Ladies and gentlemen, I'm very pleased to welcome you to Statoil's Capital Markets Day live in London, and to those joining on the phone and on the internet. My name is Peter Hutton, Head of Investor Relations. We have three formal presentations today of between 20 and 25 minutes, followed by 45 minutes of questions and answers, both from here and on the telephone. To open our proceedings, we have Eldar Sætre, the CEO of Statoil, a position in which I'm delighted to say he was confirmed earlier this week. He will be followed by Torgrim Reitan, the CFO, and Margareth Øvrum, Head of Projects, Technology, and Drilling.
First off, with being Statoil, I have a safety moment, which I'd like to read out. If an emergency situation should occur while we are here, the evacuation signal is a voice system announcement. Please use the fire exits within the venue in an emergency situation and follow the signs and exit at ground level. That having been said, we have no plans for any fire drill today. If there's a rush for the doors, perhaps it's people running out to buy the stock. First, on that note, I'd like to welcome Eldar to start us on the first presentation this morning. Thank you very much.
Thank you, Peter. Good morning, ladies and gentlemen. It's really good to see you all, I have to say. Times of uncertainty require leaders that see opportunities and can make adjustments whenever that is the right thing to do. As you saw from the message that we sent out on Wednesday, I have demonstrated precisely these characteristics. I seized the opportunity when it was presented to me. Today, I'm really pleased hosting you as the new CEO of Statoil. In this new position, I see no need to suggest any changes to Statoil's overall strategy. It has served us well and is wisely designed for the future. However, within this strategy, I have highlighted three focus areas. The Norwegian Continental Shelf remains the backbone of our activities.
It is a highly attractive basin where we will seek to deepen, and not the least prolong, our positions based on a solid and very distinctive competitiveness as such. Our international portfolio and operations remain key to our long-term development. We will continue to invest into our international activities where we can capitalize on our competence, building materiality, and obviously profitability. We also must adapt to remain competitive in a low carbon future. I see this as a truly business-driven approach, and I will revert to that later in my presentation as well. Before I start my presentation, I would, you know, like to offer some very few comments on the current market environment.
Without pretending to have a crystal ball of any higher quality than any of you might have, a downturn should not in fact have come as a surprise to anyone, as the physical imbalances in the market were gradually building up, and they were quite visible. At least this was no surprise to us. I have to admit that the force of the market direction was somewhat surprising. In our view, the long-term fundamentals of our commodities are strong. No one can be certain as to how long the low price environment will last, and we expect to see quite significant volatility for quite some time. We are therefore prepared for low prices for an extended period of time. At the same time, we are building resilience and working even harder to strengthen our competitiveness.
This will leave us even better positioned for the rebound whenever that is going to take place. This is also why seizing the opportunity, it's not me seizing the CEO opportunity, Statoil seizing the opportunity in the current environment is today's headline. Last year, we presented our plan, which we called Execute for Improved Value Creation. Today, Margareth, Torgrim, and myself will present how we have delivered on this plan and how we will deliver going forward. Firstly, we will continue to provide high value growth. We plan to increase our production by around 2% annually to 2016 from ramp-ups and new capacity that is put in place. This requires lower CapEx, reduced through even stricter prioritization. Our investment program for 2015 is reduced by $2 billion compared to last year's guiding.
Beyond 2015, we have material flexibility in our portfolio enabling us to navigate through a volatile commodity environment. We will balance our spending so that free cash flow covers dividend through a volatile commodity environment within the next couple of years across a broad set of scenarios. Secondly, we will continue to increase our efficiency. We will deliver $5 billion in cash improvements compared to 2013, and this will come from a step up in our efficiency program of 30%, reduction of CapEx and exploration spending compared to previous plans, and improved operational efficiency building on the achievements we have made during last year. Finally, we are reiterating our commitment to provide competitive capital distribution to our shareholders.
The proposed dividend for the fourth quarter is unchanged from the previous three quarters of NOK 1.80 per share, implying a full year dividend of NOK 7.20 per share. Our commitment towards our shareholders remains firm. The intention is to maintain a flat level for the first three quarters of 2015. Let me expand on our approach to long-term value creation. Basically, this is about being prepared to handle volatility. That is why we initiated comprehensive measures to improve our competitiveness approximately two years back. Since then, portfolio optimization, reduced CapEx, and increased operational efficiency have strengthened our financial robustness. Furthermore, we are seizing the opportunity of the current downturn to strengthen our competitiveness even further.
Through the measures we have taken and by stepping up our efficiency program, we will navigate through a low price environment while making us even more fit for future opportunities and value creation. Finally, we are prepared for long-term value creation by maintaining an uncompromising focus on safe and efficient operations, increasing the robustness of our individual projects ahead of us and the portfolio, and continuing to invest in highly profitable projects like Johan Sverdrup. Earlier today, I presented our quarterly and full year results, and I will leave it to Torgrim to go into more details on this. Let me briefly comment on a few highlights. Our HSE results continue to improve following a trend that we have seen for quite a few years now. Production is up 4% year-on-year.
The adjusted earnings were NOK 136 billion, which is solid, reflecting the current market environment. Our CapEx level was in line with our guiding, and our net ratio at year-end was at 20%. Finally, important for the longer term, the organic reserve replacement rate was at almost 100%, and we also continue to deliver strong performance on exploration. In sum, we have delivered on our guiding, and I would characterize 2014 as a year of a strong underlying performance. However, we see some challenges in our international portfolio. The fourth quarter results is negative, and we forcefully address the profitability within this area, in particular related to the US onshore business. For the year as a whole, our international business segment delivered earnings. Adjusted earnings are almost NOK 14 billion .
The cash flow from operations from our offshore international business was actually in line with the same cash flow that we see from the Norwegian Continental Shelf. To manage a business through good times and bad times, we need a consistent financial framework defining our room to maneuver. For me, there are four cornerstones in this framework. Future value creation is depending on our capacity to invest in profitable projects. The commitment to our shareholders is essential, offering a competitive direct return through the cycle. We also need to secure a positive net cash flow over time. Today, we demonstrate our capacity to do that within a wide range of oil price scenarios. Finally, we need to safeguard our financial resilience, and we will maintain a debt ratio below 30% even in the $60 oil price scenario.
Our efficiency program is progressing well. So far it has resulted in a wide range of improvements, realizing gains of approximately $600 million. We have reduced modification spending quite significantly. We have improved our offshore well delivery time. We are making similar type of progress in relation to our US onshore business on drilling and completions. We are running the company with approximately 8% lower workforce today than we did one year ago. Today, we announced a step-up in our improvement program, increasing the target from $1.3 billion to $1.7 billion by 2016. These improvements are not including last year's achievements on production efficiency. This is not a program of simple cost-cutting. We are targeting the underlying efficiency challenges of our industry.
We simplify, we standardize, and we work smarter together. Margareth will address more details on this in her presentation. The teams operating our facilities have reduced Statoil's unplanned losses last year by an impressive 5 percentage points. That is compared to the year before. That equals 50,000 barrels for every day of the year on average. I can assure you that it's highly profitable barrels as well. As a result of these efforts and new production coming on stream, we're expecting increased production by around 2% towards 2016 and 3% from 2016 to 2018. Given the challenging environment for our upstream business, it is worth reflecting on the opportunities within marketing and trading, and this comment has nothing to do with the fact that that was my previous job.
In North America, we have secured access to transport capacity to reach premium markets. In Europe, our resources have access to flexible infrastructure, including production flexibility from upstream peers like Troll and Oseberg. This gives us an opportunity to really reach premium markets at any point in time. In recent years, we have seen significant changes in the European gas markets, and Statoil has in fact been a frontrunner in this transformation from oil indexation to gas market pricing. The timing of the renegotiations were good, especially in 2012 and 2013. We saw very good prices for gas in Europe. In sum, this has taken down our oil price exposure and in fact also hedging us somewhat in the current low oil price environment.
We have a strong portfolio of projects in execution, and we will continue to invest in high-quality projects. Soon, we will submit the PDO for Johan Sverdrup. Truly world-class project by any means to the Norwegian authorities. Even in the current environment, this is a highly profitable project. It is among the five largest projects on the Norwegian continental shelf ever. Statoil is operator with 40% ownership. At plateau, it will produce more than 25% of the Norwegian combined oil and gas production. Once in production, Johan Sverdrup will continue to produce for 60 years. It will outlive, in fact, many of us. At least some of us, I should say, to be a little bit on the cautious side here. The project is very profitable with a break-even price below $40 per barrel.
It will be a true pleasure, and I will do that personally, to hand over the PDO to the Norwegian government and the minister. In recent years, we have achieved industry-leading exploration results. Also in 2014, we were among the leading performers. Last year, we deepened our positions in Norway, in the U.K., in Brazil, as well as Gulf of Mexico. We strengthened our portfolio with new acreage in Algeria, Australia, Colombia, New Zealand, and in fact, Myanmar as well. Our ambition is to remain a leading global exploration company. Statoil will therefore sustain our exploration efforts, although at a somewhat lower level. This year, we plan to spend around $3.2 billion on exploration. The oil and gas industry will gradually face stricter regulations related to climate change and our business.
In Statoil, we see three dominating industry challenges that we need to respond to, and for simplicity, we refer to this as the three Cs. The first one should be well known to you, that is competitiveness. You hear a lot about today about sort of how we are addressing that extensively. Secondly, we must be part of the solution, in fact, to maybe the most pressing challenge of our times. The world needs more energy, while at the same time tackling the climate challenge. Statoil is already an industry leader in terms of carbon efficient oil and gas production, and we intend to keep it that way. Thirdly, a trusted company must be in sync with society, local societies, and the general public at large.
We truly believe that our strong track record in this area creates a competitive advantage, both in the short term, but increasingly so in the longer term. Our industry must undergo a lot of change. Statoil has the competency, the capacity, and the leadership capabilities necessary to actually meet whatever challenges that lies ahead of us. I know this company pretty well. With this in mind, I would like to leave you with a few key takeaways. First of all, our priorities remain unchanged. We will deliver high-value growth. We will continue to improve the efficiency of our operations, and we remain firmly committed to providing competitive returns to our shareholders, direct returns. Secondly, Statoil is well prepared to address the current market environment.
We started to prepare long before the current or the recent fall in the oil price, and we are on track, and Margareth will even say ahead of, you know, the track we're in with our improvement program. Thirdly, we are seizing the opportunity in the current downturn by stepping up our improvement program, further optimizing CapEx and exploration spending, and by managing the substantial flexibility in our portfolio, cautiously. Finally, we continue to invest for the future. We have a strong project portfolio that will ensure long-term value creation. Once again, the best illustration of this is in fact the Johan Sverdrup project, highly profitable and truly world-class project. Thank you for your attention. Then I will leave it to Torgrim.
Ladies and gentlemen, to ask a question today during the question and answer session, please press star one on your telephone keypad.
Thank you, Eldar, and good afternoon, everyone. This morning, we announced our fourth quarter and 2014 results, and I'm sure that you have already looked at the numbers. So I will go briefly through the highlights, and then I will spend time on our priorities. As Eldar said, the uncertainty is large. We are well-prepared, and we are well-positioned to capitalize on all price scenarios. Using our massive CapEx flexibility and improving our projects, stepping up further on our efficiency, and then maintaining robust financials. First, let me take you through the results. In 2014, we delivered strong results. We maintained stable underlying costs. However, earnings were impacted by prices and by impairments. We produced more than 1.9 million barrels per day, and this is well above the guiding. Startups and ramp-ups contributed, as did strong regularity.
Our organic CapEx was $19.6 billion. That was in line with our guidance. Our reserve replacement was solid, 96% organic, and our three-year average is now 117%. Exploration added 540 million barrels from the drill bit, and our projects are on cost, and they are on schedule, like Gudrun and the Valemon platform. We announced divestments of $4.3 billion in proceeds in a higher price environment, and these have given gains of $2.6 billion. Our dividend policy is firm. We propose a dividend of NOK 1.80 per share in the fourth quarter. This means NOK 7.20 for the full year, and this is a step up from NOK 7 in 2013.
In 2014, the adjusted earnings were NOK 136 billion. It is down from last year, mainly due to lower prices. Adjusted earnings also fell in the quarter to NOK 26.9 billion. Good operations resulted in high production. Lower prices impacted the results by NOK 15 billion, and we took large exploration charges in our international segment. The large currency movement had significant negative impact on DD&A and on operational costs. We make adjustments to reflect the underlying performance. Our net operating income was negatively impacted by impairments related to our international operations and various exploration assets, giving net accounting charges of NOK 18 billion. After tax, adjusted earnings were NOK 4.3 billion in the quarter.
You will notice that we had an effective tax rate of 84%, and this is due to the exploration charges with limited tax offsets. There is no change to our long-term tax guidance of around 70%. Please remember that with the lower prices, the tax rate tends to increase. Due to prices and impairments, the reported IFRS net income was negative NOK 9 billion. We had strong operations in Norway in the quarter. High production with stable operating and low unplanned losses, and ramping up production from Gudrun, from Svalin, and from Fram. Adjusted for divestments and redetermination, we delivered a 3% underlying growth on the NCS for the full year 2014. Also here, earnings are down due to lower prices. I'm pleased that the Johan Sverdrup partnership wants Statoil as the operator for all phases.
This is a great project, you know, under all scenarios, and we look very much forward to sending in the PDO shortly. I'm not satisfied by the upstream quarterly results outside Norway. Earnings in this segment are negative NOK 2.8 billion, and that's mainly due to lower prices and high exploration expenses. We saw a quarterly loss in US onshore, and we do address this very forcefully. For the year, as a whole, the onshore, including the midstream, profits, provided a fair return. We continue to see good returns from international offshore. In 2014, our business outside Norway delivered NOK 13.9 billion in earnings. Cash flow per barrel is on par with the NCS. We deliver high production ramping up in Angola and in the US.
This was partly offset by the farm-down in Shah Deniz. You will see that we have a large negative tax rate in this segment in the quarter. We made good money in high tax countries, but took significant exploration charges in areas with no tax shield. This impacts the tax rate for the quarter, also at the corporate level. Finally, MPR delivers another good result in a challenging market. Strong performance in European gas and in LNG, improved results from the refineries, and stable results from our gas value chains, including in the US. We produced more than 2.1 million barrels per day in the quarter. That is just 8% from the same period last year. Startups and ramp-ups, higher regularity and higher NCS gas offtake has been key. Decline as expected and divestments partly offset the increase.
For the year as a whole, production were 1.93 million barrels per day, and this is a growth of 4%, which is actually twice as much as we guided at. This growth is despite deferring around 30,000 barrels of gas to future years. Our cash flow from operating activities was NOK 209 billion, slightly lower than in 2013, mainly due to lower prices. Please do note that in 2014, we paid dividends for both 2013 and the first two quarters of 2014. Then we invested $19.6 billion in organic CapEx. The net debt ratio by year-end is 20%, also in line with our guiding.
You will remember that we expected to increase our gearing in 2014. You should also note that the stronger dollar has increased our net debt ratio by around 2-3 percentage points. The impairments have also increased the reporting and gearing level. Our reserve replacement is a result of great work by our people. Solid IOR deliveries, new fields on stream, and continued drilling in U.S. onshore. In total, our resource base is flat at 22 billion barrels, and this is despite significant divestments during the year. Let me move over to the capital markets update. We are on track to deliver on our promises. We are stepping up, and then we take forceful actions in uncertain times.
We continue to invest in high quality assets like Johan Sverdrup, and we will grow production by 2% per year to 2016, and then 3% till 2018. We reduce our CapEx by a further $2 billion in 2015, and we are prepared to use our material flexibility. Free cash flow will cover dividends. In 2018 at $60 per barrel, in 2017 at $80 per barrel, and in 2016 at $100 per barrel. Second, we increase efficiency across our business. We will deliver $5 billion in pre-tax cash improvements, and this includes a step-up of our efficiency program by another 30% and improve operational efficiency by 5 percentage points. By this, we will reduce cash neutrality by around $30 per barrel.
Third, our commitment to shareholder returns is very strong, and our dividend policy remains firm. Finally, we intend to stay below a 30% gearing across a broad set of price scenarios. Flexibility is gold. As operator of most of our projects, we have a lot of it. We will sanction Johan Sverdrup this year. The next wave of possible decisions are in 2016. There is one year until we must decide. More than one third of our CapEx is uncommitted in 2017 and 2018. We are in the driving seat. Our job is to make our projects as profitable as possible. There can be significant value in postponing projects in the current environment, optimizing development solutions further, and taking advantage of a falling supplier market. This is value over volume at work.
We are prepared to use that flexibility. In 2004, our organic CapEx was around $20 billion. 2015, we have reduced to $18 billion. In 2015, we are actually stepping up our investments under, in projects under execution, stepping up by 10%. We are reducing investments in US onshore and modification significantly. We are investing in our sanction projects, which will come into production in the next years, and this will give attractive production growth all the way up to 2018. My job is not to guess the oil price, but make us prepared for all outcomes and take advantage of the situation. We will generate strong cash flows across a wide range of price scenarios. Today, I share with you our plans at $60 per barrel, $80 per barrel, and $100 per barrel of oil.
We have a robust underlying growth in cash flow in all scenarios. We will use different level of flexibility in the different scenarios. Our aim is to balance cash in and cash out. We are prepared to use our flexibility to achieve this. Please note that we also have the flexibility to increase activity. Finally, let me point out that these scenarios do not include potential divestment proceeds. Our growing cash flow and our CapEx flexibility makes us stay within a gearing of 15%-30% in all scenarios. Even while investing in projects like Johan Sverdrup, growing our productions, and delivering on our dividend policy. I have said many times that a strong balance sheet is absolute. This is no less important today.
We have about $19 billion in cash, and our objective is to maintain an A rating on a standalone basis. We come from position of financial strength. You know the dividend policy well. It is to grow our dividend in line with long-term underlying earnings. I said last year that we expect to use share buybacks more actively going forward. It is probably no surprise that we will not use this in the current environment. We are putting in place changes worth $5 billion in cash. Let me break this down in detail. A year ago, we announced an improvement program giving annual savings of $1.3 billion in 2016. We are on track. Today, we are stepping up to $1.7 billion.
Further, we adjust the activity level and the investment program, giving $2.2 billion in reduced CapEx and exploration. Finally, systematic work on operational quality is paying off. 5% improvements give $1.1 billion in extra cash flow pre-tax. A great job done by our people and suppliers. In sum, this is $5 billion, and this means $30 per barrel in reduced cash neutrality. This makes us even stronger. We started early at $100 per barrel of oil. A forceful program is in place with quality and precision. We are not rushing to, you know, simple cost cuts, but we are addressing the fundamentals. We already see bottom-line effects. We have reduced our corporate support and staff functions by around 30%.
This has led to reduced cost of NOK 3.7 billion. I'm proud of the engagement and the momentum I see around our improvement agenda. We make the right choices when we can, not waiting until we have to. Every dollar counts. I have said that I will report on our improvements annually. In 2014, we delivered $600 million, and Margareth will come back to this in her presentation. Ongoing developments will grow production by around 2% per year until 2016. This is from a rebased production in 2014 when we adjust for divestments. Many projects started this year. Valemon, Goliat, Edvard Grieg, and Fast-Track 10 in Norway. Big Foot in the Gulf of Mexico, Corrib offshore Ireland, and then Gudrun, CLOV in Angola, and Jack/ St. Malo will ramp up.
Growth will be 3 percentage points per year from 2016 to 2018. Aasta Hansteen and Mariner will come on stream, and then Johan Sverdrup will come in late 2019. We manage our decline well, and it is stable, around 5%. For 2015, we will reduce plant maintenance. Full year maintenance is expected at 45,000 barrels per day, and 10,000 barrels per day should be expected in the first quarter. This is a time of opportunities. We step up improvements and flexibility is gold. I see our project economics are getting better, so postponing projects can be good business. We will deal forcefully with oil price scenarios, securing free cash flow to cover dividends. We have a robust financial framework with low gearing.
In short, we started early and we are well-positioned to create value and become an even stronger company. Now we are stepping up further on our commitments. Thank you very much for your attention. I will leave the word to you, Margareth Øvrum, the best oil woman in the world, to share your reflections. Thank you.
There are lots of glasses here. Thank you very much, Torgrim. I just wonder, what did you say? Did you say leave the word to Margareth, or leave the work to Margareth? It's good to see you all. You have heard very clear messages from Eldar and Torgrim today. Our good-looking white-collar workers, and that goes for you too, Peter. Now let us get to the real stuff, the steel, the nuts and bolts, and the drill bits. Good story today. Good news. Our efficiency program is ahead of last year's target and we are stepping up. I know this is a bold statement in the current industry context. My presentation today is all about us delivering. First, on projects and well execution. We are performing well, and we will continue to do so. Secondly, we see strong progress on our efficiency agenda.
We are ahead of expectations towards CapEx and OpEx savings, and we see substantial production efficiency effects, and larger than anticipated. Thirdly, solid delivery allows us to step up our efficiency program, and we are increasing the target by 30%. Today, I will give you some more granularity in our progress and how we seize the opportunities going forward. We continue to deliver projects and wells on cost or below cost. This in a time when industry sees big cost overruns and delays. Since last capital market day, we have delivered both the Gudrun and the Valemon platforms on time and on cost. Delivering such large and complex platforms like this proves to me our solid project execution. HSE performance is a fundamental part of a strong and sustainable business.
We maintained very solid HSE results. For our facility project with a serious incident frequency of 0.4 in a time with very high activity level and growth in our global delivery model. We, in drilling a well, have delivered a serious incident frequency of 0.6, significantly improved the last years, and with no serious well control incidents in almost five years, which is the most important measure. In short, we continue as promised on cost, on time, competitively. The November 2014 results from the independent project analysis, which is IPA, demonstrates that we are competitive and improving compared to industry benchmarks. Both on facility and on well competitiveness, we are better than industry average. How is that reflected in our efforts to improve efficiency?
Last year, we committed to OpEx and CapEx savings of $1.3 billion in 2016, and we also committed to specific improvements within identified areas, as you can see on the slide. I will revert to each of these in the following slides, and one year on, we are ahead of expectations. Total efficiency realization for CapEx and OpEx in 2014 was $200 million, $600 million. In addition, improved efficiency on the production side contributed to $1.1 billion in pre-tax cash flow. In fact, our progress gives us confidence to increase the efficiency targets by 30%. This means a new target of $1.2 billion in CapEx and $0.5 billion in OpEx in 2016 and onwards.
More specifically, we reduce the U.S. onshore cost per barrel by 30%. We increase the target on modification savings from 20% to 30%. We reduce the field cost on Norwegian continental shelves by 20%. We are targeting sustainable efficiency improvement across the portfolio. In the current price environment, this is obviously imperative, but I would say it's as important in good times as in bad times. Anyone in this industry can easily cut activity. But here, I strongly believe we differentiate from our peers. We are delivering real efficiencies, real efficiency improvements now. We are on track towards new ambitious targets for 2016 and onwards. Next, I promised you drill bits, so let's talk about drill bits.
In 2014, we increased meters drilled per day for our offshore wells by 21%, which contributed to 16% reduced time per well, a huge improvement in such a short time. We achieved it by leaner design, standardized wells, setting tough targets by the perfect well approach, and increased operational efficiency together with our suppliers. Let me give you a few examples. The two latest Gudrun production wells were delivered 25% faster and 40% reduced cost. At Statfjord, where we have world-class well deliveries, we are 20% ahead of plan in 2014 on average. All our exploration wells globally delivered on average 20% ahead of plan last year. For unconventional U.S. onshore wells, we target now a 30% reduction in cost per barrel.
Last year, we delivered barrels 16% cheaper than in 2013. There is more to come. I am confident we can further increase efficiency effects for 2015 and 2016. Statoil has, as Eldar and Torgrim said, we have a very flexible project portfolio, and that competes for funding. We have a target to reduce facility CapEx for non-sanctioned projects with at least 10%. These savings will materialize as projects enter execution. We are reducing CapEx in several high-impact projects by more standardization, leaner concepts, and cost-effective solutions. Let me give you a few details or few examples. On Johan Sverdrup, we have reduced drilling, estimated drilling costs by $1.2 billion by improving drilling efficiency, well placement, and simplifying wells.
We will continue working on efficient development solution, and I believe standardization will be a key both for subsea as well as for the topside. In sum, Johan Sverdrup Phase I will be approved with a break-even below $40 per barrel. A true industry adventure. You know, even for an experienced and perhaps old woman like me, I feel like a child opening a big birthday present when I'm looking into the Johan Sverdrup project. The Gullfaks Rimfak sdalen is a very robust project with a break-even below $40, and it was sanctioned just prior to Christmas. CapEx has been reduced from $2.8 billion to $1.5 billion by lean scoping, less modification on the Gullfaks A platform, as well as use of the existing infrastructure.
For Johan Castberg, we have reduced the CapEx estimate by about $2.5 billion by reducing the number of wells, simplifying the subsea infrastructure, and the floating production unit. The ambition is to reduce another $0.8 billion-$1.7 billion. For the Oseberg Future, some of you might remember my subsea on slim legs from last Capital Market Day, which is an unmanned wellhead platform with minimum topside equipment. Here it is, technically qualified and selected as a very cost-effective alternative to subsea development on Oseberg Future. Now also being evaluated in four or five other development projects. Now to the modifications. We have reversed a trend of increased modification costs on our operated fields.
We have done this by strict prioritization on modifications, lean scoping, and increased productivity by working closely with our MMO suppliers. This while maintaining and closely monitoring technical conditions of our facilities. Of course, field uptime and regularity are imperative to sustain and improve. One of the many good example is Troll A, the fire and gas upgrade, reduc, where the cost is down more than 40% by reducing scope and a leaner execution model. Now we are increasing our cost reduction target from 20% to 30% on modifications. Let's also look at the field cost improvements on NCS. To the left, Statoil has one of the lowest unit production costs per barrel in the industry. The main operational OpEx element we can influence is the field cost. This is operational cost for running facilities.
Last year, we reduced the NCS field cost by 6%, and we target a 20% reduction in 2016. As a former platform manager, I know these are really tough numbers, but we cannot aim for anything less. We have reduced field costs by tougher prioritization, sticking more to plans, more preventive and less corrective maintenance, and we have also reduced staff numbers, in particular the external resources, which has gone down by 13%. I'm proud to say HSE has never been better on the Norwegian Continental Shelf. Now it's the jewel in the crown. Our success in improving the production efficiency. Production efficiency is at record levels, even with an all-time high number of turnarounds. This provides, as Eldar said, valuable barrels with a cash flow effect, as I already mentioned, of $1.1 billion.
Unplanned losses have been reduced by 5 percentage points compared to 2013, and that is just for, it's both for NCS as well as for Peregrino, 7 percentage points compared to 2012 on the Norwegian Continental Shelf. I must admit that I never thought we could accomplish these results so fast. To achieve this and make the results sustainable, it is all about leadership, setting tough targets, competent people, and increasing technical robustness over all our plans. A few examples. On Snøhvit and Grane, our technical people and operational people have sat together and increased the robustness of our rotating machinery. We have solved riser issues. We utilize new non-intrusive inspection technology to reduce inspection time during turnaround.
During 2014, we implemented a successful production efficiency pilot at the Oseberg field center, building on experience from production optimization groups. By connecting operational people and technical people and developing best practices, we achieved more than 4% increase at Oseberg production compared to forecast. We will now roll out the Oseberg field pilot methodology for all the other offshore assets. How will we seize the opportunities going forward? The main building block for future competitiveness is more standardization. It is about targeted technology development. It is about capitalizing on the market opportunities, and it is also about our operational excellence. My standardization stairway to heaven from the last CMU has been brought to life step by step. More standardization is needed. Now we target standardization across the subsea industry via the subsea plug -and -play initiative.
We are working on standardized module sizes and open interfaces to achieve the plug and play functionality. Standardization is not alone sufficient. More targeted technology development is essential. Technology for cost efficiency and value creation implemented broadly is really what we are chasing. For example, plug and abandonment improvements. More than 1,000 wells will be abandoned on the NCS the coming 25 years. We think we can reduce the cost by 50% and a key new technology will be a key contributor. We will further capitalize on market opportunities, and we do it in three ways. It's about joint efficiency improvement programs and KPIs with our suppliers, which I think is the most important. It's about new contract models, more aligned incentives, et cetera. The third, we will selectively renegotiate and retender.
We see in recent tenders we have reduced costs by up to 30%. Fundamental is also to continuously improve operational excellence. This is pretty much what I've been talking about today. For example, the drilling and the production efficiencies. Leadership and rightsizing of the organization is an integrated part of this. Within my business area, which is technology, projects, procurement, and drilling and wells, we have seen a huge increase in activities the last years, particularly within the projects area. Still, we have reduced the staff by 10% from January 2014 by working smarter and more efficiently. For example, management cost in our projects is down from 10% to 7%. In total, I know we can achieve more efficiency gain in the years to come.
Summing up, we deliver projects on our promises, and we will continue to do that. We are making strong progress on our efficiency program, and we step up. We are on track to deliver on the increased targets and the commitments. In short, we seize the opportunity. I've been in the industry for more than 33 years, and it has never been more challenging but also never been more inspiring and energizing. The tougher targets spur me on, and as much as I enjoy being here, I actually can't wait to get back to the team and continue the effort. I suggest we make it an efficient Q&A. Thank you.
Thanks, Margareth. While we're just moving these onto the stage. First of all, Eldar, Torgrim, Margareth, thank you for three on-time deliveries. That leaves us a little bit more time for Q&A, which I think is important. Ladies and gentlemen, we will now open for questions. We do have microphones, and can I ask that when you're given the opportunity to ask a question, you use that microphone, and you introduce yourself so that people who are following us online and on the internet can hear what the question is and who is answering it. We have a lot of people in the audience today, and a lot of people on the phone.
I'm afraid I'm gonna be fairly rigid in terms of polling for questions, and I'm gonna ask just for one each, and one which is not broken into two, three, or four subparts. I know the tricks. I've been on the other side of the table. If I could ask Eldar and Torgrim and Margareth to come on, and we'll start to take the questions. Okay. Can I start in the front of the room? Jon?
Jon Rigby, UBS. Early that I guess discipline has to be, well, we're not gonna slip into the twos and threes that I would've got in half an hour later. Can I just go, it's evident actually one area that wasn't discussed very much, which is exploration, other than to say the sort of reiteration of a fairly large budget. Can you talk a little bit about, given, I guess, the way that accounting works, you take the cost but not the benefit. Have you got any metrics or measures about how much value your exploration has contributed across the cycle, so we can make some sort of judgment about that?
'Cause clearly the costs are scaring the historical cost accounts right now, but obviously the value of some of the things you've discovered over the last three or four years are not yet appearing on your sort of accounting valuation. Thanks.
I think it should be recognized that we have added quite substantial volume of barrels to our resources through exploration over the last few years. I think you've seen evidence of that in the list of projects that was shown by Torgrim. I guess the most profound evidence is through the Johan Sverdrup project. I think this, you know, is, you know, translating into concrete projects, and that's the time where you actually see the full value of the barrels being demonstrated. In the exploration phase, this is about finding the hydrocarbons, and then you start working on it and see how you can develop these into valuable resources. Internally, obviously, we have value estimates, but it's a difficult technology to discuss that externally.
This is really what has to be translated into concrete projects. I think we have demonstrated over this year that we have added valuable barrels. For instance, on the Norwegian Continental Shelf next to the Grane field, highly valuable, which will be a fast-track project going forward and it's highly valuable as such. We have added barrels in Tanzania during this year as well. That's a project that we are working extensively on, and it's progressing. We are working on the cost side on that project, which was illustrated and mentioned also by Margareth in her presentation.
Okay. Can I come back to you if we get one each, and then we'll. No, Jon, go one more.
Are you able to just give us an estimate of what you think your return on investment across the cycle is on the exploration budget?
The return is actually will turn out as, you know, as we are developing this into projects. Defining that at the portfolio level is remains to be seen as we see the outcome of the exploration results. As we indicated today, maybe the most significant project that we have discovered lately, the Johan Sverdrup project with the profitability below $40 per barrel. At the portfolio level, we haven't any information on that to present to you today.
Okay. Anish?
It's Anish Kapadia at Tudor, Pickering, Holt & Co. I had a question on the U.S. business in this current environment. If you're kind of thinking of a $50-$60 per barrel world, can you just run through the number of rigs you'd expect to run in the U.S. this year and kind of production expectations for each play? Also the potential for any monetizations of, say, infrastructure, your pipeline assets that you've got in the U.S. related to those assets.
I'll leave that to Torgrim, actually.
Okay. Thank you, Anish. We have taken down the activity significantly in the U.S. offshore over the last few years. We see good value in waiting with some of the drilling currently. We currently, y ou know, at year-end, we ran with six rigs in Bakken, five in Eagle Ford, and also six in Eagle Ford. Then we have reduced, you know, further this year. It's finding the right balance and the right activity level. What we also see is that, you know, our costs related to drilling and completion are coming significantly down, and then it's extremely important to be able to take care of the hydrocarbons in particular environments like this when it comes to infrastructure and so on. It works. But of course it is impacted by the current price environment. As for the year as a whole, the value chains in unconventional is generating a return.
Haythem? In the middle.
All right.
Thanks, Julie.
Thank you. Haythem Rashed with Morgan Stanley. My question is just regarding the comments around the dividend and some of the priorities you outlined earlier. Perhaps a question for both Eldar and Torgrim. Essentially, you talked about the dividends staying flat or intending to keep the dividend flat for the next three quarters. You also talked about a net debt to capital target or a ceiling of 30%. Just wanted to get your sense on sort of as we look beyond and if we do stay in periods of weaker oil prices, how do you prioritize the two?
I mean, is there a situation where you find yourselves, you know, maxing out on your flexibility, and also meeting your sort of high gearing and then having to reconsider the policy around the dividend or perhaps just a bit around that would be great?
We are highly committed to our dividend policy. It's essential to us that we're able to deliver a competitive return in line with that policy. We have demonstrated that today, and we have also shown you a financial framework where we will be able to do that also going forward in a wide range of scenarios from $60 to obviously $100 per barrel. The CapEx flexibility that we have in our portfolio is a part of this, that it's reflecting various types of price scenarios. What we should remember then is that if these price scenarios actually play out, it will be a situation where it makes a lot of sense to delay the projects because they're simply not profitable in the current environment to be sanctioned.
Fundamentally, this is a very consistent approach. What will happen in those kind of dynamics. It gives us very strong confidence that we will be able to honor and present the competitive dividend through the cycle in whatever type of commodity environment that we will see all the way from $60-$100.
Okay. Gonna take one more from Lydia from the floor here. Then I'm going to switch over to the phones for another couple of two or three, and then we'll be coming back here. Lydia.
Yeah, that's me. It's Lydia Rainforth from Barclays. In terms of the flexibility that you provided in the presentation, and that was hugely helpful, thank you. It seems that, as Margareth said, Statoil is doing all of the work. How much help do you actually expect from external providers in terms of external cost deflation as well? Apologies for the interjection. The second part of that question is for Margareth. What's the most difficult part you're finding within the efficiency program right now?
This is for Margareth.
This is Margareth. Yes, you know, but how we attack the market side, I think is the most important is working together with the suppliers on the improvement projects. We are working very closely now with our main suppliers, and I think that is maybe 80% of it. But of course, in these circumstances, we are also discussing and renegotiate and retender. Of course, as I said also in my speech today, that we see decreases in the prices. So you have to utilize the different dimensions you have the opportunity to do. Of course, improvement is the most sustainable. You know, in a negotiation, you just normally need to give something and you get something. If you.
Sometimes I hear from some of our peers, they are giving an oil-indexed price and, you know, then you are back again. We spend a lot of time on the improvement side because that is lasting improvements going forward. You know, it's not that easy to give duration or more demand in these circumstances either. I think the best is really to work on the improvements side because there's a lot to take out in efficiency gain.
What I'd like to do now is to open up to a couple of questions from the phones. Operator, I know you've polled the questions already, but if you could do that one and take the first question over the phone, please.
Thank you, sir. Our first question today comes from Teodor Nilsen from Swedbank. Please go ahead.
Good afternoon, and thanks for taking my question. One question, it's related to the CapEx guidance for 2015. Could you give some more details on the reduction from the 2014 level of $20 billion? What is price effect? What is activity effect? What is the effect from the divestments you did in 2014? Thank you.
Thank you, Teodor. CapEx is down to $2 billion. From 2014 we are actually stepping up on sanctioning projects by 10%. We will invest in Johan Sverdrup. That will, you know, be an important explanation of that. We are reducing activity within U.S. onshore. A few years back we invested around $4 billion a year in that business. Now it is significantly below the half of that. We are reducing our investments into modification and projects under execution. Those are the main elements of it. There is, when it comes to currency impact, there is a slight effect of currency impact there as well.
Take a second question from the phones, please.
Our next question will come from Anne Gjøen with Handelsbanken. Please go ahead.
Thank you. Is it possible to indicate the share of oil-linked contract from Norway? It's usually a gradual impact of lower oil price in such contracts with a 6-9 months lag. Is there a downside floor price on those oil-linked contracts? Thank you.
Okay. I guess this is for me, referring to my previous occupation. We have, you know, been through a process where we have come a long way in transforming these contracts, modernizing these contracts, to put it that way. It's a job which is in the northwestern part of Europe, has been 100% complete. It's come a long way as we move to southern Europe and less so as we move east. Obviously our main markets are in the northern, northwestern part of Europe and partly in the southern part of Europe. This has come a long way. In terms of exact percentages, I will not be very precise, but by far, much more than 75% of our portfolio is actually now linked to gas market pricing.
We expect the trend towards full market pricing to continue, but it might take some time until we are finally there. I think this is a very good development, and I'm also very pleased that the EU, the internal market approach is really enhancing this as we move forward. The structure of the oil indexation is basically depending on each individual contract. You have the delays that you indicated. Beyond that, I can't comment on more specifics on the contracts. We really have to look at each individual contract.
Okay. One more from the phone, and then we'll come back to the room.
Our next question from the phone lines comes from John Olaisen with ABG. Please go ahead, sir.
Good afternoon, London. You say that you have an ambition or plan to be covering dividend with free cash flow in 2018 at an oil price of $60. How would that, if that happens, oil price is $60 in 2018, and you cut CapEx so much that you're able to cover dividend at $60 in 2018, how will that impact your more long-term ambition? Your long-term ambition has been stated at every CapEx mark, you know, capital update, or what we call this day, over the last few years to have been about 2.5 million barrels.
If at $60 oil price, would that still be the ambition to do 2.5 million? Or 2.5 million is that still an ambition at some point in time?
Okay. Thank you, John. Covering dividends in 2018 at $60 is part of, you know, the planning framework that we use. Even in that oil price scenario, there are actually quite a few very interesting investment opportunities. A lot of the IOR efforts are very solid that we plan for. We also plan for quite a few developments. There is actually quite a long list of projects that, you know, will benefit strongly from, you know, simplifying and taking out costs and making them even more robust. In such a scenario, you know, quite a few projects that need to wait for a while. You are right. Lower investments over many years will impact the longer term growth of the company.
We are very cautious to also take a long-term perspective into what we are doing. Exploration, Johan Sverdrup, and then, you know, maturing the full set of investment opportunities. I've been working with planning for many, many years, and I have actually never seen such a full plan of opportunities. What we have on the table is sufficient to grow for more than 10 years. This is a question of how hard we push on the accelerator.
May I just add that this strategy is also leaving us with a more robust projects for the future. It's in fact very consistent with what we always have said now that, you know, value is more important than volume, and this will really drive value into our portfolio.
I'm gonna swing back into the room, and we'll come back later on for some more questions on the phone. If I move into towards the center, Julie, question from Biraj.
Hi, Biraj Borkhataria, RBC. Just looking at your step-up program, and it looks like an additional $200 million on the CapEx side and $200 million on the OpEx side. How does that additional amount on the OpEx side compare to your total addressable cost base? And are you assuming any industry inflation, deflation in that figure? Thanks.
All right. On the improvement, the step-up in the improvement, it is first and foremost related to modification as Margareth said, our onshore business. Also, you know, field costs in Norway and drilling and wells. You know, in the current cost environment with that low, there will be, you know, further cost impact than what we sort of assume.
Okay. Get this pass through. Pass that along, and then we'll come forward.
Thanks. It's Mark Bloomfield from Deutsche Bank. Question for Torgrim, please. In your presentation on, I think, page eleven, there was a chart just showing the range of operating cash flow numbers at a number of different oil price assumptions. If I read the chart correctly, it looks like you're assuming around a 20%-25% improvement in cash generation at a broadly constant oil price between, you know, 2015, 2016 through to 2017, 2018. Guidance seems to suggest that volumes will be 7% higher, 6%-7% higher over that time. Perhaps you can give us a sense of what the other moving parts are just to try and bridge that gap, get us to the 20%-25%. Thanks.
All right. It is actually mainly linked to projects under execution that will come on stream. In 2015, we have six projects, Valemon. We have Goliat, Edvard Grieg. We have Fast-Track and Big Foot and Corrib, and then furthermore in the period afterwards. Quite a few of the projects come out of Gulf of Mexico, where we are not in a tax-paying position, so there will be more cash flow with low taxes. So that is the main contributor to that growth.
Okay. Michael?
Thanks. It's Michael from Citi. Another question on exploration actually. I was a bit surprised, given the comments on flexibility that the exploration budget wasn't lower. Is that a function of the fact that you've got contracted rigs that you can't lay off, or is it a function of what commitments you have on your acreage? Perhaps if you can give a bit of color as to where you're spending that money, is it appraisal? Is it exploration? That would be helpful. Thanks.
The level is partly reflecting certain commitments that we have in our exploration program. It's also reflecting the fact that we would like to continue with exploration at a high level. We want to be an exploration company also in the future, and we want to be as successful in the future as we've been in the past. It is important for us, for the longer-term value creation to keep up a decent exploration level. It's at the same time a tightening compared to what we have seen in last year. In terms of where to spend the money, it is wide range of opportunities that will be included in the drilling program this year.
We will drill further wells in Gulf of Mexico. The East Coast of Canada is a very important focus area for us this year. We have a rig which will drill continuously for more than a year in East Coast of Canada. Brazil is also one of the activity areas. Norway obviously, King Lear and other opportunities surrounding King Lear and also other opportunities in Norway. It's a wide range of opportunities more or less across the globe. Any missing points there?
In addition, last year we had quite a bit of carry in our exploration program from other partners. The drop in activity is actually quite a bit higher than what you would read out of the numbers.
Just also mention if I may that actually Tanzania, we have more wells to drill in Tanzania and UK, where we accessed some quite interesting exploration acreage. We think there is more to be done on the UK mature sector and we have added acreage. That is also something that we hopefully will be able to start doing exploration on during the course of this year.
Brandon.
Thank you. It's Brendan Warn from BMO Capital Markets. Just, in the past you've given us some performance sort of range or indicators for the MPR business. I wonder if you can make some comments in a $60 oil price environment and just what sort of contribution to free cash flow do you see from this business from 2016, please?
Basically this is the margin business and the margin is something to see whether it's, you know, $60 or $100. Very much about volatility and the structures of the curves that sort of sets the basis for making money. I don't see any reason why $60 should be a worse place to be in terms of making money. Obviously, refinery margins have their own dynamics, but it's not a big part of our portfolio. We have guided on a range around $3 billion going forward. This has been a good quarter. But we also had quarters below that. I think still we maintain that as a guiding.
I'm very happy to see that we actually have been able to deliver an average this year, which is above that level.
I'm gonna take one more from the floor and then we'll go back onto the phones. Gordon?
Thanks. Gordon Gray at HSBC. It's a follow-up to the question on cash flow growth, on the outlook for cash flow growth and that big uplift you're pointing to at like-for-like oil prices versus last year. I appreciate the issue about the new projects coming on stream and margin accretion. Can you just outline, I think earlier you mentioned that the P&L tax rate would stay flat at around 70% in the next few years. Is that the case through the plan period? And in particular, if it is, can we expect to see the cash tax rate coming down from that appreciably at all because of uplift allowances or tax shields, et cetera?
Okay. Thank you. To the world of taxes. You should expect around 70% corporate tax as the normal. Then it is important for me to say that in a low price environment, you typically see a slightly higher tax rate. The way that you know taxes react to oil prices is very different from place to place. The Norwegian tax system is a system that we think works well in a high price environment and a low price environment. It is a net income or net cash flow tax. The reduction in oil price is sort of the tax system is part of dealing with that.
That is, you know, part of the explanation of the cash flows going forward here. What you in addition will see is that we pay Norwegian taxes with a six months delay. As oil prices drops, there will be sort of a lag of six months before the cash taxes follows on.
Let me take two more questions from the phone. While I'm doing that, I'm very conscious that it's easy to fall into the trap of having a very narrow vision and taking questions from over here. While we've got a couple of phones, a couple of questions from the phone, people on this side of the room, if you can let me know and I can start to direct my attention when we come back over here. First question from the phones, please.
Our first question again from the phone lines comes from Christian Yggeseth with Arctic Securities. Please go ahead.
Yes, good afternoon. Just a question I guess to Torgrim Reitan. Could you please specify the level of CapEx you used for calculating the $60 free cash flow to cover dividends for 2018?
Okay. I can't give you the exact CapEx number, but it lends itself that, you know, we will use, you know, significant part of the flexibility in such an environment.
Let's take one more question from the phone, then we'll come through here.
Our next question now from the phone comes from Jason Kenney with Santander. Please go ahead.
Hi there. I was just wondering in the fourth quarter period whether your gas business had any unusual support because of the Ukraine situation, and if that was something that might unwind in time?
I don't see the Ukraine situation having any major impact on the earnings during the quarter. The gas prices in Europe is impacted by several factors. One of them is the temperatures, and it has been pretty mild so far. Obviously LNG, they're coming into the market. In Asia we have seen an impact from oil indexation and lower prices, which has also had some impact on the traded market for LNG. That has led to more LNG coming into the European sector. That is basically what has created or defined the fourth quarter prices that we have faced.
I see no direct impact from at least not that I can identify impact from the Ukrainian situation as such.
We come back into the room and at the back there. There we go. Thank you.
Thank you. Aneek Haq from Exane BNP Paribas . It's similar-ish to the question that was asked earlier on the balance sheet, but I wondered if we can bring it back to the single A credit rating and maybe talk about some of the metrics that the agencies will care about and how they look at your 60 to 80, $100 per barrel range, please. How important, obviously, the single A rating is in that context.
Okay. Thank you. Currently we have AA- with Standard & Poor's, and we have a notch higher with Moody's as a credit rating. There are, you know, different KPIs or metrics that are used. Funds from operations to net debt is a key one that we follow very closely. Important for us to remain with a strong credit rating and also to run with significant liquidity through periods like this. This is something of course we also follow very closely.
Just in front of you.
Marc Kofler from Jefferies. I just had a question coming back to the free cash flow framework that you've outlined today and the key moving parts, particularly given as you've you know referred to the volatility the oil price environment that we see at the moment. I was wondering does that present any opportunities in terms of the portfolio structure from an inorganic perspective, particularly in the context of your existing footprint in U.S. and you know the markets over there?
We have been pretty clear all the way since 2011 that inorganic ways of developing our portfolio, sharpening it or expanding it, is a key part of our toolbox. I hope I didn't give any indication today that that is not still the case. We see that we need to use that actively, and we have demonstrated that extensively, not the least during 2014, which has, you know, also contributed significantly to our balance sheet. In this current environment, it's an obligation we have as part of what is going on to look for both opportunities that could even be the opportunities to divest if that is something we'd like to do.
Also, you know, to look at opportunities to acquire assets or whatever. That's something we are doing as a very natural, normal part of our business development. We will continue to do so. This would be sort of a mistake if I didn't sort of follow that market also closely even in this environment.
Just next to you.
Thanks very much. It's Hamish Clegg from Bank of America Merrill Lynch. Just on, two questions ago, this one's for Torgrim Reitan. Talking about liquidity, something you mentioned. On my numbers, and you may correct me, it looks like debt maturities this year are kind of matching undrawn credit facilities and cash, when you factor in the cash burn. I was wondering if there was a deliberate reason you guided us to three quarters of flat dividends as opposed to four. Is that keeping open a degree of flexibility for you on the balance sheet?
Let me be very clear. There are no links here at all. I mean, we will run with a significant liquidity position. It is important to us. On the dividend, the reason why we talk about three quarters, and maybe this is confusing someone, it is the mechanics. Because what we have done earlier is that we have announced a new dividend level at the fourth quarter, and we have kept it on the same level for three quarters, and then we have taken a step up in the fourth quarter again. It is just mechanics as we know, say NOK 1.80 per quarter. The intention is to keep that flat as we have done earlier during the year.
There is no signal beyond the three quarters other than that our dividend policy remains firm.
Okay. Forward.
Hi there. It's Rob West from Redburn. Margareth, just going through the operational improvement details you've taken us through, I think I'm now faced with the kind of mountainous task of going through all the different metrics and trying to add them up and getting to your $5 billion. To help with that, there's a metric that I find kind of useful to consider in doing that, and it's just the overall uptime at operated platforms across your portfolio, which is quite useful to kind of compare with where other people are. What was that in 2013? Where was it in 2014? Where are you trying to take it to? And how much of the $5 billion total does that get you to?
Normally we don't reveal these figures on the total uptime. The unplanned losses last year is 5 percentage points lower than the year before, and 7% less than in 2013.
Can I just add to that? Because the overall regularity is impacted by other factors than unplanned losses. That has to do with maintenance cycles and so on. We don't do that every year and so on, and value can impact and so on. What is really measuring our performance and indicating our performance is on the unplanned losses, which is the biggest chunk of what, you know, defining our regularity.
Yeah. That's why I asked is I was wondering kind of how much lower can you take it than 4% unplanned losses?
Okay.
Can that go to zero?
Yeah. Well, there's approximately 5% left.
Right. Okay. Thanks.
Thank you.
This is really improvements the last year. It's you know we are working on a very broad basis to both make the facilities more robust, but it's also the operational people people driving efficiency from a day-to-day basis, setting very tough targets, solving all bottlenecks, etc. It's a very combined effort.
Can I just add? Even when the production platforms are producing, so there are no unplanned losses, it is also things we can do in actually optimizing the wells and making sure that we get the maximum out of the production when the facility is actually producing.
For instance, can I add?
Oh, yeah.
For instance, on the Oseberg field.
I forgot.
Field pilot. This is really to increase production as well as increasing the regularity. Right now we will broadly implement that pilot for the whole company also.
Yeah.
Thank you. It's Neill Morton at Investec. Your question on your international upstream business results have proven quite volatile, particularly on a quarter-to-quarter basis. Just for modeling purposes, can you maybe give us some guidance on unit OpEx and unit depreciation for 2015? The latter obviously in light of the big impairments in 2014. Thank you.
All right. Okay. Thank you. First on the DD&A in the accounts. You have probably seen a growth in DD&A. It is actually significantly impacted by currency. The increase in DD&A is two-thirds of it related to currency impact and actually increased production. Internationally, we see a DD&A per barrel in dollar terms to be flat over the year. That's an observation. When it comes to operational costs, we have the similar effect there. There is a 9% growth in operational cost year-on-year. Half of it is related to currency. Then there is increased activity into that number, but that is actually counteracted by lower SG&A costs and other cost elements.
Over time, you should expect, you know, DD&A to, per barrel, to grow somewhat. You know, it is natural that, you know, new developments are, you know, more capital intensive than the old ones that are going off plateau.
Okay. I see the rigid discipline of one question per person has yielded some benefits. We've still got a few minutes left. Is there anybody. I've tried to get right the way around the room. Can I just ask if there's anybody that I've missed out, or has a supplementary question at the front here? Yes, go ahead.
Thank you. Andrey Aleev, Credit Suisse. Have a question on your M&A policy. You choose to keep your exploration budget at a fairly high level, whereas we've seen that the value of this potentially discovered barrels is quite low. How do you think when you're making these choices whether exploration is the best use of your capital versus potentially acquisitions in a buyer's market? Thank you.
Well, I don't accept your starting point that, you know, there's low value from our exploration. Look at what has happened to the Norwegian Continental Shelf over the last few years. It's a tremendous sort of energy that has been put into the Norwegian Continental Shelf from new exploration and new barrels and new field developments, and we see the evidence of that. This is obviously something I wouldn't do unless we haven't seen value in what we're doing on exploration. We are convinced that this is still at the core of what oil and gas industry is about, and it's something that we need to do. I've been through this experience before, and we cut exploration massively some years ago in a downturn, and we were hurt by that for years.
I think it is extremely important that we try to maintain a decent exploration level, and in particular, as long as we have this strong feeling that we are pretty good at it as well. That doesn't say that this has to be supplemented, and we have seen that as well through inorganic measures. Again, we have demonstrated that, and it's a very important part of our toolbox. Obviously, you know, gradually we see that we fail, we have seen global exploration volumes coming down, so it's increasingly difficult to stand out in this area. It's important for us to have M&A also as a tool, part of the toolbox into the future, and we are doing so.
Okay. Up here at the front.
Good morning. Mehdi Ennebati, Société Générale. I will ask one question regarding 2017, 2018, cash from operation and CapEx. You show on slide 11 that at $60 per barrel you might have the flexibility on CapEx to be free cash flow neutral post-dividend. Don't you think that in 2017, 2018, by cutting again your CapEx you might put a lot of pressure to your organic reserve replacement ratio, which is already low compared to peer? Do you want to take that risk? Maybe just one follow-up question on your cash from operations, 2017, 2018. Which natural gas price, particularly in Europe, do you take into account? Thank you.
We have discussed this a little bit on the previous question. If we don't sanction projects, we will see fewer barrels at one point. If we see $60 or $80 in 3-4 years from now, it will be a very different environment. The cost picture will look very differently. A lot of the projects that, you know, is ahead of us. Remember, we don't have to make any additional decisions of any significance beyond the, you know, Snorre. We have the flexibility throughout this year. If we see that picture emerging, it will be a totally different situation. Therefore, joint ventures or players in this will really have to address the cost picture vigorously.
I think the whole industry will come together and see that we have to, you know, improve our projects. That's basically also what they're saying. We will do that to capture what we can gain into the project, both from the supplier environment and also from the improvements that we are embarking on to put that into full force into the project and reducing the breakeven prices and through that also add value. Not only barrels to the equation. Obviously over time, at one point, if you don't sort of invest in more projects, you will see an impact on the volumes and on the reserve replacement rates.
Okay.
That's the same. I just wanted to add, we are working heavily on the very early phase projects to improve them, getting better with the breakeven lower. I think we are. I tried to show you some of the examples on my slide, how we have been working on project to get the cost down.
If I may, I mean, people are yes, but the resources are still there for us. It's a matter of timing of sanctioning and so on. Again, value is more important than bringing this on as soon as we can.
Okay. Thank you.
Good afternoon. It's Nitin Sharma from JP Morgan. Torgrim, if we look at that $60 oil price scenario, 2015-2018, how does your ROCE stack up under that scenario? How does it compare to your cost of capital, please?
Okay. Thank you. I think there's no secret that in the current price environment, return on capital employed will drop compared to previous years. You know, it will. What we see in the $60 plan or scenario is that gradually increases over the years. When you get to 2018, 2019, it is back on current levels, but in a $60 environment.
I'm gonna give one last question, and after this I'm gonna give one last sweep of the room to all those, to anybody who asked an early question, frustrated at only getting one question. The person who puts his hand up fastest gets the follow-up. One more question after this.
Thanks. Matt Lofting at Nomura. A question on impairments, if I could. Can you just clarify what pricing scenario and long-term oil price you used in the impairment testing process with full year results and what the carrying value is for the U.S. onshore business? Thanks.
Maybe I should take the CFO type. I would love to answer that. Yeah. basically, you know, the main part of the impairments here is related to the oil price. Approximately 90% of the impairment has to do with the oil price. I will not comment on the long-term perspective of this, but what really drives this is the short term. You know, from an accounting practice perspective, what we are doing is to use basically the forward curve as it looks for the next few years. That is defining the set of assumptions that goes into our impairment calculations. Then you might like to add something. I mean, the prices that is used is prices at the balance sheet date, end of year.
I just want to draw your attention to one of the notes where we have made a sensitivity to what, you know, lower price in that, what sort of impact that will have on the accounts.
Okay. One more from the phones, and then what about the last remaining question on the floor. From the phones one last time. Our final question from the phone lines comes from John Olaisen with ABG. Please go ahead.
Thanks a lot for taking my second question. Margareth, it's to you. You mentioned the cost reductions on Johan Castberg. Is it possible to say and give some indication of the NPV breakeven oil price on Johan Castberg after the cost improvements, please?
No, I don't think we will reveal the breakeven price on the Castberg. Of course, you know we are working on two different concepts, and we have decided to delay the concept selection, and we are working and fully committed to reduce the cost even further.
This is a project that really deserves to become as good as it can get. Again, profitability is more important than timing.
One thing I say is that management will be around for some questions after we finish, so I'm gonna take the last question now. There you go.
Thanks very much. Since we're allowed one last question. This is Hamish Clegg from Bank of America Merrill Lynch again. One of the things I noticed on your flexibility chart on CapEx is that Snorre 2040 is one of the projects on that list that you could potentially strip out if the macro environment deemed it. I read this morning in one of the industry journals that the Norwegian government was putting pressure on you to actually go ahead and sign that project, which has a 12% IRR relative to your 24% IRR hurdle. How should we think about these sorts of news articles that are coming out?
Okay. Again, it's probably Snorre 2040 that you're talking about and not Troll.
Sorry, it's Snorre 2040 .
Yeah. That's a project that has been working on for some time. It's a very important project. It has to do with the resources in the ground, and it has to do with timing. Timing is setting some constraints on that project. In the end, you know, it has to have the profitability and robustness that is needed. That's what we really are working on. We have, you know, put our very good people into this, really to make the best effort to take down the costs and come up with a solution that actually can make this project fly. It's a high priority project. It has to do with resources. From that perspective, I can obviously see why authorities would like this to move forward.
Still, you know, I'm running a business, so it has to, you know, it has to have the value creation and that. Meet the hurdles that we have for decision-making. I will not comment on percentages in that respect.
I think it has to be improved quite significantly, both on the drilling side as well as on the facility side, and this is what we are working on.
Okay. Ladies and gentlemen, thanks very much for the questions. I'd just like to ask Eldar to round us off for the end of the presentation.
Well, I'll be very brief. You've been here quite some time now, so I'm sure you would like to head back, and I would too. Been a busy week, I have to say. A fantastic week and it was a true pleasure for me to sign in on Wednesday, but it has also been a true pleasure to be here today. I've really been looking forward to this day and it actually gives me as much energy as I was hoping for. I'm now eager, as Margareth said, to get back to your people, and I'll do that. I spend one day to relax tomorrow and then it is back in business.
On Tuesday, actually two days, I'm gathering the top 150 leaders in Statoil. I really look forward to that, to set the scene, communicate what we have told you and really bring along the whole team and our leadership on this journey. I'm sure they will buy into it, you know, with full force. I thank you all for coming. I really appreciate that, the engagement and the good questions that you have put forward to us. I hope we have sort of accommodated this in a good way and presented you with some good answers.
At least we feel we have a strong story and have the, you know, what it takes to tackle the challenging environment that we are looking at for the moment. Have a nice weekend. Thank you, and see you again. Thank you.
Ladies and gentlemen, that will now conclude today's conference call. We thank you for your participation, and you may now disconnect.