Ladies and gentlemen, welcome to the A.P. Moller - Maersk Interim Report, Q3 2012. Today, I am pleased to present the Group CEO, Nils S. Andersen, and Group CFO, Trond Westlie. For the first part of this call, all participants will be in listen only mode, and afterwards there will be a question and answer session. Speakers, please begin.
Okay, thank you very much, and welcome to everybody to this morning call after the Q3 in 2012. If you just read the forward-looking statements while I just give a sort of quick rundown on how we see it. We're pleased with the result seen in total $933 million, we think is reflecting a good and healthy development in most businesses. We have made a write-down on tankers, which of course means that the underlying result is slightly better than that figure. Maersk Line is back in black. We're very pleased with the results of Maersk Line in the Q3 .
It's a mix, of course, of continued work on efficiency as well as a positive rate development and also a rate development on Asia-Europe, where we've seen a reasonably good development during the period. We also continue with the good notes on Maersk Drilling on the long-term building plan of that business, having signed a three-year contract with ConocoPhillips for the second drill ship that will come out early 2014. So that now we have five out of the seven large new rigs that we ordered over the last couple of years, mainly on speculation covered by contracts. Great.
We still have actually a year to go before even the first one is out on the water, and I think that indicates that we have timed that investment pretty well. We keep focus on expanding our activities in the terminals business as well. We have, during the quarter, signed an agreement to take over co-controlling shareholding in Global Ports in Russia, the largest port operator or terminal operator in that market. In addition to that, we are on a growth mode in Latin America. We took over the operations of Callao or Lima in Peru last year, are expanding and modernizing that facility.
We expect to go into operation in Santos in the early part of 2013. Very good progress here as well. In terms of the oil, we realized that the production figure is slightly less than we had believed or expected. The main reason for that is actually that we are delayed in the start-up of the Gryphon, the FPSO in the U.K., that arrived late to station and came into bad weather. Then we had some issues with getting the right contractors at the right time.
We're struggling a little bit with that. We hope the start-up will be efficient when it come on stream, probably early next year. Having said that, overall, we're satisfied with the development and feel we're very well on track to achieve our long-term goal. With that, I will go to the presentation, and I'll take you, if you please, to page number three, which is executing on the group strategy, the hard facts. A little bit more of the same Maersk Line turn profit making for the year. Asia/Europe is still the area where we see the most negative development in terms of volume.
The other trades are still doing well, and that gives us some hope for positive development in the global economy sometimes during 2013. Maersk Oil was affected, as I just said, by a number of factors. Gryphon was the unforeseen part of it. The others were basically in line with expectations. APM Terminals continue to improve its margin and grow its volume irrespective of the new businesses that I just mentioned that are not really in the figures yet. We're pleased with the development here. Maersk Drilling is doing in the short term less well. We had a delayed start-up of one of the big rigs.
Of course, when you are talking day rates like you are today, this gives a major impact in particular because we needed to do extra maintenance, compared to our expectations. As I said, an impairment of $267 million on tankers. We think that brings our values in the tanker segment more closely in line with the definitely not very positive asset valuations we're seeing there. Sorry, just a minute. If you go to the financial highlights on page four, you can, this is our standard slide. You can see where the good and the less good developments are.
Clearly, the progress in the segment, if you compare to last year, is in Maersk Line. The decline in Maersk Oil is actually in line with expectations, at least more or less in line with expectations. We expect the production to bottom out over the coming years, and then going back to growth towards the 400,000 barrel target in 2020. Terminals stable. The volumes in terminals, I'll come back to that in a minute, are under pressure in Europe, and the other markets are compensating basically for that.
Drilling down for the reason I just mentioned, and the expectation for the group for the year is upgraded or made more precise according to taste at $3.7 billion, which is approximately $300 million above the result of last year. We are satisfied with that. Taking you to page five, slide five, Maersk Line. Maersk Line has been the most positive element in the group this quarter with a profit of $500 million against a loss last year. Of course, in this quarter, in the Q4 , were very tough in the container business last year.
This year it looks a little bit better, which is also positive, of course, for the rate discussions that we'll see in the coming months that will cover 2013. We see volumes being flat at $ 2.1 million FFE against a quite strong quarter last year, so that is reasonably satisfactory. The average rate is of course significantly above the level last year, which is what drives really the progress in results. That also means that we've come up with an earnings per FFE which is now $ 240 actually $241 per FFE against a negative figure last year.
Very good progress compared to last year and even slightly better result than we expected going into the quarter. We're very pleased with that. We have announced a dry rate increase on November 1st. This is part of our effort to support the ongoing rate stability. In order to prepare for the future, we've also announced significant rate increases in the reefer area from January 1st, which we expect to be giving positive results. They are reflecting the fact that the reefer business that everybody thinks should be very profitable is of course very capital intensive and also quite costly to handle energy consumption-wise and so on. This has not been reflected in the rates. We just need to raise them.
What we are seeing at the moment in the market is that our competition sees the same need to get this business back on track. You can see, at the bottom of the page, the development in the rates. We are now clearly above, and have been above for the last six months, above the level of 2011. We are not at the 2010 level, clearly, but we are getting a little bit closer, and we expect and hope to keep a more stable development from here than we've seen in the last two years. Going to page six, Maersk Oil. Of course, the profit is affected by the 22.3% reduction in share of production.
There's also a one-off charge of $72 million on U.S. tax or U.K. tax. So that's down compared to last year in the quarter. On the year, we now expect the result above last year. Of course, you should not forget that we have taken income from the Algerian tax settlement that we had in the Q1 this year. So of course, the real underlying business is reflecting the lower volumes and giving a less strong result than we had last year. We are seeing a step down in the contribution in Denmark or the volumes that we are getting in from Denmark.
This is partly because of decline in the production, but the main effect here is actually that we have the Nordsøfonden in to take 20% ownership. It doesn't reflect the profitability, but it does reflect the amounts of oil that come into our hands. We've announced that the Caporolo discovery offshore Angola was made. We've also closed now the last appraisal well on the Chissonga field with a positive result, which means that we expect to hand in a field development plan, a proposal to the Angolan authorities somewhere during the H2 of 2013. This is quite positive as well. Exploration costs were slightly lower than we had expected.
It's not a conscious decision from our side, but the rig market is very tight. That means that a number of wells, both our own operated, but also our partners operated wells, are being delayed. There's a saving, so to speak, but in reality, a delay here. But we're still very active in the drilling area. Going to page seven on APM Terminals. No major developments in the results. Most of what I mentioned at the opening are future-oriented big moves. APM Terminals continues its good development in spite of quite tough economic environment, in particular affecting Asia-Europe volumes.
Of course, the rate stability is much better here than it has traditionally been in the container shipping business. It's mainly the volume effect. We're working on the cost side, and we expect these figures to continue to develop in a positive sense over the coming years. I mentioned Global Ports in my opening. This is very important. We also opened the Wilhelmshaven container terminal, which is a very large, very efficient, world-class terminal. We have a 30% share in this one. It's also mentioned here that we expect to begin operations during the Q1 in 2013 in Santos, which will also contribute positive to earnings, we hope, relatively quickly.
If you take page eight, Maersk Drilling, here the result was negatively affected by delayed startup of two rigs. Actually, in this quarter, it's mainly one of the large semi-submersibles that has been delayed. That's the main effect. We are back on operation, so these figures should start to normalize as we go into or as we are in the Q4 and going into 2013. The order situation is very positive. I mean, the rate market is tight, as I mentioned before. In this business area that helps us, so we have a very high level of utilization and a very good level also for contracting, making sure that we have some predictability in this area.
We opened a very advanced simulation training center in Svendborg in Denmark to make sure that we keep our operators on a very high level with view of safety and on board of course but also safety in what we do underground. We continue our efforts to make this a real premium rig operator. So far the customers seem to trust us that we'll be able to do that. Taking you to page nine, the opportunistic core businesses. A little bit of a mixed bag. We have a decline in result in Maersk Supply Service.
This is primarily because we have some vessels out of contract around the world, and also that we've seen a disappointing spot market in the U.K. and in particular in the U.K. North Sea market. Maersk Tankers is doing or losing slightly less than last year in the underlying business. The big loss you saw or you will see in the figures when you read it is, of course, the significant write-down or impairment of vessels that we've done. Damco is more or less in line with last year. Continue to do a good job on growing, integrating its acquisitions. We're very confident in the continued positive development of this business.
Svitzer doing better than last year, thanks to tariff increases, in particular in harbor towage. We've started up the terminal towage operation in Angola, which is also helping. Good development in these on some of these not so big businesses. Some issues with the spot rates, in particular in the supply services in the North Sea. With that, I'll hand you over to Trond, who will take you through the consolidated financial information on page 10.
Thank you, Nils and g ood morning, ladies and gentlemen. We're on slide 10. We start on the column to the left on the Q3 results. Look, starting on the revenue line, we have a revenue of $14.6 billion. Comparing to Q3 last year, it's a slight decline of $700 million. Most of that comes out of the effect of Maersk Oil reduction in Qatar and Denmark specifically. There is a slight revenue increase from Maersk Line. We have a currency effect in the retail sector that goes on a negative way. That comprises basically the total of the $700 million shortage from last year.
On the EBITDA number, we're delivering $3.344 billion and a depreciation of $1.444 billion. The $1.444 billion, of course, includes the impairment of $267 million from Tankers in the Q3 . The gain of sale is primarily Peregrino that was closed in July. Peregrino was a gain of $177 million in total out of the $108 million. That, then we deliver the earnings before interest and tax of $2.141 billion, slightly up from last year.
The financing cost is on the average for the quarters, this quarter as well, and as a result will deliver a profit before tax of just short of $2 billion or $1.961 billion. The tax charge this quarter is down to 52%. The reason for that is of course that oil and gas has a reduced impact on the profit before tax relative to last year. As a result, we have a tax charge of $1,028 million. That leaves us at a profit for the period of $933 million.
Going to the cash flow, we see that we have a good operational cash flow this quarter of $2.8 billion, almost half of what we have so far throughout the year. The CapEx, net of sales proceeds is $678 million, and that includes, of course, the net of sales from the Peregrino of $1.250 billion, that sort of is netted out in that number. Net interest-bearing debt slightly increased to $14.8 billion, and that means that we actually get with the results this of $933, we have a return on the invested capital of 8.3%.
If we then just compare some of the clean numbers out there, the profit for the period is $933 million. If we take the clean number effect of this quarter, the number is $979 million. The earnings per share in U.S. dollars is $197, and the earnings per share for the Q3 in Danish kroner is DKK 1,178. Just a slight more time on this slide here on the nine-month 2012 numbers. So far this year, we're delivering profit for the period of $3.073 billion. That of course includes some of the one-off effects, specifically the Algerian tax case.
If you take the one-off effects out of that number, the clean number for the first nine months is $1.929 billion. The cash flow for the first nine months is $5.6 billion, and the CapEx net of sales proceeds is then $3.6 billion. A good cash flow. From then, I'm going to page 11 on the development in net interest-bearing debt. As you can see, starting off for the nine-month period. We're starting from the beginning of the year with net debt of $15.3 billion. All in all, we are taking it down $500 million- $14.8 billion.
EBITDA of $9.5 billion, an increase in working capital of $900 million, taxes paid of $2.4 billion, CapEx of $3.8 billion is of course netted with the sales proceeds of $3.2 billion, so the gross effect is $7 billion. Financial items, $0.7 billion, and dividend, $900 million. The $900 million is, the A.P. Moller-Maersk dividend of $750 million, and $150 million is minority dividends throughout the year for different subsidiaries in the group. That leaves us at $14.8 billion at the end of the Q3 . Going to the outlook on page 12. As Nils have said earlier, we are adjusting the expected result for 2012 to around $3.7 billion.
That is including the impairment of $267 in Maersk Tankers, as we have recognized in the Q3 . Cash flow used for capital expenditure is expected to be lower than 2011, while cash flow from operating activities is expected to be at the same level as 2011. Maersk Line still expects a modest positive result in 2012 based on higher average rates in the H2 of the year.
We have taken down slightly the global demand for seaborne containers, and that is now expected to increase by 3% in 2012. Maersk Oil is expecting a result of 2012 above the result for 2011, and that is including the impact of the settlement from the Algerian tax dispute, and that was an income of $900 million. The expected result is based on the share of production of 258,000 barrels of oil equivalent per day. That is down from previously 265,000. We're basing that on an average oil price of $110 a barrel for the remainder of the year.
The exploration cost, we have also taken down from around $1 billion to now around $900 million due to some postponements that is postponed into the into 2013. APM Terminals still expects the results for 2012 above 2011 and above market share growth in volume supported by the portfolio expansions. Maersk Drilling expect the results below 2011, mainly due to the delayed startups on the two new contracts. The total result for all other activities is still expected to be lower, excluding divestment gains and impairments. That is due to lower expected result in Dansk Supermarket and Maersk Supply Service. As always, we are subject to considerable uncertainty, not least to the development in the global economy, but also due to freight rates, bunker price, currency elements, among other things.
We have put up sensitivity tables for the remainder of 2012 on this slide. With that, I'll hand the word back to you, Nils.
Taking you on to slide 13, final remarks. Basically saying that we continue with our strategy of prioritizing investments in the four large business units. Maersk Line is not going to invest significant amounts of money in the next years, at least that's not what we foresee. The main focus in Maersk Line will be on profitability. Absolute profitability, meaning that we will work hard to get a reasonable rate environment in the industry. We'll work on our cost. The objective is to be 5% better in terms of EBIT margin than the competition.
We have at the Capital Market Day also announced some other few things around Maersk Line, including that Maersk Line is supposed to grow with the market, not above the market, and only insofar as it can grow on its own cash flow going forward. Maersk Oil is working on its aspiration to get 400,000 barrels a day production in 2020. We realize that this involves investments in CapEx and so on. The good news is that we have made a number of finds and feel that we are well equipped. At least we have the good areas, the good finds to invest in. We feel we're good on the way.
We are, as I said earlier, we're going through a phase now where production is bottoming out, and we will expect to come back to back to growth in the coming years. A very exciting business to invest in. APM Terminals is going on with its very ambitious expansion investment program. We still feel times are very good for this. We are ahead, in particular in developing markets, a welcomed investor, and we intend to use that that window of opportunity that we have here to build a profitable and solid business.
Maersk Drilling with its seven large drilling rigs on order is of course in not yet until we get those deliveries starting in 2014, not yet in a position to show figures reflecting our ambitions during 2013. Given the order situation and the backlog we have of orders here, we think we have timed the investment right, and are very optimistic about the long-term development of this business as well. We remain committed to profitable growth. We also remain committed to being open and in dialogue with our shareholders, and of course, also look to distributing a fair dividend with the objective to increase the absolute level of dividend.
That is the absolute sum in Danish kroner that we pay out per share. Whenever we feel there's a business, the business gives reason and possibilities to sustain such increases in the long term. With that, thank you for listening. You've been in the listening mode for long. We look forward to receiving your questions, and we'll as usual do our best to give you answers. Thank you.
Ladies and gentlemen, if you have a question for the speaker, please press zero one on your telephone keypad and you'll enter a queue. After you are announced, please ask a question. Our first question comes from Mr. Christopher Combe from JP Morgan. Please go ahead, sir.
Good morning, everybody. My first question relates to your final remarks on the $1 billion profitability guidance. If I understand correctly, due to backlog, those targets are pushed back slightly compared to the capital markets day. If that's the case, can you give us a bit more detail as to how many of the assets in the order book you see as delayed?
We haven't pushed anything back. As far as I'm concerned, we said we would have APM Terminals on $1 billion in 2016, which is what we're saying again here, and drilling within the planning period. It's around 2018. We don't see any. I'm sure there's a risk of delays when the oil sector is heating up in delivery of the drilling rigs. At the moment, we don't see any concrete signs of that. We expect the drilling rigs we have on order to go into operation starting from early 2014 and then during 2015.
Those rigs will all be in operation well before the end of the planning period. Of course, we have to see how many we order. That depends very much on the opportunities to get long-term contracts and how the market develop.
Okay, that's very clear. Switching to liners. Speaking to forwarders in recent weeks and looking at the Shanghai indices, it does look like $300-$400 of the proposed hikes have stuck to Northern Europe. However, uncertainty still seems high. Looking at today's numbers, we see declines in both Med and Northern European rates. How defensible do you think the success thus far can be? Could it suggest a permanent suspension of the AE9 or potentially sacrificing some more market share to maintain your average rates?
Well, we have pulled quite a bit of market capacity out. So we definitely feel that we have done our share, having seen good results from it. Now we expect others to behave responsibly as well. I mean, if you can't fill your vessels, of course, it's better to reduce your capacity. You save at least the cost. It's much better than going out in rating decreases. I think the market has learned something from the price wars of 2009 and then 2011. At the moment, the signs are reasonably good.
We're not naive and think that and rule out that there'll be new price skirmishes here and there on various routes. At the moment, we think it looks reasonably okay.
Okay. Very last one. If we look forward to 2013, what's sort of your base case assumptions for global container demand growth? Is it roughly in line with the current year? Just trying to get some sense of what your underlying assumptions are.
We are not giving any figures out for 2013. I think the big question mark is really how does the European consumer demand behave really? That is, at the moment, the European markets are quite depressed. We see, of course, shipments to Europe being low, probably also reflecting some reductions in stocks. We need to see a reverse in that to see a return to, you can say, growth rates that are higher than the 3% we got this year. We haven't given any figures out for next year.
Okay. Thank you.
Our next question comes from Mr. Stig Frederiksen from Carnegie. Please go ahead, sir.
Hello, gentlemen. A couple of questions. First of all, to oil and gas. You have earlier guided that we should expect lower production in 12 and 13 and then a flattening out, bottoming out in 14. Looking at your production numbers now and the one you have given us, is that still gonna be the case?
Well, we don't see any negative developments in the mid to long term production forecast that we've come out with. We have had an unforeseen or a decline this year that is slightly bigger than we had foreseen, primarily because of a delayed start-up of Gryphon in the U.K. sector.
Another question just to your earnings. Now you're guiding on $3.7 billion, including this impairment. That leaves you with only about, just some back-of-the-envelope, about $600 million for Q4, and you did come closer to $1 billion in Q3. What should take down earnings when you look at your forecast for Q4?
Well, Q3 is usually a good quarter in terms of trade volumes. At the end of the year, container volumes tend to slow down a little bit. It's of course also reflecting the fact that we are living in an uncertain environment. We're seeing the oil price probably being a little bit weaker than you could hope for. Then you have the uncertainty on rates in container business.
My final question. Now you've done an upgrade, and that of course also include this impairment and non-cash effect. Should we be looking for positive free cash flow this year in on group level?
Trond, will you expand on this?
Well, I don't think we should expand more than what we're actually saying in the guiding. I guess it speaks for itself. Generally, we are saying that we want to have sort of a balance between the CapEx spending and the operational cash flow. To be more precise than that is difficult.
Our next question comes from Mr. Robert Gillam from Macquarie. Please go ahead, sir.
Oh, good morning, gentlemen. I've got three questions, if I may. First of all, on Maersk Oil, the tax rate in Q3 was 79%, which was quite high. Could you just confirm whether that included any exceptional items or was the higher tax rate there just a reflection of the 20% stake taken by Nordsøfonden?
The effect there is mostly the U.K. effect, a one-off effect of $72 as a result of the implication of the new tax rule on removal costs in the U.K. sector. That is a one-off effect of $72 that's in that. If you exclude that, you're getting into a normal level for oil and gas.
Okay. Thank you. Just sticking on Maersk Oil, could you provide some sense of the extent to which profitability was impacted by the unscheduled maintenance in Denmark at the beginning of September? Also, was that maintenance completed by the end of September, or will profitability in Q4 be impacted as well?
The effect of Tyra was basically it has an effect during the Q3 of approximately-
$700,000.
Yeah.
Gross.
Well, it was a minor effect, basically. A small effect during the Q3 . It was finished during the Q3 . It's now up and running, basically.
Thank you. Just finally, on Maersk Line, just on the two main East-West routes of head haul Asia-Europe and head haul Transpacific, could you provide some color on your expectations for volume growth on those trade lanes in the midterm, by which I mean maybe the next five years or so?
That's a long time. We expect, I think best answer is probably macro, to give you some macro feel. We expect the U.S. to be developing relatively well. We think as they're back to growth and with the help of shale oil and shale gas and so on. I think they will have they'll have a reasonably good development in the economy in the five-year period. Europe is much more difficult to predict because here we have a lot of structural issues that needs to be attended to. I think it's fair to say that we expect the European issues to be solved during 2013 in terms of the uncertainty around certain countries and so on.
We expect a model to be found, but that doesn't remove the fact that we have a high level of debt, government debt, in Europe, and that means that we are set up for a period of slow growth. We believe that when we hit the decline period that we've seen in 2012, volumes in Asia-Europe really declined starting from June. When we come into that period, I think we will see stabilization and probably a positive development again. That's totally guesswork. We haven't done our forecast for 2013 yet.
Okay. That's very helpful. Thank you.
Our next question comes from Mr. Alex George from RS Platou Markets. Please go ahead, sir.
Good morning. Two questions from me on Maersk Oil. First, can you discuss how you think about production decline on your mature fields and what you generally expect to see on an annual basis, perhaps going towards the 2020 targets? Second, we saw strong production from the U.K. quarter-over-quarter, excluding the Gryphon FPSO. Can you give us a bit more color on expectations at Gryphon and perhaps how we should look at the U.K. going forward? Thanks.
Well, we do, we actually do see quite a lot of investments from our side in U.K., in the coming years. It's one of the areas that we really invest in. Golden Eagle is, of course, the major project that we're growing in, but we do quite a lot of near-field exploration and production expansions as well. We actually expect U.K. to be a growing oil producer of oil for us, over the coming years.
Okay. Anything on production decline on your mature fields in Denmark?
I think there's an extraordinary drop this year because of taking in of Nordsøfonden. Having said that, we do expect a decline also in Denmark over the coming years. We expect we're investing then in Norway, of course, where we expect better figures.
Okay. Thank you.
Our next question comes from Ms. Penny Butcher from Morgan Stanley. Please go ahead, Miss.
Great. Thank you. Good morning, everyone. Two questions from my side. The first is, you mentioned in the slides with regard to the volume trends in Maersk Line in the quarter, obviously, we were, I think, very aware of the Asia-Europe issues in terms of volumes. But you also mentioned Africa declined and showed substantial weakness in the quarter. Can you give some explanation behind why that was the case, or is it one-off in nature? The second question from my side is, just recently, you participated in the capital increase at Danske Bank. Just wanted to understand the thought process behind that.
Your investor day presentations highlighted that your focus of investments was going to be majority on the core four divisions. How does the reinvestment in Danske fit within that portfolio? Thank you.
Yeah. I think your last question is of course spot on. On the Capital Markets Day, we said at the Capital Markets Day that we would support the Danish retail operation as well as the bank in their plans, but expected both to be self-financing. At that time, we were not aware of the potential capital increase in Danske Bank. We decided to go with it for two reasons. First of all, because we were convinced by the board of Danske Bank that this was important for the bank to get a good credit rating going forward.
Also, in taking into account the Basel III, we think Danske Bank is now excellently capitalized, and hope there'll be no need for further capital injections. The other reason was that we wanted to maintain our ownership share. We believe this is in itself a good investment. Coming to Africa, it is true that we've given away some market share in Africa during this quarter. Africa is a core region for us, and we're seeing strong growth and profitability on the back of giving away some market share. We will definitely fight to keep our market share in Africa. I think also here we deliver very good service.
We have very, very strong organizations in place, country by country, so we'll be able to support that business very well going forward.
Okay, great. Thank you. Our next question comes from Mr. Gianmarco Bonacina from Equita. Please go ahead, sir.
Yes. Good morning. Three questions. The first one is a follow-up on the tax rate in Maersk Oil. Basically excluding the one-off charge due to the tax in the UK, the tax rate was 73%, which was higher than the Q2 , which was below 70%. So can you explain why the tax rate actually increased versus last quarter, considering that you should have a positive impact from the sale of the stake in the Danish consortium? The second question is about Gryphon FPSO. If you can confirm when exactly that will come again in production? And also what could be the contribution in terms of barrels of oil per day?
Basically the last question is, recently you announced a small acquisition in U.K. oil and gas. You increased the stake in a field. Was that included in the Q3, or will that be included in the Q4 ? Thank you.
It's a lot of good questions. We expect Gryphon to go on production, starting production at the beginning of next year. Of course, we have to hook up the wells one at a time, so it'll take a time until it's back to full production. We hope it'll get up to the range of 20,000 barrels a day, more or less. That's the plan for that. I can't tell you whether the additional 30% in the U.K. is actually in the Q3 or not.
No. It hasn't closed during the Q3 or it's coming into the Q4 . When it comes to the tax rates, the clue is that we have said earlier that we will come into a period of increasing tax rates due to the fact that we have start-up costs in countries that we do not have the revenue to counter sort of the start-up costs. As a result of sort of increasing the activities in countries like Kazakhstan or Kurdistan or
Angola.
Angola, as well as, to some extent also the US. That means that we are going into the increasing rates as a result of that. That means that the rates will vary from quarter to quarter. The standard level as, or the guiding, as we have given, that the coming from the last year's rate of just above 70, we are gonna see a couple of years of increasing percentage points if you exclude the one-offs.
Okay. Thank you. Just again on the Gryphon, because in your report, page 16, you say that Gryphon will start production in Q4 2012. That's not correct. It will be next year.
They are in the process of doing the hookup on Gryphon as we speak, and they are lifting the risers. The plan is to actually have the first oil from the upgraded Gryphon before year-end, but it's not gonna come any serious production as a result of that. This is very much due to the weather conditions in the North Sea. There is a risk of postponements as a result of the weather risk that actually is just ongoing as we speak.
Okay.
Our next question comes from Mr. Lars Heindorff from ABG Sundal Collier. Please go ahead, sir.
Yes. Hello, everybody. A couple questions as well. Regarding the oil and gas division, just sort of a clarification, question here. The increased tax, the decommissioning relief tax, is that a one-off? Is that something which will affect you going forward as well?
Well, the answer is that it is a one-off because it is a change of rules, so it's an accumulated effect of the historic effects. It is a one-off. Of course, that will mean. We won't say that amount again. Of course, when we do, we are reevaluating the ongoing effect. It will have a rolling effect, but basically, it's a one-off with this kind of amount, but the tax rate is then increasing in U.K.
Okay. Can you give us an idea of an indication about how much?
You're not gonna register the numbers.
Okay. Same question also regarding oil and gas. Qatar entitlement share in the Q3 was 34%. You indicated during the capital markets day that will be flattish going forward. I just want to make sure that that is still the case.
Well, yes. Basically, it will be flattish, but it's of course depending on the liftings we actually do every quarter and sort of the balancing of the inventory. Of course, it's not like a straight line with commas.
It's also a matter or a result of the investments that we do. The next, you can say the next uplift or the next positive effect from investments on volumes you will see when we start investing in the field development plan, that's for approval now with Qatar Petroleum.
Okay. Can you give us a timing on that?
No.
Okay.
Not now.
Okay.
If we, as you know, as long as we don't invest, this will decline, and that's what Trond is saying. We will see this dipping in the coming quarters until we see effects of the investments in the next field development plan.
Okay. Got it. Regarding the container business, unit cost down actually quite significantly. You state that your bunker cost is down by 15%, the bunker price is only down by 1%. Can you give us a bit more flavor on that? I mean, have you slow steamed more, and have you done other stuff than that in order to lower the unit cost?
Yeah. There are two effects you have to keep in mind. First of all, we're going to super slow steaming on backhauls in on a number of trades, and that gives us an additional saving. On top of that, you can't compare the unit the oil price or the bunker price decline in the quarter we're in. You have to look at the previous quarter because the consumption of oil is actually three-months-old oil on average, more or less. It's just a rough figure. We did go through a period early summer this year, if I'm not mistaken, where the bunker price was very low.
Okay. Last question regarding the rates. One of your key competitors have just the other day announced a $600 rate increase for the fifteenth of December on Asia- Europe. Now we've seen that the rate increases on the first of November have been sort of, I would say, reasonably successful. Do you expect to follow along those lines as MSC?
I can't comment on the statements from MSC because I mean, there's so many rate increases going on, and we just have to try to follow our way, which is pushing up rates to a reasonable level. The next big project we have is the reefer increase. Of course, if the markets allow, yes, we will take further increases.
Okay. Thank you very much.
Our next question comes from Mr. Roger Elliott from Citi. Please go ahead, sir.
Good morning, gentlemen. I've got two questions. One following on from the gentleman who talked about bunker. Do you see Q4 bunker expenses at a broadly similar level to Q3, i.e. will capacity reductions in the Q4 offset the autumn spot price increase? Secondly, could you give us some idea of the approximate share of your total container volume that is reefer? Finally, could you say a few words on the strategic logic to your investment in Global Ports and your interest in Russia generally?
Yeah. Sure. The interest in Russia and Global Ports is very simply that it's a growth market, and we don't have any exposure of significance to Russia, which is an important economy with reasonably good growth prospects. In terms of the bunker cost going into Q4, we will expect the work on slow steaming, super slow steaming to continue. Even if the oil price is keeping up relatively well, what we're seeing is a good development in the crack, which is the spread between bunker and crude oil prices. We have reasons to be reasonably optimistic for bunker cost in Q4.
Okay. Reefer volume?
That's a good question. I can't tell you the exact figure. It's
Significantly higher.
We have a global market share, I think on reefer on about 24%, something like that. The global share on dry is probably around 14%-15%. We are higher on reefer than we are on dry.
Thank you.
Don't nail me on the exact numbers, please.
Yeah. Yeah.
Our next question comes from Mr. Finn Bjarne Pedersen from Nordea. Please go ahead, sir.
A question to rates in Maersk Line and a question to exploration costs in Maersk Oil. If we take the rate development, if we look at what you have presented this morning on page 20, it is that your rates are actually de-rating from the CCFI index and going up in September. How do you see this develop into the next quarter and next year?
Well, we have actually said that this would happen at the last quarter because we had a number of contracts coming up for renewals and we were a little bit behind the development in the spot over the summer, simply because we, as you know, have more long-term contracts than the market on average. We continue that effort and we believe that there's a lot of contract renewals over the next quarters that will happen at better rates than the historic ones. We're reasonably optimistic of maintaining a fair level or fair rate development over the coming months. More precise than that, I can't be.
It's more or less saying beating the market in the next quarters. Is that what you're saying?
I may be hoping it, but I'm not saying it.
Okay. Finally, the-
What I am saying, though, is that these spot indexes are normally not the best predictor of Maersk Line indexes. We've seen it again and again.
This was the CCFI, which you claim is a good indicator.
We claim it's a better indicator.
Okay, good. Maersk Oil, you lower exploration cost in the rest of the year. I understand that's roughly $200 million less than previous guidance. Should we expect the $200 million extra next year? Could you give a flavor of where you have saved costs and where you'd expect to use them next year?
We don't expect to move. I mean, we try to balance our exploration levels around the figures we've set at the capital market day. Some years it'll be a little bit higher, some years it will be a little bit lower. The effect this year is mainly delays. We'll probably see then other things being postponed as well, because there is a lack of drilling rigs. It's basically all over the world. We have delays in getting in drillings done in Africa. We have delays in the US, so it's all over the place.
That's saying next year is still around $1 billion.
We expect so.
Not a profit. We can't just put the money in for the next year estimates then.
No. No.
Okay.
We don't. We should, I wouldn't do that.
Okay. Just finally, if I could have uncertain, one final question. You're reducing your production numbers for the year by 7,000. Could you give a split on that, change of, guidance?
About 2,000, I believe, is coming out of Denmark. The delay, the one plant close down. Then we have, I'm really very rough figures. A little less than half of the remaining decline is coming out of better, higher prices on average in Qatar, giving us lower volumes, and the rest is Gryphon.
Okay.
Very roughly.
Okay, thank you.
Our next question comes from Mr. Beat Kaiser from Cheuvreux. Please go ahead, sir.
Good morning, gentlemen. Two questions, please. First, can you give us an indication regarding the revenue per move generated in APM Terminals, if you adjust for those divestments of the chassis activities you did in North America over the last couple of quarters? i.e., have you seen some pricing pressure there? Then the second question relates to trans-Pacific. What's your view on rates and supply and demand in general, as we see some bigger vessels now being cascaded onto this route? Thanks.
I can't give you detailed figures on the lifting rates in the U.S. terminals, unfortunately. Of course, there's pressure all over the place, but we do see good rate stability in the terminal businesses, in general. In terms of the rate forecasting for the U.S. , we don't have any specific forecast for any parts of the future, and particularly not long term. As I said before, we expect a reasonably good economic development, and that should mean that there'll be some room for additional capacity in the market.
Okay. Just a quick follow-up on terminals then. I mean, the trend overall, I think, I mean, for example, in Europe, I would think that there was some pressure on the revenue per move. Have you seen that as well, or what's the view on that?
I don't, I can't comment on that. We haven't seen unusual pressures on rates. You would expect, of course, pressure on rates when the markets are going down. In general, the terminals have been much more successful in avoiding giving price concessions.
Okay, thanks. That's helpful.
Question comes from Mr. William Foggin from Berenberg Bank. Please go ahead, sir.
Hi, good morning, everyone. I just got a couple of questions. First of all, on your average freight rates, in Q3, was there any change in the proportion of your contracts that were on spot? Did any of your long-term contract customers pull out of their contracts and go on to the spot market, or did they remain firm on the contracts? Also, how is that expected to continue in Q4? Secondly, just a question on drilling. You have 100% contract coverage for Q4. Just to confirm, is there expected to be any maintenance downtime in the remainder of the year? Thanks.
We have very good forecast on, of course, the last quarter we should know. We also have very good contract coverage next year. I can't tell you whether there's any planned maintenance taking place on smaller rigs, but I'm not aware of anything on the bigger ones in the last quarter.
On your Maersk Line, the proportion of your customers on contract versus spot. Did any of your major customers pull out of contracts to try and take advantage of lower spot rates?
It's not been a very big problem because the spot rates have been, in general, above the contract rates. We hadn't seen any tendencies to that. I also have to say that we're getting much better at managing contracts, so we don't get that situation as often. Although it's difficult completely to avoid. People who have previously broken contracts with us, of course, we've also readjusted contracts with them, when we saw the spot rates were significantly above the levels seen in the contracts.
Okay. Well, that's interesting that contract rates are still below spot rates.
Yeah.
during Q3.
Yeah.
Okay, thank you very much.
We'll have a last question.
Our last question comes from Mr. Dan Togo Jensen from Handelsbanken. Please go ahead, sir.
Yes, thank you. One final question here from me. On the backhaul issue Europe, you are cutting back capacity, you are slow steaming, and you are still increasing the volumes here. Utilization must be improving. What about rates? Are you getting a fair compensation above costs here, or and are rates increasing here?
We have seen improved rates compared to where we were a year ago. Backhaul rates have been one of the areas that we have adjusted upwards in the industry. Of course, the rates are still relatively low, reflecting the fact that you have excess capacity, and also the kinds of commodities that we're transporting, which is a lot of waste paper and scrap metal. One of the reasons why the customers also don't mind that we're super slow steaming.
Where are they? Can you give some where are the rates relative to front haul rates vis-à-vis last year?
I can't give you the exact figure on that, Dan. Sorry.
Okay. Thank you.
Okay. That concludes this conference call. Thank you very much for listening in. As I said in the opening, we are reasonably pleased with the third quarter result. We're also pleased that we're able to slightly upgrade and give a more precise forecast for the year. Of course, we'll work now very hard on all the four key businesses to get in line with our long-term plan and continue to expand within this window of opportunity that we see both on the oil and drilling and the terminals business. We see very exciting business opportunities at the moment, a lot of hard work and probably a relatively slow global recovery. We feel really well placed to take advantage of the opportunities.
Thank you once again for listening in, and we look forward to talking to you when we come with the full year results in February. Have a good day.