Hydro Reports Strong Q2 Results
Hydro's net income for the second quarter of 2006 amounted to NOK 5,394 million (NOK 4.30 per share), compared with NOK 3,577 million (NOK 2.90 per share) in the second quarter of 2005.
Net income for the first half of 2006 amounted to NOK 11,263 million (NOK 9.00 per share), compared with NOK 7,270 million (NOK 5.80 per share) for the first half of 2005.
Operating income for the second quarter of 2006 amounted to NOK 14,640 million, compared with NOK 11,255 million in the second quarter of 2005. The improved earnings were mainly driven by higher oil and gas prices together with higher aluminum prices. Operating income amounted to NOK 32,507 million for the first half of 2006, compared with NOK 23,009 million the first half of 2005, an increase of 41 percent.
Net cash provided by operating activities was NOK 23,142 million for the six months ended 30 June 2006, compared with NOK 11,752 million for the first half of 2005. Approximately NOK 6,500 million of the increase related to increased tax accruals which will be paid during the second half of 2006.
Strong second quarter “Hydro reports strong second quarter earnings, reflecting continued high oil and gas prices as well as good cost control in an environment with significant cost pressure in most areas. However, the results were negatively affected by lower-than-expected oil and gas production,” said Eivind Reiten, Hydro’s president and CEO.
Oil & Energy Operating income for Hydro’s Oil & Energy division amounted to NOK 13,168 million for the quarter. Hydro realized an average oil price of US$67.90 per barrel in the second quarter of 2006, an increase of 36 percent compared with the second quarter of 2005, and an increase of 12 percent compared with the first quarter of 2006. Realized gas prices increased 37 percent to NOK 1.79 per standard cubic meter (Sm3) in the second quarter of 2006, compared with the second quarter of 2005, but decreased 17 percent compared with the first quarter of 2006 mainly due to lower spot prices.
Oil and gas production averaged 537,000 barrels of oil equivalents (boe) per day during the second quarter of 2006, approximately the same level as in the second quarter of 2005, but down 73,000 boe per day from the first quarter of 2006. For the first half of the year, average oil and gas production increased to 573,000 boe per day, compared with 561,000 boe per day in the first half of 2005.
At the end of June, the Ormen Lange/Langeled project was 75-percent complete, in line with the schedule and budget. As planned, activity levels relating to offshore and onshore work will reach peak levels during this summer and fall season. Exploration activity proceeded at a high level during the second quarter of 2006. Hydro participated in a total of eight new discoveries in the Gulf of Mexico (GoM), on the Norwegian Continental Shelf (NCS), and in Libya.
Other issues Income tax expense for the first half of 2006 amounted to NOK 23,571 million, compared with NOK 14,713 million for the first half of 2005. This represents 68 percent and 66 percent of income before tax, respectively.
Investments amounted to NOK 4.8 billion for the quarter. Roughly 85 percent of the amount invested related to oil and gas operations.
Outlook--Oil & Energy Oil and gas prices are expected to remain high in 2006. Hydro has revised its oil and gas production target for 2006 from 615,000 to 585,000 boe per day. The reduction of 30,000 boe per day is divided equally between Hydro's Norwegian and international portfolios and is mainly due to unexpected developments in Norway, Canada, and GoM and somewhat lower gas export from Norway than planned. The reduction excludes effects of the recently ended oil services strike on the NCS. The action, which began on June 21, had a limited effect on production on the NCS but affected production drilling and well activities for the industry as a whole.
Exploration activity is expected to remain high throughout 2006. In the second quarter of 2006, Hydro signed a contract with Transocean Inc. for deepwater drilling capacity in the GoM for the period from 2007 to 2013. The agreement will secure capacity in the medium- and long-term for Hydro's exploration program in the GoM.
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