Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Investor Presentation (October 2005)
103 slides from Norsk Hydro Asa's investor presentation, October 2005
Slide 1: Investor presentation – October 2005
Investor presentation – October 2005 www.hydro.com
Slide 2: Forward-looking statements/use of non-GAAP financial measures
Forward-looking statements/ use of non-GAAP financial measures In order to utilize the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995, Hydro is providing the following cautionary statement: This presentation contains certain forward-looking statements
Slide 3: Cautionary Note
Cautionary Note The United States Securities and Exchange Commission permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under exist
Slide 4: Energy and aluminium - two strategic industries
Energy and aluminium - two strategic industries z Global industries z Increasing demand for energy z Positive growth outlook for aluminium Page 4
Slide 5: Consistently delivering profitable growth
Consistently delivering profitable growth Oil and gas production Aluminium production 1 000 boe/day 1 000 tonnes 750 2 000 1 500 500 1 000 250 500 0 0 1998 2003 2008E 1998 2003 2010E Page 5
Slide 6: Positive safety development
Positive safety development 25 20 15 10 5 0 1997 1998 1999 2000 2001 2002 2003 2004 Lost time injuries Restricted work cases Medical treatment cases Reported injuries per million hours, Hydro employees Page 6
Slide 7: Highlights
Highlights z Record high earnings z High oil price and good cost control z Encouraging exploration results z Agreement to acquire Spinnaker Exploration Company z Mixed Aluminium results z Solid financials Page 7
Slide 8: 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 60 4 50 40 3 30 2 20 1 10 0 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 OPEC spare capacity Brent dated Brent forward Sources: Pira, Reuters, Platts Page 8
Slide 9: Primary aluminium market
Primary aluminium market Aluminium inventories (days of consumption) Aluminium price (LME 3m) 2 200 70 65 2 000 60 55 USD per tonne 1 800 50 days 1 600 45 40 1 400 35 30 1 200 25 1 000 20 1997 1998 1999 2000 2001 2002 2003 2004 2005 Page 9
Slide 10: Financial overview 2004
Financial overview 2004 Operating revenues – NOK 155bn EBITDA – NOK 51bn Other 2% Aluminium 17% Aluminium 51% Oil & Energy Other 47% Oil & 1% Energy 82% Capital Employed – NOK 86bn Other 7% Oil & Energy 42% Aluminium 51% Page 10
Slide 11: Income from continuing operations
Income from continuing operations* By quarter 4 183 NOK million Gains from divestments 3 638 3 693 3 577 3 100 3 135 2 991 2 342 2 480 2 224 2 005 1 851 1 809 1 417 241 2002 2003 2004 2005 Accumulated 7 100 8 656 11 477 11 453 * Including the effect of change in accounting principles for 1st quarter
Slide 12: Adjusted EBITDA
Adjusted EBITDA 15 852 15 533 17 108 NOK million 13 546 13 211 12 266 12 094 11 045 9 820 9 935 9 451 7 955 8 197 7 199 6 775 2002 2003 2004 2005 Accumulated 31 749 38 628 51 117 48 493 Page 12
Slide 13: Return on capital significantly improved
Return on capital significantly improved RoaCE, percent 13.0 8.4 7.2 2002 2003 2004 RoaCE: Earnings after tax excluding financial items, divided by average capital employed Page 13
Slide 14: RoaCE by business area
RoaCE by business area Oil & Energy Aluminium 23.4% Adjustment for write-down of German plants Actual 16.2% 11.6% 7.0 % 4.7 % 2.7 % 3.5 % 2002 2003 2004 2002 2003 2004 Page 14
Slide 15: Normalized RoaCE
Normalized RoaCE Percent z Assumptions: - Oil price $25/bbl - Aluminium price $1 500/tonne 7.9 - NOK/USD 7 6.6 - EUR/NOK 8 6.2 z Volumes and margins are not normalized z Restructuring charges and gain/loss on divestments are eliminated from normalized figures 2002 2003 2004 Page 15
Slide 16: Strong financial position
Strong financial position Debt/equity ratio z Maintain current credit rating 0.67 - S&P: A 0.60 - Moodys: A2 z Secure financial preparedness for 0.44 potential strategic opportunities 0.38 0.34 z Strong balance sheet allows for variance in earnings due to cyclicality Î Target debt/equity ratio 0.5 0
Slide 17: Capital and exploration expenditure
Capital and exploration expenditure NOK billion Oil & Energy Exploration Aluminium Other 24 z 2004 investments as planned 20 19.5 NOK 20-25 bn z 2005 increase due to higher activity level - Projects on track - Robust against cost inflation 2004 plan 2004 2005 plan Page 17
Slide 18: Dividend NOK 20 per share for 2004
Dividend NOK 20 per share for 2004 20.0 10.5 11.0 9.5 10.0 7.5 8.0 1998 1999 2000 2001 2002 2003 2004 Page 18
Slide 19: Total Shareholder Return
Total Shareholder Return 2004 2000-2004 Hydro 46% Hydro 139% Statoil 44% Total 100% BG 34% BG 70% ExxonMobil 28% ChevronTexaco 44% ChevronTexaco 26% ExxonMobil 43% Total 26% Alcan 30% BP 24% Shell 23% Shell 20% RoyalDutch 14% BP 15% Alcan 6% RoyalDutch 12% Alcoa -16% Alcoa -17% -20% 0% 20% 40% 60% -
Slide 20: Oil & Energy – highlights
Oil & Energy – highlights z Record result – high oil price and good cost control z Successful exploration – 7 discoveries in third quarter z Ormen Lange/Langeled on track – 49% complete z First operatorship in Libya z Agreement to acquire Spinnaker Exploration Company Page 20
Slide 21: Hydro and Spinnaker – a perfect fit
Hydro and Spinnaker – a perfect fit z Strategic acquisition and strong international expansion z Attractive and broad portfolio z Significant high-margin production z High-quality deepwater development opportunities z Substantial exploration potential z World-class competence joining forces Page 21
Slide 22: Exploration success: 12 discoveries 2005
Exploration success 12 discoveries 2005 – 7 discoveries in third quarter Norway 7 discoveries z Astero z Troll Brent z M5 z Peon Russia z Oseberg B Sør z Oseberg J z Stetind Norway Denmark Canada 1 discovery z Hejre Iran Iran GoM 1 discovery Libya z Anaran Libya 1 discovery Angola z NC 186 I1 Angola
Slide 23: Oil & Energy – operating income
Oil & Energy – operating income NOK million 12 625 Exploration and Production Energy and Oil Marketing Eliminations 9 842 9 447 8 621 7 818 7 521 7 184 6 175 5 994 5 384 5 322 3 707 3 686 3 652 3 170 2002 2003 2004 2005 Accumulated 15 947 21 143 31 144 31 914 Page 23
Slide 24: Petroleum production per quarter
Petroleum production per quarter 1 000 boe/day 615 596 591 584 Oil Gas 552 569 540 539 541 173 514 482 484 489 166 176 452 147 178 448 143 156 154 142 123 104 112 116 88 430 442 110 422 415 406 397 396 391 385 399 378 364 372 373 338 2002 2003 2004 YTD 2005 Average 480 530 572 554 Page 24
Slide 25: Production costs per barrel
Production costs per barrel NOK/boe Production cost Gas for injection 30 28.4 26.3 25.6 25 23.9 25.6 24.0 23.2 22.9 23.9 22.3 4.9 23.2 1.7 21.1 21.0 8.0 20.1 19.8 4.2 20 21.2 21.1 1.2 19.6 21.4 20.1 4.7 20.4 19.8 17.4 19.8 19.8 2.5 17.1 1.1 17.6 2.8 17.1 15 16.0 14.6 10 5 0 2002 2003 2004 YTD 2005 W
Slide 26: Continued strong production growth
Continued strong production growth 1 000 boe/day 8% average annual growth* 800 700 600 500 400 300 200 100 0 1998 1999 2000 2001 2002 2003 2004 2005E 2006E 2007E 2008E Oil NCS Oil Int Gas 8% CAGR* *Compound Annual Growth Rate, 2001 baseline Page 26
Slide 27: Performance: We're on top of our projects
Performance We’re on top of our projects z Projects worth USD 15 billions from 1998 delivered on time and cost z Latest oil development on NCS delivered ahead time and below cost z Ormen Lange 49% completed and on track Page 27
Slide 28: New fields on stream 2005 - 2007
New fields on stream 2005 - 2007 Hydro Plateau Plateau Field (boe/day) Year 2003 2004 2005 2006 2007 International Lorien 10 000 2007 Kharyaga 10 000 2007 Dalia 24 000 2007 Rosa 13 000 2008 Oseberg South J 7 000 2006 Oseberg Vestflanken 14 000 2007 Operator NCS Oseberg East Drillin
Slide 29: Strong production growth based on attractive project portfolio
Strong production growth based on attractive project portfolio Oil price giving 10% real rate of return post tax* Oseberg S Operator IOR NCS Njord Operator Development Phase Oseberg Operator NCS Oseberg E International Troll Partner operated NCS Ormen Lange Tune Phase 2 Oseberg S J C Vilje Oseberg S
Slide 30: Core competences
Core competences E&P value chain Explore Design Execute Operate • Advanced seismic • Advanced wells • Large and complex • Commissioning and acquisition, projects start-up • Reservoir management processing and • Modifications • Offshore operations interpretation • Sub-sea development • Satellite tie-
Slide 31: An efficient offshore operator
An efficient offshore operator Secures field life and adds reserves 2001 2002 2003 2004 Hydro Hydro Hydro Hydro 0 10 20 30 Source: McKinsey 2004, operators in Norway and UK Page 31
Slide 32: An experienced world-scale offshore producer
An experienced world-scale offshore producer Benchmark 2003 1 000 boe/day production 1 000 900 800 700 Offshore operator production oil and gas, boe/day * 0 500 000 1 000 000 1 500 000 2 000 000 600 Statoil Shell 500 Petrobras 400 BP Hydro Operator 300 ExxonMobil Equity Woodside 200 Chevron Texaco T
Slide 33: Three paths to future growth
Three paths to future growth z Existing portfolio - Increased recovery - Develop technical resources Acquisitions z Exploration Exploration - Increase predictability - Exploit infrastructure position - Entry in new regions Existing portfolio z Acquisitions - Utilize our competence - Capital discipli
Slide 34: Existing portfolio
Existing portfolio Additional potential from technical resources Canada Hebron Murzuq B Dahra/Garian Kharyaga Annapolis Libya Russia GoM Lorien Norway Acasia Tulipa Angola Anturio Rosa/Lirio/Cravo Orquidea/Violeta z Discoveries to be developed z Plans for optimized production Page 34
Slide 35: Creating value by integrating new technologies
Creating value by integrating new technologies M bbl 1447 Troll 300 1 500 1358 1408 = 1328 1 900 mill. bbl 1225 Resources 1164 Production 1 000 945 649 500 385 353 277 208 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Test prod. PDO Troll B PDO P
Slide 36: NCS Existing portfolio: Oseberg IOR
NCS Existing portfolio Oseberg IOR Page 36
Slide 37: Exploration strategy paying off
Exploration strategy paying off Discoveries Norway and Denmark Stetind z Discoveries Norway 2005 - Astero - Peon - Troll Brent - Oseberg South - B South - Oseberg South - J Central Peon - Stetind Vigdis Astero Troll Brent Oseberg Sør B - Vigdis M5 Oseberg Sør J - Hejre (Denmark) Hejre Page 37
Slide 38: Acquiring resources
Acquiring resources z Assessing the deal flow: - Medium and small players with high exposure and Norwegian limited technology Continental Shelf - National Oil Companies in need of assistance to develop Russia operator capabilities North America - Majors optimizing their portfolios North Africa - Fin
Slide 39: Aluminium – highlights
Aluminium – highlights z Higher LME prices driven by increased raw material costs z Results reflecting seasonal effects downstream - Weak results in Extrusion and Automotive z Primary aluminium production up 5 percent - Alouette expansion – producing at full capacity Page 39
Slide 40: The industry provides attractive opportunities
The industry provides attractive opportunities Fast-growing regional markets Fast-growing customsegments High growth in smelting 2004 - 2020 2004 - 2020 2004 - 2020 Aluminium demand Demand increase Aluminium production increase Mtpy Percent Mtpy 35 Transportation CAGR 28 7 Electrical 4.6 Consumer du
Slide 41: Aluminium: A unique and differentiated portfolio
Aluminium A unique and differentiated portfolio 2004 and 2010E** 1 000 tonnes Equity Medium/long term contracts Alumina * 786 934 Equity Electrolysis metal 1 720 Equity 3rd party Remelt Metal products 1 720 185 1 733 Extrusion & Rolled Automotive Other Downstream 941 626 75 •Aluminium equivalents (2
Slide 42: Aluminium: A unique and differentiated portfolio
Aluminium A unique and differentiated portfolio 2004 and 2010E** 1 000 tonnes nes Equity Medium/long term contracts a* Alumina 786 934 2 000 Equity tal Electrolysis metal 1 720 2 000 Equity 3rd party Remelt Metal products cts 1 720 185 1 733 4 300-5 000 Extrusion & Rolled Automotive Other am Downstr
Slide 43: Aluminium – operating income
Aluminium – operating income NOK million Metals Rolled Products Extrusion and Automotive Other and eliminations 1 629 1 341 1 269 1 337 858 842 711 709 653 564 530 412 230 345 (1 951) 2002 2003 2004 2005 Accumulated 1 698 2 456 1 805 3 520 Page 42
Slide 44: Energy drives primary restructuring
Energy drives primary restructuring Net exports, 1 000 tonnes 4 000 3 000 2 000 1 000 Asia* Europe USA 0 China Canada South Australia and CIS ROW** -1 000 America New Zeeland -2 000 -3 000 -4 000 2000 2005E 2012E -5 000 * Excluding China ** Rest of the world, including the Middle East Source: CRU, H
Slide 45: Strengthening strategic positions
Strengthening strategic positions Improve alumina relative cost position Improve aluminium relative cost position Strengthen leadership position in Europe: Metal Selective growth outside Europe: Metal Products, Products, Extrusion, Rolled Products and Automotive Extrusion, Rolled Products and Automo
Slide 46: Increasing equity alumina at lower cost
Increasing equity alumina at lower cost Cash cost USD/tonne 220 200 180 160 World weighted 140 average 2003: USD 134/tonne 2000: Hydro average USD 165/tonne 120 100 2006*: Hydro average 80 USD 120/tonne 60 0 5 10 15 20 25 30 35 40 45 Cumulative production, million tonnes per year * After sale of alu
Slide 47: Improving relative cost position 2003-2009
Improving relative cost position 2003-2009 Cash cost USD/tonne 2 000 Hydro ’03 1 500 Total average USD 1 097/tonne 1 000 500 0 0 20 40 60 80 100 Cumulative production (%) Assumptions: Aluminium price USD 1 500, USD/NOK 7.0, Cumulative production 27.8 million tonnes Source: CRU, Hydro Aluminium Page
Slide 48: Improving relative cost position 2003-2009
Improving relative cost position 2003-2009 Cash cost USD/tonne To be closed z Høyanger SØ, 22 kt 2 000 z Årdal SØ, 50 kt z Karmøy SØ,122 kt Hydro ’10 Hydro ’03 1 500 Total average USD 1 097/tonne 1 000 New capacity z Alouette, 60 kt 500 z Sunndal, 250 kt z Qatar, 280 kt 0 0 20 40 60 80 100 Cumulativ
Slide 49: Qatar – project description
Qatar – project description z Heads of agreement signed z Annual capacity - 570 000 tonnes - Expansion potential up to 1 200 000 tonnes z Investments - Smelter and casthouse: USD 2 - 2.5 billion Excellent location - Power plant: USD 0.7 - 0.8 billion z Hydro ownership - 49% in smelter and power stat
Slide 50: Attractive power contract portfolio for Hydro
Attractive power contract portfolio for Hydro Germany a challenge Self generation and long term contracts Norway Australia Canada Slovakia Germany Timeline 2005 2010 2015 2020 Page 48
Slide 51: Aluminium downstream activities
Aluminium downstream activities Total revenues 2004: NOK 44 bn Rolled z Europe 79% Products z North America 13% z Others 8% Extrusion Automotive 43% 38% 19% Page 49
Slide 52: Rolled Products: Building a stronger business
Rolled Products: Building a stronger business z Growth in high margin segments - New litho line in 2005 - Foil mills upgraded - Increased heat exchanger volume z Delivered on improvement programs - Cost reduction and demanning - Turnaround of underperforming units - Modernization of Slim plant (Ital
Slide 53: Rolled Products: Increasing focus on higher margin segments
Rolled Products: Increasing focus on higher margin segments Shipments Operating income 2004: 941 000 tonnes NOK 626 million Foil Foil 16% 22% Litho 32% Litho 16% Strip 68% Strip *Jan-Sep 2004: 710 000 tonnes 46% Page 51
Slide 54: Extrusion: Global growth from leading position in Europe
Extrusion: Global growth from leading position in Europe z Consolidating leadership in Europe z Closing performance gap in USA z Expanding in emerging and low cost markets z Growing value added business z Realizing system benefits Page 52
Slide 55: Automotive: Building on strengths and fixing underperformance
Automotive: Building on strengths and fixing underperformance z Precision Tubing - Strong financial performance - New plants in China and Mexico 2005 z Structures - Improving financial performance from low level - Focusing product portfolio - Restructuring ongoing z Castings - Improved financial per
Slide 56: A unique portfolio: Higher capital turnover
A unique portfolio: Higher capital turnover Revenues / gross investments EBITDA / Revenues Factor Percent 1.4 25 1.2 Hydro 20 Aluminium 1.0 Alcoa 15 0.8 Alcan Alcan Hydro 0.6 Alcoa 10 Aluminium 0.4 5 0.2 0.0 0 2000 2001 2002 2003 2004 2005 2000 2001 2002 2003 2004* 2005 1H 1H Source: Company reports
Slide 57: Hydro's gas story
Hydro’s gas story www.hydro.com
Slide 58: Natural gas importance increasing
Natural gas importance increasing 2004 production SEC reserves 1 000 boe/day million boe Gas 155 Oil Gas 905 Oil 1171 417 Total: 209 million boe Total: 2 076 million boe Page 56
Slide 59: Hydro's gas position – strongest among peers
Hydro’s gas position – strongest among peers Hydro Statoil ExxonMobil ENI BP Chevron Total Royal Dutch Shell BG ConocoPhilips Amerada Hess Marathon PetroCanada 0 5 10 15 20 25 Reserve life (years) Source: CSFB, Global Integrated Oils Page 57
Slide 60: Strong growth in equity gas production
Strong growth in equity gas production bcm 15 10 5 Existing long term commitments (expected take) and uncommitted volumes 0 2003 2004 2005 2006 2007 2008 Page 58
Slide 61: Infrastructure positions give high flexibility
Infrastructure positions give high flexibility NCS St.Fergus Emden Bacton Zeebrügge Dunkirk Page 59
Slide 62: Strong long term demand for gas
Strong long term demand for gas Europe* -Gas supply and demand UK Gas production and demand 800 120 700 600 100 500 80 bcm bcm 400 60 300 40 200 100 20 0 0 2002 2005 2008 2011 2014 2017 2020 2023 1995 2000 2005 2010 2015 2020 2025 Norway Other Production Production Demand Contracted Assumed prolonga
Slide 63: Strong market prices for equity gas
Strong market prices for equity gas Forward prices gas USD/MMbtu p/th 7 40 6 35 30 5 25 4 20 3 15 2 10 Ormen Lange cost to UK 1 5 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 NBP German import** Note: German import price estimate Sources: Argus 19 Nov 2004; GO and LSFO forwards 19 Nov 2004 Page
Slide 64: Piped gas to Europe – competitive in the future
Piped gas to Europe – competitive in the future Cost of Gas delivered to NBP (UK) Norway CNS* Ormen Lange Algeria LNG Yamal-Nenets West of Shetlands Qatargas 2 (LNG) 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 $/mmbtu * New Norway Central North Sea Source: Wood Mackenzie (November 2002); Hydro Page 62
Slide 65: Additional analytical information
Additional analytical information www.hydro.com
Slide 66: Indicative price and currency sensitivities 2005
1) Indicative price and currency sensitivities 2005 Based on 2004 prices and currency NOK million Before tax After tax Change Oil price per barrel 1 150 310 1 USD Aluminium price per tonne 800 560 100 USD USD Oil & Energy 7 250 1 960 1 NOK USD Aluminium 2 500 1 750 1 NOK USD before financial items 9
Slide 67: Consolidated income statements
Consolidated income statements NOK million 3rd quarter 2005 3rd quarter 2004 Operating revenues 44 612 38 176 Operating income 12 973 8 047 Non-consolidated investees 237 287 Financial income (expense), net 157 307 Other income, net - - Income from continuing operations before tax and minority inter
Slide 68: Oil & Energy – operating income
Oil & Energy – operating income 3rd quarter 2nd quarter 3rd quarter Operating income, NOK million 2005 2005 2004 Exploration and Production 11 799 9 049 7 559 Energy and Oil Marketing 466 660 272 Eliminations 360 (262) (310) Oil & Energy 12 625 9 447 7 521 3rd quarter 2nd quarter 3rd quarter Operati
Slide 69: Aluminium – operating income
Aluminium – operating income 3rd quarter 2nd quarter 3rd quarter Operating income, NOK million 2005 2005 2004 Metals 823 715 1 016 Rolled Products 182 308 167 Extrusion and Automotive 47 59 (8) Other and eliminations (210) 255 (317) Aluminium 842 1 337 858 3rd quarter 2nd quarter 3rd quarter Operati
Slide 70: Operating income
Operating income Individual operating segment 3rd quarter 2nd quarter 3rd quarter NOK million 2005 2005 2004 Exploration and Production 11 799 9 049 7 559 Energy and Oil Marketing 466 660 272 Eliminations 360 (262) (310) Oil & Energy 12 625 9 447 7 521 Metals 823 715 1 016 Rolled Products 182 308 16
Slide 71: Consolidated balance sheet
Consolidated balance sheet NOK million 30.09.2005 30.09.2004 31.12.2004 Cash and cash equivalents 16 607 30 246 14 366 Short-term investments 16 760 1 632 10 970 Receivables and other current assets 38 851 37 251 32 219 Inventories 14 225 12 458 12 851 Non-current assets 131 771 132 770 129 837 Tota
Slide 72: Statement of cash flow
Statement of cash flow Nine months ended Nine months ended NOK million 30 September 2005 30 September 2004 Operating activities: Net income 11 453 8 922 Depreciation, depletion and amortization 10 598 10 788 Other adjustments 3 334 4 664 Net cash provided by operating activities 25 385 24 374 Invest
Slide 73: Net income
Net income* By quarter NOK million Gains from divestments 4 218 4 183 3 765 3 577 3 638 3 693 3 280 2 840 2 482 2 480 2 324 2 397 2 224 2 132 513 2002 2003* 2004 2005 Accumulated 8 765 10 968 12 560 11 453 * Including the effect of change in accounting principles for 1st quarter 2003 amounting to a
Slide 74: Normalized RoaCE
Normalized RoaCE Per business area Oil & Energy Aluminium 13.0% Adjustment for write-down of German plants Normalized 11.4% 9.2% 5.0 % 4.1 % 2.9 % 1.5 % 2002 2003 2004 2002 2003 2004 Page 72
Slide 75: Dividend policy
Dividend policy z A steady development in line with the Buyback and dividend growth in the company’s results NOK million Dividend Buyback - 2004 dividend above normal level due to the very strong financial position 981 z 30% payout ratio over time 5021 1684 z Buyback of shares – a supplement when hi
Slide 76: Investment criteria
Investment criteria Capital discipline – basis for future profits z Strategic fit Oil price Hurdle Average z Hurdle rate 10% real IRR after tax USD-04/bbl Forward 45 Historical z Mid-cycle price assumptions 40 - Oil $25 per barrel 35 - Aluminium $1 500 per tonne - USD/NOK 7 30 - Aligned with busines
Slide 77: Investment criteria
Investment criteria Capital discipline – basis for future profits z Strategic fit Aluminium price Hurdle Average z Hurdle rate 10% real IRR after tax USD-04/tonne Forward 2 200 Historical z Mid-cycle price assumptions - Oil $25 per barrel 2 000 - Aluminium $1 500 per tonne - USD/NOK 7 1 800 - Aligne
Slide 78: Investment criteria
Investment criteria Capital discipline – basis for future profits z Strategic fit USD/NOK Historical Average z Hurdle rate 10% real IRR after tax Hurdle 10 z Mid-cycle price assumptions - Oil $25 per barrel 9 - Aluminium $1 500 per tonne - USD/NOK 7 8 - Aligned with business planning assumptions 7 z
Slide 79: The Ormen Lange development concept
The Ormen Lange development concept Nyhamna plant Hydro’s technologies and expertise make a difference 49 percent complete Gas export Multiphase transport Steep and uneven terrain Seabed development (850-1100m deep) Page 77
Slide 80: Key facts: Ormen Lange and Langeled project
Key facts Ormen Lange and Langeled project Total field & pipeline investments NOK 66 bn (10 bn USD) 2003 Production start Ormen Lange October 2007 Operations start Langeled October 2006 Recoverable gas reserves 397 Bcm (14 TCF) Recoverable condensate 28.5 Mcm Gas production 21.4 Bcm/yr (2.100 mmcfd)
Slide 81: 21 billion barrels left to discover
21 billion barrels left to discover Barents Sea: 6.2 billion barrels High risk – high potential Oil-play potential Norwegian Sea: 7.7 billion barrels High risk – medium/high potential North Sea: 7.5 billion barrels Moderate risk – smaller structures High value per barrel Source: NPD Page 79
Slide 82: Canada: Mature area opportunities in highly profitable portfolio
Canada Mature area opportunities in highly profitable portfolio Existing portfolio Hibernia and Terra Nova optimization Hebron development solution Exploration Near infrastructure led exploration Mature current licence portfolio Assess risk/volume in immature basins Acquiring resources Increase tech
Slide 83: Angola
Angola Diversified opportunities in profitable growth portfolio Existing portfolio Girassol and Jasmim optimizations Dalia/Rosa development projects 3rd production hub selection Exploration Commercialize Block 4 discovery Alternative potential in Block 34 New opportunities with Sonangol P&P Signific
Slide 84: Russia
Russia Legacy asset opportunities through long-term commitment Existing portfolio Further development of Kharyaga Exploration Pursuing business opportunities Acquiring resources Shtokman Co-operation with Gazprom on the development concept Page 82
Slide 85: Libya
Libya Existing exploration potential in long-term core area Existing portfolio Mabruk developments Murzuq developments Exploration Exploration drilling Co-operation with Wintershall EPSA exploration round V Acquiring resources Actively pursuing additional value creating growth opportunities Page 83
Slide 86: Iran
Iran Exploring for oil in key petroleum province Exisiting portfolio Azar Well Anaran and Khorramabad exploration acreage Exploration Well testing Azar 2 - positive results Basis for long term development in Iran Page 84
Slide 87: Gulf of Mexico
Gulf of Mexico Commercial mindset and deep-water competence Existing portfolio Telemark development (operator) Lorien development (non operator) Exploration Lorien Telemark Successful lease sales Operator blocks Acquiring resources Actively pursing additional value creating growth opportunities Page
Slide 88: Production per field – 3Q 2005
Production per field – 3Q 2005 Boe/day Hydro Hydro (oil including NGL Share % 3Q 04 3Q 05 and condensate) 3Q 04 3Q 05 Grane 38.00 115 000 43 836 195 000 73 951 Oseberg incl C 34.00 163 000 55 451 151 000 51 347 Snorre 17.65 191 000 33 709 168 000 29 660 Oseberg South 34.00 83 000 28 210 79 000 26 72
Slide 89: Production per field
Production per field 2004 2003 Total Oil Gas Total Oil Gas 1,000 boe/day 1,000 boe/day million CF/day 1,000 boe/day 1,000 boe/day million CF/day Oseberg fields 115.7 95.3 104.3 115.1 103.0 59.6 Troll 74.9 32.1 247.6 80.0 37.0 248.1 Snorre fields 58.1 56.2 10.7 67.5 65.0 12.8 Grane 46.3 46.3 - 5.5 5.
Slide 90: Operating costs per boe
Operating costs per boe NOK/boe 99.7 100 83.8 87.3 82.1 80 60 40 20 0 2002 2003 2004 YTD 2005 Exploration 20.3 8.1 6.0 4.9 Net transportation 9.0 6.8 8.3 9.3 Other cost/income 1.4 1.7 0.7 2.3 Deprec.& aband. 46.4 46.4 46.4 46.1 Gas for injection 0.4 0.7 2.8 5.1 Prod. cost 22.2 20.0 17.9 19.5 Product
Slide 91: Exploration activity and costs
Exploration activity and costs NOK million 1 500 1 200 900 600 Expensed share 300 0 - 300 2004 2005 Capitalized 2002 2002 2003 share Activity Expensed old wells Cost reduction Angola Refund insurance Iran Page 89
Slide 92: Average realized gas prices
Average realized gas prices 3 NOK/Sm 1.47 1.50 1.36 1.31 1.20 1.07 1.10 1.07 1.03 1.06 0.98 0.99 1.01 0.98 1.00 0.89 0.86 0.50 0.00 2002 2003 2004 2005 Page 90
Slide 93: UK gas prices – NBP forward curves
UK gas prices – NBP forward curves Pence/th End Q4 2003 End Q3 2004 End Q4 2004 95 End Q1 2005 End Q2 2005 End Q3 2005 85 75 65 55 45 35 25 15 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Page 91
Slide 94: Nordic power market – forward curves
Nordic power market – forward curves NOK/MWh End Q2 2004 End Q3 2004 End Q4 2004 400 End Q1 2005 End Q2 2005 End Q3 2005 350 300 250 200 150 2005 2006 2007 2008 Page 92
Slide 95: Western World demand expected to grow in the coming years
Western World* demand expected to grow in the coming years 1 000 tonnes 40 000 % growth per segment 35 000 4.1 Other 3 000 30 000 2 800 3 000 4.1 Durables 2 700 2 800 2 400 25 000 2 500 5 600 2 400 2.8 5 300 Electrical and 4 800 5 000 engineering 20 000 6 500 6 300 2.7 B&C 5 600 5 900 15 000 5 400 5
Slide 96: Primary aluminium production
Primary aluminium production Primary production (1 000 tonnes) * 2004 2003 2002 Karmøy 278 271 273 Årdal 222 215 206 Neuss 223 221 173 Sunndal 306 210 153 Kurri-Kurri 155 156 122 Høyanger 76 74 73 Søral (49.9% ownership interest) 82 79 67 Stade 69 69 48 Slovalco** 157 - - Other 152 178 138 Total 1 7
Slide 97: Aluminium – operational data
Aluminium – operational data Q3 Q2 Q1 Q4 Q3 Q2 Q1 Volumes and prices 2005 2005 2005 2004 2004 2004 2004 Primary production (1 000 tonnes) * 461 457 444 446 441 418 415 Total metal products sales excluding trading 741 835 802 735 752 776 786 (1 000 tonnes) LME realized (USD/tonne) including hedges 1
Slide 98: Inventories – primary aluminium
Inventories – primary aluminium 1 000 tonnes IAI (Producers' inventories) LME (London Metal Exchange) 5 000 4 000 3 000 2 000 1 000 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005* Sources: IAI and LME, 2005* as of end-August Page 96
Slide 99: Operating income – Adjusted EBIT – Adjusted EBITDA
Operating income – Adjusted EBIT – Adjusted EBITDA Full year 2004 Operating Non- Interest Selected Other Depr. Adj. NOK million income cons. income fin. income Adj. EBIT and EBITDA investees items amort. Exploration and Production 28 363 4 46 3 - 28 416 9 752 38 168 Energy and Oil Marketing 2 650 73
Slide 100: Operating income – Adjusted EBIT – Adjusted EBITDA
Operating income – Adjusted EBIT – Adjusted EBITDA Third quarter 2005 Non- Selected Depr. Operating Interest Other Adjusted Adjusted NOK million income cons. income fin. income EBIT and EBITDA investees items amort. Exploration and Production 11 799 - 3 3 - 11 805 2 316 14 121 Energy and Oil Marketi
Slide 101: Pensions
Pensions NOK million 2004 2003 2002 Total Pension Obligations (25 399) (23 456) (19 422) Pension Plan Assets 16 504 14 669 12 116 Funded status of the plans (8 895) (8 787) (7 306) Net accrued pension recognized on balance sheet (1 371) (852) (265) Unrecognized prior service costs and net loss (7 52
Slide 102: Financial solidity – calculation
Financial solidity – calculation 31 31 31 31 30 Amounts in NOK million December December December December September 2001 2002 2003 2004 2005 [A] Cash and cash equivalents 27 148 5 965 15 249 14 366 16 607 [B] Short-term investments 2 421 2 647 1 581 10 970 16 760 [C] Bank loans and other interest-b
Slide 103: Page 101
Hydro is a Fortune 500 energy and aluminium supplier founded in 1905, with 36,000 employees in nearly 40 countries. We are a leading offshore producer of oil and gas, the world's third-largest integrated aluminium supplier and a pioneer in renewable energy and energy- efficient solutions. As we look