"Few 99-year-olds are more fit and better prepared to meet the future than Hydro," states President and CEO Eivind Reiten in connection with the companys annual Capital Markets Day in Oslo on Wednesday.
"In the course of a few years Hydro has doubled its oil and gas production, achieving the same in Aluminium. And today we are presenting new, ambitious targets for the company."
The solid results in 2004 are attributable to more cost-efficient operations, a marked increase in oil and gas production, a high oil price and improvements in the market for primary aluminium. Safety developments in the company are positive. At the same time, Hydro’s European primary aluminium operations face some demanding challenges, as the result of high energy prices and a weak dollar. The company has announced write-downs affecting parts of its European smelter activities, while emphasizing the need for a continued focus on restructuring.
Hydro's Capital Markets Day presentation includes the following detailed information:
- Updated production estimate for oil and gas for 2004: 570,000 barrels oil equivalents (boe) per day
- Production target for oil and gas for 2005: 575,000 boe per day
- Increased exploration activity; Hydro will participate in more than 30 wells in 2005, of which roughly 20 are on the Norwegian Continental Shelf (NCS)
- Participation in new international oil projects in Angola and the Gulf of Mexico
- Adjustments to Hydro’s long-term prices used for investments and normalization
- Updated forecast for growth in oil and gas production to more than 700,000 boe per day in 2008, giving an average annual growth of roughly 8 percent in the period from 2001 through 2008
- Updated forecast for the production of primary aluminium to roughly 2 million tonnes in 2009, including a new plant in Qatar
- RoaCE target for 2006 based on new normalization prices: 7.5-8.5 percent
The company has made some extensive changes in recent years and is now concentrating with full vigor on pursuing its development as an energy and aluminium business.
"We started 2004 with the successful stock exchange launch of our former agri business and are concluding it with the unveiling of our plans for a large and strategically important aluminium plant in Qatar. During the year we have delivered the Nye Tyin power plant in Norway, completed the biggest and most environmentally friendly aluminium plant in Europe, located in Sunndal, Norway, and fully commenced the task of developing the enormous Ormen Lange gas field and the world’s longest subsea pipeline, Langeled. To mention a few," says Reiten.
"These projects – combined with efficient operations, innovative force and expertise – provide the basis for continued profitable growth for Hydro in the years to come."
Cost-efficient and safe production
Hydro’s average oil and gas production for 2004 is expected to be approximately 570,000 boe per day. Efforts to ensure cost-efficient and safe production on Hydro’s oil installations have continued. Production costs per barrel of oil in 2004 are well below the previously communicated target of NOK 24 per boe.
The improvement programs in Aluminium have had a considerable effect. Hydro has implemented further cost-improvement measures in 2004 at its Norwegian aluminium metal plants. These measures are expected to result in an annual improvement of about NOK 350-400 million, having full effect from the second quarter of 2005.
The strengthening of the Euro and the Norwegian krone against the US dollar weakens the competitiveness of Hydro’s European aluminium activities. Since the acquisition of VAW in March 2002, the Euro has appreciated by some 30 percent and the effect of this – combined with a considerable increase in power costs for Hydro’s primary production in Germany – has led to a write-down in the value of three primary aluminium plants of some NOK 1.5 billion after tax. This write-down will be charged to the results for the fourth quarter of 2004.
Hydro’s international oil and gas strategy was adjusted in 2003 to secure an optimal balance between exploration and the acquisition of already proven resources. The adjustment is now bearing fruit. In 2004 Hydro has signed deals relating to participation in Block 4 in Angola and in the Champlain and Lorien fields in the Gulf of Mexico. Altogether, these fields are expected to lead to an increase in Hydro’s international oil production of some 30,000 boe per day from 2008-2010. This represents about 50 percent of Hydro’s total current international oil production.
Exploration activity has been reorganized, with Hydro having acquired new acreage in 2004 that provides the company a balanced exploration portfolio in the coming year.
Hydro’s financial position is solid. The company’s debt-equity ratio, including off balance-sheet pension and leasing obligations, has been considerably strengthened throughout 2004. The company’s long-term goal is a debt-equity ratio of about 0.5. The debt-equity ratio at the end of the third quarter was 0.12, better than the long-term target.