Well, thank you very much, and thank you to all of you for joining us on this morning call on the half year results of A.P. Møller - Mærsk Group. If you go to page two and read the forward-looking statement, reservations, I will in the meantime just sort of give you a heads up. We are, of course, very pleased with the half year results. We feel that we deliver good operational results, thanks to improved performance in most business units, with an operational result that is up compared to last year. All business units except Damco and Maersk Oil improving their operational performance.
Maersk Line, is of course, a bright spot in the presentation. We can't say that it's due to good macroeconomic trends or an easy market environment, but we feel that we are, with the results here underlining, that we have managed to create a competitive advantage vis-à-vis our competition and deliver a better margin now for the third consecutive quarter. The oil production is bottoming out. And we are seeing and expect to meet our full year guidance by delivering increased production in the second half. So we're pleased with that. Maersk Drilling, of course, after the challenges last year operational, are delivering really fantastic operational result this quarter.
Their best result ever, mainly due to a remarkable high uptime. A lot of compliments to them. APM Terminals continue to improve their results. We'll come back a little bit to discuss the margin later on. Also they are on track to reach their $1 billion target. We got Santos coming on stream in the third quarter. We feel we've had a good first half year. With that, I would suggest that we go into the presentation. We start with very shortly the strategy update on page three. We, of course, continue to be committed to achieving a return of at least 10% ROIC over the cycle.
We're still below that, but we feel convinced that we'll continue to deliver improvements on that. Maersk Line is improving its absolute result compared to last year. More importantly so, maintaining a very good differential vis-à-vis the competition. Maersk Oil's production was bottoming out in the second quarter, just as predicted. We're seeing increasing figures now as Gryphon and El Merk ramps up. As predicted, we'll see increasing production in the second half. Setting off, you can say, a gradual growth towards the 400,000 barrels of oil per day in 2020. I'm not promising a smooth ride. There'll be ups and downs, but we continue to regard this as our target. A.P.
APM Terminals and Maersk Drilling are both following their strategic plans. We feel that this quarter underlines that they're on track to get to their targets of $1 billion profits in 2016 and 2018 respectively. We are also announcing now for implementation on January 1st a new business unit. The main take from that is that we will establish a target of half a billion dollar NOPAT to be achieved by 2016 from the four smaller, at least in A.P. Møller - Mærsk context, smaller business units.
Which should be exciting, and we expect, by grouping them in one business unit, that we can create an exciting business unit next to the four large ones that we have. Going to page four, talking about the strategy, what we've done apart from the long-term things, what has happened. Well, the profit was $900 million. ROIC was 7.4%, as I said before, below our long-term target. We believe with some bright spots in there. Maersk Line continued to reduce its unit cost further, and they are really getting very competitive.
The main drivers of the reduced cost, I'll come back to that in detail, have been reduced bunker consumption, achieved through improved utilization and network efficiencies. Maersk Oil had some wins in the second quarter. Gryphon, the FPSO in U.K., started its production or restarted its production. We got El Merk on stream finally. Been hit by delays in its ramp up, but it's now ramping up towards full production that we expect to be achieved somewhere around the end of the year. We've been working on the Chissonga field development plan for quite some time. We're getting very close to being able to submit it to the Angolan authorities.
One of the things that we have to clarify before we submit it is what we believe around the Cubal well, which we drilled in an area that is immediately adjacent to Chissonga and which shows hydrocarbons. If our test shows that this is as promising as we hope, this will be an addition to the field, and we just need to finalize and understand fully what the impact of that is on the pre-production opportunity. We had the small near-field Balloch into production in the second quarter, and that is at full production, 4,000 barrels a day. Some early wins there.
APM Terminals had two positive developments either at the end of second quarter or beginning of the third quarter. We received the permit to start operations in Santos. Pending gradual dredging, we will be able to ramp up that terminal in the second half. That is, of course, very positive. It is a very big investment that has been lying idle waiting for the permits. We finalized construction or reconstruction of the terminal in Monrovia. That is in operation as well. Maersk Drilling reported its best result ever. Best quarter ever.
Very good uptime and continue to work on the startup of the 7 rigs that we will get into operation over the next couple of years, with 3 coming in early 2014 or around end of 2013. A lot of things going on. On page five, you have very quickly the financial highlights. The group profit went down compared to last year with $100 million. The reason for that is that we made a $280 million impairment in the VLCCs in Maersk Tankers. The underlying result is a slight improvement up from $928 million to $952 million, excluding one-offs. The free cash flow improved with approximately $1.5 billion.
Underlying good developments, as you'll see in the breakdown by activity. Of course, strong improvement in the quarter in Maersk Line, almost doubling the result. Maersk Oil was quite as predicted down. I'll go into the details later on. But the main driver of this was actually the bit high level of exploration costs and then the falling oil production and lower oil prices. APM Terminals up by approximately $25 million compared to last year. Maersk Drilling significantly up compared to last year, and the other activities driven by Danske Bank and Dansk Supermarked improved their results as well. A good overall picture of operating results.
Going to slide six, we start diving into the details of the business units, and starting as usual with Maersk Line. Significant progress. There's a drop in revenue, which is due to lower rates. The lower rates have been more than compensated by the cost reductions, but it, I think it just underlines that the environment and the industrial situation remains quite challenging. The improvements are actually due to improvements that we have made in the business. EBITDA is up, and that is driven by cost savings. We'll come back to the cost savings a little bit later.
The NOPAT almost or more or less doubling both compared to the Q1 last year and to Q2 last year and Q1 this year. Good. A good general development. If I go to the highlights, I would say the unit cost decrease is probably the most important thing to notice here. It's a $394 unit cost reduction per FFE compared to Q2 2012. The decrease is mainly driven by bunker costs 31% down compared to Q2 last year. 18% of that is lower consumption driven by a more efficient network, but I'll come back to that in more details in a minute.
15% is lower bunker price. Actually, the improvements due to network efficiencies, et cetera, is more than the bunker price reduction. The average freight rate declined by 13%. Of course, there's a tendency in the industry that we pass through the changes in bunker prices. So that is a main driver of that, but also, rates have been competed down quite aggressively. Volumes increased marginally, 2.1%, allowing us to more or less keep our market share. Head haul to from Asia to Europe and North America declined, but we had in our case increased volumes in short sea and North/South trades compensating for that decline. Overall, a small growth.
Good free cash flow in line with the strategy of being self-financed. Then the last point is, of course , not relevant for the past quarter, but just sort of noting that the P3 Alliance is still very actual. It will come, hopefully, into operation during the first half next year. We expect it to have very positive impact on costs in the trades where it's introduced. We also foresee an improved service to our customers due to more direct calls. That should be a good win-win situation. That is still pending regulatory approvals, and we have nothing new to report on that today.
Deepening or going a little bit deeper into the details of the Maersk Line cost reductions, because they are very significant. The total cost reduction is $900.897 million to be exact, of which $310 million was due to lower bunker consumption. This is network efficiency and slow steaming. There's a bullet on that in just below. The lower bunker price gave us a saving of $263 million, which , of course , has been more or less equally shared across the industry, so other liner companies will report similar savings. Well at least in line with their total volume.
The next bullet, we just try to outline the main impact of, or main reason, or large reason at least, explanation for why we reduced bunker efficiency. We've taken out two strings from Asia to Europe, and we've used the surplus vessels to introduce in the remaining strings, reducing average speed in the service, and dramatically cutting the cost of operations. Compared to that, or parallel to that, of course, we've upgraded the scale of the vessels. We've been able to get some of the smaller vessels out of the Asia/Europe service. Then we've been even better off sailing at economic speeds. We also reduced the intermodal cost by $154 million.
Traditionally, intermodal has been a loss-making proposition across the industry. I think we're all getting better at getting paid for it and getting costs down. This helps the profitability as well. We have approximately $120 million of other savings across port calls, administration costs, feedering, and so on. We have equipment cost going up, but the overall picture is in other cost saving. That's sort of to give a little bit more light, shed a little more light on the cost reductions that we, of course , will continue to work on, but they really have been very impactful in the first half.
Just to give you or bring us back to the strategic analysis that we internally use a lot, and that is focus on our margin gap to peers. We have been successful in creating a positive margin gap over the last many quarters. Actually, since we started moving in on streamLINE back in 2008, we've generally been in positive territory. But the consistent performance above 5% has been there for the last three quarters, and we're very pleased with that, and we'll work very hard to maintain that margin advantage. Maersk Oil is , of course, a little bit more of a mixed bag this quarter. We did bottom out in production-wise in the quarter.
We had a decline in production by 21% due to maturing fields in Denmark and the UK. Also, more important than that, was actually the reduced Danish ownership from 31.39% to 32%, 31.2%, which has been related to the entry of Nordsøfonden into the DUC ownership structure. Then we had an unplanned close down of Gjøa Vest, which has an impact of around 3,000 barrels of oil per day in the quarter. We bottomed out a little bit lower than we had expected. The result may come out below what some external people expected, which we fully acknowledge. Part of that is, of course, the lower oil price. It is, of course, also the volume.
It is. Then we have had a very high level of exploration costs, which, of course , is impossible to predict from the outside. All in all, production declined slightly higher than we expected, but in line with the forecast. Now we are back into growth territory and expect the half -year going up. Due to basically the restart of Gryphon that came in late May. The Balloch in the UK, which is producing 4,000 barrels of oil per day, on stream. El Merk ramping up, coming in also starting in the second quarter, and will improve in the second half. Then we are now starting drilling in Qatar field development program 2012.
That should give slight improvements as well. Longer-term development, we've had the field development plan for Chissonga being finalized. It's not been submitted yet due to the reasons, as I mentioned before, we have to make sure we understand the Cubal, but we will introduce or we will submit that in the second half this year. We have had a successful appraisal well on Johan Sverdrup, which further lifted our expectations to the field. We've had three wells discovering hydrocarbons, but however not assessed to be commercial at this point. Of course, we continue to look into it and see what we can learn, but nothing positive to report at this point in time. Cubal in Angola discovered hydrocarbons, and we're evaluating that as we speak.
Hopefully , this will add to the quality of the Chissonga development that we are planning to give you more information on during the second half. APM Terminals on page 10. We had a continued rise in profits but a drop in ROIC. The ROIC decreased mainly because we have increased our invested capital quite significant, most importantly, driven by the Global Ports Investments investment in Russia, where we, of course, continue to have good expectations to the future. There's also a decline in the EBIT margin of 2%. Approximately half a percent of that is reflecting a lower operational margin. The rest is mainly due to two facts.
One is that we are carrying quite a bit of construction cost on our books, which is a pass-through on behalf of the concession giver in some terminals. The other half is some internal or some you can say adjustment between quarters on various cost items. A slight decline in underlying margin of 0.5%. The rest is basically accounting technicalities. We see a continued positive development in the growth markets and we are continuing our ramp up there. Of course, being primarily a mature market operator, we've not been able to follow the global market growth in this quarter.
We expect gradually to correct that, when, among others, the Santos terminal come into operation. I think with that we can progress to Maersk Drilling. We have a very good development. I mean, it is a stellar profit. Nothing much to say beyond that. Operational uptime of 96% is a great figure. Also industry-wise, quite at the high end of what we can expect. We hope, of course, to continue to achieve that figure. We know, however, in the second half that we will have a couple of yard stays coming up, this being or towards the very end.
We also know that we'll have increased production costs or startup costs now related to the startup of the 3 rigs that comes very late in the year and at the beginning of 2014. Nothing major to report. Apart from that, the contract coverage now for the available rigs is up to 100% for the remaining part of 2013. We have 86% coverage for 2014, so we are pretty well covered with good revenue backlog, and we've had some minor contract extensions during the year, as you can see from the bullet points.
A very good result and now the second half we will expect to be slightly below this, among others, and mainly due to start-up costs related to new rigs. Very positive. With that, I will pass over to Trond, who'll give you an overview of the financial figures.
Good morning from me as well to you, ladies and gentlemen. I'll start with the investments and debt this time. If you look at the cash conversion on the cash flow in the second quarter, we have used spending about $1.4 billion in gross investments. Net of sales proceeds, we're down to $1.2 billion. If we then go to the net interest-bearing debt development, we have a half year table for you at the bottom of the page. We started the year with a net debt of $14.5 billion, and with the earnings coming in, or the EBITDA coming in of $5.9 billion, reduces that, and then we have paid taxes of $1.2 billion.
CapEx paid during the six months is $2.7 billion. The next major item is the dividend that we have paid out of the group, and that is $1.1 billion. That consists of dividend from A.P. Møller – Mærsk of $923 million and about +$130 million to minority and subsidiaries. All in all, we're at net interest bearing debt at June 30 of $13.5 billion. Going into the consolidated financial information, I'll focus on the first column on second quarter 2013. We're showing a revenue of $14.163 billion. It's a decline of $1.201 billion from last year.
The drivers of that decline is Maersk Line with 670 and Oil of 665. On the counter side, the business unit that picks up is Dansk Supermarked with 130, and Drilling with about 100. Line, as Nils mentioned, is really the top line, basically the rate decrease and the Oil, as Nils mentioned, was the entitlement production and the oil price going down. The EBITDA is $2.971 billion. A slight decline of $528, driven by Oil that has a decline of $777. The counter that improves that decline is the Line improving with a 230-ish, and Drilling and Supply also coming up with approximately 100 in combination.
The development is driven by Oil and Maersk Line. Depreciation $1,368 million. In that, we have the impairment of $230 million. Other than that, no specific issues in relating to that number. Leaves us an EBIT number of $1,763 million. That is declined from last year of $613 million. As you see, a lot of that is coming from the Oil and Gas, which also has a reduced tax cost that I'll come back to with about $440 million. Very much is driven by the sort of net effect coming from Oil. Financial costs short of $200 million leaves a profit before tax of $1,567 million.
Tax cost of $711 million, that is a decline of $471. As I said, $440 comes out of Oil in that decline in tax payments. That leaves us at $856 million in the quarter. The one-off element in the quarter is about $90 million in total. As Nils mentioned, just slightly higher than $950-ish in results if we take out the one-offs. Earnings per share is $179 or slightly above 1,000 DKK a share, and the return on invested capital is 7.4%.
If we then go to the next slide, to the outlook section, we have increased our outlook for the year. We now expect the 2013 to be the result to be around $3.3 billion. If we exclude impairment losses and divestment gains, we do think that the result would be around $3.5 billion. That would leave the operating cash flow to around $9 billion. Cash flow used for CapEx will be about net of sales proceeds around $8 billion.
If we then go to the Maersk Line, we have revised the expectation from what we said above 2012 to significantly above 2012, and that is primarily on continued strong cost performance and, of course, the stronger results in the first half. For Maersk Oil, we now expect results significantly below 2012. Also, when we exclude the one-off income from Algerian tax and divestment gains. For terminals and drilling, we maintain the statement from last time that we are expecting results above 2012. For all other activities, we also maintain our expectation that the result will be above 2012 results. As always, we have many sensitivities in these numbers for this outlook. I'll just refer you to the table on the top right. With that, I'll leave the closing remarks to Nils.
Thank you, Trond. The priorities for the second half in 2013, we're trying to outline sort of the most important elements of that on page 15. Here, it's very important, of course , that we will from Maersk Line's side, we will continue to be very careful with the capacity management in our network. We are bringing in now gradually the big Triple-E vessels into the Asia-Europe trade. We're very committed not to introduce unneeded capacity in those trades. We'll gradually migrate smaller and less fuel efficient vessels out of that trade.
In addition to the safe operations, which are always top of our minds, in particular in the oil and oil-related businesses, the most important target for Maersk Oil is to get some good hits in the exploration work, of course. Also making sure that we deliver progress on the key projects, Chissonga, Johan Sverdrup, that are key to bringing up our production to 400,000 barrels in 2020. The top priority for APM Terminals is to get the Santos Terminal ramped up as quickly as possible. We've been waiting a long time for the approval. Given the cost of the terminal is not insignificant, of course.
This has been to get these good returns in APM Terminals. It's crucial that we get both this and the Maasvlakte II projects progressed as fast as possible so they can start delivering returns. In Maersk Drilling, operations are, of course , key and will continue to be key. But we are having three big rigs coming in, as I mentioned before, towards the end of the year, around the end of the year and the beginning of 2014. It's really key that we get those rigs out without delays and cost overruns and with successful startup to the benefit of our customers and , of course , also to the benefit of our bottom line. We kicked off at the beginning of the year a balance sheet optimization project.
We call it Project Fit. We're very happy and very proud that we managed to reduce our interest-bearing debt in spite of quite an important investment program in the first half. We will continue to work on this so we get the maximum leverage out of our balance sheet and continue to be able to distribute dividends and grow at the same time. We have a lot of things on the agenda also for the second half. We're, of course, pleased that the underlying operations at the moment and in the first half year have been very smooth. We'll focus, needless to say, also on that in the future. With that, we've finished our sort of short presentation of the half year. We'll like to leave the floor to you for questions. Thank you very much for listening in.
Thank you. We will now begin the question and answer session. The session will last 40 minutes. If you have a question, please press star then one on your touch tone phone. If you wish to be removed from the queue, please press the hash key or the pound sign. There will be a delay before the first question is announced. If you're using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star then one on your touch tone phone. Lars Heindorff from ABG Sundal Collier is on the line with a question.
Yes, good morning, gentlemen, and congratulations for your line of results this morning. A couple of questions relating to that. First of all, the cost reduction appears to be very impressive. If you look aside the development that you mentioned in the bunker, both consumption and also the price, what I would say sort of is other costs is down by 6%-7% and has been down now for at least a couple of quarters. I'm curious to find out if you can continue that trend going into the second half, with a decline of that magnitude.
Thank you for the question. Of course, we'll continue to focus on the cost reductions. I think we do have plans for continued success in the area. Yeah, it's quite hard to predict the future, but we expect to continue to or be able to continue to push the cost down.
Okay. Regarding the rate development, you have been fairly successful both on the first of July and also the first of August, and there's another GRI announced here for the first of September, and we're now halfway into the third quarter. Do you expect that your average obtained rate in the third quarter will be above what you've seen here in the second quarter?
I mean, we're pleased that we've had some rate increases. Of course, these are individual trades where we increase the rates and it's very hard based on just what is published to get an overview of the rate picture in the total industry and all the trades we're in. I say the same as I said through the last quarter. We will not try to predict the rates going forward. We feel optimistic that we will manage to stabilize and get some upside in the rates. It's too early to say and it's just a very complex picture.
Then the last question is regarding the impairment test. I mean, this quarter contains another impairment in the tanker division, and we have seen now over the past maybe couple of years, a number of impairments, both FPSO and in particular in tankers. Are there any areas in the organization where you sort of, it's borderline where you see a risk for further impairments in the rest of this year?
Well, if we see a risk of impairment, we will have to comment on it, of course, in the accounts. Generally, I would say that we've chosen to take an impairment on the VLCC business because the outlook for the business continue to be quite poor. The principle that we apply is that we have a value in use, and we have an asset value based on trading values of vessels. If we can't justify a value in use which is above the market value, then we have to take the vessels down. Of course the tanker business has been poor for a long time, and that's why we get the impairments.
All right. Thank you very much.
Charles Sherrington from Merrill Lynch is on the line with a question.
Good morning. It's Joe Schager here from Merrill. Just a couple of questions. I was wondering if I could start just by asking you about the strategic change. Could you perhaps flesh out why you have decided to merge those divisions together at this stage? And could you also perhaps highlight, you know, what you see as the synergies between running those businesses together, if any, at all? My second question is just with regards to the drilling business. You mentioned that there would be costs relating to the new assets coming online. I was just wondering if you could maybe give us a bit more sort of of a guide as to what sort of quantum of costs we're talking about here.
First, to the new fifth business unit that we are creating, there are a number of background reasons for that. First and foremost, both the drilling business and APM Terminals are developing into very, very large businesses. They're both going to deliver a NOPAT of $1 billion in the next years. So they're getting, at least in, I would say, in it by normal standards, quite significant, very large businesses. I think it's too much to expect of the CEOs running those businesses that they also in the future will be able to devote the sufficient attention to the smaller business.
Just to give you sort of a sense of magnitude, when the head of Maersk Drilling, Claus Hemmingsen, is looking at investments in his own business, he's looking at $700 million per unit, dollars that is. Then, of course, when he sits down with one of the smaller businesses, he may be looking at an investment of $8 million or $9 million for a talk or similar amounts in other parts. It's simply just reflecting the fact that these businesses are becoming very big. It's also been important for us that we to group the businesses together is, I mean, there are synergies because they're all in shipping or shipping-related areas. The markets are very similar. The sizes are quite similar actually.
We believe there will be a lot of synergies in terms of people, in terms of ideas and market insight. We also want to create a dynamic environment around those four businesses to get them up on a higher gear on both growth but also on returns and strategic development. We feel that this construction is a good one. I think the reception in the business units will be quite positive.
For you, I would say the most important thing is probably that we announce a result target for those four businesses put together, and put an ambition out there. Coming to the start-up costs of drilling, I can't give you sort of an exact figure on the magnitude, but what happens is that we usually hire in a complete rig crew half a year before the actual start of operations in order to make sure everybody are trained and so on and so forth. We take the rigs over, and we have some time for testing and transport and so on, where they do not get necessarily a day rate. These are the start-up costs and they will depress the results in the second half and the first part of 2014. In line with what you've seen on previous start-up periods.
Okay. If I could just ask a follow-up. A cynic may say that you're pulling all these small businesses together and throwing them into one bucket. Certainly from our perspective, it's gonna actually reduce the visibility on that part of the business. How would you respond to that?
Okay. If I may interrupt here. We will continue to report. We're not gonna put them together and not give you the background data.
Okay. Thank you.
Finn Bjarke from Nordea is on the line with a question.
Yes, good morning. A question to liner and one to oil. First for liner. Other income per unit, some $400. Could you give some explanation what they are made of, these other income, and how do you see those develop going forward?
Well, the line is mostly demurrage and detention. That is sort of the driving element. And some of the SG&A is probably in there as well. It has been sort of coming up during last year and been fairly stable now, and it's still a focus point going forward. Whether we can give you sort of the exact number going forward, we don't wanna do that, but it's still gonna be sort of focus point for us to get the income on both demurrage and detention. And Finn, you had a question on oil as well? Could you repeat the question on oil, sorry? Hello?
Rob Stanton from Macquarie is on the line with a question.
Oh, good morning, everybody. Can you hear me okay?
Yeah. We just had a problem.
Excellent, now.
I think we're back in operation. Sorry for that.
Excellent. I've got three questions, if I may. Two on Maersk Oil and one on the dividend. Just starting off with Maersk Oil. If you look at the average revenue per barrel in recent years, we've seen discounts of the Brent price of around about 7% on average. But that's declined to closer to 1%-2% during the first half of the year. Could you just comment on whether that's a sustainable benefit going forward? The second question also on Maersk Oil. During the first half this year, we've seen quite a big reduction in the depreciation expense compared with the run rate of last year. Maybe you could just provide some color on whether that's sustainable and your thoughts on that going forward.
The final question, just on the dividend. You've spoken previously about the intentions to progressively increase the dividend, going forward. Could you just maybe provide an update on the latest thinking in that respect? Thank you.
Yes. Trond will just comment in a minute on the depreciations. The discount on Brent, I can't give you an exact answer to that, and I'm sorry about that. If you see the general oil prices, you'd see that the difference between the U.S. crude and the Brent has diminished during the quarter, which is probably part of the explanation, but I'm absolutely guessing here. In terms of the dividend policy, we and our board have stated the same as they've stated the last times that the ambition is to increase the dividend in line with underlying results.
I don't think it will be sort of a mathematical relation in any sense, because what they're saying is that it's going to be the nominal dividend. I think the way the board looks at it is that they would like to see a gradual increase in the payout in absolute kroner per share. But that should be supported by increasing earnings. That's really all we can say. We increased the dividend last year with DKK 200 per share, which is 20%, based on a pretty good result last year.
When it comes to the depreciation in oil, we said in the first quarter that that was a very low quarter, and we were expecting sort of a ramp-up during the year. The ramp up have started during second quarter and will continue as a result of phasing in both the Algerian El Merk and the Gryphon. A slight pickup in depreciation in next few quarters.
Sounds great. Thank you.
Gianmarco Bonacina from Equita is on the line with a question.
Yes. Hello, Gianmarco Bonacina from Equita. The first question is about Maersk Oil. If you can help us to do a little bit of bridge to the second half. If you can remember what is the Gryphon contribution, and also what is the expected contribution from El Merk in the second half of the year. Then again, about Maersk Oil, the exploration expenses, you had about $200 million in the first quarter, almost $400 million in the second quarter. What shall we expect for the year? I know you have a guidance of more than $1 billion, but just to understand what is the run rate for the next two, three quarters. The last question about Maersk Line.
You mentioned in the presentation that the P3 Alliance is expected to deliver significant additional cost reduction. If we can assume that this significant means double digit cost reduction, and if you expect to retain the majority of this cost or probably you will use this also as a marketing to lower your prices. Thank you.
Okay. Thank you very much. Just starting with the oil, the El Merk is supposed to deliver around our share, around 11,000 barrels of oil per day when it's fully ramped up. That will happen gradually during the second half. Gryphon is now up, producing a few thousand barrels a day. It will be probably around 7,000-8,000 on average during the second half. The full potential of it is double-digit , so could go up towards 10,000-20,000 barrels of oil per day. Then what is significant in oil or significant cost savings, this is a treat for us. It's three-digit savings and millions of dollars. We'd love to keep it.
I think we will do our best to do that. Of course, we know that over time, competition will force down rates globally, and then this is a cushion for us and the other partners who will get a similar saving to stay competitive.
Okay. Sorry, just a follow-up on the Maersk Oil production. Basically, the bridge versus the end into the second half is more about 20,000 of incremental production. You basically should be around 250,000 in the second half.
Will have to be a little bit higher because our expectation is between 240 ,000 and 250,000. The expectation is that we will be a bit higher than that, so we should be up in the sixties.
Okay. The extra growth is coming from other fields?
It is coming, the El Merk and Gryphon, probably Gryphon will be a little bit more on average than the 7,000 I just said. But these two will be the main contributors, plus Balloch, which will be up during the full year.
Okay. Thank you.
Stig Frederiksen from Carnegie is on the line.
Sorry, I just forgot to comment on the exploration. We've guided on an exploration level of around $1 billion. It will probably for the year be slightly higher, including preparation costs, new acreage, and so on. Definitely not below $1 billion.
Okay, Stig Frederiksen from Carnegie is on the line with a question.
Hello, gentlemen. Once again, congratulations with this surprising good report. A question to the short sea impact on Maersk Line. It seems you had a very strong development on volume side here. Could you elaborate a bit on how much of the volume growth you have realized comes from this, and also the impact on the average rate? Because as I assume that is one reason why the rates were a bit lower than we assumed.
It has a small impact, but it's really not significant. Of course, in particular, the intra-Asia business is growing quite well, but it's a small element in the total.
Okay. On the P3 Alliance, regarding approval, if you could just recap the timeline, when do you expect you're talking about it should be in operation in May, or at least some of your partners are talking about that. When should we look for a final approval?
I can't give you any update on that. We're at the moment in constructive talks with all competition authorities, and the moment we have more clarity, we'll come back. I can't give you any sort of timelines right now.
Okay. Thank you very much.
Jill Martin from J PMorgan is on the line with a question.
Yes, hi, good morning, everyone. I just want to ask really about your Maersk Line's market share strategy. I think your overall market share seems stable, but is it possible to also comment a little bit on the trade lanes, especially Asia to Europe and South-North trade, please. Also, have you seen intensified competition for market share in Q3 so far from your competitors already? Thank you.
We don't see intensified competition in the third quarter from our competitors. We have taken out, as we said in the presentation, two strings from Asia Europe, and that means that we have given up a bit of market share in that trade. We've compensated that by better positions in the North-South trades and also some of the short sea businesses. I mean, we're not sort of micromanaging or being extremely aggressive quarter to quarter on this on the market share figures. We feel that we are defending ourselves quite well. At the end of the day, of course, the winner in the container trade will not be the largest market share, but the largest profit.
Okay, thank you very much. Just one quick follow-up, please. How much visibility do you have already on 2014 for the liner market in terms of market growth and also maybe for Maersk Line?
Of course, we have some feel when the guidance if you mean how solid is the guidance. We have, of course, some insight into July as we stand now, and we know more or less what the rates will be for August. We have some visibility, but we also know from experience that the last quarter can change the picture quite dramatically. We've seen that in some previous years. We have visibility for the first couple of months of the year of the second half, but I cannot say that we have full visibility.
Okay, thank you very much.
[inaudible] from Danske Bank is on the line with the question.
Yeah, good morning. Trying to get my head around these cost savings. I think Trond earlier stated that there are many smaller projects which give these cost savings. Are you able to say the lead time from when you initiate the cost-saving initiative until you get it into your P&L?
I mean, this is, of course, impossible to say something in general, but you can say the things like bunker adjustments and network adjustments you can make. It depends on what your contracts are with your time charter partners. We give part of the savings we've achieved have been on time charter cost, where we handed back ships, so that depends on the termination time. You have others, where it's IT improvements that are necessary in order to reduce SG&A, and there the time lag can be some years. It differs a lot. It's difficult for me to say more than that. Of course, we have initiatives that have been running for some time that will materialize in the future. We try to keep a pipeline of improvement of opportunities warm.
For instance, a cost like terminal cost, did that go up or down or this quarter or that must be quite stable, right? It's mainly on the bunker and the vessel side, you've been able to do things.
Well, you can, of course , change the terminal cost whenever you negotiate, renegotiate terminals or if you change terminal. But this is typically not something that you do every quarter. This is more like a yearly or even multi-year process because it's not easy to get terminal capacity of quality. Once you have a good partnership, you usually would like to stay.
Yes. Are you able to quantify the cost savings from AE5 and AE9?
Sorry, I didn't get that. Could you speak out?
The AE9 and AE5, which has not been in service, how much cost savings did that generate this quarter?
I can't quantify that exactly, but you'll find the effect included in the $310 million bunker efficiencies.
Okay. Do you plan to put them back into service?
I have no comments on that at the moment, but we don't see a need for added capacity in Europe.
Very good. Last question on Chissonga, this field development plan. When would that mean as well that we could expect to hear something from it in terms of hearing going forward before 2013, or is that still too much?
No, no. I think we will come out with more details on Chissonga in 2013, when we have delivered our final field development project to Sonangol, then we will come out with more details, I expect.
Very clear. Thanks.
Jonathan Long from Jefferies is on the line with a question.
Hi, Nils. Yes, congrats on the good results. I'm asking about the oil business. First, if there's any updates for the 1P figure , and second, we see the development and funding costs for Maersk Oil was about $50 or above $50 per barrel in the past few years. The industry average about 20 years. I mean, $10-$20 per barrel. How could Maersk justify this level of CapEx?
I don't follow the numbers you have on exploration CapEx. We try to make a benchmark on CapEx and we believe finding costs in this area is around $6 per barrel. So far, we see ourselves okay in that. We've had a little bit slow development in the last 5 quarters in terms of finds, but seen in perspective over the last 5-6 years, it's actually been quite acceptable. I don't see that. I don't recognize the figure of $50. Sorry.
It was based on last year's your exploration expenses. It's about $1 billion and then the development cost is about $2 billion. The additional oil that you found last year was about. I think it's about like 60 barrels. I think that's where I get to. It's around like 61 barrel. I mean 61 million barrels. That's why, how I get to about like $50 per barrel finding.
Okay. You take the reserve development. Actually, when you look at the finding cost, of course it's. We look at the resources, and there you have some ins and outs. I think it's difficult to break it down that specifically. We have over the last years. You can only see the increase from one year to the next, by the way, in the reserves. We feel that over the last years we've been gradually building up our resources. Let's. I think that's a different figure from what you come up with. On top of that, of course, you have to find the oil and replace the oil you're producing. It's a much bigger denominator than the one you have.
Right. You mean that you-
Sorry.
You guys have to find more than 61 million barrel than what we have estimated here.
In the P1 and P2 publication, we will come back with a new figure by first Q1 next year. Until then, we don't have any comments.
Okay. Thank you.
Thank you.
Dan Togo from Handelsbanken is on the line with a question.
Yes, thank you. I'm back to Maersk Line, where I have a couple of questions. Part of the explanations as I see it also for the lower unit costs is also in the mix, the volume mix in Maersk Line. With AE5 and AE9 out, I'm curious to find out how the volume mix has changed, especially on Asia/Europe. I believe you've previously announced that Asia/Europe is around one-third of the total volumes. Where are we now, here during Q2, and will that sort of say part of your total volumes, will that be sustainable going forward, or will Asia/Europe continues to diminish in the relative size?
We've decided not to publish volumes and developments per trade, so it's not, of course, very constructive for me to start digging into individual trades. We don't see the decreasing share in Asia/Europe as something that will go on in the future. These are just normal market trends, and we believe that the gains we've had from adjusting our capacity have been huge and impacting our profitability, and that was the right decision. We're not sort of planning on giving up market share in Asia/Europe going forward.
Mark McVicar is on the line with today's last question.
Good morning. I just had one question, really. Obviously, in the statement, you've moved the investments in Danske Bank and Dansk Supermarked to what you classify as investment status. Can I ask why you've done that and whether we should read anything into that? Has the status of those investments changed in your minds or within the strategic priorities?
Well, they have not changed as such. It's just reflecting the fact that we regard them as businesses that are completely independent or almost independent of the group. We don't really sort of comment on investment policies and strategies within these businesses at these meetings. It's just a reflection of the reality.
There's no sort of, you know, increased intention to look to dispose of those assets at the right price?
No. We have said that some of the assets are managed for value. We've said that previously. Those on which we set that in the past are still managed for value. There's no change. This is just we find a better way to reflect the reality of the group.
Okay. That's great. Thank you very much.
Well, I would like to thank you all for listening in. Thanks for a lot of good questions. I hope we managed to answer them all to your satisfaction, or at least as close as we could get. We look forward to having another discussion with you in three months' time when we come out with the third quarter. Wish you all a good day. Thank you for listening in.