Good detail in the presentations today. I'm glad that we're in this year, we're also being joined by five executive vice presidents who are going to talk through the impact on their business and what they're doing in the present situation and their outlook for the next four years. Safety is a number one priority for . As always, I'd just like to start with a brief safety announcement for everybody. Just to run through this. 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 tell us to do so. Please use the fire exits within the venue and follow the signs and exiting at ground level. The assembly point is situated on Bartholomew Close. Okay.
The format for today, we have a lot to get through. We will start with a presentation of about 20 minutes each from the CEO and CFO. Then we'll have an opportunity for questions, round one predominantly from the floor. I'm afraid I'm gonna impose the same rigid discipline as we had last year. For this round, there's a lot to get through. Half an hour, one question in one part only. There will be plenty of opportunities in the second round and also at the end of the session. After that, after these presentations and the Q&A, short break for a sandwich. At 1:10 P.M., we'll gather again, and we'll have a series of presentations from the executive vice presidents.
After that, we'll have another round opportunity for questions and answers of around 30-40 minutes. Then again, opportunity to meet people more informally around the tables outside the room. Once again, thank you very much for attending. I know this is a very busy period as well. We're not the only ones reporting, but I think we're the ones who've got most detail in our presentations today. With that, let me introduce Eldar Sætre, our Chief Executive Officer. Thank you very much.
Thank you, Peter. Good morning, everyone, and thanks for coming to this annual event here in London. It's really good to see you all once again. Ladies and gentlemen, our industry is definitely experiencing tough, challenging times. In fact, we have lived with the turbulence and tumbling prices for over a year now. A powerful reminder indeed of the fundamental cyclical nature of oil. Every downturn is different and has its own characteristics. This one has truly exposed how the industry over many years has allowed costs and complexity to escalate, I would say, beyond sustainable levels. Yes, we face a challenging market, but equally important, we now also have a unique opportunity to fundamentally reset our business.
Today, you will see how we are taking down costs faster and with much bigger impact than we planned for earlier. You will also see how we are radically reshaping our project portfolio, positioning Equinor to capture significant value as the cycle turns towards the upside. This is the core of our strategy, resetting costs, capturing opportunities. Hans Jakob will show you the financial details of this plan in addition to our Q4 and full year results. You will also have the opportunity to hear how we are implementing this value-driven strategy throughout our business. Since you will hear a lot about changes today, let me start with one thing that is not changing: our commitment to safe and secure operations. In the last quarter, Equinor regrettably had three fatalities related to our operations.
These incidents are clear reminders that the safety and the security of our people and the integrity of our operations remains our top priority. For the year as a whole, our serious incident frequency came in at 0.6, which is a solid result as a statistic, and it gives us clear indications that we are consistently on the right track and have been so over many years now. As you know, timing matters a lot in our industry. On this day, exactly one year ago, I was appointed the CEO of Statoil. What a timing. Indeed, the perfect timing to make a difference. One of the first things that I did was to make promises to the market. I hope you will agree with me that we have delivered on those promises.
Our efficiency program is already well ahead of the 1.7 billion target for 2016. Organic CapEx came in at $14.7 billion, a reduction of around $5 billion compared to 2014. Production adjusted for divestments increased by 6% year-on-year. Reflecting our commitment to a competitive shareholder capital distribution, we also maintained our dividend throughout the year in line with our dividend policy. I am truly encouraged by these results, but let me assure you, we are not here today to celebrate, but to accelerate. In 2015, Brent averaged $55 per barrel, and so far this year we have experienced prices below $30.
Fortunately, the fundamentals of supply and demand still works, which means that the best cure against low oil prices is actually low oil prices. The mini graph shows the EIA numbers for stock changes, indicating clearly that markets are heading toward a rebalancing. Exactly how long it will take to get there is highly uncertain. Another and more long-term implication of the current market environment is that the oil companies almost everywhere are cutting back on their investment programs. For the first time in history, we are likely, very likely to see at least two consecutive years of cuts. As a consequence, significant new capacity will not be brought on stream when needed.
Adding to this what we know about the decline from existing fields, the time horizons on new project developments and increasing demand further underscores the point that the oil price are cyclical by nature. When it comes to natural gas, we know that prices are under pressure short term. Medium to longer term, however, we do see stronger gas markets emerging. Declining European indigenous production, markets gradually absorbing new LNG capacity and clearer policy signals on the need for natural gas to replace coal in power generation. This all supports the view that I mentioned, we do see an emergence of a stronger gas market. Tor Martin Anfinnsen will give you more detailed outlook for the gas markets at our gas seminar in London in two weeks' time. We are now resetting Equinor to become much more fit for the future.
Our strategy will ensure that we are well prepared for a low price environment, and it will position us to capture opportunities for value growth when the cycle turns and markets rebound, and they will. I think of this in terms of three priorities. First, faster and deeper cost reductions. Rather than depending on what we believe to be an expected oil price in the future, we want to shape a company that is competitive at all times. We were early movers starting back in 2013 and have now reinforced those measures by taking a transformational approach to our cost base. At the same time, we will continue to demonstrate strict financial discipline. In this way, we enable ourselves to act on my second priority, preparing to invest in what I call the next and our next generation portfolio.
Since last year's CMU, we have challenged every single project at hand to get below the $50 per barrel breakeven. I can assure you it seemed like a very tough challenge at the time, but now we see real success, radical change. Far, we have reduced breakeven oil prices at our operated opportunity set to $41 per barrel. In some cases, both CapEx and breakevens have been reduced by up to 50%, and we are not done yet. As an additional tool to strengthen our financial capacity, the board has decided to propose the introduction of scrip dividend program to the AGM in May. I will return to this later in my presentation. Finally, to my third priority, capturing the upturn in the oil and gas prices. Our plan for efficiency starts to deliver value creation and staying competitive in a low-price environment.
Even more so, it offers attractive value-creating opportunities when the commodity market rebounds. To achieve this, two conditions needs to be in place. First of all, that our efficiency gains must be sustainable, even when the heat one day is turned back on in our industry. Secondly, we must actually invest in attractive projects in order to deliver volumes to benefit from this price recovery. Let me add some numbers to this story. By targeting unplanned losses, we have been able to improve regularity in our operations. Compared to 2013, unplanned losses are down 50%, and we have sustained this level for two years in a row now. This represents around 50,000 barrels per day, adding almost $700 million to our pretax cash flow last year.
On cost efficiencies, our target for 2016 was $1.7 billion measured against the cost base of 2013. Having already realized $1.9 billion, we are now increasing the 2016 target by another 50% from $1.7 billion to $2.5 billion annually. Finally, flexibility matters a lot. In fact, it is truly golden in times of uncertainty. With a large share of operated assets, we are in the driver's seat on this flexibility, and we will continue to use the flexibility to the extent necessary. Included in this flexibility is also a further tightening of our priorities within exploration, which Tim will discuss in more detail later today.
The combined effect of the measures that I've just shown you adds up to more than $10 billion in improved pretax cash flow for 2016. Ladies and gentlemen, we have now arrived at my favorite slide of the day. I said at the outset that we are taking actions to reshape our company, and here you can see how. In 2013, the average breakeven price for our operated projects pre-FID, with planned startup by 2022, was $70 per barrel. Today, we have reduced this to $41, precise number, an improvement of more than 40% or almost $30 per barrel. We are reworking concepts. We are challenging solutions all the way from the reservoir to the market, and we are renegotiating contracts to capture falling rates in the supplier market.
82% of the CapEx in this portfolio now has a breakeven price below $50 per barrel, and we will hunt for even more. In fact, I'm now challenging every new project with an ambition to pursue profitability below $40 per barrel. One example is Johan Castberg, where we so far have been able to reduce the breakeven price from above $80 per barrel to below $45 per barrel and almost half the required CapEx so far. For Johan Sverdrup Phase one, the breakeven price is further improved and is now below $30. Truly a world-class project. Margareth has the pleasure of elaborating further on both of these projects, and she will also show you more examples in her presentation. As you have seen, we have a clear plan to create value for our shareholders.
As a part of the plan, we are also firmly committed to maintaining a competitive capital distribution in line with our dividend policy. The board has decided to recommend to the AGM to maintain the dividend of $0.2201 per share for the Q4 of 2015. The board's intention is to keep the dividend flat for the first three quarters of this year. In addition, the board will propose the introduction of a two-year scrip dividend program starting from Q4 2015. We maintain our dividend policy while adding the options for shareholders to reinvest their dividends into newly issued shares at a discount of 5% for the Q4 2015.
In addition, the scrip program will strengthen the company's financial flexibility and capacity to invest in high-quality projects in a timely manner. The Norwegian government supports the proposal and will match the takeout from other investors, thereby maintaining its ownership at 67%. Towards the end, let me offer some comment on how Statoil plans to be part of the low carbon future. First of all, Statoil welcomes the Paris Agreement. We firmly believe that the oil and gas industry has to be part of the solution. Our ambition is to be a leading company in terms of carbon efficient oil and gas production, and we believe this increasingly will be a competitive advantage as tighter carbon regulations come into effect. Since we met last year, we have also established New Energy Solutions as a business area with a mandate to gradually build a business within renewable energy.
I see this as a long-term growth opportunity for Statoil, and the starting point is our current business within offshore wind. Allow me to summarize what you have heard this morning. Resetting costs, capturing opportunities, that is the core of our strategy. We will deliver faster and deeper cost reductions, increasing our annual efficiency target by 50% to $2.5 billion by 2016. We will cautiously manage our financial flexibility in light of the current uncertainty in our core markets and in light of our commitment to shareholder capital distribution. As early movers on cost efficiency, we are also now shaping our next generation portfolio. More than 80% of the CapEx in our operated opportunity set has a break-even price below $50 per barrel. Finally, Statoil is positioned for value creation even in a low price environment.
We are well-placed to capture the gains when the oil prices recover. Thank you very much for the attention. I would like to ask Jakob to take it.
Thank you, Eldar. Ladies and gentlemen, good morning. It's a pleasure seeing you all. Let me start by sharing three things that are important to me in order to deliver on our strategy of capturing, resetting costs and capturing the opportunities. First, driving performance every day. Second, capital discipline, saying yes only to the excellent projects. And third, securing financial flexibility to invest in the right opportunities while remaining committed to capital distribution. These will be the main themes in my presentation today. Let me start with the performance from 2015. In a year with high market volatility, we delivered adjusted earnings of NOK 77 billion, down from around NOK 136 billion in 2014.
New deals on stream ramp up accelerated wells, and higher regularity delivered a production growth of 6%, adjusted for divestment. We saw material impact from our efficiency program and strict prioritization in all our investment decisions. We reduced organic CapEx in 2015 by around $5 billion compared to 2014 to $14.7 billion, $3 billion below our original guidance. Cash flow from operations was NOK 166 billion for the full year. Through the year, we maintained a firm commitment to our dividend policy. Average liquids prices were down 29% in kroner compared to last year. Our results also reflect the strong operational performance, continued high production, and significant cost improvements. We reported an adjusted earnings of NOK 15.2 billion, down by 44% from the same quarter in 2014.
Net adjustments in the quarter of NOK 13.5 billion, mainly due to impairments as a result of short-term price assumptions that have been taken down. An effective tax rate of 89.5%, up from 84.1% the same quarter last year, mainly as a result of losses in countries with limited tax shield. Mainly due to the lower realized prices, Development and Production Norway delivered adjusted earnings of NOK 17.1 billion, down 29% quarter-on-quarter. We continue to deliver strong operational performance and reducing OpEx FCNA by 17% per barrel in the quarter. Development and Production International reports a negative result of NOK 5.7 billion in this last quarter of last year, impacted by lower prices and the dollar to NOK exchange rate.
We reduced operating costs by 22% per barrel in the quarter measured in $. Our mid and downstream business continues to deliver good results, although somewhat lower than last year. Earnings, adjusted earnings were NOK 3.6 billion, mainly as a result of high regularity, continued attractive refinery margins, as well as strong trading results for liquids and our U.S. gas business. During the quarter, we produced more than 2 million barrels per day. Adjusted for divestments, the equity production was at the same level as Q4 last year. For the year, adjusted for divestments, production increased by 6%. In 2015, we delivered a cash flow from operations of NOK 166 billion.
With tax payments of NOK 66 billion, NOK 23 billion distributed to shareholders, NOK 33 billion in proceeds from sale of assets, and investments by NOK 129 billion, it all adds up to a cash flow of -18 billion for the full year. One half of the tax payments in 2015 in Norway relates to the second half of 2014, a period with significantly higher prices. With taxes based on the 2016 results, net cash flow for the year would be significantly improved. Our adjusted net debt ratio to capital employed was 26.8% at year-end, up from 20% at the start of the year. We continued to move barrels in 2015 from resources to reserve.
Divestments and strong production reduced our reserve base, giving an organic triple R of 88%, and 140% on liquids. Johan Sverdrup was the main contributor to the added reserves. The three-year average organic triple R was 110%. Let me now leave the quarter and take you further into our capital markets update. You've heard Eldar present our firm strategy of resetting costs and capturing opportunities. As CFO of Statoil, I will keep special focus on driving performance every day, securing strict capital discipline, and safeguarding our financial flexibility. All this to remain in a position to prioritize capital distribution while investing in strong projects. Last year, we presented an ambitious plan to improve competitiveness, targeting $1.7 billion in annual savings from 2016.
I'm pleased to present how we have taken down costs even faster and deeper than we expected. We have reached an annual savings of $1.9 billion for 2015. We are spending 30% less time drilling offshore wells. We have reduced U.S. onshore costs by 38%, well underway to reach our revised target of 45%. We are reducing facility CapEx by 11%, stepping up to 15% this year. Modification CapEx is down by 35% through strict prioritization and efficient planning. Doing more work ourselves, we are stepping it up to 40%. We have almost reached our target for reduced field costs on the Norwegian Continental Shelf, declaring progress towards our stretched target of 25%. We challenged the teams and they returned with substantial savings, and they have proposed new and even tougher targets.
This is what happens when the snowball starts rolling. It's cultural. With 15 fields that deliver production efficiency above 92% and maintaining unplanned losses at 5% two years in a row, we see strengthened culture at our fields, driving performance every day. The step-up of $800 million to our new target of 2.5 in 2016 will be divided by two-thirds CapEx and one-third OpEx. In addition, we benefit from a softening supplier market with drilling and completion on U.S. onshore and the new contracts related to Johan Sverdrup. We expect to see costs coming further down and have included a market effect of $300 million for 2016. Our job is to turn efficiency into money. Our competitive cost position compared to our peers is good, and we started our efforts coming from a first quartile unit production cost.
The efficiency improvements reduced our upstream OpEx SG&A per barrel by 11% on the NCS and by 18% in DPI. Compared to 2014, the improvements equal savings of $1 billion in 2015. Our workforce will be reduced by 19% towards the end of 2016 compared to 2013, leaving us in an organization more fit for the current activity levels. As you can see, we reduce costs using a range of measures to secure the long-term efficiency of Statoil. Growth in production comes from projects under execution such as Johan Sverdrup and Aasta Hansteen. They are coming on stream with an operating cost of around 30 NOK per barrel. The 6% production growth in 2015 primarily came from new production capacity, increased drilling efficiency, and using our flexibility in the gas machine to move volumes to periods with higher prices.
In 2015, we produced the guided levels for 2016. Going forward, we will continue to prioritize our production profile, prioritizing value. This strategy includes reducing the activity level in the U.S. onshore and on Peregrino in Brazil, as well as postponing and stopping projects. In 2018 and 2019, we have several major startups in a time frame where we and the market expect better prices. The list includes Gina Krog, Aasta Hansteen, Mariner, and Johan Sverdrup. Last year, straight after the CMU, we went back to the organization, raising the bar, challenging the break-even of every single project. Eldar told you how successful this initiative has been. Reducing the break-even by close to $30. Let me highlight the financial impact. First, in 2013, we have sanctioned projects which today have an average break-even level of around $30 per barrel.
Second, we have reduced average break-even on a range of non-sanctioned projects to $41. This provides attractive options for investments in the next couple of years. Third, we have postponed some projects beyond 2022 with the expectation of further improvement. Finally, we have stopped and divested projects that have an average break-even above $80. As Eldar said, more than 80% of CapEx in the non-sanctioned projects will have a break-even below $50, and we strongly believe we can improve even further. Let there be no doubt that maintaining our financial flexibility remains a key priority. Last year, we presented our financial outlook reflecting three price scenarios. Today, we give an update on the scenarios of $50 and $70. We also provide an outlook for $40 for the next couple of years.
From the illustration on the slide, you can see how our cash flow from operations will look like in the various scenarios and how this compares to our CapEx. You can see how the flexibility offers an opportunity to balance cash flows at the lower scenarios, and the flexibility in the annual CapEx level is in the range of $4-$6 billion in 2018 and 2019. Even without exercising that full level of flexibility, we can be cash flow neutral at $60 in 2017, and $50 per barrel in 2018, excluding any impact of the scrip dividend. This enables us to invest in strong projects which are profitable at levels below $60 per barrel. What does this mean to our balance sheet? We've previously expressed our ambition to have a net debt ratio between 15% and 30%.
Thirty percent has never been a hard line triggering automatic action. As shown today, we have the capacity to pursue our investment program being cash flow neutral at 60 in 2017 and 50 in 2018. Our debt ratio will be in the mid-30s, and we are very comfortable with this. As you can see, at prices below $50, the gearing would increase. In such a case, we are still comfortable, but this confidence will increasingly have to be backed by our toolbox. We further increase cost efficiency, we maintain significant flexibility in our CapEx and exploration spending, and we have demonstrated the willingness to use this flexibility. The scrip dividend is an additional measure strengthening our financial capacity. Let me take you back to our key priorities. First, faster and deeper cost reductions.
We have increased our annual ambitions of $2.5 billion by the end of 2016. We continue to reduce break-even in our portfolio on non-sanctioned projects, and we take forceful measures to improve profitability in our international portfolio. Later, you will hear Torgrim and Lars Christian go more into detail on this. Second, securing capital discipline to build the next generation portfolio. We will only invest in excellent projects that are fit for the future. We will optimize and reduce the CapEx level to $13 billion in 2016. We will spend around $2 billion on exploration, down from $2.9 billion in 2015. Third, securing financial flexibility to capture the upturn. As I mentioned, we can be cash flow neutral at $16-$17 and $16-$18. This is not including the scrip.
Our strong commitment to the dividend policy is backed by our strong priority of positioning ourselves for the long-term growth in earnings. This is what backs and supports the dividend capacity long term and creates value for our shareholders. Let me sum up. It is challenging times, and we still have a job to do, but we have demonstrated that we can deliver.
We are increasing our targets. We continue to offer attractive investments. Our dividend policy remains firm, and we are well positioned to benefit from the upturn in oil and gas prices. Thank you for the attention.
What I'd like to do now is if I can ask Eldar to come back to the stage, and then we'll have an opportunity of about 30 minutes for questions and answers from the floor. We'll try to get some in from the phones as well. If I could ask the operator to start polling now, and we'll come on to those questions in a short while. There's a lot to get through, 30 minutes, so if we can keep it to one question each. We have some roving mics around. I can see those. If I start with, I'm gonna start at the front with Mike, Michael Alsford.
Thank you. It's Michael Alsford from Citi. You mentioned very good progress around your current operating portfolio in terms of break-even reductions. What I wanted to try and get an understanding of is the moving parts. What is the actual volume sacrifice? You talk about projects starting up in 2022. What is the impact of those on the volumes as a result of basically pushing out high cost projects from that suite of projects? What is really the reduction you've been able to generate from recycling projects and capturing cost savings? Thanks.
Some projects have been pushed out, like the Tanzania gas project. We don't see that being realized in this time horizon. When it comes to the project that is in the portfolio, like the Johan Castberg, we are talking about the same volume. We haven't scaled down the projects. That would be very marginally. This is an optimization all the way from the reservoir to the market, and we need to take very good care of the barrel. That is the, you know, front part of our strategy that to capture the resources and focus mainly on how we can.
Please press star one to ask a question.
Volumes out of the reservoir. Is there anything you'd like to add to that, Hans Jakob Hegge?
No, I think it's important to just underline that we guide on the production of 1% growth from 2014 to 2017 and from 2018 to 2019, 2%-3%. We still have the gas flexibility. We have demonstrated we can use that based on our price assumptions.
Okay. Jon?
Yes, Jon Rigby from UBS. One of the things that comes up a lot when discussing Statoil is the position of your largest shareholder government. Clearly there are some radical changes taking place at Statoil, and sort of a change of the nature of the company since it IPO'd, basically. I think that's picked up over the last two or three years. It seems to me there are two big moving parts that you're highlighting today. One is a reduction in spending on the NCS that's driving your big efficiency gains. The second is a change in your dividend policy or a change of the way that you implement your dividend policy. From the outside, your relationship is somewhat opaque.
I wonder whether you were able to make some comments sort of characterizing what the discussions with the government have been, how supportive they are of what you're doing, and where you've got to in sort of implementing strategy and how you discuss that with the Norwegian government.
The Norwegian government and the ministry behave as a very professional owner, I can assure you. We have the same type of regular discussions with this owner as we have with other major shareholders. Basically they support all the measures that we are taking. I think that can be well documented in the Norwegian environment in terms of increasing the efficiency, taking down costs. They fundamentally see that this is to the benefit of the whole Norwegian society, because this is about creating optionality and increasing efficiency and by that creating options for projects and activities that in the long run will be good for the Norwegian society and also the whole Norwegian oil and gas cluster.
I feel a very strong support, not only through the meetings that I have, which are formal meetings addressing this kind of relationship, but also through the way the government is addressing this, the current situation in the Norwegian environment. When it comes to the scrip, we found it natural to have a dialogue with the majority shareholder because they need to support this and they would also need to consider how to approach the parliament on this. To have a discussion on that and make sure that we have support in general for that, we found that prudent, and they have given that support, and we're very happy with that. Also demonstrating that the government is an arm's length and very professional owner to the company.
There'll be a couple more in the middle, and then we'll move over to the right-hand side. Lydia?
Thanks. Just within the presentation, you talked about wanting clearer policy signals for gas versus coal within Europe. What is it that you're actually wanting? Within that framework, how do you actually make the decisions in terms of where the investment funds go to when you don't have that policy framework?
I think, you know, on Europe, it's basically a question on Norwegian gas and new opportunities and new investment decisions to be made. It is very important for us to have confidence that there is a policy supporting long-term use of natural gas in Europe. That has been a question mark, I have to say, previously for some time. We still moved on with the Aasta Hansteen project, but we need that. I think it will be particularly important if we discover new resources, big resources, and the question mark becomes, you know, how do we develop these resources?
What we see now are positive signals, and I'm convinced that there's no way for Europe to take part in the global effort to reduce climate without actually addressing the coal issue in Europe. Whether that is through the ETS or through direct regulations, that remains to be seen. Hopefully, both, but they would have to do something which will support the further gas development from the Norwegian continental shelves. By the way, you will have a gas seminar in a couple of weeks and yes, but Torunn will also be available to answer more questions later today. Okay. Gonna move over to Hamish and Brendan, then we'll move back.
Thanks very much. Some very commendable CapEx cuts, cost-saving initiatives, and more so than many of us thought you could achieve. It's very good. Focusing on the sort of resource side of your business, you mentioned the reserve replacement ratio organically around 88%. Could you tell us how you intend to address the reserve life and sustainability of the portfolio going forward? You've mentioned a few of the projects and the good cost cuts you put through on those and the lower break-even. You did mention, I think Hans Jakob mentioned on the Q3 call, potentially going above the 30% gearing threshold in order to do M&A. Is that something you'd still guide us towards?
I'll comment on M&A, and you do the reserve replacement more general from more general approach. M&A is obviously has been for a long time a key component of our dynamic strategy. It is an obligation to look at opportunities both to divest assets that others can do, you know, enhance better than we can do, and also to look for opportunities to do acquisitions. The more you can do this in a countercyclical manner, the better it, you know, probably is. We are looking, and John here and his team is looking at opportunities all the time consistently, assets in various, you know, parts of the world. It has to be right. It has to be the right price, fit into the strategy, stepping stones that, you know, we can build on.
If you get that right, then we have done some actually also during last year, which fits nicely into that strategy. That's good. It also has to fit into the overall corporate financial framework. It's part of that. At hand, we have a huge, very attractive portfolio of organic assets with names that we're working on, that you heard about, and that is also a top, definitely top priority.
On the reserve replacement?
Yeah. I'll do a more technical comment. In general, we relative to peers also prioritize exploration quite highly. Last year, we booked Johan Sverdrup phase one. There's a SEC rule accounting-wise that make us use the average price for the year. In the disclosure at the back or the financial disclosure, you will find a reduction of $330 million due to these price assumptions. As you know, we have a three-year rolling average on the RRR and we have reported 110%.
Brendan?
Thank you. It's Brendan Warn from BMO Capital Markets. Just, since announcing delay at Aasta Hansteen and Mariner, just what have you changed internally to make sure we don't see delays on some of the big projects coming up and further reduction of production growth towards the end of the decade? Just secondly, I appreciate you're not reliant on disposals and you're giving organic numbers. Obviously, it was successful for you in the past. Are there any sort of targets you look at internally in parts of the world where you'd look to exit or dispose please?
Well, I'm sure Margareth would love to answer the question about all the efforts that she's doing to make sure that we are not getting into the situation of cost overrun. Actually, if you look at our overall portfolio, it's not a story about cost overrun, it's the opposite. We have been struggling with some of our projects in at Korean yards. Very high, you know, and we have, you know, been, you know, seeing delays on these projects as well. We are putting a lot of effort, and Margareth is there frequently to visit the management of the yards to make sure that we get sufficient priority, that we have the progress that we are, that we need.
I feel confident that the plans that we are is now, you know, public and that we are working on, that we will be able to stick to those plans. You can never issue guarantees, but it's a high focus on that. When it comes to divestments, you know, I would never be specific. There's always, you know, components in our portfolio that, you know, might be a little bit stranded or where we don't see a lot of, you know, building blocks on top of it and so on. So, you know, you will always find that, and that's something continuously to be considered. So, I won't give a list of those things, what that could be.
Obviously, again, if you do that kind of stuff, it would have to be at the right price at the right time. Timing is, as I said in my speech, essential in our industry.
Okay. Rob?
Thank you. It's Rob West here from Redburn. You might not like my question entirely. It's about the deflation in costs that you mentioned today, so going from your $70-$40, which I'm guessing is on a barrel of oil equivalent basis, which I think means something like $90-$50 if we take pure oil. If you can do that, and everybody can do that, you might take that to mean the marginal cost in the oil industry is closer to $50, and that's where prices might go to. My question to you is, what is it about your portfolio and how you're deflating costs that make you think that's a Statoil effect that can't be generalized by the broader industry? Thanks.
I'm confident that the whole industry is addressing the same issues. There are two types of improvements of cost issues that we are looking at. It's the structural and then it's the market. Our improvement program is focusing mainly on the structural issues. What we have achieved, and Margareth will show you a slide later today on our cost spread, the components, what is taking us from the $80 to where we are today. The market is part of it, but it's not by far the biggest component. This is really structural, how you, what you solve for, what kind of solution, not starting sort of big scopes, but really what do you really need, and then challenge every single bit that you need on top of that and make sure that everything hangs together.
It's using our competence and our capacity and engineers to solve that equation. I have to say, you could ask why we haven't done that before, and if the industry is doing the same, I don't know. I think still we are, you know, a company that is quite forceful on this, and hopefully the industry is doing the same. Yeah, it's like, you know, market impact is part of it, but the program and the impact that you see and being presented today is much more about the structural efforts. Margareth will also show you how the market impact comes out, looks like in relation to different types of services and how that could look in a time horizon.
Haythem?
Hi, I'm Haythem Rashed from Morgan Stanley. Thanks for the presentation. Just if I could come back to the comments you made about the balance sheet and sort of where you see net debt to capital employed potentially sort of evolving to. Within that, it seems like you're assuming, you know, an uptake of the scrip, something like 40%. And if we assume that might be lower, and we assume an oil price closer to where the oil price is today, for example, it's not impossible to see that reaching 40% potentially in the near term. Just wanted to get a sense.
I know you talked about 35% being something you're comfortable with, but, you know, when we get into sort of those sorts of levels, does that trigger different thinking from yourselves in terms of how you react to it? Perhaps just a broader comment, if you could, about what metrics matter to you. I mean, is net debt to capital employed the most important one, or do you look at other metrics? Do you look at net debt to cash flow and other on the balance sheet? Thanks.
Currently a debt ratio of 27%. 30% has never been a hard line in the sand triggering any specific actions as such. It's been a reference point for us. It's clear to us that with the current opportunity set and the quality of what we're pursuing, it is important to have, you know, to do that. I think that is value enhancing for our shareholders and strengthening our dividend capacity in the long term to actually pursue good projects. That's how we, you know, create value. We have shown that we are able to pursue the current opportunity set in line with existing plans, time horizons, and be cash flow neutral at $60 in 2017, at $50 in 2018.
That would cross the line, and how far it will cross the line is depending a little bit on the take-up on the scrip. But it could take us into the mid-30s. Well, if oil prices comes, you know, turns out to be lower and well below the $50s, we will see an increase in the debt ratio. We're still not uncomfortable. There's no such thing as a line anywhere, but it's a situation that then emerges where it becomes increasingly important to feel good about, you know, how do we control this, and what kind of measures would we like to take? We have significant measures, and we have shown that we are willing to do that.
The flexibility in our CapEx programs, flexibility on our exploration side, divestments we just talked about if we have to. There are liquid assets in our portfolio. We are in control. We have, you know, significant flexibility. We have a strong starting point. There's flexibility on the balance sheet, and there's flexibility on top of the balance sheet. We have added another tool, so we are not depending on any takeout. There's no mechanic between takeout and dividend. This goes into the whole toolbox that we have at hand, and we are confident.
I'm very conscious that we've got a lot still on the floor. I'm gonna take one more on the floor, then we'll go into the phones, and then we'll come back and connect some of the ones remaining in this room.
Great. Thanks. It's Marc Kofler from Jefferies. Two questions, please, broadly relating to the sort of capital allocation process. I think it's fair to say that the dividend policy has been tweaked a few times now in recent months. Really I was looking for clarity, I suppose, around what the policy actually is, and how we should be thinking about that for the next three quarters. Then just within sort of the comments you made around M&A, how should we interpret the transaction with the Lundin equity? Thanks.
I'll do the dividend policy, and you do the Lundin, right?
Sounds good.
The dividend policy states clearly that it's our intention to grow the dividend over time in line with the expected underlying earnings. There are also statements in terms of, you know, what if conditions turns out to be very difficult. We haven't pushed, you know, pulled that brake because we would like to rely on the first part of the dividend policy, which is consistency, capacity to pay cash dividend through the cycle, and we have a fantastic set of opportunities that actually justifies that also towards our shareholders. That's the interpretation. I don't see any tweaks. It is the way it is, and it's consistent, and we have just added another tool which is not inconsistent with the policy in terms of the scrip dividend.
The board has stated clearly that the intention, that's what they can say, the intention is to maintain the current level of $0.2201 for the first three quarters of this year. Then there would be a formal process on dividends beyond that.
On Lundin, as you're aware, we are the operator of Johan Sverdrup, and this expresses our strong belief in the Norwegian continental shelf, and it increases our indirect exposure to high-quality assets on the NCS that we know very well. It also underlines our long-term views on the industry and the potential value of capturing on the upstream.
Be patient in attending this long. We'll come back to you. I'm just going to open up to the operator now so that we can run through a couple of calls for people who weren't able to make it to the room today.
We'll now take our first question from John Olaisen from ABG. Please go ahead. Your line is open.
Yeah. It's John Olaisen from ABG here. Good afternoon, gentlemen. Question, if you have projects now that are profitable below $40 oil price, do you then continue them regardless, or do you have any projects that you're currently holding back that have NPV breakeven below $40? In other words, could you have invested even more in projects at the moment that are profitable with the oil price below $40?
Flexibility is golden. In fact, the case is we still have a lot of flexibility. If you look at the next 18 months or so, there's no major FIDs. There's no major project that is mature enough to be up for decision-making within that time horizon. That means we are retaining flexibility. We can, you know, and we are. We'll use that time very efficiently to continue to work on the project and the new challenge of getting below $40. We are working. We lost one project on the Norwegian Continental Shelf in December. We decided to move forward with Trestakk on the Norwegian Continental Shelf. Johan Castberg, we have firmed up the concept and the solution for the concept.
We are maturing these projects, but, you know, they are not ready to be concluded. I think the next one to be up for decision-making is the Trestakk project by this summer. That is the characteristic. We are not, you know. We are working on all projects. Some of them we have sort of a little bit on the backburner because they are not urgent. We need more time. We need to firm up like resources.
For instance, Bay du Nord in the east coast of Canada, we are now into a drilling program, so we need to know, like we did for Johan Castberg, more what is the resource base that we would like to base a development on, not build all kind of optionality into solution, but we have time to wait to see what are we solving for.
My follow-up question would be to some slides that Torgrim will present later, so I might be too early with this question. It seems like U.S. onshore needs some $50 in oil price to be NPV break-even on average. Is that correctly understood? If so, why invest in U.S. onshore at all?
If I may, you know, I could go into this, but I think that's why Torgrim is here. If I might offer to allow him to answer that question later, I would appreciate that.
Okay. Thank you.
We will now take our next question from Anne Gjøen from Handelsbanken. Please go ahead. Your line is open.
Thank you. In Q1 2015, Q2 2015, and Q3 2015 in your report, you're saying that you've used $80 as the assumption behind the impairment testing. This time you have excluded the price assumption. It's no longer in there. Could you confirm that $80 is still used because it is not significant write-down this time? If it is, because previously it's particularly hit the valuation of the U.S. assets, if you think it's right to keep current valuation of the U.S. assets at $80. Thank you.
Okay.
I'll leave that to you, Hans Jakob.
Yeah, thank you for that question, Anne Gjøen. You're absolutely right. We were disclosing the 2018 in our financial statement, that is still within our uncertainty range in current times. For impairment testing, we are using the forward prices for 2016, 2017, and 2018 with an average of $44 per barrel. As you said, there are $10 billion net impairments in this quarter, and we still have firm belief in the upturn of the prices, but we do not know when, and we haven't updated our long-term price assumptions since Q1 last year. We do have adjusted the impairment with a three-year forward for 2016-2018.
One more from the phones, and then I'll come back to the auditorium, please.
We will now take our next question from Teodor Sveen-Nilsen from Swedbank. Please go ahead. Your line is open.
Good afternoon, and thanks for taking my question. I have a couple of questions on exploration. You clearly reduced the exploration spending pretty much from 2015 to 2016. I just wonder what's the main driver behind the reduction? What's price driven and what's activity driven? Where should we look for areas that you will focus on in 2016 when it comes to exploration?
In line with efforts to address cost efficiency, we have also done significant achievements within exploration, drilling wells, on the administrative side. You will hear more about that, the efficiency gains, in the presentation later today. We are in a situation now where it's natural for Tim to replenish a little bit his portfolio. We have been high end having a high drilling activity, and we need new acreage and new opportunities. That is the kind of process we are into, which is also a good thing because it fits nicely into the financial thinking currently, and the uncertainties that we're facing. It is also times of opportunity for Tim, and he's done a tremendous job accessing new acreage in many exciting places, and he would love to talk about that later.
Also, you know countercyclical things, for instance on seismic activities and so on. It's a lot of things that comes together into the number that we are presenting today for this year, and through that he creates optionality for the future. I probably answered questions that Tim would love to do later today, but he will get a chance to elaborate in his presentation.
I'm not sorry to disturb the question.
There'll be opportunities in the second round of questions as well. We were over here. Any? I think was there another remaining question from the center here? No. In that case, can I go through to the gentleman over there?
I
Thank you for that question. I'll start, and, maybe you continue, Eldar Sætre.
As a general information we have in the additional information more on the composition or CapEx profile. That's being released outside the presentation. It's part of the additional information. The expenditure level on the Norwegian Continental Shelf is half of the offshore investments for next year, maintained at a high level. One of the explanations is, of course, the Johan Sverdrup project, which is a unique project where we continue to invest. You mentioned decline. It's been around 5%, fairly much the same rate as the international. When it comes to improvements, as you're aware of for the full year, per barrel in DPN, it's 11% down. We get more out of our investment, and that's the traction in our efficiency program as well.
When it comes to the natural gas and breakevens, actually, if you look at our portfolio and what is at hand, it's very much a liquid portfolio, actually. The main project points are liquid for now and mainly. There's one project that is in the pipeline, the Aasta Hansteen project on the Norwegian Continental Shelf, which I would say at the point of decision-making had a breakeven, which was somewhat above the levels that we are talking about now. I would basically stop there. The project has been one year delayed and some cost increase, so obviously, the project has an increase.
Eventually, I am confident that it will also be a good project, in particular because it adds optionality, you know, adds infrastructure in the area, which will open up for further development, which then we would be more profitable. By the way, we have made three discoveries surrounding Aasta Hansteen which add approximately 35% to the resource base. That's the dynamic of this industry, that individual projects that might not look that good now, but it opens up, you know, for future value creation.
One last question before we have a very short break and a little bit of choreography on stage to get ready for the second session. Neil, to close this session. Carry on.
Thank you. It's Neil Morton in Investec. I just wanted to clarify, you've talked about more CapEx and lower OpEx, but versus a year ago, your cash flow targets also look to have reduced sort of broadly similar oil prices. What's changed? Thank you.
I think what has changed is that we see the opportunity to improve the product portfolio, right? We are prioritizing, continuously learning what we can do. We also get, you know, more impact from the commodity price environment. It's the totality that, you know, has taken down the CapEx, strict prioritization. Basically, we are moving forward with the same projects and some delays. We have delayed some projects because we need more time to improve them. It's simply, I would say, the main driver is actually the opportunity set we see and what we can do with the projects when we give ourselves slightly more time to optimize and not be driven by volumes as much as value.
Get it right, spend the time it takes, and don't push any button until you feel comfortable with the output.
Let me bring this session to a short close. We've got a quick break. There's some sandwiches and food waiting outside. We can be back in the room for 10, just before 1:10 P.M., please, and we'll start the sessions with the business leaders as well. Thank you very much. See you in a few minutes.