Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Q3 2006 Earnings Presentation
66 slides from Norsk Hydro Asa's earnings presentation, 2006
Slide 1: Third quarter 2006
Third quarter 2006 www.hydro.com
Slide 2: Highlights – third quarter
Highlights – third quarter z Solid earnings z Strong market conditions z Langeled South completed – gas export began 1 October as planned z Robust financial position 2
Slide 3: Income from continuing operations
Income from continuing operations* By quarter 5 869 NOK million Gains from divestments 5 394 4 804 4 183 4 186 3 638 3 693 3 577 3 135 2 991 2 481 2 224 2 005 1 851 1 809 2003 2004 2005 2006 Accumulated 8 656 11 477 15 638 16 068 * Changes in accounting principles for 4th quarter 2005 resulted in a
Slide 4: Consolidated income statements
Consolidated income statements NOK million Q3 2006 Q2 2006 Q3 2005 Operating revenues 50 961 51 435 44 612 Operating income 15 288 14 640 12 973 Non-consolidated investees 228 372 236 Financial income (expense), net (740) 919 157 Income before tax and minority interest 14 776 15 931 13 367 Income ta
Slide 5: Adjusted EBITDA
Adjusted EBITDA 22 769 NOK million 20 515 19 337 17 109 17 000 15 852 15 533 13 546 13 210 12 266 12 094 11 045 9 935 9 451 8 197 2003 2004 2005 2006 Accumulated 38 628 51 116 65 493 62 621 5
Slide 6: Oil & Energy – key figures
Oil & Energy – key figures Operational data Q3 2006 Q2 2006 Q3 2005 Oil and gas production (1 000 boe/day) 548 537 541 Realized oil price, USD/bbl 66.60 67.90 60.40 Realized oil price, NOK/bbl 420.60 422.20 390.60 Realized gas price, NOK/Sm³ 1.73 1.79 1.36 Exploration expense, NOK million 868 618 19
Slide 7: Aluminium activities – key figures
Aluminium activities – key figures Operational data Q3 2006 Q2 2006 Q3 2005 Realized aluminium price, USD/ton 2 462 2 368 1 770 Realized NOK/USD 6.36 6.47 6.47 Realized aluminium price, NOK/ton 15 662 15 331 11 453 Primary aluminium production, 1 000 tons 449 451 461 Operating income, NOK million Q3
Slide 8: Operating income
Operating income NOK million Q3 2006 Q2 2006 Q3 2005 Exploration and Production 12 078 11 654 11 799 Energy and Oil Marketing 851 1 170 466 Eliminations 382 344 360 Oil & Energy 13 311 13 168 12 624 Aluminium Metal 1 854 1 620 447 Aluminium Products (192) 301 371 Other Activities 235 221 (187) Corpo
Slide 9: Adjusted net debt/equity ratio
Adjusted net debt/equity ratio 0.50 0.38 0.31 0.11 0.11 2003 2004 2005 2006 30-Sep-06 30 September Interest-bearing debt + net pension liability (tax adjusted) + operating lease commitments (discounted) – cash and cash equivalents – short- term investments divided by shareholders’ equity + minority
Slide 10: Oil & Energy – highlights
Oil & Energy – highlights z Realized oil price – USD 66.6 per bbl z Oil and gas production – 548 000 boed z 5 new discoveries z Acquisition of 50 percent share of Peregrino field in Brazil completed z Ormen Lange/Langeled on track – 87 percent complete end Q3 10
Slide 11: Petroleum production per quarter
Petroleum production per quarter 1 000 boe/day Oil Gas 615 610 596 591 584 589 569 552 539 541 537 548 514 484 489 166 173 147 176 156 178 142 184 208 442 123 154 168 112 116 430 422 169 415 406 405 402 396 391 399 372 373 385 381 368 2003 2004 2005 2006 Average 530 572 563 565 11
Slide 12: Reduced 2006 production estimate – 570 000 boed
Reduced 2006 production estimate – 570 000 boed 1 000 boe/day Historical performance Production shortfall: 45 000 boed Revised 2006 estimate 572 563 570 z Norway: 24 000 boed 530 - Visund and Snorre – extraordinary events - Kristin and Tampen – delayed build-up 480 - Kvitebjørn and Troll – lower gas
Slide 13: Oil & Energy – operating income
Oil & Energy – operating income NOK million Eliminations 14 126 Energy and Oil Marketing 13 168 13 311 Exploration and Production 12 624 11 537 9 842 9 447 8 621 7 818 7 521 7 184 6 175 5 994 5 322 3 652 2003 2004 2005 2006 Accumulated 21 143 31 144 43 451 40 606 13
Slide 14: Production costs per barrel
Production costs per barrel NOK/boe Gas injection cost Production cost excluding gas injection 32.0 25.3 7.9 20.7 20.7 5.4 0.7 2.8 24.1 20.0 17.9 19.9 2003 2004 2005 Jan-Sep 2006 Production in million boe 194 209 206 154 14
Slide 15: High exploration activity
High exploration activity z 60 wells planned in 2006 z 38 wells completed first nine months 2006 - 2 wells under evaluation and 8 wells drilling by end of Q3 z 19 discoveries first nine months 2006 z Activity of NOK 4.2 billion first nine months 15
Slide 16: Oil & Energy – prospects
Oil & Energy – prospects z High oil and gas prices z Production estimate: 570 000 boed - Increased unit costs z High exploration activity z Cost control and project execution 16
Slide 17: Aluminium Metal – highlights
Aluminium Metal – highlights z Strong financial performance continues z Realized aluminium price USD 2 462 per metric ton z Primary production well maintained z Strong results from Alunorte 17
Slide 18: Aluminium price
Aluminium price USD per metric ton LME (3 month avg.) 3 000 Primary aluminium LME forward USD per London Metal metric ton Exchange 2 800 Q3 2006 average 2 528 2 600 Q3 2006 end 2 566 2 400 Q2 2006 average 2 682 2 200 Q2 2006 end 2 630 2 000 Q1 2006 average 2 444 1 800 Q1 2006 end 2 471 1 600 Average
Slide 19: Aluminium Metal – operating income
Aluminium Metal – operating income NOK million 2 040 z Primary production 449 000 mt Sourcing & Trading (S&T) 1 854 203 Unrealized LME effects 1 620 224 Alu Metal (excl. unrealized LME effects and S&T) 480 181 z High aluminium prices 1,721 1,588 1 166 1 068 458 12 1,357 z Increased raw material and
Slide 20: Aluminium Metal – prospects
Aluminium Metal – prospects z Continued high aluminum prices z 80% of expected fourth quarter production sold at 2 360 USD/mt - Including full effect of strategic hedges z Smelter closures on track, costs lower than original estimate z Increased alumina production capacity in China - Sharp drop in s
Slide 21: Aluminium Products – highlights
Aluminium Products – highlights z Strong performance in Extrusion z Rolled Products – good demand but weak margins z Weak market for Automotive z Impairment loss Meridian NOK 239 million 21
Slide 22: Aluminium Products – operating income
Aluminium Products – operating income NOK million z Rolled Products NOK 60 million Rolled Products Extrusion - Volumes stable Automotive Other and eliminations - Metal effect NOK (70 million) in Q3 (NOK 149 million in Q2 2006) 452 279 210 371 301 z Extrusion NOK 169 million - Seasonal volume decreas
Slide 23: Aluminium Products – prospects
Aluminium Products – prospects z Restructuring and portfolio adjustments continue z European extrusion markets expected to soften z Stable market outlook for Rolled Products z Automotive markets remain challenging z Seasonal volume reductions expected in fourth quarter 23
Slide 24: Hydro – priorities
Hydro – priorities z Capture value from strengthened international portfolio z Further strengthening of oil and gas resource base z Reposition Aluminium Metal z Restructuring and portfolio adjustments in Aluminium Products z Firm cost control and first-class project execution in a resource constrain
Slide 25: 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 26: 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 27: Additional information
Additional information
Slide 28: Adjusted income – Third quarter 2006
Adjusted income Third quarter 2006 NOK million Reported income Adjustments Adjusted income Exploration and Production 12 078 (630) 11 448 Energy and Oil Marketing 851 127 978 Eliminations 382 (382) - Oil & Energy 13 311 (885) 12 426 Aluminium Metal 1 854 (269) 1 585 Aluminium Products (192) 437 245
Slide 29: Infrequent and other special items
Infrequent and other special items Third quarter 2006 NOK million Unrealized (gains)/losses oil and gas derivatives, Spinnaker Exploration and Production (517) Unrealized (gains)/losses on gas contracts Exploration and Production (113) Unrealized (gains)/losses on gas contracts Energy and Oil market
Slide 30: Adjusted income – Third quarter 2005
Adjusted income Third quarter 2005 NOK million Reported income Adjustments Adjusted income Exploration and Production 11 799 (47) 11 752 Energy and Oil Marketing 466 549 1 015 Eliminations 360 (360) - Oil & Energy 12 624 142 12 766 Aluminium Metal 447 375 822 Aluminium Products 371 (104) 267 Other a
Slide 31: Infrequent and other special items
Infrequent and other special items Third quarter 2005 NOK million Unrealized (gains)/losses on gas contracts Exploration and Production (47) Unrealized (gains)/losses on gas contracts Energy and Oil marketing 549 Unrealized (gains)/losses on gas and power contracts Oil & Energy eliminations (360) Un
Slide 32: Adjusted EBITDA
Adjusted EBITDA Operating income – Adjusted EBIT – Adjusted EBITDA – Third quarter 2006 Non- Depr. Operating Interest Selected Adjusted Adjusted NOK million income cons. income fin. items EBIT and EBITDA investees amort. Exploration and Production 12 078 2 8 - 12 089 3 133 15 222 Energy and Oil Mark
Slide 33: Variance analysis Hydro
Variance analysis Hydro NOK million Jan-Sep 2006 Q3 2006 2006 62 621 20 515 2005 48 493 17 109 Variance adjusted EBITDA 14 128 3 406 - Prices and currency, Exploration and Production (E&P) 12 025 2 450 - Margin incl. currency effects ¹) 4 720 2 250 - Volume 2 005 65 - Fixed costs (735) (290) - Depre
Slide 34: Consolidated balance sheets
Consolidated balance sheets NOK million 30 September 2006 30 June 2006 30 September 2005 Cash and cash equivalents 16 490 7 725 16 607 Short-term investments 12 699 12 669 16 760 Receivables and other current assets 46 490 46 165 38 852 Inventories 16 310 15 985 14 225 Non-current assets 160 840 155
Slide 35: Statement of cash flows
Statement of cash flows Nine months ended Nine months ended NOK million 30 September 2006 30 September 2005 Operating activities: Net income 16 068 11 453 Depreciation, depletion and amortization 12 510 10 598 Other adjustments 13 214 3 334 Net cash provided by operating activities 41 792 25 385 Inv
Slide 36: Oil & Energy – Adjusted EBITDA
Oil & Energy Adjusted EBITDA 17 398 NOK million 16 325 16 702 15 191 14 766 Eliminations Energy and Oil Marketing 12 416 Exploration and Production 11 967 11 583 10 503 9 928 9 764 9 139 8 668 7 745 6 274 2003 2004 2005 2006 Accumulated 31 826 41 777 54 339 50 424 36
Slide 37: High oil price driven by supply concerns
High oil price driven by supply concerns OPEC spare capacity at low levels Million bbl/day USD per bbl 5 80 70 4 60 3 50 40 2 30 20 1 10 0 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 OPEC spare capacity Brent dated Brent forward Sources: Pira, Reuters, Platts 37
Slide 38: Average realized gas prices
Average realized gas prices NOK/Sm3 1.03 1.09 1.52 1.91 2.16 1.85 1.79 1.73 1.47 1.36 1.31 1.20 1.06 1.10 1.07 0.99 1.03 1.01 0.98 2003 2004 2005 2006 38
Slide 39: Average prices and exchange rates
Average prices and exchange rates Oil Oil Gas 500 75 USD/boe NOK/boe NOK/USD NOK/Sm3 NOK/boe USD/boe 2004 37.3 251.3 6.74 1.09 400 Q1 2005 46.4 291.7 6.29 1.47 50 Q2 2005 49.8 317.9 6.39 1.31 Q3 2005 60.4 390.6 6.47 1.36 300 Q4 2005 55.6 368.8 6.63 1.85 2005 53.1 342.2 6.44 1.52 200 Q1 2006 60.6 403
Slide 40: Operating costs per boe
Operating costs per boe 123.6 NOK/boe 104.2 94.9 83.8 82.1 2006 YTD excl. 2003 2004 2005 2006 YTD Hydro GoM Exploration 8.1 6.0 8.9 18.8 10.6 Net transportation 6.8 8.3 9.4 12.1 12.3 Other cost/income 1.7 0.7 3.0 2.8 2.6 Deprec.& aband. 46.4 46.4 48.2 58.0 47.0 Gas for injection 0.7 2.8 5.4 7.9 8.2
Slide 41: Oil production per field
Oil production per field 1000 boe/day Share Q3 '06 Q2 '06 Q3 '05 Hydro Q3 '06 Hydro Q2 '06 Hydro Q3 '05 Oil and NGL/Condensate Grane 38.00% 217 222 195 82 84 74 Oseberg incl C 34.00% 122 129 151 41 44 51 Ekofisk 6.65% 341 361 345 23 24 23 Oseberg South 34.00% 69 68 79 23 23 27 Snorre 17.65% 166 108
Slide 42: Gas production per field
Gas production per field 1000 boe/day Share Q3 '06 Q2 '06 Q3 '05 Hydro Q3 '06 Hydro Q2 '06 Hydro Q3 '05 Gas Troll A 9.78% 411 491 336 40 48 33 Sleipner Area 9.42% 247 191 248 23 18 23 Tune 40.00% 40 45 54 16 18 21 Åsgard 9.60% 153 167 173 15 16 17 Kvitebjørn 15.00% 83 107 87 13 16 13 US Gulf of Mexi
Slide 43: New fields on stream 2006 - 2009
New fields on stream 2006 - 2009 Field Hydro peak production (boe/day) Peak year Oil/Gas 2004 2005 2006 2007 2008 International Lorien 4 000 2006 Oil W Dalia 24 000 2007 Oil W Rosa 13 000 2008 Oil W Eastern Gulf development* 11 500 2008 Gas W 2009 Thunder Hawk 11 000 2010 Oil W Oseberg Vestflanken 1
Slide 44: Exploration activity
Exploration activity Expensed and capitalized costs NOK million 1 600 1 400 1 200 1 000 800 600 400 Expensed 200 0 - 200 - 400 Capitalized - 600 - 800 -1 000 2003 2004 2005 2006 Expensed Expensed old wells Refund insurance Iran Seismic Spinnaker 44
Slide 45: Capturing US Gulf of Mexico potential
Capturing US Gulf of Mexico potential z Production Q3: 22 500 boed - Lorien on stream late April – 4 000 boed*, a deepwater field z 15-20 exploration wells in 2006 - First nine months: 10 exploration wells completed, 7 discoveries – 70% success rate z 420 leases – 60% deepwater z Seismic data – cove
Slide 46: Secured prices for Spinnaker production
Secured prices for Spinnaker production 80 Oil - WTI (USD/bbl quarterly) 16 Gas - Henry Hub (USD/mmbtu monthly) 70 14 12 60 10 Secured minimum 50 Secured price 45.00 - 71.45 price 7.5 8 40 6 30 4 20 2 10 0 2000 2002 2004 2006 2008 2000 2002 2004 2006 2008 Source: Ecowin Oil, WTI Crude Oil, Spot, USD
Slide 47: UK gas prices – NBP forward curves
UK gas prices – NBP forward curves Pence/therm 105 95 85 75 65 55 45 35 25 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 End Q3 2005 End Q2 2006 End Q3 2006 47
Slide 48: Nordic power market – forward curves
Nordic power market – forward curves NOK/MWh 650 600 550 500 450 400 350 300 250 200 Apr 06 Oct 06 Apr 07 Oct 07 Apr 08 Oct 08 Apr 09 Oct 09 End Q1 2006 End Q2 2006 End Q3 2006 48
Slide 49: Variance analysis Oil & Energy
Variance analysis Oil & Energy NOK million Jan-Sep 2006 Q3 2006 2006 50 424 16 702 2005 39 573 15 191 Variance adjusted EBITDA 10 851 1 511 Prices and currency 12 025 2 450 - Oil 8 195 1 295 - Gas 3 300 855 - Currency 60 (300) - Options 470 600 - Margin 2 315 660 - Volume 165 (450) - Fixed costs (22
Slide 50: Variance analysis Exploration and Production
Variance analysis Exploration and Production NOK million Jan-Sep 2006 Q3 2006 2006 45 854 15 222 2005 36 925 14 121 Variance adjusted EBITDA 8 929 1 101 Prices and currency 12 025 2 450 - Oil 8 195 1 295 - Gas 3 300 855 - Currency 60 (300) - Options 470 600 - Volume 460 (280) - Depreciation (1 975)
Slide 51: Variance analysis Energy and Oil Marketing
Variance analysis Energy and Oil Marketing NOK million Jan-Sep 2006 Q3 2006 2006 3 787 1 098 2005 2 811 710 Variance adjusted EBITDA 976 388 - Margin 1 370 640 - Volume (295) (170) - Fixed costs (225) (105) - Depreciation (45) 10 - Other 10 10 Variance operating income 816 385 - Non-consolidated inv
Slide 52: Primary aluminium production per quarter
Primary aluminium production per quarter 1 000 mt 1 472 1 720 1 826 1 349 457 461 464 441 446 444 449 451 449 415 418 381 388 360 343 2003 2004 2005 2006 Slovalco consolidated from Q1 2004 52
Slide 53: Primary aluminium market
Primary aluminium market USD per tonne days Aluminium inventories (days of consumption) 3 000 80 Aluminium price (LME 3 month) 2 600 60 2 200 1 800 40 1 400 1 000 20 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 53
Slide 54: Current Position – Power Market
Current Position – Power Market EEX Power market development. Baseload contract one year ahead. Avg. spot prices for the year Eur/Mwh 70 z Current prices slightly lower due to mild weather 60 and low consumption. 50 52.85 z Price are expected 45.98 to increase significantly when 40 the consumption p
Slide 55: Aluminium Metal hedge programs
Aluminium Metal hedge programs 1) 2006 2007 2008 2006-2008 program – volume mt 2) 130 000 163 800 167 100 2006-2008 program – LME price USD/mt 2 140 2 300 2 200 2003-2007 program (Sunndal) – volume mt 3) 96 900 108 900 - 2003-2007 program (Sunndal) – LME price USD/mt 1 500 1 500 - 2003-2007 program
Slide 56: Aluminium – operational data
Aluminium – operational data Q3 Q2 Q1 Q4 Q3 Q2 Q1 Volumes and prices * 2006 2006 2006 2005 2005 2005 2005 Primary production (1 000 mt) 449 451 449 464 461 457 444 LME realized (USD/mt) including hedges 2 462 2 368 2 146 1 851 1 770 1 842 1 783 NOK/USD realized including hedges ** 6.36 6.47 6.85 6.5
Slide 57: Inventories – primary aluminium
Inventories – primary aluminium IAI and LME 1 000 tonnes LME (London Metal Exchange) 5 000 IAI (Producers' inventories) 4 000 3 000 2 000 1 000 0 1992 1997 2002 2006 Sources: IAI and LME 57
Slide 58: Variance analysis Aluminium
Variance analysis Aluminium NOK million Jan-Sep 2006 Q3 2006 2006 9 733 3 009 2005 6 837 1 948 Variance adjusted EBITDA 2 896 1 061 - Margin 2 520 1 065 - Volume 1 225 365 - Fixed costs (495) (185) - Depreciation 205 85 - Trading and hedging ¹) (810) (570) - Unrealized LME effects 760 170 - Infreque
Slide 59: Variance analysis Aluminium Metal
Variance analysis Aluminium Metal NOK million Jan-Sep 2006 Q3 2006 2006 7 781 2 706 2005 4 425 1 053 Variance adjusted EBITDA 3 356 1 653 - Margin 2 945 1 270 - Volume 80 55 - Fixed costs 90 25 - Depreciation 20 30 - Trading & price hedging ¹) (810) (570) - Unrealized LME effects 970 600 - Infrequen
Slide 60: Variance analysis Aluminium Products
Variance analysis Aluminium Products NOK million Jan-Sep 2006 Q3 2006 2006 2 113 308 2005 2 433 872 Variance adjusted EBITDA (320) (564) - Margin (290) (185) - Volume 1 140 305 - Fixed costs (580) (205) - Depreciation 185 55 - Unrealized LME effects (210) (430) - Infrequent items (500) (70) - Other
Slide 61: Variance analysis Rolled Products
Variance analysis Rolled Products NOK million Jan-Sep 2006 Q3 2006 2006 1 176 212 2005 1 202 343 Variance adjusted EBITDA (26) (131) - Margin 310 (45) - Volume 165 35 - Fixed costs (450) (130) - Depreciation 55 20 - Infrequent items (55) - Variance operating income 26 (121) - Non-consolidated invest
Slide 62: Variance analysis Extrusion
Variance analysis Extrusion NOK million Jan-Sep 2006 Q3 2006 2006 676 298 2005 659 233 Variance adjusted EBITDA 17 65 - Margin 30 90 - Volume 520 145 - Fixed costs (155) (130) - Depreciation 25 - - Infrequent items (475) (20) - Other (25) (20) Variance operating income (80) 62 - Non-consolidated inv
Slide 63: Variance analysis Automotive
Variance analysis Automotive NOK million Jan-Sep 2006 Q3 2006 2006 405 84 2005 513 154 Variance adjusted EBITDA (108) (70) - Margin (630) (220) - Volume 460 135 - Fixed costs 15 45 - Depreciation 105 30 - Infrequent items 30 (55) - Other (20) (15) Variance operating income (39) (76) - Non-consolidat
Slide 64: Variance analysis Polymers
Variance analysis Polymers NOK million Jan-Sep 2006 Q3 2006 2006 794 323 2005 563 91 Variance adjusted EBITDA 231 232 - Margin (295) 95 - Volume 620 155 - Fixed costs (20) (5) - Depreciation (15) - Variance operating income 291 242 - Non-consolidated investees (76) (14) - Interest income and other -
Slide 65: Investor Relations in Hydro
Investor Relations in Hydro Ada Christiane Rieker Vice President ada.christiane.rieker@hydro.com m +47 951 82 718 t +47 22 53 24 55 Gudmund Isfeldt Investor Relations Officer gudmund.isfeldt@hydro.com m +47 480 01 180 t +47 22 53 35 39 Stefan Solberg Investor Relations Officer stefan.solberg@hydro.c
Slide 66: Hydro is a Fortune energy and aluminium company
Hydro is a Fortune 500 energy and aluminium company with 33,000 employees in nearly 40 countries. We are a leading offshore producer of oil and gas, a major aluminium supplier and a leader in the development of renewable energy sources. Our mission is to strengthen the viability of the customers and