Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Investor Presentation (April 2006)
152 slides from Norsk Hydro Asa's investor presentation, April 2006
Slide 1: Investor Presentation – April 2006
Investor Presentation – April 2006 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 harbour” 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: First quarter results 2006
First quarter results 2006 www.hydro.com
Slide 5: Highlights – first quarter
Highlights – first quarter z Record-high earnings z High energy prices and good operational performance z Significantly improved earnings for Aluminium Metal z Aluminium divided into two separate business areas z Strong financial position 5
Slide 6: Consolidated income statements
Consolidated income statements NOK million Q1 2006 Q1 2005 Operating revenues 55 416 42 152 Operating income 17 867 11 754 Non-consolidated investees 316 213 Financial income (expense), net 759 (910) Income before tax and minority interest 18 943 11 057 Income tax expense (13 117) (7 283) Minority i
Slide 7: Operating income
Operating income Individual operating segment NOK million Q1 2006 Q4 2005 Q1 2005 Exploration and Production 13 102 10 690 9 057 Energy and Oil Marketing 967 1 403 1 046 Eliminations 57 (556) (261) Oil & Energy 14 126 11 537 9 842 Aluminium Metal 2 040 12 1 068 Aluminium Products 452 (1 035) 279 Oth
Slide 8: Oil & Energy – highlights
Oil & Energy – highlights z Record-high energy prices z Oil and gas production – 610 000 boed z High exploration activity z Ormen Lange/Langeled on track – 67 percent complete z Shtokman bid submitted 8
Slide 9: Oil & Energy – operating income
Oil & Energy – operating income Operational data Q1 2006 Q4 2005 Q1 2005 Oil and gas production (1 000 boe/day) 610 589 584 Realized oil price, USD/boe 60.60 55.60 46.40 Realized oil price, NOK/boe 403.50 368.80 291.70 Realized gas price, NOK/Sm³ 2.17 1.85 1.47 Exploration expense, NOK million 1 407
Slide 10: Aluminium – first quarter 2006
Aluminium – first quarter 2006
Slide 11: Aluminium activities – operating income
Aluminium activities – operating income Operational data Q1 2006 Q4 2005 Q1 2005 Realized aluminium price, USD/tonne 2 146 1 851 1 783 Realized aluminium price, NOK/tonne 14 850 12 383 11 732 Primary aluminium production, 1 000 tonnes 449 464 444 Operating income, NOK million Q1 2006 Q4 2005 Q1 2005
Slide 12: Aluminium Metal – highlights
Aluminium Metal – highlights z Significantly improved financial performance z Realized aluminium price USD 2 146 per tonne z Further progress on smelter restructuring z Joint venture agreement for world-class aluminium plant in Qatar 12
Slide 13: Increasing aluminium price
Increasing aluminium price USD per tonne 3 000 LME (3 month avg.) LME forward Primary aluminium USD/ tonne 2 750 Q1 2006 average 2 444 Q1 2006 end 2 471 2 500 Q4 2005 average 2 069 2 250 Q4 2005 end 2 277 2 000 Average 2005 1 900 1 750 1 500 1 250 2000 2002 2004 2006 2008 2010 Per 24 April 2006 13
Slide 14: Aluminium Products – highlights
Aluminium Products – highlights z Improved earnings but returns remain unsatisfactory z High shipments for Rolled Products and Extrusion z Increasing metal prices, further pressure on margins z Continued good performance in Building Systems z Weak magnesium market 14
Slide 15: Adjusted income first quarter 2006
Adjusted income first quarter 2006 NOK million Reported income Adjustments Adjusted income Exploration and Production 13 102 173 13 275 Energy and Oil Marketing 967 (118) 849 Eliminations 57 (57) - Oil & Energy 14 126 (2) 14 124 Aluminium Metal 2 040 (339) 1 701 Aluminium Products 452 (119) 333 Othe
Slide 16: Infrequent and other special items impacting income statement first quarter 2006
Infrequent and other special items impacting income statement first quarter 2006 NOK million Unrealized (gains)/losses on oil and gas derivatives, Spinnaker Exploration and Production 127 Unrealized (gains)/losses on gas contracts Exploration and Production 46 Unrealized (gains)/losses on gas contra
Slide 17: Hydro – priorities
Hydro – priorities z Capture value from strengthened international portfolio z Repositioning Aluminium Metal z Extensive portfolio review in Aluminium Products z Further strengthening of oil and gas resource base z First-class project execution 17
Slide 18: Investor Presentation – April 2006
Investor Presentation – April 2006
Slide 19: 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 19
Slide 20: Consistently delivering profitable growth
Consistently delivering profitable growth Oil and gas production Aluminium production 1 000 boe/day 1 000 tonnes 800 2 000 600 1 500 400 1 000 200 500 0 0 2001 2006 2010E 2001 2006 2010E 20
Slide 21: Key messages
Key messages z Record-high earnings and strong financial position z Strong growth in Oil & Energy - 2005-2010: 6% annual growth - 2005: 14 discoveries and 7 discoveries by Spinnaker* - 2006: 615 000 boed - 2006: 60 exploration wells; 20-25 in Norway and around 20 in Gulf of Mexico - Ormen Lange on t
Slide 22: High oil prices – improved aluminium prices
High oil prices – improved aluminium prices High oil price driven by Increased demand – Low inventories strong demand and supply concerns OPEC spare capacity at low levels Higher costs support increased prices million bbl/day $/boe $/tonne days 5 80 Aluminium inventories (days of consumption) 2 600
Slide 23: Financial overview 2005
Financial overview 2005 Operating revenues – NOK 175 billion Earnings after tax – NOK 16 billion Other Other 1% 16% Aluminium Oil & Aluminium 9% Energy 46% 53% Oil & Energy 75% Adjusted EBITDA – NOK 65 billion Capital employed – NOK 109 billion Other Other 5% 6% Aluminium 12% Oil & Aluminium Energy
Slide 24: Consolidated income statements
Consolidated income statements NOK million 2005 2004 Operating revenues 174 201 153 891 Operating income 46 432 31 847 Non-consolidated investees 619 629 Financial income (expense), net (1 890) 137 Other income, net 990 169 Income from continuing operations before tax and minority interest 46 152 32
Slide 25: Income from continuing operations
Income from continuing operations* By quarter 5 869 NOK million Gains from divestments 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 5 869 * Changes in accounting principles for 4th quarter 2005 resulted in a negative amou
Slide 26: Adjusted EBITDA
Adjusted EBITDA NOK million 22 769 17 108 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 22 769 26
Slide 27: Return on capital significantly improved
Return on capital significantly improved Return on average Capital Employed – RoaCE Adjustment for special events * Actual 19.9% 16.8% 13.6% 13.0% 8.4% 7.2% 2002 2003 2004 2005 * Special events include, 2004: write-downs in Aluminium and changes in tax regulation, 2005: write-downs in Aluminium and
Slide 28: Return on capital by business area
Return on capital by business area Return on average Capital Employed – RoaCE Oil & Energy Aluminium Adjustment for Spinnaker 32.7% Adjustment for write-downs Actual Actual 26.2% 23.4% 16.2% 11.6% 7.0% 4.7% 6.0% * 2.7% 3.5% 3.4% 2002 2003 2004 2005 2002 2003 2004 2005 * Includes unrealized losses on
Slide 29: Return on capital competitive with peers
Return on capital competitive with peers RoaCE RoaCE 35%% 35 16 % Peer range * Peer range** Hydro Oil & Energy 14 % Hydro Aluminium 30%% 30 12 % 25 % 25 % 10 % 20 % 20 % 8% 15 % 15 % 6% 10 % 10 % 4% 5% 2% 5% 0% 0% 0 % 2000 2001 2002 2003 2004 Q3 2000 2001 2002 2003 2004 2005 2000 2001 2002 2003 2004
Slide 30: Improved capital efficiency at constant prices
Improved capital efficiency at constant prices Normalized RoaCE* 9.2% z Assumptions: 7.5-8.5% 8.2% - Oil price USD 25/boe - Aluminium price USD 1 500/tonne - NOK/USD 7.0 6.3% - NOK/EUR 8.0 - Unrealized gain/loss on derivatives, gain/loss on divestments and restructuring charges are eliminated from n
Slide 31: Strong financial position
Strong financial position Adjusted net debt/equity ratio * 0.67 0.60 0.44 0.50 0.38 0.34 0.31 0.17 0.11 1999 2000 2001 2002 2003 2004 2005 2006 Q1 * Interest-bearing debt + net pension liability (tax adjusted) + operating lease commitments (discounted) – cash and cash equivalents – other liquid asse
Slide 32: Capital allocation – upstream focus
Capital allocation – upstream focus NOK billion 2005 41* z Spinnaker transaction z Other investments lower than 30 planned NOK 25-30 24 billion annually 2006 - 2010 z Oil & Energy - Projects on track - Increased exploration activity z Aluminium - Scale down overall investment level 2005 plan 2005 20
Slide 33: Capital allocation 2006 - 2010
40 Capital allocation 2006 - 2010 E&P: Committed investments Aluminium investments E&P: Uncommitted investments 30 30 Annual investments NOK 25–30 billion 25 NOK 55-80 bn: Unncommitted/ 20 non-sanctioned E&P investments and Exploration expenditure* 10 NOK 25 bn: Aluminium NOK 45 bn: Committed E&P 0
Slide 34: Sanctioned projects 2005 – robust profitability
Sanctioned projects 2005 – robust profitability Oil price gives 10% real rate of return post tax* Troll West Operator IOR NCS Operator NCS Delta International Oseberg Sør Partner-operated NCS Tune Phase 3 Fram Øst Libya, H-field GoM, Lorien Tordis IOR Tyrihans Volve Norne K Templ. Ringhorne Øst 0 10
Slide 35: Proposed 2005 dividend: NOK 22 per share
Proposed 2005 dividend: NOK 22 per share Dividend in NOK/share 22.0 20.0 11.0 10.5 10.0 9.5 2000 2001 2002 2003 2004 2005 35
Slide 36: Dividend policy
Dividend policy 30% payout ratio over time 61 % z Dividend policy maintained 46 % 44 % z Planned payout per share in 2005 is in line with policy 35 % 33 % 33 % 31 % z Continued high commodity 26 % prices support current 26 % payout per share level 18 % z Challenging to maintain a stable increase in
Slide 37: Competitive shareholder returns
Competitive shareholder returns Total shareholder return (TSR) 1 Jan 2000 - 2 Dec 2005 Hydro ENI BG Group Total ExxonMobil Chevron Shell BP Alcan Alcoa -50 % 0% 50 % 100 % 150 % 200 % 250 % Source: Datastream 2 Dec 2005, NYSE, USD 37
Slide 38: Competitive shareholder returns
Competitive shareholder returns Share price development 1 Jan 2006 - 21 April 2006 Hydro 50 % Statoil 44 % BG Group 41 % Alcan 27 % ConocoPhillips 25 % Alcoa 20 % BP 19 % ExxonMobil 16 % Shell 14 % Total 12 % ENI 10 % Chevron 8% 0% 5% 10 % 15 % 20 % 25 % 30 % 35 % 40 % 45 % 50 % Source: Yahoo Financ
Slide 39: Oil & Energy
Oil & Energy
Slide 40: The Oil and Energy portfolio 2005
The Oil and Energy portfolio 2005 Oil Gas Power Production Oil & gas 563 000 boed 398 000 boed 165 000 boed 10.7 TWh* 9.4 bcm * Normal range of annual production: 7-11 TWh 40
Slide 41: Oil & Energy – Adjusted EBITDA
Oil & Energy Adjusted EBITDA NOK million 17 398 15 190 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 17 398 41
Slide 42: Oil & Energy outlook and strategy
Oil & Energy outlook and strategy z Profitable production growth z Realize potential of strong portfolio z Strengthen resource base z Technological and operational leadership 42
Slide 43: Profitable production growth
Profitable production growth 1 000 boe/day 1 000 Historical performance Target Expected z 2006 target: 615 000 boed 8% CAGR* 6% CAGR** z 2010 expected: 750 000 boed 750 750 615 z Compound annual growth rate 563 - 2001-2008E: 8% 500 - 2005-2010E: 6% z Increased production outside Norway 250 0 2006E 2
Slide 44: New fields on stream 2006 - 2007
New fields on stream 2006 - 2007 International Field Hydro peak production (boe/day) Peak year 2004 2005 2006 2007 Lorien 6 500 2006 W Dalia 24 000 2007 W Rosa 13 000 2008 W Eastern Gulf development* 12 500 2008 W WW Oseberg Vestflanken 12 000 2007 W Oseberg South J Sentral 2 000 2009 W W W Operator
Slide 45: 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 46: First-class project execution
First-class project execution Offshore projects last five years* Average project size** Total cost change % NOK billion Hydro: NOK 15 billion/project Hydro: 0% Hydro operator Other operators 0 5 10 15 20 -10 % 0% 10 % 20 % 30 % 40 % * 1998-2005: Hydro operated projects totalling USD 15bn delivered o
Slide 47: Ormen Lange / Langeled 67% complete
Ormen Lange / Langeled 67% complete z Norway’s largest industrial project. Largest gas development in Europe z Total investments: NOK 66 billion (2003 NOK) z Hydro 18% equity z Supply 20% of UK gas demand z Start production 1 October 2007 47
Slide 48: 2005: International breakthrough
2005: International breakthrough Russia Denmark Canada Iran Libya US Gulf of Mexico Nigeria Brazil Angola 48
Slide 49: Capturing US Gulf of Mexico potential
Capturing US Gulf of Mexico potential z Production estimate 2006 – 30 000 boed z 42 producing leases: four deepwater and 38 shelf z 443 leases – 64% deepwater z Seismic data – covering most of US Gulf of Mexico z High exploration activity – around 20 wells to be spudded in 2006 z Deepwater field dev
Slide 50: Field development in US Gulf of Mexico
Field development in US Gulf of Mexico Shelf - Several gas fields Telemark - Short lead times Area Deepwater z Lorien - 30% interest Lorien - Start production - April 2006 - Annual peak production - 6 500 boed in 2006 Eastern Gulf z Eastern Gulf - Spiderman 18.33% Louisiana - San Jacinto 26.67% - Q
Slide 51: Petroleum production per quarter
Petroleum production per quarter 1 000 boe/day Oil Gas 615 610 596 591 584 589 569 552 541 539 173 514 484 489 166 176 208 147 178 184 156 154 142 123 112 116 430 442 422 415 396 406 399 405 402 391 385 372 373 2003 2004 2005 Q1 2006 Average 530 572 563 610 51
Slide 52: Production costs per barrel 2006
Production costs per barrel 2006 NOK/boe Gas injection cost 26.3 25.3 Production cost excluding gas injection 22.6 0.4 20.7 20.7 5.4 6.6 22.2 0.7 2.8 19.9 19.7 20.0 17.9 2002 2003 2004 2005 Q1 2006 Production in million boe 175 194 209 206 55 52
Slide 53: Strong exploration performance
Strong exploration performance 14 discoveries in 2005* – 7 in Norway Norway Denmark Iran Libya US Gulf of Mexico Angola 7 Spinnaker Exploration discoveries in 2005 * Excluding Spinnaker Exploration discoveries 53
Slide 54: Exploration competence developed on NCS
Exploration competence developed on NCS Discoveries on NCS 1985-2005 – Hydro has discovered 9 billion boe as operator Hydro discovered Ormen Lange in 1997 Million boe Hydro operator Other NCS operators Troll Oil Saga Petroleum 0 2 000 4 000 6 000 8 000 10 000 Reserves including 49 producing fields,
Slide 55: Increased exploration activity
Increased exploration activity Exploration spending in NOK billion 5.0 z Following up on strategic moves NOK 4-5 billion z About 60 wells planned in 2006 z Attractive exploration portfolio 2.1 - Balanced risk - Geography 1.4 2004 2005 2006 55
Slide 56: Rig coverage provides flexibility
Rig coverage provides flexibility z Rig capacity secured on Norwegian Continental Shelf through 2009 z Rig slots secured in Gulf of Mexico and West Africa 56
Slide 57: Positive outlook for Norwegian shelf
Positive outlook for Norwegian shelf z Strong production growth 2005-2010 - 20% higher production, increased share of gas z High near-term activity level - 15 new fields under development - About 40 exploration wells planned 2006-2007 z Interesting opportunities in northern areas 57
Slide 58: Exploring for new resources in all regions
Exploring for new resources in all regions Barents z Participating in 40 exploration Sea wells in 2006-2007 z Add profitable resources to Norwegian Sea producing fields z Still growth prospects in mature areas z Exciting frontier drilling in the Barents Sea and Norwegian Sea North Sea Exploration we
Slide 59: 2005 discoveries and new acreage Q1 2006
2005 discoveries and new acreage Q1 2006 z Norway - 19th License round - PL 393 - PL 394 Barents Sea z Denmark - 6th License round - DK 01/06 - DK 04/06 - DK 05/06 Norwegian Sea - DK 06/06 Stetind Vigdis M5 Peon Astero Troll Brent Oseberg South B Oseberg South J North Sea Hydro operated Hydro partne
Slide 60: Technological and operational leadership
Technological and operational leadership z Cost-efficient, safe and smart operations z Driving innovation - Subsea technology - Advanced drilling - Increased oil recovery - Environmental technology 60
Slide 61: Drilling excellence drives value creation
Drilling excellence drives value creation z Early mover in drilling technology z 47 multilateral wells drilled with 76 branches z 50% of the world’s advanced multilateral wells z 88% of the world’s advanced offshore multilateral wells z First six-branched well on NCS started Dec 2005 61
Slide 62: Oil and gas: reserves and resources
Oil and gas: reserves and resources Million boe Additional expected reserves and resources in existing portfolio 4 000 Expected reserves in fields in production and fields under development 3 000 2 000 1 000 0 Proven reserves year- Additional expected 2005E Production Added expected Additional expec
Slide 63: Additional expected resources in portfolio
Additional expected resources in portfolio Million boe Hydro share in fields and discoveries* 1 000 International: Murzuq NC190 – Block 17 750 Under Operated Norway: Peon – Astero – Troll Brent – Osberg/Troll/Grane IOR evaluation Partner-op Norway: Snorre IOR – Lavrans – Eldfisk – Ekofisk Internatio
Slide 64: Commercializing a superior gas position
Commercializing a superior gas position
Slide 65: Strong short-term ramp-up in gas production
Strong short-term ramp-up in gas production Maximum lifting and secure best value Gas production 1 000 boe/day 12% CAGR* 300 z 12% annual growth rate (2000-2010) 250 z Increasing from 9.4 to 16 bcm (2005-2010) 200 z Market development facilitates further growth 150 z Large gas reserves in the middle
Slide 66: Strong long term demand for gas
Strong long term demand for gas Bcm/year Europe* - Gas supply and demand UK - Gas production and demand 1000 Assumed prolongations from outside Europe 140 Gas production - bcm annually Contracted from outside Europe Gas demand - bcm annually Production Europe ex. Norway 120 800 Production Norway Gas
Slide 67: Gas – an increasingly valuable commodity
Gas – an increasingly valuable commodity Hydro well positioned to capture this value USD per Boe 100 Brent NBP (National Balancing Point) - UK z Significant increase in gas prices 80 z Infrastructure in place 60 z High value “per barrel” for the long term 40 20 Ormen Lange break even 0 jan- jan- jan
Slide 68: Flexibility - increased value of gas portfolio
Flexibility - increased value of gas portfolio Norwegian Continental Shelf Strong reserve base Excellent Operator Basin Master St.Fergus Access to Infrastructure NBP* Easington*** Emden Bacton TTF** Zeebrugge/Hub Dunkerque PEG Gas Market Presence Long term sales Spot sales Downstream marketing Swap
Slide 69: Ormen Lange
Ormen Lange Securing gas to an undersupplied UK z Langeled – Hydro a driving force to route Ormen Lange Gas to the UK Ormen Lange - Short lead times - Hydro links up NCS to UK supply gap Langeled - Increased flow from Hydro fields - increased profiling from Hydro fields Frigg - Low cost – quick deli
Slide 70: Aluminium
Aluminium
Slide 71: Aluminium outlook and strategy
Aluminium outlook and strategy z Growing demand for aluminium products z Increased costs – an industry challenge z Strategy shift for Hydro - Prioritize upstream investment and repositioning - Reduce downstream exposure – focus on cash generation z Roadmap to increased profitability 71
Slide 72: China is leading the demand growth
China is leading the demand growth Metal products consumption (primary and recycled based) Million tonnes 80 70 67 CAGR 2005-15 R CAG 4 .5% Rest of the World 4.6% 4 .0 – 60 CIS and E. Europe 6.4% 55 50 Other Asia 3.3% 44 40 Western Europe 2.3% 36 30 North America 2.5% 20 10 China 7.6% 0 2000 2005E 2
Slide 73: Increasing aluminium price
Increasing aluminium price USD per tonne 3 000 LME (3 month avg.) LME forward Primary aluminium USD/ tonne 2 750 Q1 2006 average 2 444 Q1 2006 end 2 471 2 500 Q4 2005 average 2 069 2 250 Q4 2005 end 2 277 2 000 Average 2005 1 900 1 750 1 500 1 250 2000 2002 2004 2006 2008 2010 Per 24 April 2006 73
Slide 74: Alumina spot price
Alumina spot price Percentage of aluminium LME 3 months price $/tonne Percent 800 Spot alumina price % of LME 3 months aluminium price 30 600 20 400 10 200 0 0 1999 2000 2001 2002 2003 2004 2005 2006 Source: LME, Metal Bulletin, Macquarie Research 74
Slide 75: Alumina net balance
Alumina net balance 4.4 % average annual growth in demand Net Alumina balance (million tonnes) Required utilization Capacity increase 2005-2010 10 Committed Alumina projects Excess smelter capacity China (Alumina eqv.) Greenfield Required utilization rate Major decided projects (million t) 100 % Chi
Slide 76: Aluminium portfolio
Aluminium portfolio 2005 1 000 tonnes Equity Medium/long term contracts Alumina * 744 1082 Equity ** Electrolysis metal 1826 Equity ** 3rd party Remelt Metal products 1826 240 1755 Extrusion & Rolled Automotive Downstream 953 694 * Aluminium equivalents (2 tonnes alumina per tonne aluminium) ** Slov
Slide 77: Capital allocation toward upstream
Capital allocation toward upstream Capital employed Capital expenditure 2005 2006-2010E Primary Downstream Downstream Metal 30% Primary 41 % 36 % Metal 60% Metal Metal Products Products 10% 23 % 77
Slide 78: Aluminium Metal and Aluminium Products
Aluminium Metal and Aluminium Products Adjusted EBITDA NOK million NOK million 3 000 2775 3 000 Metals Rolled Products Extrusion Automotive Other and eliminations 2 500 2 500 2 000 2 000 1736 1636 1 500 1 500 1053 1 000 756 926 1 000 872 806 797 500 396 * 500 0 0 2005 2006 2005 2006 - 500 Accumulate
Slide 79: Increased costs – an industry challenge
Increased costs – an industry challenge Significant shift in industry cost curve* Cash cost (USD/t) z Energy - Oil and gas prices 2250 - Coal prices 2000 - CO2 emission trading 1750 2005 - Supply/demand for electricity 1500 2003 z Alumina 1250 2005 avg. 1375 1000 2003 avg. 1120 z Other raw materials
Slide 80: Aluminium power supply
Aluminium power supply z 2006 primary smelter power requirement 27 TWh - Long-term contracts: 23 TWh, Short-term supply: 4 TWh z 2006 estimated power cost increase of NOK 1.5 billion* - NOK 1.2 billion increase for upstream of which NOK 0.85 billion for Germany - 2007-2010: only limited price change
Slide 81: Hydro power costs on world average
Hydro power costs on world average German prices not competitive Power prices German electricity prices World smelter production 2005 €/MWh Million tonnes World average 6 26 USD/MWh Spot prices 70 Forward 31.12.05 5 60 4 50 3 40 30 2 20 1 10 0 0 0-5 6-10 11-15 16-20 21-25 26-30 31-35 36-40 40+ 2000
Slide 82: New projects strengthen primary production
New projects strengthen primary production Smelter project in Qatar z JV 50/50 signed - Hydro/Qatar Petroleum - 23 March 2006 z Hydro to market all metal - 585 000 tonnes per year z Expansion potential up to 1,200,000 tonnes per year z Attractive profitability z Expected start-up Q4 2009 Expansion 2
Slide 83: Increased alumina equity coverage at lower cost
Increased alumina equity coverage at lower cost Equity alumina production (bars) Alumina equity coverage 1 000 tonnes Percent 4 500 100 % 4 000 90 % 80 % 3 500 70 % 3 000 2 700 60 % 2 500 50 % 2 000 1 850 40 % 1 500 1 160 30 % 1 000 20 % 500 500 10 % 0 0% Est. weighted avg. 1998 2002 2006E 2010E cas
Slide 84: Improved relative smelter cost position
Improved relative smelter cost position World production 2005, 1 000 tonnes Cash cost 2005 (USD/t*) 2 250 2 000 1 750 Hydro 1 500 2005* Average: 1 375 USD per tonne 1 250 1 000 New capacity 2005-2010 Closures 2005-2010: 750 Alouette expansion 2005-2006 Hamburg closed end 2005 Qatalum greenfield expa
Slide 85: More competitive smelter portfolio
More competitive smelter portfolio Primary production, 1 000 tonnes 290 2 000 1 826 180 (110) (190) 2005 Closures Germany Søderberg closures Optimization Qatalum 2010E 2006* 2006 and 2009** 2006-2009 2009 * German closures: Hamburg (HAW) 40,000mt Q4’05, Stade 70,000mt end of December 2006 ** Søderbe
Slide 86: Repositioning enhances smelter portfolio
Repositioning enhances smelter portfolio Smelter geography Smelter size Europe Below 300 ktpy Outside Europe Above 300 ktpy 2 000 2 000 1 820 1 820 17% 33% 29% 43% 780 780 100% 83% 67% 100% 71% 57% 2000 2005E 2010E 2000 2005E 2010E All figures in 1 000 tonnes per year 86
Slide 87: Aluminium downstream activities
Aluminium downstream activities Total revenues 2005: NOK 46 billion Revenue split: Europe 74%, North America 16%, Others 10% Rolled Products Extrusion Automotive 43% 37% 20% 87
Slide 88: Downstream – focus on cash generation
Downstream – focus on cash generation Capital employed per business area 2005 - NOK 109 billion z Significant capital employed in Other Aluminium 5% Aluminum downstream 17% z Unsatisfactory returns z Urgent measures downstream - Reduce investments Oil & Energy 52% - Focus on cash generation - Cash c
Slide 89: Roadmap to increased profitability
Roadmap to increased profitability Return on average capital employed – RoaCE 2010 target: 9% RoaCE* ~0.6% 9% ~1.4% Approx. 7% ~1.7% ~1.8% ~0.1% 2005E level Energy prices Other, net Downstream Metals Qatalum and 2010 contribution contribution Alunorte 3 Roadmap excludes price, market and one-time ef
Slide 90: Summary
Summary z Oil & Energy - 2005-2010: 6% annual production growth - 2006 target: 615 000 boed - Increased potential on Norwegian Continental Shelf - Strong international growth - Step up exploration further z Aluminium - Improve profitability – roadmap to profitability target - Reduced total investmen
Slide 91: Hydro – priorities
Hydro – priorities z Capture value from strengthened international portfolio z Repositioning Aluminium Metal z Extensive portfolio review in Aluminium Products z Further strengthening of oil and gas resource base z First-class project execution 91
Slide 92: Additional information
Additional information
Slide 93: The Hydro share
The Hydro share z 250 million shares Others 13 % z 50 000 shareholders UK The 8% Norwegian z Listed in 5 countries State 43.8 % z Followed by 30 sell-side analysts Norway 17 % z Market value NOK 245 billion USA 18 % 93
Slide 94: A large international organization
A large international organization 33 000 professionals, 36 countries, 5 continents* Geography Business Area Other 15 % Other 26 % Norway Oil & Energy Brazil 35 % 10 % 1% China 1% Australia Aluminium 2% France 75 % Hungary 6 % USA Germany 2% 11 % 16 % 94
Slide 95: Building a stronger Hydro
Building a stronger Hydro z The Hydro Way is our platform z Leadership and competence development z International organization – diversity is key z Encouraging innovation and sense of urgency z Attracting new talents z Skills and experiences shared across Hydro 95
Slide 96: Safety
Safety Total reported injuries per million working hours (TRI) Rate 15 10 5 0 2000 2001 2002 2003 2004 2005 96
Slide 97: Additional information - Finance
Additional information - Finance
Slide 98: Indicative price and currency sensitivities 2006
Indicative price and currency sensitivities 2006 Income NOK million Net income Change before tax Oil price per barrel 1 100 325 1 USD Aluminium price per tonne 950 665 100 USD Income NOK million Net income Change before tax USD Oil & Energy 7 500 2 250 1 NOK USD Aluminium 2 800 1 900 1 NOK USD befor
Slide 99: Capital allocation
Capital allocation z Investments focused upstream z Reduced engagement downstream Aluminium - Minimum investment level - Cash positive z Business areas to demonstrate ability to fund capital projects with own cash flow 99
Slide 100: New investment criteria
New investment criteria z Oil & Energy USD 30-35 per barrel z Aluminium USD 1 600 - 1 700 per tonne z NOK/USD 6.50 100
Slide 101: Investment criteria – Oil & Energy
Investment criteria – Oil & Energy Maintaining capital discipline in volatile markets Oil price in USD 75 Brent Brent forward z Oil price - Long-term: USD 30-35 per barrel 65 z Currency 55 - NOK/USD 6.5 - NOK/EUR 8.0 45 z Hurdle rate - 10% IRR real after tax 35 - IRR after tax above Hydro’s cost of
Slide 102: Investment criteria – Aluminium
Investment criteria – Aluminium Maintaining capital discipline in volatile markets Aluminium price in USD 2 700 LME (3 month) 2 600 LME forward z Aluminium price 2 500 - USD 1 600 - 1 700 per tonne 2 400 2 300 z Currency 2 200 - NOK/USD 6.5 2 100 - NOK/EUR 8.0 2 000 1 900 z Hurdle rate 1 800 - 10% I
Slide 103: Secured prices for Spinnaker production
Secured prices for Spinnaker production 16 Oil - WTI (USD/bbl) Gas - Henry Hub (USD/mmbtu) 70 14 60 Secured price 12 45.00 - 71.45 50 10 Secured minimum 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, (Nominal) Source: E
Slide 104: Statement of cash flow
Statement of cash flow NOK million 2005 2004 Operating activities: Net income 15 638 12 560 Depreciation, depletion and amortization 16 086 16 898 Other adjustments (4 339) (1 734) Net cash provided by operating activities 27 385 27 724 Investing activities: Purchases of property, plant and equipmen
Slide 105: Positive cash-flow generation
Positive cash-flow generation 2003-2005 Oil & Energy 127.9 63.1 59.5 Aluminium 23.2 2.4 14.3 2.4 0.2 5.5 9.0 EBITDA Tax Invest- Other Net cash EBITDA Tax Invest- Other Net cash ments 1) flow ments flow 1) of which acquisition of Spinnaker NOK 16.4 billion 105
Slide 106: Normalized RoaCE by business area
Normalized RoaCE by business area 2003 - 2005 Oil & Energy Aluminium Normalized Adjustment for Spinnaker Normalized Adjustment for write-downs 12.3% 12.6% 11.3% 10.0% 4.8% 4.2% 4.2% 1.7% 1.3% 2003 2004 2005 2003 2004 2005 106
Slide 107: Increasing payout to shareholders
Increasing payout to shareholders NOK million Dividend Buyback 1 589 1 684 5 500 5 021 555 763 1 155 1 599 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 Dividend allocated to the year for which the dividend was paid. The (actual) payment of the div
Slide 108: Net income from continuing operations
Net income from continuing operations* By quarter 5 869 NOK million Gains from divestments 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 5 869 * Changes in accounting principles for 4th quarter 2005 resulted in a negative
Slide 109: Earnings per share 2001 - 2005
Earnings per share 2001 - 2005 NOK* 62.7 45.1 32.5 27.5 22.8 2001 2002 2003 2004 2005 * Continuing operations 109
Slide 110: Adjusted income – 2005
Adjusted income – 2005 NOK million Reported income Adjustments Adjusted income Exploration and Production 40 594 627 41 221 Energy and Oil Marketing 3 575 41 3 616 Eliminations (719) 719 - Oil & Energy 43 451 1 387 44 837 Aluminium Metal 2 694 1 210 3 904 Aluminum Products (175) 1 033 858 Other acti
Slide 111: Infrequent and other special items 2005
Infrequent and other special items 2005 NOK million Unrealized (gains)/losses on oil and gas derivatives, Spinnaker Exploration and Production 440 Unrealized (gains)/losses on gas contracts Exploration and Production 187 Unrealized (gains)/losses on gas contracts Energy and Oil marketing 41 Unrealiz
Slide 112: Variance analysis Hydro
Variance analysis Hydro NOK million Year to date 4th quarter 2005 65 493 17 000 2004 51 116 13 210 Variance adjusted EBITDA 14 377 3 790 - Prices and currency, Exploration and Production (E&P) 15 555 4 510 - Margin incl. currency effects ¹) 250 95 - Volume 85 620 - Fixed costs 860 (85) - Depreciatio
Slide 113: Investments
Investments 1) Individual operating segment NOK million 2005 2004 Exploration and Production 2) 33 846 10 606 Energy and Oil Marketing 2 333 1 460 Oil & Energy 36 179 12 067 Metals 1 792 4 244 Rolled Products 545 553 Extrusion and Automotive 1 425 1 398 Aluminium 3 762 6 194 Other activities 1 097 1
Slide 114: Consolidated balance sheet
Consolidated balance sheet NOK million 31.12.2005 31.12.2004 Cash and cash equivalents 10 463 14 366 Short-term investments 3 865 10 970 Receivables and other current assets 41 411 32 220 Inventories 14 553 12 851 Non-current assets 156 902 129 836 Total assets 227 195 200 243 Short-term interest-be
Slide 115: Additional information - Aluminium
Additional information - Aluminium
Slide 116: Alumina and power main smelter cost elements
Alumina and power main smelter cost elements World average cost structure* Hydro average cost structure* Other Other 13 % 13 % Casthouse Alumina Casthouse 33 % 4% Alumina 7% Carbon 40 % 10 % Carbon 9% Labour 7% Labour 10 % Power Power 26 % 28 % * CRU 2005, Site Operating Cost definition 116
Slide 117: Smelter site operating cost position
Smelter site operating cost position Weighted average, percent 7 13 10 28 100 9 Technology Regulatory Economy of scale 33 Contracts & Efficient work Tax frames processes Local cost level Alumina Carbon *) Power Labor **) Other ***) Cast-house Site operating costs cost Global market National/ Input f
Slide 118: Alumina business operating cost position
Alumina business operating cost position Weighted average, percent 4 11 12 Sustaining Costs 30 100 4 9 30 Bauxite Caustic Power Energy Labor Equipment Other Alumina * Business Soda operating cost * Alumina business operating cost USD 178/tonne in 2005 Source: 2005 CRU, Nominal US$. Note: By-products
Slide 119: Aluminium production 2005
Aluminium production 2005 32 million tonnes* Geography Company Other North Alcoa 18 % America 12 % 17 % Alcan Latin 10 % America Western 7% Europe Rusal Middle East Other 9% 15 % 6% 56 % Hydro CIS 6% 13 % China BHP Billiton 24 % 4% Chalco 3 % Source: CRU, HAM 119
Slide 120: Alumina production 2005
Alumina production 2005 61 million tonnes* Geography Company Eastern Africa Europe 1% 3% Others Other Asia 27 % 6% Western Alcoa/WMC Australia Europe 23 % 27 % 10 % CIS 10 % Chalco Hydro 2 % 11 % North Brazil CVG 3 % Alcan America 20 % China Sual 3 % 9% 11 % 12 % Glencore Rusal 5 % 7% Comalco 5 % BH
Slide 121: Industry increasingly exposed to market power prices
Industry increasingly exposed to market power prices Aluminium production* – power sourcing 1 000 tonnes 24 124 20 000 To be renewed Russia 15 000 10 000 Contract Unknown contract expiry 5 000 Captive 0 000 2005 2009 2013 2017 2021 2025 * Excluding China Source: CRU / Hydro 121
Slide 122: Aluminium – operational data
Aluminium – operational data Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Volumes and prices 2006 2005 2005 2005 2005 2004 2004 2004 2004 Primary production (1 000 tonnes) * 449 464 461 457 444 446 441 418 415 Total metal products sales excluding trading 835 736 741 835 802 735 752 776 786 (1 000 tonnes) LME realized
Slide 123: Primary aluminium production
Primary aluminium production 1000 metric tonnes Plant Country Interest 2005 2004 2003 Sunndal Norway 100% 362 306 210 Karmøy Norway 100% 277 278 271 Årdal Norway 100% 233 222 215 Neuss Germany 100% 225 223 221 Slovalco** Slovakia 20% 159 157 27 Kurri-Kurri Australia 100% 152 155 156 Alouette Canada
Slide 124: Germany 2006-2008
Germany 2006-2008 z Closures: HAW closed (40 000 mt), Stade to be closed end of 2006 (60 000 mt) z Neuss represents 12% of Hydro primary production. Positive margin locked in z Volumes and prices: USD 2,220/ mt average price for 460 000 mt - 2006: USD 2 150/ tonne – 130 000 mt - 2007-2008: USD 2 250
Slide 125: 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 63.04 60 50 45.98 z Forward prices all 40 time high – above 29.49 60€/Mwh 30 28.52 22.55 z Forward power 20 prices driven by CO2 and fuel prices 10 0 jan-02 jul-02
Slide 126: 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 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Q1 2006 Sources: IAI and LME 126
Slide 127: Additional Information - Oil & Energy
Additional Information - Oil & Energy
Slide 128: Operating costs per boe
Operating costs per boe NOK/boe 122.5 99.4 94.9 83.8 82.1 Q1 2006 excl. 2003 2004 2005 Q1 2006 Spinnaker Exploration 8.1 6.0 8.9 25.6 12.2 Net transportation 6.8 8.3 9.4 12 12.2 Other cost/income 1.7 0.7 3 4.4 3.8 Deprec.& aband. 46.4 46.4 48.2 54.2 45.1 Gas for injection 0.7 2.8 5.4 6.6 6.7 Prod. c
Slide 129: Average realized gas prices
Average realized gas prices NOK/Sm3 2.17 1.85 1.47 1.36 1.31 1.20 1.10 1.07 1.03 1.06 0.99 1.01 0.98 2003 2004 2005 2006 129
Slide 130: Extending production growth through 2010
Extending production growth through 2010 Oil and gas production 1 000 boe/day 800 z Top-quartile growth continues - In oil - In gas 600 - On NCS - Internationally 400 z Robust growth - 85% sanctioned projects - Low break-even prices 200 z Growing international share - Higher after-tax value per barr
Slide 131: Average prices and exchange rates
Average prices and exchange rates Oil Oil Gas 500 80 NOK/boe USD/boe NOK/boe NOK/USD NOK/Sm3 USD/boe Q1 2004 31.6 218.3 6.91 1.10 400 Q2 2004 34.7 238.0 6.85 0.98 60 Q3 2004 41.7 286.3 6.87 1.07 Q4 2004 41.8 263.8 6.32 1.20 300 2004 37.3 251.3 6.74 1.09 40 200 Q1 2005 46.4 291.7 6.29 1.47 Q2 2005 49
Slide 132: Exploration activity/cost
Exploration activity/cost NOK million 1 400 1 200 1 000 800 600 Expensed 400 share 200 0 - 200 - 400 2002 2003 2004 2005 2006 Capitalized share Expensed Expensed old wells Refund insurance Iran Seismic Spinnaker 132
Slide 133: Oil production per field Q1 2006
Oil production per field Q1 2006 Boe/day Share Q1 2005 Hydro Q1 2005 Q1 2006 Hydro Q1 2006 Oil and NGL/Condensate Grane 38.00% 164 62 215 82 Oseberg incl C 34.00% 165 56 137 47 Snorre 17.65% 130 23 159 28 Troll B&C 9.78% 268 26 245 24 Oseberg South 34.00% 69 23 70 24 Ekofisk 6.65% 366 24 342 23 Gull
Slide 134: Gas production per field Q1 2006
Gas production per field Q1 2006 Boe/day Share Q1 05 Hydro Q1 05 Q1 06 Hydro Q1 06 Gas Troll A 9.78% 560 55 546 53 Oseberg incl C 34.00% 50 17 101 34 Sleipner Area 9.42% 242 23 260 25 Tune 40.00% 65 26 50 20 Åsgard 9.60% 190 18 178 17 Kvitebjørn 15.00% 73 11 113 17 Spinnaker 100.00% 0 0 9 9 Gullfaks
Slide 135: Oil production per field 2005
Oil production per field 2005 Boe/day Oil and NGL/Condensate Share 2004 Hydro 2004 2005 Hydro 2005 Grane 38.00% 118 45 178 67 Oseberg incl C 34.00% 170 58 149 51 Snorre 17.65% 201 36 157 28 Troll B&C 9.78% 312 30 245 24 Oseberg South 34.00% 80 27 71 24 Ekofisk 6.65% 363 24 354 24 Gullfaks inclu. Sat
Slide 136: Gas production per field 2005
Gas production per field 2005 Boe/day Share 2004 Hydro 2004 2005 Hydro 2005 Troll A 9.78% 444 43 469 46 Sleipner Area 9.42% 225 21 248 23 Tune 40.00% 68 27 54 21 Oseberg incl C 34.00% 44 15 51 17 Åsgard 9.60% 173 17 176 17 Kvitebjørn 15.00% 10 2 73 11 Gullfaks inclu. Sat 9.00% 62 6 72 6 Ekofisk 6.65
Slide 137: Proved reserves of oil and gas
Proved reserves of oil and gas SEC definition Reserves 31.12.2004 – million boe 2 076 Reserve revisions 64 New reserves 59 Sales, purchases and swaps 52 Production 2005 (206) Reserves 31.12.2005 – million boe 2 046 Reserve replacement ratio and reserve life Reserve replacement ratio 2005 85% Reserve
Slide 138: International E&P activities
International E&P activities
Slide 139: Hydro US GoM: Attractive portfolio and a platform for growth
Hydro US GoM: Attractive portfolio and a platform for growth Key information Telemark z US GoM: 443 leases – 64% deepwater Area z Seismic data (2D,3D, PSDM) covering most of US GoM z 7 discoveries 2005 z Around 20 exploration wells to be spudded in 2006 z 42 producing leases: 4 deepwater and 38 on t
Slide 140: Internationalization focus
Internationalization focus Hydro is capitalizing on deep water competence Reserves (mm boe) Mexico representation office opened 4Q 2005 50 000 40 000 Hydro presence Yet-to-find reserves 30 000 Remaining reserves 20 000 10 000 0 US GoM Mexico Mauritania Brazil Nigeria Norway Indonesia India Canada Eq
Slide 141: US GoM – Hydro seismic data coverage
US GoM – Hydro seismic data coverage 3D seismic - 25,000 Blocks 2D seismic - 164,000 line Km 141
Slide 142: New opportunities in the GoM
New opportunities in the GoM Hydro blocks in yellow 2005 2006 Lease Expiration by Year 2007 Thunder Hawk & Eastern Gulf areas Front Runner area Lorien area 142
Slide 143: Canada
Canada Mature area opportunities in highly profitable portfolio z Existing portfolio - Hibernia and Terra Nova optimization - Hebron development solution z Exploration - Near infrastructure led exploration - Mature current licence portfolio z Assess risk/volume in immature basins z Acquiring resourc
Slide 144: Angola
Angola Diversified opportunities in profitable growth portfolio z Existing portfolio 17 4 - Moving ahead with Gimboa – Block 4 - Girassol and Jasmim optimizations - Dalia/Rosa development projects - 3rd production hub selection 18 z Exploration - Commercialize Block 4 discovery - Alternative potenti
Slide 145: Russia
Russia Legacy asset opportunities through long-term commitment z Existing portfolio - Further development of Kharyaga z Exploration - Pursuing business opportunities z Acquiring resources - Shtokman bid submitted - Co-operation with Gazprom on the - development concept 145
Slide 146: Libya
Libya Existing exploration potential in long-term core area z Existing portfolio - Mabruk developments - Murzuq developments - Secured operatorship: NC-146 z Exploration - Exploration drilling - Co-operation with Wintershall - EPSA exploration round V z Acquiring resources - Actively pursuing additi
Slide 147: Iran
Iran Exploring for oil in key petroleum province z Exisiting portfolio Anaran - Anaran exploration acreage z Exploration - Well test Azar 2 – very positive results 2005 - Drilling Changuleh West well z Basis for long term development in Iran 147
Slide 148: Brazil
Brazil Agreement to acquire 50% of Chinook field z Chinook field* - Shallow water - Heavy oil – 14 degrees API - 1.8 billion boe in place – STOIIP** z Leverage Troll and Grane world-class competence - Multilateral well technology *Awaiting government approval ** STOIIP: Stock Tank Oil Initially In P
Slide 149: Exploration acreage secured worldwide
Exploration acreage secured worldwide NCS Barents Sea/ Russia Americas Middle East Africa Current E&P activity Frontier E&P activity 149
Slide 150: Investor Relations in Hydro
Investor Relations in Hydro
Slide 151: Investor Relations in Hydro
Investor Relations in Hydro t +47 22 53 32 73 Idar Eikrem Senior Vice President Idar.Eikrem@hydro.com m +47 950 28 363 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@hy
Slide 152: Hydro is a Fortune energy and aluminium supplier
Hydro is a Fortune 500 energy and aluminium supplier with 33,000 employees in 40 countries. We are a leading offshore producer of oil and gas, the world's third largest aluminium supplier and a leader in the development of renewable energy sources. Our mission is to strengthen the viability of the c