout ratio – dividend and buyback 58% Dividend Share buyback 45% 31% 31% 20% 2002 2003 2004 2005 2006 Jan-Sep Dividend allocated to the year for which the dividend was paid. Buyback allocated to the year when the buyback transactions were executed. 20
Slide 21: Competitive payout to shareholders
Competitive payout to shareholders Dividend and share buyback relative to net income 1 January 2004 to 31 December 2005 Alcan 110% BP 81% ExxonMobil 67% ENI 55% Total 53% Statoil 53% Hydro 51% Shell 51% Chevron 45% Alcoa 43% ConocoPhillips 24% RepsolYPF 20% Dividends Buyback BG Group 17% 0% 25% 50%
Slide 22: Active portfolio management 1999-2006
Active portfolio management 1999-2006 Acquisitions and divestments 1999-2006 Enterprise value NOK billion Acquisitions Saga Petroleum (1999) 31 VAW (2002) 24 Spinnaker Exploration (2005) 16 Wells, Technal and SDFI (2001-2002) 6 Total acquisitions 77 Divestments Yara International (2004) *21 Various
Slide 23: A more focused portfolio
A more focused portfolio Capital employed NOK 109 billion Net book value of Oil & Aluminium Aluminium assets 31 Dec 2005 Other Energy Metal Products Growth NOK 56 billion Upstream repositioning NOK 27 billion and growth Cash generation NOK 19 billion NOK 6 billion and divestments 23
Slide 24: Hydro Polymers – listing or divestment being considered
Hydro Polymers – listing or divestment being considered z Solid turnaround delivered z EBITDA first nine months 2006 NOK 795 million z Competitive position strengthened through chlorine and ethylene investments at Rafnes, Norway z Positive outlook 24
Slide 25: Capital allocation – upstream focus
Capital allocation – upstream focus NOK billion 43 21.9 * 2007-2010 z Oil & Energy - Projects on track 30 30 Approx. 28 - High exploration activity NOK 30 billion annually 4 2.5 5 6 5.5 z Aluminium - Priority upstream 20 19 18 2.6 13.5 2005 2006P 2006E 2007P Oil & Energy Exploration Aluminium Metal
Slide 26: Oil & Energy – performance and perspectives
Oil & Energy – performance and perspectives 26
Slide 27: Highlights Oil & Energy
Highlights Oil & Energy z Strengthened resource base z Continued high exploration and selective acquisitions z Robust production and development portfolio in low risk regions z Expected oil and gas production 2010: 700 000 boed z Growth beyond 2010 from broader development and exploration portfolio
Slide 28: Return on capital in line with peers
Return on capital in line with with peers RoaCE 40% Peer range * Oil & Energy 35% 30% 25% 20% 15% 10% 5% 0% 2003 2004 2005 2006 * BG Group, BP, Chevron, ExxonMobil, RepsolYPF, Shell, Statoil and Total Source: Bloomberg return on capital methodology. 12 month rolling Q1 2002-Q3 2006. Hydro figures ar
Slide 29: Continued production growth
Continued production growth 1 000 boed z 2007 target: 605 000 boed 800 700 700 z 2010 expected: 700 000 boed - Capacity constraints lead to project delays 605 600 570 z Growth from high-quality portfolio 500 400 z Improved growth prospects beyond 2010 300 200 100 0 1998 2000 2002 2004 2006E 2010E 29
Slide 30: International portfolio in top tier countries
International portfolio in top tier countries Russia z Present in 7 of the top Norway 10 petroleum provinces Canada available for IOCs Denmark z Production in 6 countries Morocco Iran US Gulf Cuba of Mexico Libya z Field development projects Mozambique in 8 countries Brazil Angola z Exploration acti
Slide 31: High share of production in OECD countries
High share of production in OECD countries Top 2005 producing countries globally 2005 production by region Hydro presence Company OECD Non-OECD Russia Suncor Energy CNR US Husky Energy Saudi Arabia EnCana Canada Hydro Devon Energy Iran ConocoPhillips China Statoil Norway Murphy Mexico Talisman Anada
Slide 32: Tore Torvund
Tore Torvund Executive Vice President, Oil & Energy 32
Slide 33: Operational highlights
Operational highlights CMD 2005 2006 estimate Production 615 000 boed 570 000 boed Production costs NOK 23/boe NOK 25/boe Capital expenditures NOK 20 billion NOK 18 billion Exploration activity NOK 5 billion NOK 6 billion Production costs definition: Field cost, fees, overhead, R&D, follow-up, insur
Slide 34: Production 2006 hampered by extraordinary events and delayed build-up
Production 2006 hampered by extraordinary events and delayed build-up 1 000 boed 615 0 21 10 9 5 570 z Production interruptions z Delayed build-up 2006 Target NCS Hydro NCS Partner- Gulf of Mexico Canada Other fields 2006 Revised operated operated estimate 34
Slide 35: Measures to meet 2007 target
Measures to meet 2007 target 1 000 boed z Norway - Continued operational excellence 605 570 - Proactive follow-up of partner operated fields - Ormen Lange on stream z Canada - Terra Nova upgraded to ensure higher uptime z Gulf of Mexico - NCS production management to drive performance - Independence
Slide 36: Competitive cost position
Competitive cost position 2005 production and lease operating cost in USD/boe Woodside Hydro Gas injection cost BG Group Anadarko Statoil BHP Billiton BP EnCana Kerr-McGee Santos ExxonMobil Devon Energy Chevron Murphy Shell CNR Nexen Hess Talisman Oxy Petro-Canada ConocoPhillips Suncor Energy 0 5 10
Slide 37: Unit production cost to stabilize from 2007
Unit production cost to stabilize from 2007 Production cost excluding gas injection in NOK/boe 28 z Cost increase 2006 below industry 25 ~ NOK 28/boe average 23 20 18 z Sustainable unit cost excluding gas injection below NOK 28 per boe 2004 2005 Target Estimate Target 2006 2006 2007 37
Slide 38: Growth from existing portfolio
Growth from existing portfolio 38
Slide 39: Technology leadership to deliver growth
Technology leadership to deliver growth Exploration excellence Subsea compression Advanced drilling Subsea technology Project management 39
Slide 40: Maximizing value of existing portfolio
Maximizing value of existing portfolio z Troll Oil: - Announcing more than 500 million barrels in new oil reserves - Reserves up 34 percent to more than 2 billion barrels z Troll Gas: Increase gas off-take and export capacity z Plan for development and operation (PDO) in 2007 40
Slide 41: Large remaining oil potential in Hydro fields
Large remaining oil potential in Hydro fields Long-term ambition of 60 percent recovery factor on NCS Troll Ekofisk Eldfisk Valhall Snorre Heidrun Statfjord Oseberg Gullfaks Oseberg South Tor Balder Gullfaks South Njord Brage Grane Åsgard Visund Ula Remaining in ground at planned Produced oil end 20
Slide 42: Broad project portfolio supports continued growth
Broad project portfolio supports continued growth Delivered projects 2001-2006 Fields under development New projects Fram East Ormen Lange Peregrino Fram West Dalia Idun/Skarv Front Runner Rosa Sigrid Girassol Independence Hub area: Dagny Q , Spiderman , San Jacinto Pazflor Grane Vilje Morvin Jasmim
Slide 43: Field development portfolio
Field development portfolio Generating above 200 000 boed at peak Hydro share Start year Field name at peak rate Country Type Operator 2006 Dalia 21 000 Angola Oil Total 2007 Ormen Lange 70 000 Norway Gas/Cond Hydro Rosa 14 000 Angola Oil Total Independence Hub Area 11 500 US GoM Gas Hydro/others Vi
Slide 44: Ormen Lange – a world giant on cost and schedule
Ormen Lange – a world giant on cost and schedule Global top 20 fields on stream 2007-2008 by volume Horizon Oil Sands, Canada z A vast subsea scheme with Sakhalin 2, Russia ground-breaking technology Ormen Lange, Norway Verkhne-Chonskoye, Russia Kovyktinskoye, Russia Agbami-Ekoli, Nigeria z Largest
Slide 45: Field developments in main core area
Field developments in main core area z Vega - Innovative subsea development - Partner cooperation for development of resources in three licenses - PDO in 2006 and production start in 2010 - Hydro share at peak 18 000 boed in 2011 - Working interest PL 090C 25 percent - Working interest PL 248 40 per
Slide 46: Deepwater Gulf of Mexico field developments
Deepwater Gulf of Mexico field developments z Lorien field on stream in 2006 - Green Canyon block 199 z Independence Hub - a cornerstone for GoM gas - Third-party owned, shared production facility with ten fields tied back - Production start in 2007 - Hydro fields: Spiderman, San Jacinto and Q (Hydr
Slide 47: Status on the Front Runner field
Status on the Front Runner field z Floating production facility in 1 000 meters of water z Partners: - Murphy (37.5 percent and operator) - Dominion (37.5 percent) - Hydro (25 percent) z Complex reservoir - Production significantly lower than expected z Internal project team established by Hydro dev
Slide 48: Angola production increases significantly
Angola production increases significantly Approaching 40 000 boed in 2008 Block 17 (10 percent) z Dalia FPSO in production December 2006 - 21 000 boed Hydro share at peak z Rosa development to come on stream in 2007 - Tie-in to Girassol - 14 000 boed Hydro share at peak z Future developments to be s
Slide 49: Leveraging strong Canadian position
Leveraging strong Canadian position z Terra Nova back on stream - 15 000 boed net Hydro share - Comprehensive re-certification 2006 z Hibernia in steady production - 9 000 boed net Hydro share z Hibernia South - Development plans in process z Hebron - Significant development resource z Grand Banks –
Slide 50: Large field development to start in Brazil
Large field development to start in Brazil z Peregrino start-up planned in 2010 z Field production ~100 000 boed on plateau in 2011 z Hydro share 50 percent z Large oil volumes in place – great upside for increased recovery - Long horizontal wells with sand control - Efficient separation of heavy oi
Slide 51: Exploration excellence to deliver long-term growth
Exploration excellence to deliver long-term growth 51
Slide 52: Two Hydro discoveries among the world's largest in 2005
Two Hydro discoveries among the world’s largest in 2005 Vladimir Filanovsky, Russia Papa Terra, Brazil Anaran (Azar), Iran z 14 discoveries in 2005 Qingshen, China Deen Dayal, India z 22 wells completed Chaivo outside (Sakhalin 1), Russia Caldita, Australia Shwe Phyu, Myanmar z 64 percent success ra
Slide 53: Extensive exploration in 2006
Extensive exploration in 2006 z 47 wells completed so far (13 Norway and 34 international) z 25 discoveries (5 Norway and 20 international) z 53 percent success rate z Mainly infrastructure-led exploration z Attractive new exploration acreage - US Gulf of Mexico, Norway, Denmark, Canada and Brazil 5
Slide 54: High exploration level to continue in 2007
High exploration level to continue in 2007 z 60 wells planned z Several high-impact wells to be drilled Norway Denmark US Gulf of Mexico Libya Morocco Iran Cuba Frontier/growth Infrastructure Mozambique Brazil Angola 20 40 NCS International Planned drilling activity Seismic and pre-drilling activity
Slide 55: Northern Norway - exciting frontier exploration
Northern Norway - exciting frontier exploration z High impact operator wells with very large oil potential z Challenging drilling and development in environmentally sensitive areas 55
Slide 56: Norwegian Sea - frontier and growth exploration
Norwegian Sea - frontier and growth exploration z Pursue the deepwater gas play in the Stetind area z New wells to test Halten area potential PL 263 z Njord near field exploration Zita 2007 - Galtvort - Noatun 56
Slide 57: Northern North Sea – near-field exploration potential
Northern North Sea – near-field exploration potential z Oseberg area - Shetland Chalk z Fram area - New structures to be tested z Grane area - Midway prospect to be tested z Exploration in mature areas to maximize value of infrastructure z Short lead times 57
Slide 58: Southern North Sea - significant growth potential
Southern North Sea - significant growth potential z Exploring a new basin - Farsund basin is an untested basin with a large oil potential z Revival of the deep Central Graben - Upper Jurassic and Permian geological plays - Deep challenging wells z Strong acreage position extending into Denmark 58
Slide 59: Leveraging strong Gulf of Mexico position
Hydro leases New leases August 2006 San 17 Hands Jacinto Zia Thunderhawk Spiderman Q Independence Lorien Hub FrontRunner Leveraging strong Gulf of Mexico position z Large exploration potential, short lead times and high-value resources z Spinnaker acquisition a solid foundation for organic growth -
Slide 60: Active deepwater exploration program
Krakotoa Superior Green Bay Badgers Active deepwater exploration program z Substantial inventory of prospects - Play types from amplitude to sub-salt, pleistocene to paleocene - More than 20 prospects in the new lower tertiary trend z Four exploration wells in 2007 z Rig capacity secured through 201
Slide 61: Strong position in Walker Ridge and Keathley Canyon
Strong position in Walker Ridge and Keathley Canyon Hydro holds 48 blocks covering 9 prospects 61
Slide 62: Green Bay - first Hydro lower tertiary prospect to be tested
Green Bay - first Hydro lower tertiary prospect to be tested z Hydro operator – 40 percent working interest Green Bay z Partners: Chevron, Anadarko and Nippon z Location: Walker Ridge z Analogs: Jack, St. Malo and Kaskida z Water depth: 1 900 meters z Expected spud in 2007 62
Slide 63: A long-term perspective in Iran
A long-term perspective in Iran z Giant Azar oil discovery in the Anaran block declared commercial, negotiations for field development ongoing z Changuleh West – another significant discovery in the Anaran block z Hydro closely monitors political and economic conditions 63
Slide 64: Early mover in new high potential basins
Early mover in new high potential basins z Brazil Won three blocks in deepwater Santos, one operatorship z Mozambique Operator in two blocks in the offshore Rovuma basin Pre-drilling activities z Morocco Operator in the North West Safi license Pre-drilling activities z Cuba Partner in seven offshore
Slide 65: Continued high global exploration activity
Continued high global exploration activity NOK billion 8 z Attractive exploration portfolio Approx. - Balanced risk 50 wells Approx. - Geography 6 60 wells NOK 5-6 billion 4 z Rig capacity secured - Balanced portfolio of long-term 22 wells drilling contracts on NCS 2 - NCS exploration secured to 200
Slide 66: Long-term growth perspectives
Long-term growth perspectives 66
Slide 67: Oil and gas reserves and resources
Oil and gas reserves and resources Million boe 4 000 CMD 2005 3 000 2 000 z Added total ~350 mboe in new resources in 2006 1 000 z Few sanctioned fields in 2006 z 2006 estimated production 209 mboe z Total reserve/resource base up 120 mboe 0 Proven reserves Additional expected 2006E Production Added
Slide 68: New projects beyond 2010
New projects beyond 2010 Field name Country Type Operator Peregrino Brazil Oil Hydro/Anadarko Sigrid Norway Gas/Cond Hydro Idun/Skarv Norway Gas/Cond BP Hiberina South Canada Oil ExxonMobil Dagny Norway Gas/Cond Statoil Pazflor Angola Oil Total Morvin Norway Oil Statoil Njord North-West Flank Norway
Slide 69: Growth perspectives beyond 2010
Growth perspectives beyond 2010 Existing portfolio, technology leadership and exploration excellence z International production build-up in top petroleum provinces z Gas growth from large reserve base z Strong NCS oil position 69
Slide 70: Jørgen C. Arentz Rostrup
Jørgen C. Arentz Rostrup Senior Vice President, Oil & Energy Markets 70
Slide 71: Hydro's gas story
Hydro’s gas story z Strong reserve life – 20 years z Continued increase in gas production z Cost competitive and flexible asset base z Attractive market positions 71
Slide 72: Hydro on top in European gas production growth
Hydro on top in European gas production growth Reserve life gas 2005-2010 CAGR (reserves/production as of end 2004) Hydro OMV Gaz de France Hydro Marathon Statoil Hess ExxonMobil Statoil RWE ENI Chevron BP ConocoPhillips Chevron Shell Wintershall Total ENI BG Group Total Shell BG Group ConocoPhillip
Slide 73: The growth story continues beyond 2010
The growth story continues beyond 2010 Gas production 1 000 boed 400 z Increased gas production from existing reserve base 300 z Good progress in development of discoveries 200 z High exploration activity 100 0 2001 2005 2010E 73
Slide 74: From regional to global gas markets
From regional to global gas markets Global LNG supply and demand bcm 600 Asian Demand European Demand US Demand Supply z Europe and US increasingly dependent on long-distance imports (LNG) 400 z Global balance and regional imbalances z Worldwide competition over LNG cargoes 200 z Flexibility in LNG
Slide 75: UK connected to the Continent and global markets
UK connected to the Continent and global markets Existing infrastructure Planned infrastructure/ under construction z Strong capacity build-up z Improved flexibility to balance the market Tampen Link - Connectivity to continental Vesterled Europe Langeled - Highly responsive supply and demand in US
Slide 76: Strong NCS base in volatile markets
Strong NCS base in volatile markets p/th 100 NBP DAH NBP fwd German import price (est.) Ormen Lange PDO break-even 90 80 z High gas prices driven by high oil prices 70 60 z Record-high prices during last winter 50 40 z Possibility of low-price days in summer 30 z NCS gas competitive 20 10 0 Jan-01 J
Slide 77: Flexible asset base
Flexible asset base z Diversified supply sources z Extensive pipeline network z Multiple landing points N or z Flexible fields – Oseberg w ay and Troll key fields 77
Slide 78: Flexibility in gas deliveries
Flexibility in gas deliveries Transport z Hydro has significant swing capacity Production capacity to react on price signals capacity z High production and routing towards the UK at high prices Minimum UK z Minimum production and re-routing to the Continent at low prices production Minimum UK delive
Slide 79: Increased share of gas indexation
Increased share of gas indexation z New volumes to the United Kingdom z UK contracts typically gas indexed z Liquid market enabling day-to-day optimization z Gas indexation increase from 30 percent to 50 percent of gas sales 79
Slide 80: Well placed to extract market value in Northwest Europe
Well placed to extract market value in Northwest Europe Market developments Hydro position New import capacity Competitive cost base Long-term relationships with all major players Proactive Increased volatility positioning in Flexible production emerging markets Strong trading presence Geographical
Slide 81: Strong outlook
Strong outlook z Robust market fundamentals – volatility to continue z Highly competitive growth z Effective monetization strategy and approach 81
Slide 82: Aluminium – performance and perspectives
Aluminium – performance and perspectives 82
Slide 83: Aluminium highlights
Aluminium highlights z Strong results in Aluminium Metal, restructuring on plan and cost z Low returns in Aluminium Products, solid net cash flow z Finalize restructuring of Aluminium Products’ portfolio – selective growth in areas with leading edge z Pursue metal and alumina opportunities in attrac
Slide 84: Return on capital in line with peers
Return on capital in line with peers RoaCE 14% Peer range * Aluminium 12% 10% 8% 6% 4% 2% 0% 2003 2004 2005 2006 * Alcoa and Alcan Source: Bloomberg return on capital methodology. 12 month rolling Q1 2002-Q3 2006. Hydro figures are approximations to Bloomberg methodology. 84
Slide 85: Strong Aluminium cash flow
Strong Aluminium cash flow NOK billion 40 Accumulated EBITDA Accumulated investments 30 20 10 0 2003 2004 2005 2006 Jan-Sep 85
Slide 86: Strategic shift to ensure upstream repositioning and growth
Strategic shift to ensure upstream repositioning and growth RoaCE first nine months 2006 15.9% 0.9% Aluminium Metal Aluminium Products Figures are not annualized 86
Slide 87: Adjusted profitability 2006 and capital employed in Aluminium Products
Adjusted profitability 2006 and capital employed in Aluminium Products 10 percent RoaCE Share of capital employed (total NOK 19 billion) Extrusion 1) Rolled Products Automotive 2) Magnesium 1) Including Extrusion Europe, Extrusion Overseas, Building Systems and Precision Tubing 2) Including Automoti
Slide 88: Executing Aluminium Products strategy
Executing Aluminium Products strategy z Solid net cash generation – NOK 1.1 billion first nine months 2006 z Operational improvements in most areas, but overall profitability remains too low z Solid fundament for good returns in Extrusion z Rolled Products improving, market still challenging Net cas
Slide 89: Reduced engagement in Aluminium Products
Reduced engagement in Aluminium Products z Closures - Magnesium Porsgrunn, Magnesium Canada, extrusion capacity UK z Divestments - Aluminium Castings, enterprise value NOK 3.7 billion - Meridian magnesium casting, enterprise value NOK 0.6 billion z Divestments in process - Automotive Structures, Mag
Slide 90: China driving the demand for primary aluminium
China driving the demand for primary aluminium 4 percent annual growth rate 2005-2020 Million tonnes 70 China Other 60 35% 34% 50 31% 40 22% 30 13% 20 66% 65% 69% 78% 10 87% 0 2000 2005 2010E 2015E 2020E Source: CRU 2006 90
Slide 91: Production to grow outside the US and Europe
Production to grow outside the US and Europe 18.6 12.6 7.8 Europe Russia/CIS China North America Middle East Other Asia 2015 2010 2005 Africa South America Oceania Source: CRU / Hydro. Million tonnes 91
Slide 92: Torstein Dale Sjøtveit
Torstein Dale Sjøtveit Executive Vice President, Aluminium Metal 92
Slide 93: Highlights Aluminium Metal
Highlights Aluminium Metal z Strong focus on return on capital z Restructuring on track z Operational excellence and production creep z Long-term profitable growth 93
Slide 94: Restructuring executed – improved cost position
Restructuring executed – improved cost position z Restructuring on track – closing 180 000 tonnes z Restructuring costs below NOK 1 billion z Improving average cash cost 40-50 USD/tonne 94
Slide 95: Further production creep in existing plants
Further production creep in existing plants Increased primary production in tonnes per year* 200 000 z Low capital expenditures per tonne 150 000 z Strong profitability z EBITDA contribution in 2006 100 000 - NOK 500 million 50 000 0 2002-2006E 2006-2010E * All prebake lines excl. Stade 95
Slide 96: Production volumes 2004-2010
Production volumes 2004-2010* 1 000 tonnes Approx. 2 000 1 825 1 800 1 720 1 730 2004 2005 2006E 2007E 2010E * Including closed or to-be-closed capacity of Hamburg, Stade and Søderberg at Årdal, Høyanger. Qatalum in full production from mid-2010. 96
Slide 97: Industry costs rising – Hydro's position improved
Industry costs rising – Hydro’s position improved Significant shift in industry cost curve* Cost (USD/tonne) z Alumina 2 500 Hydro’s 2006 position 2006 - Two thirds of cost increase 2 250 Hydro’s 2003 position - Coming down from peak 2 000 2003 1 750 z Energy 2006 average 1 640 1 500 - Oil and gas p
Slide 98: Increase in smelting cost
Increase in smelting cost Cost per tonne for Hydro’s smelter capacity, 2005=100* z Cost development 2005-2006 - NOK 1.2 billion total power cost increase** 140 - New contracts and increased Other grid cost Norway and Germany Alumina 120 Power - Alumina cost increase - 60 percent equity position 100
Slide 99: Long-term power contracts ensure predictable cost levels going forward
Long-term power contracts ensure predictable cost levels going forward Contract portfolio 14 TWh Norway* z Power supply and price secured 3.5 TWh Australia z Norway: gradual increase in power price until 2010 as new contracts Canada 1.6 TWh replace old 1.0 TWh Slovakia z Germany: moderately increasi
Slide 100: Alunorte alumina refinery – key asset in repositioning
Alunorte alumina refinery – key asset in repositioning z Third expansion of 1.9 million tonnes started June 2006 z Targeting 6.5 million tonnes production by 2009 z Hydro stake 34 percent of world’s largest refinery z First-quartile investment costs and highly competitive conversion costs z Pursuing
Slide 101: Sunndal 4 – project execution and efficiency improvements
Sunndal 4 – project execution and efficiency improvements z Project completed ahead of plan and below budget z Production level 17 percent above target - From 230 000 tonnes to current level of 268 000 tonnes z Profitability above plan and well above Hydro hurdle rates 101
Slide 102: Preparing for Qatalum
Preparing for Qatalum z Total investment in the range of USD 4.5 billion (100 percent) - General cost increase for key materials and construction - Weaker USD/Euro exchange rate - Design changes z Final cost estimate and build decision summer 2007 102
Slide 103: Qatalum – profitable mega smelter in key region
Qatalum – profitable mega smelter in key region World production 2006, 1 000 tonnes z 50/50 Hydro/Qatar Petroleum Cost 2006* (USD/tonne) 2 500 z 585 000 tonnes per year, expansion potential to 1.2 million tonnes 2 000 z Low operating cost – captive power 1 500 z High efficiency and creep potential Q
Slide 104: Primary production will grow in new areas
Primary production will grow in new areas Metal opportunities Bauxite/alumina opportunities 104
Slide 105: Competence and technology provide basis for growth
Competence and technology provide basis for growth z Distinct project management skills z Proprietary technology opens doors for new business opportunities z Next-generation smelter cell technology being developed z Value-added primary products attractive to partners 105
Slide 106: An experienced international project developer
An experienced international project developer Metal opportunities Bauxite/alumina opportunities Business development office location 106
Slide 107: On track to reposition and grow
On track to reposition and grow z Strong return on capital z Focus on operational excellence z Delivering new profitable growth opportunities globally 107
Slide 108: Additional information
Additional information 108
Slide 109: Capital allocation 2007-2010
Capital allocation 2007-2010 Annual investments approximately NOK 30 billion 35 Aluminium investments E&P: Committed investments Uncommitted investments E&P: Exploration expenditure 30 25 NOK 55-60 billion in uncommitted/non-sanctioned investments and annual exploration expenditure of NOK 5 5-6 bill
Slide 110: Indicative price and currency sensitivities 2007
Indicative price and currency sensitivities 2007 NOK million Income before tax Net income Change Oil price per barrel 1 190 345 1 USD Aluminium price per tonne 1 000 655 100 USD NOK million Income before tax Net income Change USD Oil & Energy 10 340 3 780 1 NOK USD Aluminium Metal 3 280 2 130 1 NOK
Slide 111: Investment criteria
Investment criteria z Oil price USD 35 per barrel z Aluminium price USD 1 700 per tonne z NOK/USD 6.5 z NOK/EUR 8.0 z Hurdle rate 8-10% IRR real after tax - IRR after tax above Hydro’s cost of capital when risk is accounted for in cash flows 111
Slide 112: RoaCE by business area
RoaCE by business area Oil & Energy Aluminium Metal Aluminium Products 26.2% 23.4% 24.7% 18.4% 16.2% 15.9% 11.6% 7.7% 7.9% 8.1% 4.5% 4.0% 3.3% 2.9% 1.7% 0.9% -0.3% -2.4% 2002 2003 2004 2005 2005 2006 2002 2003 2004 2005 2005 2006 2002 2003 2004 2005 2005 2006 Jan-Sep Jan-Sep Jan-Sep Jan-Sep figures
Slide 113: Sources and uses of cash
Sources and uses of cash NOK billion 2.6 0.0 5.0 3.4 1.5 11.8 0.3 2.8 3.2 19.3 8.0 1.6 16.4 5.5 2.7 9.1 3.7 0.5 41.8 3.1 Dividends 4.9 2.0 Buyback 2.4 27.7 27.4 Debt (net) 22.8 Acquisitions 19.1 17.7 18.4 Investments 15.2 17.0 14.7 Disposals* Operations Sources Uses Sources Uses Sources Uses Sources
Slide 114: Increasing payout to shareholders
Increasing payout to shareholders Dividend policy: 30 percent payout over time NOK million Dividend Buyback 1 589 1 684 5 506 5 021 1 599 1 155 3 619 763 555 2 711 2 811 2 470 2 576 2 094 1 604 1 718 1 718 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Jan-Nov Dividend allocated to the year
Slide 115: Field development portfolio
Field development portfolio Generating above 200 000 boed at peak Hydro share Start year Field name at peak rate Peak year Country Type Operator 2006 Dalia 21,000 2008 Angola Oil Total 2007 Ormen Lange 70,000 2010 Norway Gas/Cond Hydro Rosa 14,000 2008 Angola Oil Total Independence Hub Area 11,500 2
Slide 116: Rising smelter cost for the industry
Rising smelter cost for the industry USD per tonne 1 640 1 450 Other cost Power Alumina 1 290 45% 1 120 41% 1 090 41% 35% 36% 26% 28% 28% 28% 28% 37% 36% 31% 29% 31% 2002 2003 2004 2005 2006 Source: CRU (Corporate operating cost definition) 116
Slide 117: Increasing alumina equity coverage for Hydro
Increasing alumina equity coverage for Hydro Alumina equity coverage (bars) Equity alumina production (line) Percent 1 000 tonnes 100 % 4 000 75 % 75 % 3 000 55 % 50 % 43 % 2 000 23 % 25 % 1 000 0% 0 1998 2002 2006E 2010E 117
Slide 118: Investor Relations in Hydro
Investor Relations in Hydro 118
Slide 119: Investor Relations in Hydro
Investor Relations in Hydro t +47 22 53 32 73 Ada Christiane Rieker Vice President ada.christiane.rieker@hydro.com m +47 951 82 718 Investor Relations t +47 22 53 24 55 Gudmund Isfeldt Officer gudmund.isfeldt@hydro.com m +47 480 01 180 Investor Relations t +47 22 53 35 39 Stefan Solberg Officer stef