Gentlemen, we're delighted to welcome you to our capital markets day for Statoil 2018. Before I ask our CEO, Eldar Sætre, to start the proceedings, I'd like to make a short announcement on safety, which, as you know, is very important to us at Statoil. If an emergency situation should occur while we're here, the evacuation signal is a voice system announcement. Please note that we only evacuate the building should the voice announcement say to do so. Then, please use the sign-posted fire exits within the venue, follow the signs and messages from the guards. Exiting is at ground level, and the assembly point is situated on Bartholomew Close, which is just outside. Also, I'd like to note that after the presentations, we've got four presentations, each lasting around 20 minutes from members of the executive team.
After those presentations, we'll be having questions and answers for around 45 minutes from both the floor and from the phones. Members of the executive team will be available for discussions in the area outside after the formal session. With that, I'm delighted to pass the word through to Eldar to lead us off. Thank you very much.
Thank you, Peter, and good morning, everyone. I can assure you, we have really been looking forward to see you all again here in London. Today, we will show you that we have delivered on our promises to become stronger, more resilient, and more competitive. Even more importantly, we will show you that we are now set to increase returns and grow our cash flow in the years to come. We are delivering on our strategy, investing in high return, high quality opportunities, strengthening our balance sheet, and increasing capital distribution. Last year, we presented our strategy, Always Safe, High Value and Low Carbon. We also set clear ambitions for 2017, and we have done what we said. In fact, we have delivered above and beyond quite ambitious targets.
This is also reflected in our fourth quarter and full year 2017 results. Hans Jakob will cover that in his presentation. Let me start with safety. Over the past decade, we have significantly improved our safety performance as a result of systematic and consistent efforts. Following some negative developments in 2016, we reinforced our efforts. Last year, we again saw a positive development. For us, this is inspiration to work even harder, including the launch of I Am Safety program across the company. Now, this starts with me and all our leaders. It requires a personal commitment from everyone in Statoil, recognizing that the safety of our people and the integrity of our operations remain our top priority.
In 2013, the project portfolio in front of us had a break-even oil price of around $70 per barrel. Last year, we showed you what we call our next generation portfolio with an average break-even price of $27 per barrel. Now, we have improved this portfolio even further, taking down the break-even price more than 20% during last year to $21 per barrel. All these projects will be in production by 2022 and deliver 3.2 billion barrels to Statoil. Now you will, of course, be the judge. That's the way it works. I believe this is the best opportunity set in our industry. We have also realized efficiency improvements of another $1.3 billion, 30% more than we promised.
This means that since 2013, we have realized $4.5 billion in annual cost improvements. Last year, we also said that we would be cash flow positive at $50 per barrel in 2017. We did even better, and we're cash flow positive well below $50. At an average oil price of $54, last year, we generated $3.1 billion in free cash flow. In addition, we have reached our targets to become even more low-carbon competitive. CO2 emissions from our oil and gas production are reduced with an additional 10% per barrel. Last fall, we also started production from our Dudgeon and the floating wind farm Hywind. Today, we operate three offshore wind projects all here in the U.K., delivering good cash flows and competitive returns. Let me share some reflections on the energy markets.
We have seen oil markets gradually recovering and rebalancing. However, as we have seen over the last few days, you should always be prepared for volatility. Geopolitical developments, OPEC policies and the response from the U.S. shale are key factors in this equation. Still, we expect the physical rebalancing of oil markets to continue during the first half of this year, taking down global inventories to more normal levels. In Europe, gas demand is now growing again, prices are recovering, and we see strong demand growth also in Asia. Jens will present our view on the gas markets at a separate seminar here in London later this month. We are in a long-term industry. Looking towards 2050, there are, of course, uncertainties, as we have outlined in our energy perspectives report.
What is certain is that natural decline will require significant new production capacity of both oil and gas. We believe that the winners will be the producers who can deliver competitive barrels with low cost and low emissions. That is what we aim to do. We further believe that renewable energy will be the fastest-growing source of new power generation, mainly driven by technology, by innovation, and also increasingly industrial scale. We are therefore utilizing our key strengths to build an industrial position and create value also within renewable energy. We started our improvement work when prices were still high, and we have used the downturn to reset the company. We are now well-positioned for increased value creation and strong cash generation.
In the period 2018 to 2020, we have the capacity to remain free cash flow positive below $50 per barrel. At $70 per barrel, we can deliver around $12 billion in free cash flow after dividend and investments, and also including proceeds or considerations and other impacts from announced transactions that you've heard about. This free cash flow enables us to reduce our net debt ratio to below 15% and deliver around 12% return on average capital employed in 2020. Such a return is, by the way, on par with what we delivered in 2013. Remember, then we needed an oil price of more than $100. Now we can do the same at $70.
Let me assure you, after 3seven years in this amazing, fantastic, great, but also cyclical industry, I'll manage to keep my feet on the ground, even with strong cash flow outlooks. We will continue to sanction projects only when they are ready and as good as they can get. We will also stick to a value-driven and disciplined approach when looking for opportunities to optimize our portfolio. We expect organic CapEx of $11 billion this year and on average for the period 2018 to 2020. In accordance with our dividend policy, we propose to increase our cash dividend for the fourth quarter 2017 by 4.5% to $0.23 per share, reflecting expected growth in long-term underlying earnings gained from sustainable improvements. In addition, we have ended the scrip program as planned.
We also see an emerging scope for share buybacks, which would depend on macro outlooks and portfolio developments. Near term, however, we will prioritize to strengthen our balance sheet before considering buybacks. Here you can see our key industrial value drivers. Many companies have strong positions at their home base, but I'm not aware of any company having a home turf position like Statoil, while at the same time being exposed to global competition. This gives us a competitive edge that we are now leveraging even more forcefully also outside of Norway. The Norwegian Continental Shelf is the backbone of our business and the lab where we develop new ideas and technologies and can scale them industrially to create even more values. Operational excellence, world-class recovery, leading project deliveries, premium market access, and digital leadership are key value drivers for Statoil.
On the Norwegian Continental Shelf, these value drivers have enabled us to improve production by 125,000 barrels per day and to achieve 50% average recovery rates, to significantly improve our project portfolio, and to save 10% already at our first attempt at automated drilling in last year's Barents Sea campaign, and more than 10% from our first unmanned platform, which is called Oseberg Vestflanken. As Arne Sigve and Margareth will demonstrate, the potential is even bigger. Our international growth is increasingly based on the same value drivers. Enhanced by an even stronger Statoil-operated footprint. As Lars Christian will show you, Brazil fits our strengths perfectly. We will create significant values from Peregrino Phase One, Phase Two, Carcará, Roncador, Pão de Açúcar, and other opportunities in the future.
Perhaps less obvious for some, it is the same value drivers that is supporting our investments and our value creation in unconventional resources as Torgrim will revert to and discuss with you later. In fact, it is also the oil and gas engineers that has found the solutions to create competitive returns within renewable energy and offshore wind. Let me turn then to our project portfolio and start with Johan Sverdrup, a truly world-class project that just keeps getting better. Even after sanctioning, we have reduced CapEx for Phase One by NOK 35 billion, almost 30% to $88 billion. While CapEx is down, resources are up, now estimated to between 2.1-3.1 billion barrels.
This means that we have reduced break-even prices even further to below $15 per barrel for Phase One and below $20 for the full field development. We also continue to improve the entire next-generation portfolio. With an average break-even price of $21 per barrel, the internal rate of return is now at above 30% assuming an oil price of $70. To me, this is quite impressive, makes me proud, and I can assure you we will continue to chase further improvements. We have not only improved our projects, we have also renewed and strengthened our reserves and resource base. Our reserve replacement ratio was all-time high at 150%, reflecting improvements from existing fields and also new project sanctions. It also added more than 2 billion new and high-value barrels to our resource base.
These barrels come from countercyclical value-creating transactions like Carcará, Roncador, and Martin Linge, from 14 commercial discoveries last year, valuable license extensions, and new growth opportunities in countries like Argentina and Turkey. It is still early days, and we are cautious in our resource estimates, but these growth opportunities looks promising and exciting to us. We expect to drill around 40 exploration wells this year, which is up from 28 last year, at a spend of around $1.5 billion. We continue to work on our non-sanctioned portfolio, including attractive projects like Troll Phase Three, Krafla, Vito, and Bay du Nord. Since 2016, we have doubled the resources in this portfolio to around 6 billion barrels, and the net present value is around $10 billion higher at $70 per barrel. I believe we have used the downturn well.
The real test is taking place now as prices are recovering. As a former CFO, I have seen how easy it is for an organization to start relaxing when prices are recovering. We are determined and will not allow that to happen again. On the contrary, and as Hans Jakob will show you, our mantra is to continuously improve through the cycles. We intend to sustain the 2017 unit of production cost in 2020, to reduce drilling costs further, and to deliver double-digit return on average capital employed already this year, two years earlier than we have indicated previously. We are convinced that even with the achievements that we have made, the improvement potential is still significant from further technology developments and digitalization. Technology and innovation is truly embedded into this company's DNA.
We are now investing to secure a global leadership position within digital technologies because it is the key enabler for improved safety, lower cost, higher volumes, and lower emissions. Some of this potential is illustrated on this slide. We are now developing an integrated, fully integrated operation center on the Norwegian Continental Shelf to support all our offshore operations. I believe we can increase value creation from already producing Statoil-operated fields by more than $2 billion by 2025. By implementing and further enhancing automated drilling across our portfolio, we can also further reduce drilling costs. In addition, there is potential to add revenues and speed up developments from more precisely targeting our reservoirs. The fields of the future will increasingly be subsea, combined with lighter installations, unmanned, robotized, remotely operated, and standardized.
Compared to conventional concepts, we can halve operating costs and reduce facility CapEx with approximately one-third. We believe digitalization will transform our industry. We're just at the beginning, and Statoil will certainly be at the forefront of this development. Statoil has a competitive advantage as we are heading towards a low-carbon future. CO2 emissions per operated barrel are close to half of the industry average. We have embedded climate risks into our strategies and into our business decisions, and we stress-test our portfolio, demonstrating that we are resilient also in a low-carbon future. This is not enough. We're also developing Statoil as a broader energy company to be even more competitive and carbon-resilient. It starts with developing a carbon-efficient oil and gas portfolio, and we have clear targets for further emission reductions.
This is followed by ongoing projects within renewable energy with an attractive risk-reward profile and competitive real returns of 9%-11%. As we outlined to you last year, we expect that 15%-20% of our CapEx will go into new energy, our new energy portfolio in 2030. Expectations towards our industry are increasing also from investors, and we will invite you all to our sustainable investment day in May. Let me summarize. First of all, Statoil will deliver strong cash flows and growing returns, and we are increasing dividend by 4.5%. Secondly, we are investing in our next generation portfolio at an average break-even price of $21 per barrel, including Johan Sverdrup, with a break-even price below $15 per barrel for phase one.
Finally, we are leveraging our industrial strengths to create even more value, both on the Norwegian Continental Shelf as well as internationally. All in all, a strong value proposition that we are proud to present to you here today. Thank you very much for your attention. Now, I give the floor to Margareth and Arne Sigve.
Thank you very much, Eldar, and it's still a good morning to you all. I've also looked forward to coming here today together with Margareth to share some perspectives on our journey on the NCS. Our NCS history is about a small-scale player growing to be the leading operator. Today, we have one of the world's largest exporters of oil and gas, providing security of supply through 8,000 kilometers of pipelines. Our key message from this session is that Statoil will continue to generate value from a solid foundation. Firstly, 50 years of renewal and innovation. We operate in a basin that we know and that we master. Our NCS operatorship provides unique opportunities to pilot broadly and implement new technologies and solutions. This also includes digitalization.
Secondly, we have resources in place, operate assets at scale, and we have access to flexible infrastructure and premium markets. Thirdly, our future project portfolio on the NCS is very robust, utilizing a full range of competencies and technologies, and Margareth will come back to this in more detail. When I last addressed you from this stage, I made a promise. That was to step up even further when it came to operational excellence. I'm proud to say that we have delivered since 2013. We have improved production level by 10%. The capital expenditure is down by 50%, and the production cost per barrel is down by 25%. When it comes to our operations, we never compromise on safety, having significantly reduced maintenance backlog and improved plant integrity in this period.
We have also reduced maintenance and modification costs by 40% and 45% respectively, and at the same time improved production efficiency by 7.6 percentage points, giving a record high uptime. Our safety results clearly show that efficiency and safety go hand-in-hand. Another focus is reducing our carbon footprint. Our CO2 emissions per barrel on the NCS is half the global average. We have run 245 energy efficiency projects, reducing CO2 emissions by more than 1.4 million tons, equaling emissions from 700,000 cars. Not only is this good for climate, but it has resulted in a NOK 700 million reduction in operating costs as we pay less CO2 tax and CO2 quotas. Why stop there?
We have raised the ambition further, aiming to cut additional 2 million tons of CO2 by 2030. The improvement journey has been challenging for the industry and for Statoil, but it has been quite necessary, and it has resulted in significant cash flow contribution. We need to continue to improve on safety, value, and low carbon, and to capture further value from the NCS. Let me give you some more examples on improved production efficiency and well delivery. These improvements add, as mentioned, around 125,000 barrels per day, Statoil's share. Through optimized timing and planning, more efficient turnarounds, and developing new methods for executing modifications, we have reduced both planned and unplanned losses by around 50%. We also increased our well delivery by 45%. Well cost is down by 40%, and that resulting in additional profitable well targets.
These improvements, together with others, such as profitable well interventions, are offsetting the natural production decline from our existing NCS portfolio. We have a strong track record of creating value from our assets, and we have increased recovery in our existing fields from an estimated 30% at sanctioning, at today's expected average rate of 50%. This represents 9 billion barrels of oil. Going forward, we have an ambition of 60% recovery. Increased recovery has enabled a considerable field lifetime extension activities. Currently, we're working on 23 extension projects. Examples include Gullfaks, Oseberg, Troll, Snorre, and Njord. All expected to be in production until 2030 and beyond. Our infrastructure allows for constantly maturing high-value drilling targets on the NCS. For 2018 and 2019, we have matured 170 new wells.
This represents resources similar to a Johan Castberg field. Our ambition is to drill around 100 wells in our producing fields annually. This will add around 100-120 million barrels for Statoil at low breakevens every year. I think that's not bad for fields that are way beyond their life expectancy. In addition to production wells shown on the slide, our teams are working on more than 30 new tieback projects to existing infrastructure. We also will drill around 15 exploration wells close to the infrastructure annually, adding further 40 million-80 million barrels of new resources per year with robust breakevens. We cannot rest. Adding to our existing infrastructure, we have a very strong future project portfolio. Please, Margareth Øvrum, my good colleague, tell us how we shall deliver.
Okay. Thank you, Arne Sigve. The development on the Norwegian Continental Shelf is really inspiring, and a key to success is a close collaboration between our business areas. Sometimes I talk more to Arne Sigve than to my own husband. I believe we have the best project portfolio in the world, and one number sums it all up, 21. As Eldar mentioned, our next generation portfolio is even better this year, with an average break even of $21 per barrel and a value increase of above $1.5 billion, and with an internal rate of return more than 30%. A robust and highly profitable portfolio. We deliver over $55 billion execution portfolio in 100% numbers, 10% lower than at sanction. A large part can be credited to our drilling performance.
Due to our dynamic perfect well approach, we continue to push the targets and outperform our best-drilled sections. Since 2013, we have increased meters drilled per day with more than 80% and reduced the cost per well with almost 40%. This year, we tested the automated drilling control during our Barents Sea campaign, which enable early detection of anomalies, prevented two sidetracks, and saved 10% of the campaign cost. External benchmarks confirm our performance. According to Rushmore, we are leading the way among our peers when it comes to reducing cost per meter. IPA states that we perform way better than industry average. The CEO of IPA calls our performance amazing, and I quote him, "I have never seen such improvements during a three-year period." We are not done improving.
Like Churchill said, "Never, never give up." The recipe of a good project is to maximize the value through optimizing resources while keeping CapEx and OpEx low and ensuring an efficient project execution. It is about finding lasting improvements. Instead of just capitalizing on the market, we have redefined what we built and how we built, designing to high value and low cost. One example is Oseberg Vestflanken, an unmanned wellhead platform with a break-even of $16. Based on this, what I call fancy on slim legs. This is an innovative and very cost-efficient alternative, mitigating rising subsea cost. Installed only 16 months after contract award. Trestakk, another collection of strategic moves, integrated marine and subsea contract, simplified design and utilization of existing infrastructure at Åsgard, resulting in shorter execution time. We halved our investments and we have reduced the break-even from $53 to $14.
For Njord, we are reusing and refurbishing the existing platform and floating storage unit to extend the life, lifetime and include tie-in project like Bauge to add 250 million barrels. This is our extreme makeover offshore edition. We have many subsea heavy projects in our pipeline, and we have used this to our advantage. We started off by setting direction and implemented tough targets internally as well as towards the suppliers as a part of our perfect project approach. We worked closely with the suppliers to remove complexity in design, in weight and in size. We bundled several projects together, Snorre, Johan Castberg, Askeladd and Troll, to capture synergies and of course to increase our bargaining power. The combined volume added up to one-third of the total global demand for subsea equipment in 2017.
We also included the aftermarket segment, where we expect cost savings of $500 million-$600 million on the NCS during a five-year contract period. All in all, this resulted in significantly lower subsea prices. We are now back to year 2000 cost levels, a cost reduction of 50%. With increased reserves, improved drilling efficiency and optimized FPSO design, this gives a break-even below 35 for Johan Castberg in the middle of the Barents Sea, and I don't think this is not bad. You see the volume-weighted break-even for these four fields is now $16 per barrel. There are many examples like this, where we have challenged ourselves to rethink and redesign in our hunt for lasting changes. I love to see the energy it has created in the organization.
We have built a culture which set the scene for how we will embark on new project, both on NCS and internationally. Lars Christian's upcoming 3-4 FPSOs in Brazil and Canada will benefit of a simplified and standardized solutions. Johan Sverdrup is designed to create value today and tomorrow, and it is probably our best project performance ever. Once again, we increase our volumes due to further maturation of the reservoir, adding another 100 million barrels. We reduce our phase one CapEx estimate to NOK 88 billion, a total reduction of almost 30% since PDO. This year, we have also reduced our OpEx estimates by 30% compared to the PDO estimates. Johan Sverdrup has a CO2 intensity full field of 0.5 kg per barrel compared to the world average, which is 17.
Thanks to our very successful drilling campaign, we deliver more wells more than a year ahead of plan. Combined with excellent project execution, we have added robustness to our schedule. The break-even is below $15 in phase one and below $20 full field. With a serious incident frequency of 0.3, I can truly say this project is a prime example of our core strategy, which is always safe, high value and low carbon. We have another giant, Troll. With resources comparable to Johan Sverdrup planned to be produced. A subsea development with a tieback to Troll A will unlock a large gas cap expecting to prolong gas plateau with seven years.
With a lean mindset and a marginal field approach, we can deliver the project with remarkable numbers. 2,200 million barrels of oil equivalents, a break-even below $10 per barrel, and a CO2 intensity of only 0.1. Statoil has a proud history of innovation and technology to make the impossible possible. We created the world's first subsea gas compressor, the world's first floating wind farm, and now our unmanned wellhead platform. We aim to be the digital leader to increase revenue, improve safety, reduce cost and carbon emissions. Through years of experience, we have the capabilities to make the right choices, create the right building blocks, and develop cutting-edge technology for the future step by step towards a unmanned, remotely operated factory. Last year, the standalone unmanned production platform, the UPP, was a future scenario.
This is now our preferred solution for Krafla, Askja. Taking even further to Peon with the Aasta Hansteen building on the Hywind floating spar technology, the unmanned Peon will include power from shore, gas routed directly to the U.K. market, and it's packed with value-creating technology and digital solutions, such as a digital twin for project development and operation, a smart data algorithms for automated production optimization and predictive maintenance. Of course, we have robots and drones. Maybe it's a bit nerdy, but you see on the top there is some drone flying in triethylene glycol for dehydrating the gas. It is going to land on the D deck, which is a drone deck. It's not a H for helideck anymore. We use drones and robots.
Both Krafla, Askja, and Peon are examples where innovation and technology and digitalization will take us. They showcase how we can develop marginal and frontier fields with or without infrastructure, unmanned and remotely operated. By creating these new concepts based on existing building blocks and new technology, we can develop profitable projects that seemed impossible only a few years back. The ultimate blue sky concept is an ultra-deepwater UPP, a disruptive concept, cost-efficient and suitable for frontier developments and remote operation. The ambition for the field of the future is very clear. 30% reduction in CapEx, 50% reduction in OpEx compared to traditional concept, and an additional 15% in the automated drilling. A game-changing business case. The digital technologies are being developed and implemented as we speak.
Johan Sverdrup is going to lead the way by becoming our digital flagship on the Norwegian continental shelves. Instead of telling you what we want to achieve, Arne Sigve and I, we have decided to show you.
For more than 40 years, we have pushed the boundaries for what's possible by being curious and seeing every challenge as a new opportunity. Digital technologies are changing the world around us. We aim to be a driver for change in our industry, set the ambitious targets and shape the future of energy. We are building a virtual real-time copy of the asset to create values in ways that have not been possible before. We aim to predict and resolve issues before they even occur, reduce the risk of incidents, and collaborate with machines instead of telling them what to do. We intend to eliminate human exposure in high-risk areas, drill safer, even more efficiently, and with no risk of human error. To make even better decisions, we will enable advanced analytics of all data and visualize it.
We are determined to optimize production and energy use at all times automatically and have the possibility to do so from our offices onshore. We will never stop challenging ourselves and the industry to create the safest, most valuable, and carbon-efficient solutions for our future generations. Even if no one knows what the future holds, we will continue to build on our history and create value to make sure Johan Sverdrup and Statoil is part of it.
Johan Sverdrup is truly a great project and a great example illustrating the potential of digitalization. At this point in time, it is difficult to predict the full effect of digitalization. What we do believe is that the value potential is substantial, and we are well underway. There is no doubt that we have an exciting future ahead of us, and the production outlook towards 2025 is robust, with a production growth of around 10%. We have an ambitious recovery target, and in 2020, we expect production costs per barrel in real terms to be a stable 2017 level. We expect absolute OpEx level to increase as we bring new fields on stream. We see significant cash flow generation of around $13 billion after tax over the next three years.
You heard Margareth, we will continue to improve projects and wells, reducing costs and developing the fields for the future. We are uniquely positioned for capturing value from the NCS. What we do in Norway generates value internationally and vice versa. Our NCS experience on increased oil recovery and subsea operations are used in the U.S., U.K., Brazil and Canada. We are bringing back U.S. onshore experience on integrated operation centers and as well as deepwater experiences from Brazil. That gives me a good opportunity to introduce another two good colleagues of mine. Torgrim and Lars Christian will now tell you about our exciting international journey. Thank you.
Good afternoon, everyone. It's a pleasure to be here, and it's good to see you again, and to be back in London. Lars Christian and I, we are excited to discuss our international business with you. We will improve, and we will deepen within our core areas, applying the global knowledge and skill sets of Statoil. We have defined Brazil and U.S. onshore as our two international core areas, and we will discuss these shortly in more detail. Over the last decade, international production has more than doubled to 740,000 barrels per day, and that represents 36% of Statoil. Our resources internationally is more than half of the total. As you know, the cash margin after tax is on par with the Norwegian Continental Shelf.
Lars Christian, how are we going to leverage our experience internationally?
Thank you, Torgrim, and good afternoon. Statoil has world-class assets in Norway and internationally. We systematically leverage our global experience to benefit all assets regardless of geography. By applying the value drivers addressed by Eldar, we have reset our cost base internationally. OpEx SG&A per barrel is down 34% in the last four years. Focusing on recovery has enhanced our profitability, and this is illustrated by a 35% improvement in ultimate recovery in our U.S. onshore business. Successfully extending licenses in countries like Azerbaijan and Algeria, we have added around $1 billion of NPV to Statoil. As Margareth Øvrum outlined, project delivery is a Statoil strength, and for our international non-sanctioned projects, the average break-even is down 40%.
Maximizing the value of our oil and gas is very important. As an example, we capitalize on thirty years of experience of gas marketing in Europe and now we sell our Marcellus gas into premium markets like Toronto and into Southern Manhattan. As you heard, Margareth Øvrum said, we aim to be a digital leader. We have recently opened our remote operating centers for our onshore activities, where we stream live data from all our producing wells. We are now able to predict when wells will have issues, and we can direct our field personnel ahead of time to these wells. This will increase production, it will reduce costs, and it will improve safety. The value is estimated to $500 million. We will reduce our driving by at least 25%, which equals 20 trips around the equator.
Lars Christian, we have taken some significant steps in Brazil and now over to you.
Thank you, Torgrim. As you are aware, we have an extensive portfolio with presence in more than 30 countries, and the four biggest unsanctioned projects in the Statoil portfolio are all operated by Statoil and are all international. When we work the international portfolio, applying the same thinking as for our NCS projects, we see that the improvements are not primarily basin independent, they are largely a company-specific competency. Today, we have chosen Brazil as a deep dive, and when Statoil presented the sharpened strategy 12 months ago, we defined Brazil as a core area for the company. 2017 has been about delivering on this promise. The material portfolio we have built in Brazil is the result of collaboration, perseverance, and being counter-cyclical. We have high-graded the portfolio and landed opportunities where we can apply the best of our expertise within operations, recovery, and project deliveries.
The journey started with the Peregrino field, and during 1seven years in Brazil, we have learned to operate the asset as well as operate in the country. This operational and organizational capability has given us the confidence to develop Brazil into a core area. We became the operator of BM-C-33, which includes the Pão de Açúcar discovery in 2016. This is a high-quality asset with estimated 1 billion barrels of oil equivalents in recoverable resources. In addition, we have Carcará and Roncador. With these four assets, we are well-positioned to deliver high value, operate in accordance with the corporate CO2 targets, access promising gas market, and strengthen our strategic partnerships. We continue to pursue organic growth in Brazil through exploration, where we will drill and participate in 5 exploration wells during the next two years. We have secured rig options for more.
In 2030, Statoil has the potential of producing between 300,000 and 500,000 barrels of oil equivalents per day, depending on phasing of projects and exploration success. By delivering such production, Statoil will continue to be the leading operator in Brazil after Petrobras. The value of being the operator lies in our ability to apply competencies and technologies, deliver cost-efficient projects, and maintaining financial discipline and financial flexibility. High-grading our portfolio in Brazil means that we are committed to lowering our carbon footprint, fully aligned with our corporate commitments. Let me also add that we are unlocking the potential of new energy businesses through the solar project Apodi in the northeast of the country. The Peregrino operatorship has been Statoil's apprenticeship in Brazil. Let's have a closer look.
We have delivered strong safety results with a 2017 serious incidents frequency below 0.5 per million working hours. The field has produced over 160 million barrels since the first oil, and Peregrino Phase Two coming on stream in 2020 will ensure that the production will continue for the next decades. The recovery rate of the field at the time of acquisition was 10%, and we have increased this to 16% today. Continuous improvements have resulted in a 22% reduction in total cost per barrel since 2013. We delivered roughly $18 per barrel cash margin last year. We have brought down the total cost for Peregrino Phase Two by 32% or around $1.3 billion. The break-even is reduced from $70-$42 per barrel.
While reducing our cost base, our production efficiency is up 10% over the last year, and the backlog for safety-critical maintenance has been reduced by more than 50%. All this has been achieved by making use of improved production analytics, root cause identification, and streamlined execution of modification projects. Increased profitability on Peregrino combined with operational and organizational track record has given us the confidence to embark on our next generation of Brazilian projects. Let's move to Carcará discovery, a truly world-class asset. With about 2 billion barrels of oil equivalents, Carcará can become our international Johan Sverdrup in terms of volume. Remember, there is an additional exploration upside. We have consolidated our position in the asset after a phased acquisition and a farm-down process.
We started acquiring equity in BM-S-8 from Petrobras in 2016 and from QGEP in 2017. Winning Carcará open acreage bid round in 2017 was followed by a farm down to ExxonMobil and Galp. Ensuring an aligned position across the total asset allows us to early appraise and efficiently explore, achieve unitization by 2020, and benefit from experienced partners. We believe first oil by 2024 is achievable because of the efficiency of having an aligned partnership. Our current break-even price is around $40 with a potential for improvement. You heard Margareth speak about project deliveries. Statoil's country manager in Brazil, Anders Opedal, our former project director, has promised me to leave no stone unturned. He will pursue improvements together with Margareth's project development team. This is about simplifying concepts, maximizing synergies, and delivering an optimal project execution model.
The latest addition in building our core area in Brazil was the acquisition of 25% of the producing Roncador field. Roncador provides immediate boost to our cash flow from operations at attractive break-evens. We assume closing of the transaction by second quarter this year. With Roncador, our Brazilian production will almost triple with limited additional CapEx commitment. Statoil will apply its IOR expertise in one of the largest assets in the Campos Basin. By increasing the recovery rate by 5%, we expect to produce an additional 500 million barrels of oil equivalents from the field. To put this number into context, a 5% increase in recovery rate in Roncador is like finding a new Johan Castberg field on the Norwegian Continental Shelf. Finally, it's worth highlighting our strategic partnership with Petrobras.
This partnership was a key enabler of our farming agreement in Roncador, and it is exciting to work with Petrobras to increase recovery and develop solutions that benefit both companies. The partnership will also help to monetize our future gas production by accessing the Brazilian gas value chain. Let me sum up. In a short period of time, we have moved from a one asset to a multi-asset portfolio in Brazil with an upside potential. I'm confident that we will deliver high value to our shareholders. Now I will hand over to Torgrim, who will give you a deep dive into our U.S. business.
Thank you, Lars Christian. Today, I will update you on our promises to transform the U.S. business, and I will focus on the onshore activities. As you know, we have invested heavily in the U.S. in a high-price environment. We have had negative earnings since the collapse in the oil price, and we have made large impairments. We are reaching a turning point. From now on, this business will have positive earnings. It will generate surplus cash and grow, all of that at $50 oil. In the fourth quarter, the U.S. business was back, generating positive results. First, let me discuss our transformation. Two years ago, we promised a lot. We were going to transform the business to generate positive earnings at lower prices. In 2014, we needed more than $90 per barrel.
In 2017, we were at $53, ahead of our $60 targets, well on the way to make money below $50 this year. This $40 per barrel reduction can be split into $10 per barrel that is related to impairments, $20 per barrel from more efficient drilling and completion, EOR or increased recovery and midstream, and then $10 per barrel from operational cost efficiencies such as increased uptime, improved maintenance, and cost reductions. As you see from the slide, we are ahead of plan to deliver on improvements and increasing the cash margin. Finally, our production is flexible, and we expect to grow by more than 20% this year in the U.S.. Let's look ahead. We have invested more money each year in the U.S. than we have made. This will not change.
We will have positive cash flow at $50 going forward. Based on a $70 oil, we expect to contribute with $5 billion from now up to 2020. Our offshore business will grow by 50% by 2020, reaching over 110,000 barrels per day. These barrels have a cash margin of more than $45 after tax at $70 oil. Offshore will generate positive earnings below $50. Our onshore activities is the largest contributor to our $90-$50 journey. For them, it is from $96 to below $50. I'm satisfied with the performance of Bakken and Appalachian, which covers the Marcellus and Utica Formations, and they need below $50 to have positive earnings.
However, I'm not satisfied with the recent developments in Eagle Ford and the disappointing results from the lower well spacing leading to the impairment. We have taken action to restore value, and the early results are encouraging. The $1.3 billion impairment reversal related to Bakken, that was triggered by the tax change in the U.S.. But around $1 billion of that reversal is related to underlying improvements in the asset. For 2017 as a whole, we have a net reversal of $450 million in the U.S.. Let's talk about how we will use the rest of Statoil to build competitive edge onshore. The onshore industry has rapidly evolved from land grabbing to a period focused on efficiency, and the competition is fierce, and we have to become better.
The next chapter will be about technology, and it will be about improving recovery. This plays to Statoil's strengths as we build competitive advantage. Let me talk about the three first on this slide. First, operational excellence. The five rigs that we currently are running, they deliver today as many wells as 10 rigs did in 2013. Just in the last year, we have drilled 34% more wells per rig than last year. Recovery is a core competence for Statoil, and Margareth Øvrum, she has a great team in Austin testing and implementing new solutions together with the onshore group using our global knowledge. We have seen a 35% increase in recovery rates over the last years. Based on what we work on now, we see the potential for a further 15% improvement this year.
As you heard from Arne Sigve Nylund and Margareth Øvrum, Statoil knows how to deliver projects. Our development cost has come down by 32% since 2015, improving the economics of our future onshore wells. Half of them have a break even less than $50 per barrel. Last year, the corresponding number was 40%. Our onshore business benefits from the best of two worlds. In Austin, we run our business with the agility of an independent, but we combine it with a long-term approach and the technology of an IOC, and we do believe that that is a winning combination. We have been concerned with the lack of earnings and cash generation from the onshore business. Our goal has been to build a flexible business that works fully at prices below $50. We are getting there.
From now on, we will see to it that we have positive earnings at $50 oil. We will also ensure a positive cash flow for this year also by dropping one rig if oil prices fall during the year. We can grow production by 50% up to 2020 based on this program. Remember, we are chasing earnings and cash where production is only a vehicle, not a target. This year, new onshore wells will have an average break-even of $42 per barrel, even when we assume an increase in our supply costs. If oil prices come in above $50, our onshore business will generate meaningful earnings and cash flow. A $10 increase will lead to around $300 million per year after tax from our onshore business. Let me summarize.
Our transformation is not complete, but the three-year plan is on track. The U.S. will add $5 billion in surplus cash to Statoil by 2020. We are building a sustainable and competitive business onshore that will have positive earnings, generate surplus cash, and can grow all of this in a $50 environment. Thank you very much. Then back to you, Lars Christian, to summarize and close our joint session.
Thank you, Torgrim. As you heard, Statoil's international portfolio has world-class assets and deliver on our strategic ambition. We will continue to improve and drive value creation. In the years 2016 to 2018, 7 out of $10 billion of Statoil's NPV improvement come from our non-NCS international portfolio. Over the same period, our cash margin will be solid at above $30 per barrel of oil equivalent. Growth internationally will supply more than 40% of Statoil's cash flow to 2020. Torgrim and I have enjoyed this joint session, and we welcome our CFO, Hans Jakob, to the stage. Thank you for your attention.
Thank you, Torgrim and Lars Christian. Ladies and gentlemen, good afternoon. It's good to see you all. 2017 was a strong year for Statoil. We have continued to take down costs and improve efficiency, further reduced the breakevens of our projects, and strengthened our balance sheet. Going forward, we are building on our industrial strengths to create value both on the NCS and international. We will do this based on strict cost and capital discipline. Let me take you through the 2017 results. Our improvement work is reflected in solid adjusted earnings of $12.6 billion in 2017, more than 3x the $4.1 billion we delivered the year before. Net operating income was $13.8 billion, close to zero in 2016.
Negative net income last year of $ 2.9 billion is turned into a positive result of $4.6 billion in 2017. The result is, of course, supported by an average Brent of $54 per barrel, but clearly also demonstrates the improvements, the strong operational deliveries from our organization. This is visible in our positive free cash flow of $3.1 billion in 2017, which made us free cash flow positive well below $50 per barrel. We see an increase in reserves with an RRR of 150%, driven mainly by positive reserve revisions on our existing fields and sanctioning of new projects. We have delivered as promised and more. We have taken down the organic CapEx to $ 9.4 billion through continued efficiency improvements and solid project execution.
We have delivered record-high fourth quarter and full-year production, capturing increasing prices. Furthermore, despite drilling more wells, we have reduced our exploration expenditure and delivered an additional $1.3 billion in annual savings in 2017. We have more than doubled our fourth quarter adjusted earnings to $4 billion, improving across all segments. Brent increased by 24% and invoiced gas prices in Europe by 18%, while the invoiced gas prices remained flat in the U.S.. The tax rate was 67%. Exploration and Production Norway is up from $2 billion-$3 billion in adjusted earnings compared to the fourth quarter last year, driven by good operational performance with high production at higher prices and lower depreciation rates due to positive reserve revisions. You may recall that our costs in the fourth quarter last year were the lowest in a decade, impacted by positive one-offs.
This quarter, underlying OpEx and SG&A have increased by 13% per barrel compared to the same quarter last year. This is mainly related to preparations and start-up of new fields, such as Gina Krog and Ivar Aasen, with higher cost per barrel before reaching full capacity, as well as some issues at Goliat. On an annual basis, the OpEx and SG&A is down by 6% compared to 2016. Exploration and Production International has adjusted earnings of $438 million, an improvement of $1.1 billion. Increased production and strong cash flow per barrel of around $25 after tax contributed positively. We have made several positive reserve revisions, reducing our DD&A, and have reduced underlying OpEx and SG&A by 21% per barrel.
Lower exploration expenses also contributed positively. Our mid- and downstream business delivered another strong quarter of $533 million, driven by high European gas sales, good LNG margins, liquids trading, and higher regularity at our refineries. With an all-time high production both fourth quarter and full year, we are strengthening our cash flow. Solid operational performance increased production from our flexible gas fields, ramp-up of new fields, as well as higher U.S. onshore production contributed in the quarter. Underlying annual equity production grew by around 125,000 barrels per day, more than 6%. The organic free cash flow in the quarter was positive, including two NCS tax installments and one dividend payment. We have reduced the net debt ratio by almost 7% in 2017 to 29%, including our inorganic investments.
At the year-end, combined with higher prices, we had more volumes in transit to capture higher margins, leading to increased working capital in the quarter. This impacted the net debt ratio by more than 2 percentage points. Now let me share some reflections on our competitive position. We use benchmarking actively to learn and continuously improve. Our strong cost performance is reflected in the number one position on unit production costs, and we have reduced it even further during 2017. We continue to improve our drilling and well performance, as you heard from Margareth. Cost per well are 25% lower than the industry average through better planning and execution. On facility costs, we are 20% better according to IPA. The internal rate of return on projects under development is 20% higher than the industry average.
For upstream return on average capital employed, we are top quartile, and we continue to work hard on improvements, further strengthening our ability to deliver attractive shareholder return. Let me highlight four elements which are important for high value going forward. First, we aim to sustain unit production cost in real terms over around $5 per barrel in 2020. We indicate an average organic CapEx level from 2018-2020 of around $11 billion, always being financially disciplined. Second, we expect to deliver high-value growth towards 2020. Our cash flow from operations is growing more than 6% at $70, and production 3%-4%. Third, we can be cash flow positive below $50 per barrel in the period 2018-2020, including the increased cash dividend.
At 70, we can deliver around $12 billion in free cash flow after dividend and investments, including considerations and other impacts from announced transactions. Our net debt ratio can, based on the same assumptions, be reduced to below 15% in 2020. As a result, we can increase return on capital employed to around 10% in 2018 and around 12% in 2020, also at $70 per barrel. Over a four-year period, we have fundamentally transformed our cost base. OpEx and SG&A has been reduced by more than 30% since 2014. Through strict capital discipline and efficiency improvements, we have reduced organic CapEx by more than 50% in the same period. We are running the company $4.5 billion more efficiently every year. This is structural. This is cultural.
As we heard in the previous presentations, it's about changing the way we work with leaner and simpler solutions. Of the $4.5 billion , more than 80% is considered to be sustainable. We are also getting benefits from locking in costs at lower rates and improving incentives for strong supplier performance, as discussed by Margareth. Over the next couple of years, we have several fields coming into production and ramping up, increasing our cost base. When these fields are running at full capacity, we expect to deliver a 2020 unit production cost at the same level as for 2017 in real terms. As you heard from my colleagues, we are getting benefits from the digital transformation with a roadmap of more than 30 high-impact initiatives spanning from reservoir management, integrated operations, automated drilling, to scaling up on automated processes.
I expect there is more to come. We continue to improve the projects, only sanctioning them, thank you, when they are optimized at their best and when the timing is right. Excuse me. Our next-generation portfolio will deliver an internal rate of return above 20% at $50 and above 30% at $70. To me as a CFO, the combination of world-class next-generation portfolio projects and strong project deliveries from our organization really creates a unique proposition. There is also a powerful learning effect across the portfolio. Targeted efforts have significantly improved our non-sanctioned projects, as you can see in the chart on the right. Breakeven is now below $40, a reduction of 33% since 2016, and the resources are significantly up by around 3 billion barrels.
It is still early days for these projects, and we continue to work hard on improving them further. In short, Statoil is positioned for highly attractive returns. Value remains the priority when we increase our production. The compound annual growth rate from 2017 to 2020 is expected to be 3%-4%. This is a material increase in our active production. Remember, our 2017 production level is the highest ever, and our 2020 production is expected to be well above last year's guiding. The growth until 2020 is coming from both Norway and internationally with lower tax costs. From 2018 to 2022, we have several major startups. This year, Aasta Hansteen, Oseberg Vestflanken, and Mariner will start producing. In addition, when the Roncador transaction is closed, there will be good contribution from this asset.
Our production is expected to grow by 1%-2% from 2017 to 2018. Next year, Johan Sverdrup, Martin Linge will come on stream, and we will see further increase from unconventionals. Towards 2022, Troll Phase Three, Johan Castberg, Vito, and Johan Sverdrup Phase Two will be on stream. We have strengthened our robustness and improved the quality of the portfolio. At $70, our average cash flow from operations can be above $18 billion for 2018 and 2019, growing to above $20 billion in 2020, 2021. At $50 in 2018 and 2019, we can generate around $14 billion in cash flow from operations. Our flexibility is maintained with the option to phase our non-sanctioned projects and scale on our onshore position both ways. We will continue to invest in our next-generation portfolio with a break-even of $21.
Over the last year, we have strengthened the balance sheet and reduced the net debt ratio by almost 7 percentage points to 29%. Our long-term ambition of a single A credit rating on a standalone basis and a net debt ratio of 15%-30% is unchanged. We will continue on our value-driven approach to inorganic portfolio optimization that has been paying off as we have divested at higher prices and made several countercyclical acquisitions such as Martin Linge, Roncador, and Carcará. We increased the dividend reflecting earnings growth from our sustained improvements. We ended the scrip program as planned.
As already pointed to, we see an emerging scope for share buybacks, which would depend on macro outlook and portfolio development. Near term, however, we will prioritize to strengthen our balance sheet before considering buybacks. Moving to guidance. In 2018, we plan for around $11 billion in organic CapEx, an exploration spend of around $1.5 billion, and production growth of 1%-2% from 2017 to 2018, and 3%-4% from 2017 to 2020. Let me summarize on behalf of us all. First, we will deliver even stronger cash flow and growing returns, and we are increasing the dividend by 4.5%. Second, we are investing in world-class project portfolio with a break-even of $21 per barrel, with an internal rate of return above 30% while maintaining strict cost and capital discipline.
Finally, we are building on our strong industrial position to create value both on the NCS and internationally, as my colleague have demonstrated earlier today. Thank you for the attention.
Thank you, Hans Jakob. What we'd like to do now is just open it up for questions for about 40-45 minutes, both from the floor. There'll be microphones going around, and also, we'll do a series of questions from the phone as well. Hans Jakob talked about maintaining strict capital discipline. I'm afraid we'll be maintaining strict questioning discipline as well. I'd like to keep the Statoil rule of one question per person. If you're clever, you can get one question in two parts. I've noticed some discipline creeping in, and some people asking three questions on some of our calls. I'm afraid that won't be allowed. If I start off first, and I saw Oswald Clint's hands first, and then we'll be moving straight. Okay.
Thank you very much, Peter. Thank you everyone. A two-part question. Firstly, Eldar, you spoke about the buyback, and you mentioned macro volatility plus some key developments that have to complete or not. Maybe macro is understandable, but on those developments that you said need to happen or not in order to allow that buyback to potentially happen, could you just be a bit more specific on those, please, if possible? The second part was a bit more longer term. A lot of information in here on recovery factors, 50%-60%, Roncador going up 5%. I just wanna get some sense of the timing that you expect to deliver some of those numbers. Are these five-year plans where these recovery factors could be achieved, or 10 years or kinda longer?
Maybe just link to that, you know, the extra 100 million barrels in Johan Sverdrup. Margareth mentioned reservoir maturation. Now, I wonder if you could just get a bit more understanding of what exactly is happening there to give us that extra 100 million on that field. Thank you.
Thank you very much. On the share buyback, it's a very conscious way of expressing it from our side. We have illustrated, you know, the cash generation potential at $70. Now it might not be seventy, it might be something else, but it's an illustration and reference point for you. Anyway, we do see the potential to generate quite significant cash. When it comes to dividend, that is something that we will look into annually, look at the underlying prospectivity of long-term earnings. Then we have these statements about, you know, the balance sheet, the macro environment. Obviously, macro environment and not only how it looks today, but also how it, you know, the outlooks for the macro environment would be important for us.
Portfolio developments is really any other things that could happen. You know, we might see opportunities for transactions, value-enhancing transactions. As highlighted, you know, from both me and Hans Jakob here, that would not be something that we would do easily. We would definitely look at those kind of opportunities with a very strict, disciplined approach, value-driven approach. We might see those kind of opportunities, and I might not know them today even. We have to give those kind of, you know, considerations when we give a statement like that on the buybacks. Basically, it's all, you know, all other components.
We are also clear that, you know, in the short term, you know, we think it is wise for us to strengthen the balance sheet and, you know, from the net 39% debt ratio that we have for the time being. You know, many factors going into this, and I tried to point out some of them. On the recovery factors, Margareth, maybe you will touch upon Sverdrup. There was a specific question on that, when?
Yeah. First of all, the reasons behind the increase on Sverdrup is that we have drilled 17 wells now, and all these wells, we do not have any negatives.
Information on that. We have matured, we have run our reservoir models. For Johan Sverdrup, in particular, we try to include the whole comprehensive toolbox of IOR tools from the very early beginning. As an example, we have just awarded the contract for a permanent reservoir monitoring system with a lot of cables around the Johan Sverdrup. Remember, we have an ambition for Johan Sverdrup with a 70% recovery rate. Actually the reason is that we have drilled 17 wells now. We see the results from the wells, and that is the reason behind the increase. We are not there yet. We want to pursue it even further. We have an ambition of 50% as a recovery rate.
Margareth Øvrum, maybe you also, you alluded to 50%-60% overall on the Norwegian Continental Shelf. Maybe a comment on that.
Maybe on the NCS.
On the NCS, maybe.
Just to-
Yes, please, on the NCS.
Yes, I'm happy to do that. As I said, we increased from 30 to 50, and the 50% has included all the sanctioned initiatives to increase recovery rate. That is an average for the whole portfolio, extending to the end of the lifetime of each individual asset. That is why we're now working, as I mentioned, in my presentation, on 23 life extension projects to make that happen. It is within the lifespan of each individual asset.
Okay. I think Oswald got some first-mover advantage on that one. I'm gonna say we've got a lot of hands showing here, so can we keep it to one question? The next question is from Jeff. Just. No, just behind you. There. Thank you very much.
Jeff Taylor from Invesco. If I heard you correctly, you said free cash flow cumulative 2018 to 2020 of $12 billion after dividends. What's the dividend assumption over that period? Is it flat, or are you assuming a degree of growth every year to get to your $12 billion?
We have assumed the current step-up and that there will be cash, it will be a cash component going forward. We also assumed and I won't go into that, I'll give you a precise answer, but we have assumed sort of reasonable increase in dividend in that period.
Okay. Go ahead, Theepan.
Yeah, Theepan Jothilingam, BNP Paribas Exane. Just a couple of questions on CapEx. Firstly, could you talk perhaps about where the underlying moves on 2018 CapEx are vis-à-vis the CMD last year? I assume there's CapEx for the acquisitions made, Martin Linge and Roncador. Secondly, I think historically we've looked at sanctioned CapEx versus unsanctioned CapEx flexibility for the market. The track record recently has been from Statoil to actually go underneath that quite substantially by delaying projects that have already been sanctioned. I'm just trying to understand the flex around this $11 billion because I think it's a nice problem to have, but your track record at the moment has been to substantially be lower than guidance over the last two, three years.
I'm happy to answer that question since I looked carefully after this money. On the first one, for 2018, they're around $11 billion. In the fourth quarter, we sanctioned Johan Castberg and Snorre extension, so that's part of the assumption. We also have high activity, as Margareth described, on Sverdrup. We have Martin Linge and Aasta Hansteen. We have also the Mariner that's going to be brought on stream this year. We have CapEx related to Martin Linge and some on Roncador. That's why we say around $11 billion for this year. It's really reflecting a quite high activity level, still very cost and capital disciplined. On the improvements, we delivered NOK 9.4 billion in 2017, and that was somewhat lower than the $10 billion that we opted on the last occasion.
It's really the improvements that is the main reason for this lowering of CapEx. The improvement work is also visible in the CapEx.
Jon?
Yes, Jon Rigby from UBS. Given it's a strategy event, can we talk about something that's been a major component of your strategy, which is M&A? Because you don't really talk about that within the frame. On the assumption that you're going to continue to do some M&A, given your track record, can you talk a little bit about how you think about it? I think you acknowledged you might do some more. I noticed you talked about two core areas when you wanted to talk. You talked about the U.S., United States and Brazil. I think you've talked about more in the past. Is there an ambition still to do that? Probably one would acknowledge that you stepped up acquisitions as the oil price fell through the last two to three years.
Would it be reasonable, actually to expect that you start to rebalance towards disposals and sort of a restructuring of the portfolio if oil prices stay at current levels? Thank you.
Okay. Thank you. Thank you very much, Jon. First of all, we have a strong resource base. We have 19 billion barrels of resources. As I said, you know, we have added some quite interesting prospects also during this year that we will mature further. That gives us, you know, potential to produce, you know, at current levels for quite a long time. We have 5.4 billion of booked reserves, strengthened during this year. We are confident, we are patient. There's no urgency for us to rush for anything. This is to get it right, carve it out, shape the transactions.
John could talk about how he's doing this, but really work them patiently and get to opportunities, whether it's on the divestment side or the investment side that is really, you know, as good as they can get. The same as with organic opportunities and fits our strategy and where there is a remaining value creation potential that we consider to be a meaningful value creation proposition for our shareholders. Otherwise, we could sort of, you know, distribute the spend. That is a strategy, very disciplined. We have done both divestments and investments in this organic space. We did more divestments, investments when oil prices were high, and we have done more investments when we have been through this downturn. That might not be accidental, you know, just.
we do see that there is an active market on both sides in any part of the cycle. This is really the opportunities that is present wherever we are in the cycle. You know, generally speaking, there might be more acquisition opportunities in the low end of the cycle. I think at this point of the cycle, you know, I think we are pretty balanced. There are all kind of opportunities, and we'll look for them, continue to look for them. In terms of location, you know, we've highlighted, you know, three areas that is core to us. Obviously, the Norwegian Continental Shelf. Brazil is playing perfectly to our industrial strengths. We will, you know, look for also through exploration, definitely for opportunities in Brazil.
The U.S. is also, you know, a very, you know, core area, important area for us. That doesn't limit sort of what, where we will look for. I think also on exploration side, we've done a lot of build over the last few years, building opportunities and replenishing the exploration, you know, potential. It's really something that I feel as a responsibility I have to look for these kind of opportunities and I have a good strong team that is really doing that job. I think they have a really strong track record on what they're doing, and they've added a lot of values to the company, to our shareholders. John, you have the chance to say something now if you would like to, please.
I think the distinctive aspect of the Statoil proposition that my colleagues have set out is that we don't need to announce divestment programs in order to meet the incredible cash flow going forward. Equally, the resource base, as Eldar just said, means that we don't need to add by way of acquisition. This is putting us in a very strong position to be opportunistic if value is available. It's not a necessary activity in order to meet the targets, both with regard to growth and cash flow that we've set out today. Not everybody's in that position.
Okay. I've got a cluster around here, so we're gonna do four from here, then we'll be moving to that side of the room. Don't worry, everyone's gonna get plenty of chance. The next one is coming from Rob.
Oh, hi. It's Rob West from Redburn. I really enjoyed the holding pattern we've been in as analysts, where every year we come here and you lift the veil on the latest interesting technology in your portfolio. We see the efficiency target for cost savings going up. That happened again last year, and well done for meeting the target. I've noticed that in the guidance for this year, the ambition is a bit more muted. It's more to sustain the cost level in real terms out to 2020. It seems like there's still really interesting new technologies coming through to the business to help boost the efficiency.
My question is, why is the target a little bit more muted this year in just sustaining rather than deepening the cost savings? Is there anything behind that, in the sense that, you know, it's getting a lot more digital. I appreciate that could mean that it's just, you know, really hard to have transparency on how that's gonna feed through to cost. Is that part of it as well? That's my question. Thank you.
Yeah. It's a good question, you know. This year we haven't presented you with $1 billion or, you know, $2 billion that kind of targets because it is getting tougher to do the same type of improvements that we have done, when we've picked things that, you know, were. I won't say easy to pick, but, you know, that really had a big, huge impact. Now it's really to continuously improve and all the small steps throughout the organization, bottom up, engaging the organization. It's about preserving. Because if you lose what we have done now, that would really be significant. To preserve it, maintain it, sustain it, I think that is really a focus area for us.
When we say, you know, unit production costs, sustain that is actually quite ambitious. You might wanna comment on that, on the segment. I'll give you the chance. Because we have a maturing portfolio and there are, you know, after a while costs that might put pressure on us. So that really will take significant efforts just to maintain the units of production cost that we have until 2020. You are right. You pointed to a key point that some of these things that we are looking at now, we are also mentioning specifically the drilling cost, which is a big cost component for us, setting a target on that.
On the digital side, it's really tough to, you know, to define sort of a target that is so transparent that we in a meaningful way can, you know, put it together into one number. Simply what we try to do is to, you know, break it up a little bit, give you some examples, illustrations of what we have done, some confidence in that there's more to be done, and some illustrations of the potential, and we believe it's huge. We are, you know. It's all the way from the producing assets that honestly we talked about how we want to control, operate these to the new assets where we can do much more.
I think the conventional part of our industry is maybe where the potential is the biggest because there we come from pretty high, you know, quite capital-intensive, you know, constructions and facilities, right? That gives us an enormous potential really to take down cost, to drain cost out of the system. I think there is a pretty big potential within the conventional part on the steel and on the facilities. When it comes to the unconventional, I think there's more. Actually, as Olav mentioned, more, maybe more potential now on technology and on the subsurface. This, that's why we sort of are taking a sort of little bit of that. I'd like Margareth Øvrum maybe to comment, and then Arne Sigve will handle the unit production cost.
I just wanted to comment a bit on what we have been doing because I tried to illustrate that what we have been doing is lasting. It is sustainable because we have done structural improvements. We have designed out cost. We have standardized, we have simplified, and we have new type of contracts with more performance-based, as an example. We are not resting. I think we are still pursuing more to go on the. There are also some more marginal fields we see with new technology, new innovative solutions, redesign, rethink, we can make it profitable, also fields that were impossible to develop years ago. That was trying to illustrate with the technology, with the remote operated roadmaps towards an unmanned platform or remotely operated factory.
For these fields of the future, there is still more to go. We said 30% reduction in CapEx, 50% in OpEx, and also 15% on the automated drilling control. We have lots to do, more to go.
Arne Sigve.
Yes, it is mostly covered, but just a few additional reflections maybe. I just mentioned the recovery rate and that, you know, to maintain the production from the existing fields really to increase the recovery rate, that is one cost element that we will master to the best of our ability. I think that digitalization, we just scratched the surface. Eldar mentioned the integrated operations center that I think will open opportunities going forward, both on production and cost containment. That's one. And not to be forgotten, we are adding new fields on stream that will add value, but of course that will add cost. But having said that, or the ambition to maintain the UPC at 2017 level in 2020 is quite challenging.
I can promise you one thing, I should be very careful on promising, but we will continue our hunt for cost improvements going forward, you know, working within this frame.
Thank you, Arne Sigve. Biraj.
Hi, it's Biraj Borkhataria, RBC. Just sticking to the same theme of cyclical versus structural, I had a question for Torgrim in the U.S.. When you put together the 90-50 plan originally, there was an embedded assumption of service cost change. Could you just talk a little bit about what you experienced in 2017, what you're seeing currently, and what's embedded in the plan for 2018? Thanks.
Torgrim.
Thank you. We assumed a 20% cost increase from 2015 to 2018. What we are seeing so far is a development in line with that. We see differences between, you know, segments, and we also see geographical differences. The areas that are most impacted by cost increase is around drilling and completion, and in particular stimulation, casing, sand, and those things, while the operational costs are very stable. We see geographical differences that, you know, Permian is more heated than Bakken and Eagle Ford. But suppliers, they try to convince us that we have to pay up or else they will go to Permian, but they tend to like to work with Statoil anyway. So, so far, so good.
In our plans, we expect a 25% cost increase from this year to 2020. That is embedded in the plans and targets.
Okay.
Got another couple this side. If you think you're being ignored on that side, that's not the case. We're gonna do another couple from here, then we're gonna work our way through, and then we're gonna go on the phones. Okay. Iain.
Hi, Eldar. Iain Reid from Macquarie. Just a question about exploration, which you didn't actually talk about very much. You normally do, 'cause you know, your background is obviously a very successful explorer, particularly with Sverdrup. You haven't had really very much success, particularly in Norway, over the last few years. International, the hopper seems to be filled by acquisitions rather than anything else. You know, is exploration kind of slipping a little bit in terms of your expectations for delivery? I see you're going back to you know, some of the areas which you weren't successful in the last year. You know, does the portfolio need shaking up a little bit, do you think, in order to deliver the next wave of Norwegian growth?
I think I'll ask for some assistance from Jez Averty here on exploration. Tim is not here today. You know, exploration is. I've been around, you know, it's really about being patient and build confidence, add acreage. You know, as I say, a few years back, we had a couple of years with really major successes, and the last few years hasn't been the same. We have made discoveries, and we have created value. As an illustration, the Kayak discovery and the Barents Sea finds, the whole sort of just the whole campaign in the Barents Sea. It's, in terms of scale and, you know, really impact discoveries, we haven't seen that over the last couple of years.
We are still confident in exploration. We have built a, you know, quality opportunity set, and we will pursue that. We are stepping up this year to 40 wells. That is actually a step up from 38 last year. Jez, if you have been thinking now what to comment on here, I'll give you a chance.
Thank you, Eldar. My name is Jez Averty. I'm representing Tim today. He apologizes he couldn't make it. What I'd like to do is illustrate how we are targeting our 2018 campaign towards the successes we have had. We're looking to drill about 40 wells, of which 25-30 of those will be on the Norwegian Continental Shelf or in the U.K.. Last year, we made 3 play-opening discoveries in Norway and the U.K., Verbier, Cape Vulture and Kayak, and we will appraise 2 of those. We also had a very successful near-infrastructure-led exploration campaign, which created significant value. Some of those wells are already on stream. Again, we will be drilling about 15 of those types of wells.
Internationally, there will be about 10 wells, and they will be focused on the asset successes we have had in Brazil, asset success in Argentina, and the emerging success that we are starting to get some indications of in Turkey. What you actually see is investing our capital towards the prolific basins, where there are significant hydrocarbons and where we already have positions, at the same time as creating value through near field infrastructure-led exploration in Norway.
Thanks. Thanks, Jez. Marc?
Great. Hi there. It's Marc Kofler from Jefferies. I just wanted to come back to the capital spending guidance for 2018 and 2019, and again, just try and figure out if the risk is to the downside and by how much or potentially to the upside. It feels like you have a pretty good feel for the upside risks. What are the considerations which are excluded? Then, maybe if you can just talk about how any currency impacts would affect your forward plans. Thanks.
Thank you for the question. On the CapEx guiding, around $11 this year, right? Around $11 for 2018-2020 as an average. On the FX, you have seen a USD/NOK development from 8.6 in 2016 to 8.2 in 2017. A stronger NOK, of course, has a positive effect on equity and negative on some costs on the NCS. The movement from the third to the fourth quarter is a weakening NOK from 8 to 8.20. That's, again, positive for the NOK. The fluctuations on the FX hasn't been substantial, but still some variations there. On 2019, we don't provide a specific figure for the year, but the average for the period.
On considerations, that is not.
Yeah
... included. That is, this is an organic forecast. Basically, the Martin Linge hasn't been, you know, closed and the Roncador hasn't been closed and there's also additional payments on the Carcará, right? I think that's the main-
Yeah.
In terms of the guidance until 2020 on cash flow and on return on capital employed and on debt ratio, all these transactions, including considerations, are included.
Okay. Thank you. Right. We're gonna sweep over. We're gonna do Brendan, then I've got Christyan, then I've got Thomas. Then I've got.
Right. Thank you. It's Brendan Warn from BMO Capital Markets. Eldar, just can you talk about your thinking around LNG? And obviously since Snøhvit, you've looked very smart avoiding big investments in LNG. But can you think about that, talk about it going forward? And just where does Tanzania now fit within your portfolio?
You know, LNG is a space that we have been looking for for a long way back, really, and we haven't really found the good entry points except for what we have done organically, which goes back to the Snøhvit discoveries and the Tanzania discoveries. That is still on hold. Let's have Lars Christian comment on Tanzania in a minute. But that's really what we have seen. It has been, in a way, too expensive to enter that space inorganically, the opportunities that we have seen. In a way, we are comfortable with what we have done. We have a very strong pipe gas position. We do have Tanzania, and we are working on Tanzania.
Lars Christian, maybe you would like to comment on the status on how that looks for now.
On Tanzania, we are currently drilling the last commitment well according to the program. There is a joint industry effort together with the government to reach what we call the host government agreement that will determine the terms for producing LNG. When that agreement has been reached, we will do the calculus regarding the development of our huge gas discovery.
Thank you, Christyan.
Thank you. Christyan Malek from JPMorgan. Two parts to the question, if I may. First, around CapEx. I'm sort of struggling to get my head around F&D costs. I mean, as the portfolio makes changes, and you talk about digitization technology, can you quantify the impact on F&D costs over the medium term and how that feeds into your CapEx outlook? I guess underlying that point is trying to get my head around how you sustain $11 billion over the medium term. It sort of feels intuitively low. The second part is just how the sort of the cash flow or the new cash flow targets that you set out.
If I go back and look at your scenario analysis on CFFO at $70 and then think about what you provide today incrementally in terms of lower operating costs, better production, trying to understand why that doesn't feed through into a more aggressive cash flow target. Because it feels like on a like-for-like basis, it's about the same at a higher oil price.
Basically, when we come up with a cash, we'll call it target, it's basically an indication of what we see looking at the portfolio and the numbers that we have and what we have secured in terms of improvements and efficiencies and what we expect to sustain of that. The plan, you know, three years down the road, 2020, basically this is very much about the portfolio that we are working on. There's pretty, you know, high level of transparency in that. I'm not saying we are. I mean, we are pursuing further opportunities to increase efficiency. This is an indication, given the status of efficiency that we have at the moment and the visibility that we have at the moment.
In terms of the CapEx guiding and sustaining, I think, you know, it's very, and we discussed that, it's very, you know, difficult to build in and sort of separate sort of impacts from what we do into these numbers. This is sort of the portfolio number taking us to $ 11 billion, as an average for this period. It includes, as I said, all the improvements. It's based on the current view on Johan Sverdrup, for instance. If you are able to improve that, well, that will have a positive impact. This is what we put into our ambitions. Also a reasonable growth on the unconventional, as indicated by Torgrim. That is also a very flexible part of our portfolio.
It's basically based on the current plans as we see it now. Anything you would like to add, Torgrim?
No, it's the best estimate, and I think it provides fairly good visibility. Remember, in the improvements also there were a substantial amount of CapEx. I think this is our best estimate.
Thank you.
Thomas? Hamish. Patience, Hamish.
Thomas Adolff from Credit Suisse. Two questions, I'm afraid. One on digitalization, and perhaps you can talk about the challenges with digitalization, be it with the regulator, you know, having unmanned platforms is quite scary. Obviously, there's also an increase in unemployment. Or whether it's getting the engineers to work with the tech guys or getting the engineers to be retrained. What are the key challenges or hurdles of, you know, perfectly implement digitalization? The second question, I guess, is just on the timeline from discovery to first oil. It still takes quite a bit of time. Some of your competitors, you know, they discover 18 months later the FID, and then two years later they have the first phase on stream. So is that something you're doing to improve on the timeline from discovery to first oil?
Thank you.
Yeah, digitalization is not without challenges as well. The starting point for us is really the potentials in terms of, I said safety, cost, more barrels actually, you know, better drainage and carbon emissions. There are definitely also challenges. Maybe you, Jannicke, would like to comment on that. Jannicke is our Chief Operating Officer, so she's also in charge of what we call a digital center of excellence, which is and the digital roadmap in the company coordinating all and prioritizing all activities. That was an invitation.
Okay. As Ola said, there's first of all a lot of opportunities, and we have established this digital center of excellence and the roadmap to help us to accelerate.
This transformation. As you are saying, there are also some challenges. One of the things we have done is to establish a digital academy in Statoil because we need also to bring our people on board on this journey and make sure that we are ready. That's really something we need to continue to work on, and it's a great enthusiasm in the organization. Right now, it's about having enough capacity to make sure that we can also train our people. I think going forward, there will be a lot of discussion how to work in the total value chain, how we should share data.
Right now I think we are very good prepared in Statoil and we are ready also to have this kind of discussion with our suppliers. That would be a discussion going forward.
Thank you. It's a big theme. Good question on speed. Well, I think it has served us well to take the time it took to create the kind of projects and the portfolio that we have. I think that really has served us well. I think what we have seen is if you really start running fast and because you wanna get in there as soon as possible, you know, the temptation to not sort of get the best solutions is really coming at you. We do see areas where we can standardize, and we know what is the solution. We can really fast track and you know, there, we have many examples of that. One year from actual discovery until being production, tying back and so on.
Where we actually need the more innovative approach, you know, I think getting it right, as you say, and then doing it at the right time is more important than actually doing it as fast as possible. Margareth, you wanna reflect on this?
Yeah. Maybe a few more reflections. You asked about how we work with the authorities, of course we work very closely with the authorities. You know, for the Oseberg Vestflanken unmanned wellhead platform, this is under installation at the moment. It's on the field. We start drilling in a few weeks. We do not have any living quarters, we do not have fire pumps, we do not have a lot of utility equipment, but we have a service vessel, so we have a kind of a telescopic bridge to be able to, which is launched to the unmanned wellhead platform. The people is living on the ship and they walk to work.
For going forward, we of course need to work very thoroughly with the authorities. Also for the roadmap I tried to show, it will probably be impossible to lift these projects if you are not unmanned project. That is also an opportunity set. Without unmanned, maybe they will not be realized.
Okay. Thanks. Thanks, Margareth. Hamish?
Thanks very much. It's Hamish Clegg from Bank of America Merrill Lynch. Two parts here, if I might. Will the $11 billion of CapEx that you're spending between now and 2020 sustain a 7.7 or so thereabouts reserve life, or will you need to dip into that $12 billion of free cash flow after dividend that you've guided us to? Following on from that, how will you split, prioritize that free cash flow between reinvesting, debt reduction, and returning capital to shareholders?
Okay. We are comfortable with our reserve life. We live comfortably with that life. It doesn't give us any urgency. We know we will be able to you know through you know conscious work on both in the transaction market and not the least on the exploration side that will support our resources when needed and in the most value-enhancing way. There's no distress, no urgency, and definitely no panic in addressing that. I also indicated and that was one thing I raised when we talked about the you know looking into the future that there you know the $12 billion as I say is based on the organic developments.
You know, we will continuously over the next three years, you know, which is sort of the guiding period here, also look for inorganic opportunities and that is not sort of included in the guidance on the CapEx now. This disciplined approach to that is for sure and there's no urgency, but be cautious and really carving out good opportunities to optimize the portfolio. I can't give you any split of that. That is impossible. There's so many variables that goes into that. It's what I just talked about. It's also indicated that, you know, we would like to, you know, strengthen our debt ratio, you know, more comfortably into our 15%-30%.
You know, we have all the macro outlook and you know, the developments that we also need to take into consideration, not only the oil price and gas price at the moment, but sort of how the outlook looks into the future. Maybe you want to add.
Just a small add. Look where we're coming from. I mean, the RRR is the highest ever, over 150%. It comes from sanctioning like Johan Castberg, Snorre. We have a fantastic portfolio of sanctionings coming up. But we also have the positive revisions like Marcellus, for instance, adding to this. Moving resource classes, systematic work day by day, week by week by the organization.
Give an RRR around 100 on a three-year average and 150 for 2017. That also takes away some of the potential pressure to this topic.
You feel comfortable that the $11 billion will sustain a 100% triple R for the next three years?
If we in terms of the reserve replacement over the next three years, we believe that the organic developments with the project portfolio at hand that it will be able to support, you know, at least 100% on average. I can't guarantee any individual year, but on average over the next three years. Yeah.
Very clear. Thanks.
Okay.
Can I just thank everybody's patience on the phones? We're gonna move over to the phones now and answer the bank of questions that we've got there. As I say, before we do that one, can I just thank their patience for holding on. We've had a lot of questions from the auditorium today. Can we go through to the operator, please?
Thank you. We will take our first question from Anders Holte of Danske Bank. Please go ahead.
Yeah. Good afternoon, guys, and congrats on a strong ending to a solid year. My question's first, well question has two parts for me. First one, sort of CapEx guidance for this year and also for the long-term outlook. You have now for some time been saying that you're seeing that you're doing same amount of activity for less. That was the main driving force behind your CapEx reduction guidance in Q3. I'm also assuming that's the reason why you're not able to reduce costs further in 2017 as a whole. The question is, what sort of assumptions do you make on activity and potential cost inflation in the long-term perspective where you keep your CapEx level at $11 billion?
Thank you.
If I may, on the cost inflation part, that is, Torgrim has commented on how he looks upon the unconventional part of the industry. When it comes to the unconventional part, or conventional part of the industry, we don't see the same pressure. It's a diverse set of supplies with different setups and different capacities and constraints and opportunities. Overall we see, you know, a more moderate increase in the cost of supplies in the conventional part. There are still areas with quite, you know, material overcapacities. There is a slightly more constrained, but we are working consciously on that.
I think, you know, that's reasonable inflation but not really a cost inflation that is reflecting that the activity level in the industry might be increasing. On the $11 billion, you wanna comment more on that?
No, just that I think that we provide some visibility in the slide deck where the fields being brought up on stream, where we plan to sanction or the operators or the partner where the operator plan to bring on stream. The visibility around this should be fairly okay, I think. You know, as Eldar said, we will stay disciplined when it comes to these investment decisions. We have a significant amount of flexibility still.
Could I just add, we have, you know, made quite significant improvements, and Margareth Øvrum delivers, you know, an oversight of our whole portfolio every two years, you know. We see costs coming down and really consistent improvements across the board. Now, you also, in that part of, you know, it's when you get to a point where sort of, you know, there is a limit to how much you can do, you know. I think I don't think we should expect the same type of over-delivery on project deliveries into the future portfolio as we have seen lately. That's why we basically, when we talk about this year compared to last year, it is mainly driven by activity, more fields. There's little stuff going out of the portfolio.
Mostly we'll be there and there are some new projects that are coming in, and also Martin Linge that will come in with a 50% increase share. I think it's a very, you know, the best estimate we can give at the moment, given the portfolio at hand.
Okay. Thank you. Next question?
Okay. That's clear. Thanks.
We will take our next question from Anne Gjøen of Handelsbanken. Please go ahead.
Yeah. Thank you. I have a question related to renewables. Last year you entered into solar in Brazil, and my understanding is that that was a particularly interesting area. It's a core area for you, and further growth is assumed organically. But is it rather premature to talk about possible interest outside Brazil? And could that also for you potentially be or do you find prospects with competitive returns in that area now, as long as you have such a significant cost reduction elsewhere? Thank you.
I think I'll give Irene the opportunity to comment on that.
Thank you so much for taking an interest in this part of the business as well. We made our first entry into solar in Brazil, and it was not coincidental that we happened to do it in Brazil. We've said that we're pursuing a careful solar entry strategy, where we go with experienced partners and we build on our international oil and gas footprint. We're currently pursuing or looking for other opportunities in other Statoil oil and gas areas.
You mentioned U.S., that's one area that is emerging as a merchant risk market, meaning that you have to take market risk. I think that's actually an opportunity for Statoil with a strong balance sheet, where we see a lot of our competitors moving away or shying away because they struggled to finance these kind of projects. Interesting opportunities in emerging markets with fixed-term PPAs but also in more merchant risk markets.
Thank you. Next question.
Thank you.
Next question.
We will take our next question from Gudmund Hartveit of Fearnley Securities. Please go ahead.
Yes, hello. Thanks for taking my question. It's related to new projects and currently unsanctioned projects. Now, you highlight $21 break-even for the next generation portfolio, which is very impressive. Most of those projects I think are currently in the development phase. I think you also said you want to sanction new projects when they're good enough, which makes sense. Can you elaborate a little bit more what you see as good enough? I think you previously talked about an ambition to have breakeven below $40. Is that kind of level also a requirement for making new decisions on new projects?
There is no requirement or hurdle that, you know, Margareth Øvrum is definitely pushing targets on every part of our business, every project. We do run this through targets and putting pressure on the project. I don't have this sort of number that tells that this is not good enough and this is. You know, because the industry is so dynamic, and we sometimes see projects, you know, some of the big projects that we embark on. Big projects typically get better over lifetime. There's so much optionality in long projects and big projects. I think it's really important to understand that optionality and the value of that optionality as well. There's no hurdle. We have come down, we have taken it down.
You indicated, Hans Jacob, down you know below $40 now, and this portfolio is growing, and we will continue to work it because they haven't been worked on to the same extent. We have focused our resources on the more near-term projects, but gradually, they will be pushed even harder. Margareth Øvrum will get her hands around them and push them. I really you know think there's really significant potential to improve them from where we are at the moment at or below $40. I can't give you a number and definitely not a number on individual projects. We promise we will work them harder. Margareth Øvrum is so keen to-
Okay, I can give them a number. No, but as Arne Sigve alluded to, we have a 30-times project in our portfolio which we are working on, which are pretty good. We have an early phase project portfolio. We have gates from DG1 to DG3, where DG3 is sanctioning, and they are pretty good. Maybe next year, I will reveal this figure. It's pretty good from DG1 to DG3. We have a lot to work on.
Thanks, Margareth. Next question.
Okay, thank you.
We will take our next question from Halvor Nygård of SEB . Please go ahead.
Hi, guys. Thank you. On Sverdrup, can you say something why the reserve range is still quite wide? And then secondly, what kind of recovery rates you have applied in the current estimates? And on dividend, I know the dividend policy is to grow the dividend in line with underlying earnings. But it's 4.5% growth as we saw in Q4. Is something that reflect this over the next years in your view?
I'm not sure I captured the first question on this.
The first one was on Sverdrup, the reserve range. We have increased the reserve range, and we have narrowed it down due to the successful drilling. Why is it so wide? Maybe Arne Sigve want to elaborate on that. The history is that it was wider. It was 1.7-3, and now it's 2.1-3+. We actually have increased it. Still there is a range. The recovery factor, Arne Sigve, I mean, very high ambitious on world-class level.
Yes, maybe both me and Margareth could elaborate. The 2.1-3.1 is an uncertainty span, but we are narrowing exactly based on what Margareth said on the 17 wells that we now see that there's more kind of secure estimate within that. We will follow it closely. As I said, when going forward, there is an ambition of 70% recovery rate on Sverdrup. As discussed, or as Margareth touched upon, the number of initiatives to make that happen and to work on that ambition going forward.
Could you comment on the recovery rate, Arne Sigve?
Mm, uh-
Yeah.
The ambition is 70, and we are on a good way, on a good roadmap for that. We will include WAG, which is water alternating gas injection. We have the permanent reservoir monitoring. We are planning for increased oil recovery from day one on Johan Sverdrup. The reason also for we will of course reduce the span when we get some more production experience from Johan Sverdrup. We are going to start up next year, late next year. I don't think it's not that many years since we decided to sanction Sverdrup. Now it's
Next year.
Yeah.
Year for.
Yeah.
Yeah.
Thank you, Margareth Øvrum. On the dividend, may I?
Yes.
The underlying reference to the underlying earnings, and that is basically, that's our dividend policy. It states, you know, grow, you know, our intention is to grow dividend with reference to how we look upon the prospectivity of long-term underlying earnings. That means we need to look at something that is there to stay. That should be the driver behind growing it. This time we feel that we have been through a pretty extensive, you know, improvement efforts and increased efficiency. As you said, we believe large extent of that can be sustained 85%. This gives us the basis at this time to indicate 4%-5%.
Next year, we will have to make another call, look at all the components, and is there a reason for growth or stand still? I don't know. We will simply have to take that discussion. Let me also say there's no formula taking us to 4.5. It's basically a judgment call based on what we see and the confidence in our ability to sustain improvements. There's no formula defining our dividend, that's all.
Thanks, Eldar. I think we've got a last couple of questions on the phone, and then we will be wrapping up.
We will take our next question from Oddvar Bjørgan of Carnegie. Please go ahead.
Yes, hello. If I can go back to the free cash flow guidance of $12 billion over the next three years, I understand it's after dividends, but is it also after subtracting some $4 billion in net acquisitions? If we assume some $9 billion in dividends in the period with a good estimate of organic free cash flow before dividends and before net acquisitions be approximately $12 billion + $9 billion + $4 billion close to $25 billion over that three-year period, is that correct?
I think we should stick to the number that we have given you, the $12 billion, and that's referenced at the corporate level. As you say, it's after the dividend, and I commented on that, what you know, what type of rough assumptions. It's after the transactions that we have made. I haven't got exactly the number that is put into that, but it's after all the transactions, the Martin Linge, the Roncador, the Carcará, these transactions, and all implications of those transactions, they are included. Also, what happens after the considerations in terms of revenue and cash generation.
A quick follow-up on that is, even though we don't have an exact number, Sir, it's nevertheless quite impressive free cash flow guidance, I would say. But those acquisitions you are mentioning are some $3-4 billion. So we're talking about a free cash flow here, at least $23 billion, maybe as much as $25 billion over a three-year period. If you look at consensus out there, provided by FactSet, it's not $25 billion, it's closer to $14 billion over a three-year period. If I adjust for a difference in oil price assumption, you're using $70, while consensus is at $64.
If I use your cash flow sensitivities that you provide on page 27 in your presentation material, you can see that a $6 difference is some $1 billion or per year or $3 billion over three years.
Yeah.
If I adjust and make consensus come up at, with the same oil price that you're using, it will be like $17 billion, significantly below what you are guiding. The question is, finally is-
Do it.
What do you think analysts are missing here? Is it any particular area of your business where cash flow could be underestimated by analysts, do you think?
Well, thank you for the compliments on our cash flow. I mean, given a $70 world, it is impressive, I agree. On the slide in my presentation on the strong cash flow generation, we illustrate two points, the cash flow from the operations, but also the flexibility in the CapEx non-sanctioned U.S. onshore. This creates really headroom for maneuvering, and that's what we are aiming at. The strong cash flow from operations has a clear indication, but not a hard solid line for very good, and I might say obvious reasons, given the volatility that we're coming from. I like the fact that you see the strength in our cash flow.
Thanks very much. Nice question. We'll go through that as long as you like. Next question and final question, please, for the session.
We will take our next question from Jason Kenney of Santander. Please go ahead.
Hi there. Good afternoon. I'm just going back to the divestments, if I can. I think at the end of last year on the offsite, you mentioned that the Campos Basin license might be peripheral given your low equity stake. also, you were thinking about potential new support in Carcará as well. I'm wondering if there is a potential for some asset positioning or offloading of stake in Brazil.
We've taken some big bites in Brazil now, the Carcará and work on the unitization now of the Roncador. We have a broad MOU, you know, cooperation, strategic cooperation with Petrobras, where we also will address, you know, opportunities within the gas monetization, for instance, and also exploration opportunities. We will obviously look for all kind of opportunities in this space and through the cooperation that we have. But I think now what we're also working on is the exploration opportunities in Brazil. There are regular rounds coming up and one coming up pretty soon. Exploration is also an area that really has some high attention from our side in Brazil. It's definitely an area that we find attractive.
We feel that the framework is improving and stabilizing. It is an area that, you know, you could say is 10, 15 years behind the Norwegian continental shelf. All the lessons that we have learned in the Norwegian continental shelf is applicable really to build and create value in Brazil.
With that, thank you.
Thank you.
Thanks very much to everybody here and on the phones. We've done slightly more than the 45, about 50 minutes of questions. I want to give everybody opportunities to ask those questions. There will be other opportunities. We've got people from the executive team here today, so please feel free to talk to them as we move through next door. Can I just thank everybody for coming, and can I pass this through to Eldar for some closing words?
Yes. I would just like to thank you all again for coming. I know you have busy schedule, but we truly really appreciate to see so many of you gathered here and really spending time listening to our story, which we think is really a great story. Good results and the value proposition that, you know, we are presenting, I think that is something that really makes us proud. I think, you know, you'll hear a company that is really addressing not only the short term but also the longer term and have some really strong ideas about how to shape the future of energy, both within oil and gas and into renewable, you know. Exciting opportunities for the industry, definitely also for this company.
Just repeat, sort of you heard it before, but the three components, mainly messages first of all, you know, we see a really strong capacity to grow returns and grow cash flow forward. We have lifted the dividend this time by 4.5%. We are investing in a remarkable portfolio with a break-even price of $21. Industrially, what we've tried today is to highlight to you what is really the fundamental industrial value drivers, you know, really, you know, from this company coming from the Norwegian Continental Shelf and how we try to leverage that to get even more, much more out of what we have the opportunity set in on the Norwegian Shelf, but increasingly leveraging that consciously into our industrial portfolio.
That is what we have talked about today and hope you see that. Again, I thank you all for coming, spending the time with us, and wish you all a very, very safe journey home. Thank you very much.
Thank you.