Hydro: Record Results but Q4 Hit by Write-downs
Hydro achieved record results for 2006, despite a weak fourth quarter due to asset write-downs and other special items. Continued high oil and gas prices, aluminum prices at historic levels and solid operational performance contributed to the annual result, providing a strong foundation for Hydro going forward.
Net income rose by 11 percent to NOK 17,391 million for the full-year 2006 from 2005. For the fourth quarter alone, net income fell to NOK 1,323 million (NOK 1.10 per share) from NOK 4,186 million (NOK 3.30 per share) in the fourth quarter of 2005 and NOK 4,804 million (NOK 3.90 per share) in the third quarter of 2006.
The main reason for the weak quarterly result was the previously announced write-down of US$836 million (NOK 5,240 million) related to the Front Runner field and nine shelf fields in the Gulf of Mexico, combined with impairment charges and costs relating to divestments, closures and plant rationalizations in aluminum products operations and unrealized losses on derivative contracts.
Operating income for the full-year 2006 rose to NOK 52,224 million, up 13 percent compared with 2005. For the fourth quarter alone, operating income amounted to NOK 4,573 million, compared with NOK 10,360 million in the fourth quarter of 2005 and NOK 15,278 million in the third quarter of 2006.
"Last year's record result was driven by high oil, gas and aluminum prices, combined with strong operational performance,'' said Hydro President and CEO Eivind Reiten. "Market outlooks for most of Hydro's core products are promising. The ongoing restructuring of the aluminum business is well under way, providing a sound basis for Hydro going forward as a focused aluminum and power company with firm growth ambitions.''
"The process to plan the integration of Hydro's oil and gas activities with Statoil is on track. Contributing to a successful launch of the new energy company is on top of our agenda, at the same time as we prepare to move forward as an aluminum and power company, ready to pursue business opportunities worldwide,'' Reiten said.
The proposed merger of Hydro's oil and gas activities with Statoil is expected to be completed in the third quarter of 2007, in line with the plan announced in December.
Hydro's Board of Directors proposes to the Annual General Assembly to pay shareholders a dividend of NOK 5.00 per share for 2006.
Investments amounted to NOK 26.7 billion for 2006 as a whole, of which 85 percent related to oil and gas operations. The provision for current and deferred taxes amounted to NOK 37,598 million for 2006, approximately 68 percent of income before tax.
Net cash provided by operating activities was NOK 38,7 billion for the year, compared with NOK 27,0 billion for 2005.
Oil & Energy
Operating income for Oil & Energy amounted to NOK 5,647 million for the quarter, heavily impacted by an impairment write-down of the Front Runner and nine shelf fields in the Gulf of Mexico (GoM), amounting to US$836 million (NOK 5,240 million) before tax. Operating income amounted to NOK 11,537 million in the fourth quarter of 2005 and NOK 13,311 million in the third quarter of 2006. For 2006 as a whole, operating income was NOK 46,253 million, compared with NOK 43,451 million in 2005.
High oil and gas prices contributed to the results for the quarter and for the year, but oil prices corrected downward in the fourth quarter 2006, compared with the third quarter. The realized average oil price(1) increased 4 percent in the quarter, compared with the fourth quarter of 2005, but declined 13 percent compared with the third quarter of 2006. Measured in Norwegian kroner, the realized oil price amounted to NOK 369 per barrel in the quarter, unchanged compared with the fourth quarter of 2005, while decreasing 12 percent compared with the third quarter of 2006. Realized gas prices increased 6 percent in the fourth quarter of 2006, compared with the fourth quarter of 2005, and 14 percent compared with the third quarter of 2006. The realized average oil price and realized average gas price increased by 18 percent and 27 percent, respectively, in 2006 compared with 2005.
Hydro produced an average of 595,000 barrels of oil equivalents (boe) per day during the fourth quarter of 2006, an increase of 6,000 boe per day compared with the fourth quarter of 2005, and an increase of 47,000 boe per day compared with the third quarter of 2006. For the full year, average oil and gas production increased to 573,000 boe per day, compared with 563,000 boe per day in 2005. Production for 2006 was negatively impacted by production interruptions on partner-operated fields on the Norwegian Continental Shelf (NCS) as well as lower-than-expected production from fields in our international portfolio. Hydro has targeted 605,000 boe per day for 2007, an increase of around 6 percent compared with realized production in 2006.
In 2006, Hydro participated in the completion of 51 exploration wells, resulting in 26 discoveries. The southern leg of the Langeled gas pipeline opened during 2006, an important milestone for the Ormen Lange/Langeled project. At the end of December, the project was 91 percent complete. The project is on schedule and expected to be completed in 2007. Also during 2006, Hydro divested its share of gasoline retail business Hydro Texaco in Norway and Denmark.
(1)Average oil price realized by Oil & Energy's Exploration and Production sub-segment.
Fourth quarter 2006
Non-cons. Operating inv., Other Depreciation Adjusted NOK million income Interest & income and EBITDA (loss) selected amortization fin.items Oil & Energy 5,647 66 53 8,764 14,530 Aluminum Metal 849 (13) -- 517 1,352 Aluminum Products (499) 18 -- 483 1 Other Activities 707 95 -- 197 999 Corporate and Eliminations (2,130) 243 -- 1 (1,885) Total 4,573 408 53 9,962 14,997
Non-cons. Operating inv., Other Depreciation Adjusted NOK million income Interest & income and EBITDA (loss) selected (loss) amortization fin.items Oil & Energy 46,253 350 53 18,299 64,954 Aluminum Metal 6,362 1,002 -- 1,770 9,134 Aluminum Products (83) (162) -- 1,960 1,715 Other activities 1,277 289 -- 528 2,094 Corporate and Eliminations (1,584) 907 -- (1) (678) Total 52,224 2,386 53 22,556 77,219
Oil & Energy
Oil demand is expected to be relatively strong in 2007, but an anticipated increase in oil production capacity from both non-OPEC and OPEC producers is expected to increase global spare capacity somewhat from 2006 levels. Start-up of new gas infrastructure, as well as warmer-than-expected weather, have led to lower European gas prices this winter than during the winter of 2005-2006. British gas production is declining, but comfortable gas-storage levels and new supply sources coming on stream are expected to improve supplies to Europe in 2007. With more normal seasonal temperatures, demand should improve in the winter of 2007-2008. In addition, some of the LNG scheduled for delivery in the European market may be rerouted to either the U.S. or Asia, expected to create a more balanced supply situation than during this winter season.
Norwegian water reservoir levels rose considerably during the last months of 2006. This resulted in a substantial drop in Nordic electricity prices, as the water reservoir situation changed from risk for rationing to a comfortable resource situation. Mild weather and a decreasing CO2 emission quota price have also contributed to lower electricity prices. Nordic electricity prices in 2007 are expected to be lower than the historically high average spot price of 391 NOK/MWh in 2006.
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