Everyone, we will get straight down to business. CFO Torgrim Reitan will present for around 15 minutes on the results and the key issues. Then we will open up for questions from the phones for around 30 minutes. With that, I pass straight over to you, Torgrim.
Thank you very much, Peter, and good afternoon and welcome. I have three main messages for you today. First, a solid set of adjusted numbers in the quarter despite the challenging price environment. Second, our reported results are impacted by significant asset impairments. We take a cautious view in the current environment, reflecting the scenarios we outlined at the capital markets update. Third, our operations are strong, and we continue to see positive underlying cost trends. We are progressing well on our cost and capital efficiency programs, and I am especially pleased with the progress in field costs, drilling and well, and modifications. CapEx is according to plan. Finally, our financial position is strong. Free cash flow is positive in the quarter with Brent at an average of $53 per barrel.
The Board of Directors proposes a first quarter dividend of NOK 1.80 per share. You have seen this morning our reported net income for the quarter. It was NOK -35 billion. This is almost entirely due to asset impairments of NOK 46 billion, mainly related to our U.S. onshore and conventional. Let me spend some time to go through this. The impairments are a result of our decision to adjust our long-term planning assumptions. We have a fundamentally positive view on the oil and gas market, but uncertainty persists. The framework for our decisions needs to be solid. Given the uncertainty, we have decided to take a more cautious view. This triggered impairments. The quality of the assets and the operational performance remains unchanged. Adjusted for quarter-specific items, earnings were NOK 23 billion. Lower prices impacted the result by NOK 23 billion.
Strong operational performance resulted in high production. We also saw strong results from marketing and trading, and I will come back to that later on when we go through the segments. The strong dollar impacted all lines in the results. It increases revenues, expenses, and capital employed. The underlying trend on cost is positive. Finally, our tax charge was NOK 16 billion, and the Adjusted tax rate was 69.4%. Strong results from the mid and downstream with lower corresponding tax rates contributed to lowering the average tax on the corporate level. In a low price environment, our tax rate is typically higher, so you should not expect the rate at this level in the coming quarters. Adjusted earnings after tax were NOK 7 billion. Our upstream operations in Norway were strong. The lower earnings are mainly due to lower prices.
Production was up 4% and around 6% adjusted for divestments. We have delivered good production efficiency. Valemon came on stream early in January on cost and time. We started production from Oseberg Delta 2. We have decided to postpone several projects. On Johan Castberg and Snorre 2040, we will spend more time to simplify the concepts and to increase the profitability. This is in line with our cost and capital efficiency efforts. Needless to say, a highlight this quarter was submitting the PDO for Johan Sverdrup to the authorities in February, a project that will generate great value for decades. It is very robust at current oil prices, and it will start up in late 2019. The results from our upstream business outside Norway is impacted by lower prices. Operating momentum is good and production is high.
We report higher depreciation and operating expenses in kroner. However, in U.S. dollars, operating costs were down 16% per barrel. We have reduced depreciation despite higher production from startups and ramp-ups such as CLOV, Peregrino, Dahlia, Bakken, and Leismer. MPR delivered a very strong result. Earnings are up 17% compared to the first quarter last year. There are several drivers for this. Higher refinery margins and good reliability across all plants and facilities. Solid performance in European gas and in LNG with diversion of cargoes to premium markets. Strong results from our U.S. value chains, where we again added value to our upstream position through selling our Marcellus Gas in Toronto and on Manhattan. We also delivered strong trading results in all areas. Good performance by our colleagues at the trading desk. As you know, the results from MPR will fluctuate.
I have earlier said that around NOK 3 billion is a normal quarter. This is still valid. If the business environment remains supportive with contango in the energy markets and strong refinery margins, you should expect results above such level. I'm pleased to report another quarter with strong operational performance. We produced 2,056,000 MMbpd , which is up 4% from the first quarter last year on equity basis. Net entitlement production was at 6% year-on-year. We grew equity production both in Norway and international, up by 4.2% and 3.4% respectively. We continue to add new production with the startup of Valemon in Norway and the ramp up of CLOV in Angola and Jack and St. Malo in the Gulf. Gas production was high.
Troll has produced at high rates, and we decided to produce additional volumes from Oseberg. We had stable operations and high production efficiency, and our decline was around 5% as usual. Of course, this is not about volumes. It is about value. We see positive movement on production costs in the quarter. In Norway, field costs were down by 8%, reflecting lower external spending, less overtime, as well as lower maintenance. Well maintenance and modifications were also down, as was the SG&A. In the international segment, production costs in U.S. dollar per barrel were down, as was DD&A, despite the ramp-up in new deepwater fields as CLOV and Jack and St. Malo. In total, the international costs are down 10% in U.S. dollar per barrel. Our colleagues are doing a great job, and they are running the improvement agenda with strong momentum.
Despite a more challenging market, we were free cash flow positive in the quarter after dividends. Strong operational performance generates cash, but we paid only one tax installment on the NCS. Our cash flow from operating activities was NOK 46 billion. The change from the same period last year is mainly due to lower prices, partly offset by good operations, including strong performance in our NPR segment with high cash flow after tax. In the first quarter, we paid a dividend for the third quarter of 2014, and then we invested around NOK 30 billion or around $4 billion. Our net- debt ratio is 24%, which is an increase from 20% in the previous quarter. Around 2% of the increase is due to the impairments and around 1% is due to currency effects.
As we guided at the Capital Markets Day, we expect to see an increasing gearing at current prices short-term. We will use our flexibility in our investment program to safeguard a solid balance sheet. In February, we showed you the impact in a $60, $80, and a $100 scenarios. Today, we received the payment from the Chad and Niger transaction, and this will reduce our net- debt by 2-2.5 percentage points. We are currently running with more than $20 billion in liquidity. I want to give you a quick update on our exploration activities. As you know, we have made several discoveries in this quarter. On the NCS, we have made two gas discoveries in the Aasta Hansteen area.
We are currently evaluating the Yeti discovery in the Gulf of Mexico, and the Mdalasini discovery continues our success in Tanzania. We have previously discussed the work we are doing to improve drilling efficiency. Our performance confirms that we are on track. In Deepwater Gulf of Mexico, we are better than industry average, and I would particularly highlight Yeti, the most efficient well drilled in Deepwater Gulf of Mexico since 2010. On the NCS, the Roald Rygg is the most efficient deepwater well ever drilled. So credit to our people in drilling and well, both onshore and offshore for the strong improvements we see. Looking forward, we have several interesting wells in the pipeline. You can see some areas we are working on now in the second quarter on the map. In the Gulf, onshore Canada, U.K., and Norway.
For longer-term opportunities, we were in January awarded new quality acres on the NCS through interest in 15 licenses. We are working hard to deliver a strong application for the 23rd licensing round late this year. Let me close by turning to the outlook. Our guidance of around $18 billion in organic investments for the year remains firm. Year-to-date, organic CapEx is around $4 billion. As we said at our Capital Markets Day, we will continue to prioritize high-value growth and use of flexibility to increase returns and to balance cash- in and cash- out. We have significant CapEx flexibility in 2017 and 2018, and we have the financial robustness to continue to invest in the best projects, such as Johan Sverdrup. Others have to wait, and they will benefit from optimizing the concepts and enjoy lower supply costs.
Ongoing developments will grow organic production by around 2% per year towards 2016. We have many startups this year. Valemon, as you have seen, Goliat, Edvard Grieg, and FastTrack number 11 in Norway, Big Foot in the Gulf of Mexico, Corrib offshore Ireland, and then we will continue to ramp up Gudrun, CLOV in Angola, and Jack and St. Malo. Production growth will be around three 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. For 2015, we will have a somewhat lower turnaround activity. Full-year maintenance is expected at 45,000 barrels per day. 95,000 barrels per day should be expected in the second quarter.
Finally, we continue to position for the long term. We expect to spend around $3.2 billion in exploration, and I've just shared with you some more detail on our program this year. Let me round up. Our reported income is impacted by impairments. This is due to a cautious view on macro, ensuring appropriate long-term investments. Our Adjusted earnings are impacted by lower prices. The underlying result is solid, and we deliver positive free cash flow. Our underlying operations are strong, our financial position is robust, and we progress our efficiency programs with strong momentum. As we presented at our capital markets update, we have visible growth to 2020 based on projects under execution. We have material CapEx flexibility in our non-sanctioned projects, and we will use it to deliver on our priorities.
We will see to it that free cash flow covers dividend in 2018 at $60, in 2017 at $80, and in 2016 at $100 per barrel. We are dealing forcefully with the situation at hand, and we continue to position Statoil for the long term, enhancing value creation through the cycle. Thank you very much for your attention. I leave, we leave the word to Peter to guide us through the Q&A.
Thank you, Torgrim. We will now open up for questions. With Torgrim, we also have Svein Skeie, Senior Vice President, Performance Management, and Ørjan Kvelvane, Senior Vice President for Accounting and Finance. We have many people on the line, so please keep to one question. I know that can be a tough request. With that, Operator, please could you queue in the first question.
Thank you. Our first question comes from Oswald Clint in Bernstein. Please go ahead.
Yeah, thank you very much, Peter. Thank you very much, Torgrim. Could I just ask a question on the cost reductions that you spoke about, Torgrim? The 8% reduction in the Field cost. Can you give us the same numbers for the reduction in modifications cost and the SG&A, please? Just whether those numbers are kinda tracking your expectations so far in 2015. Thank you.
Okay. Thank you, Oswald. Yes, the progress on the improvements, efforts are very good. That was the background why we increased our efficiency target at the Capital Markets Day. We see more early effects than we had planned for. That's really good news. Field cost is coming down. On modifications, we see around 20% reduction in modifications. When it comes to the SG&A, that varies a bit, but it is, we see a, you know, a drop in SG&A over several quarters due to the reduction in staff, mainly.
That's great. Thank you.
Thank you. Our next question comes from Rob West in Redburn. Please go ahead.
Hi there. Thanks very much for taking my question. I guess I have a question on the cash generation from the quarter. If we look at the number, it's almost 1/3 of consensus cash flow generation that one quarter alone there. Is there any one-off elements on the cash tax side that you want to highlight, or any other areas that you have more visibility on them than we do that might mean that run rate should slow down. Thank you.
Okay. Thank you, Rob. Yes, the first quarter cash flow was strong, and it is free cash flow positive. I think it's important for me to remind you that there are differences between quarters. Next quarter, there will be a higher maintenance related to production. We will also pay two tax payments in the next quarter instead of one that we have done this quarter. We have said that you should expect an increase in the gearing during the year, and that remains firm. I'm very glad to see that all the work put into increased efficiency and reduced costs are actually translating into a higher cash flow.
Great. Thank you. Thanks.
Thank you. Our next question comes from Biraj Borkhataria in RBC. Please go ahead.
Hi, Torgrim and Peter. Thanks for taking my question. It's on MPR. It looks like another cold winter in North America and another record Q1 for the division. Could you quantify the contribution from your pipeline assets located near the Marcellus to the MPR results? Thanks.
Okay. Thank you, Biraj. As you know, we entered into transport capacity a few years back out of Marcellus. We get the gas to Toronto and Manhattan. There is a significant uplift. The local Marcellus prices have been you know below Henry Hub prices. And prices in the Toronto area has been around $5 per MBtu, and in Manhattan, around $7 per MBtu. There is significant value creation from that business. I think it's fair to say that it is very weather dependent. Typically these assets generate strong profits in the winter, while they are not sort of more balanced during the summer months.
Thanks very much.
Thank you. We'll take our next question from John Olaisen in UBS. Please go ahead.
Yes. Thank you, Torgrim. Can I just ask on the impairment. Looking forward, if you have changed your view on long-term oil prices, which has generated this impairment charge, can we expect some change of investment profile over the next two to three years versus the one you were describing in February because you're screening at a lower planning price? Or was there something of a discrepancy between the planning scenario you were describing in February and the way that the 2014 accounts were prepared? I'm a little puzzled.
Okay. Thank you, John. What we have changed is the long-term price assumptions from 2018 and onwards. There will be no change in the outlook and the production plans from that change in sort of price assumptions. The beauty of these assets is that we can actually react to market realities as we go. We see very promising developments on drilling efficiency and completion and also the resources available in the area.
Right. Why impair them in the first place?
This is the impairment comes from the fact that the assets were acquired in a higher price environment.
Right.
We have now put in place a lower price assumption than the acquisition was based on, and that has triggered the impairment.
Okay. All right. Thank you.
Thank you. Our next question comes from Haythem Rashed in Morgan Stanley.
Thank you, gentlemen. One clarification and one question, if I may. Just very quickly on the clarification, the field costs down 8% and the OpEx per barrel and DPI down 16%. Those are both year-on-year figures, I presume. I just wanted to relate it to the 6% improvement that you've seen on field costs that you highlighted at the capital markets day presentation. My question is on the unplanned losses, and you talked about that being better than expected in 2014 and contributing to better results. Can you just give us a sense on how that evolved in 1Q, whether you've seen that actually come down even further from the levels that you managed to achieve in 2014? Thank you.
Okay. Thank you very much. On the field cost, that is quarter-over-quarter. You know, on the Norwegian continental shelf. When we talked about this in the fourth quarter, that was year-over-year, 2014 versus 2013. This number is quarter-over-quarter. When it comes to the international business, the reduction in cost is measured in dollars, while our accounts are in Norwegian kroner. Might be a bit of. I mean, this is an underlying dollar business, so it makes sense to measure that in dollars.
On unplanned losses, strong regularity, but not as strong as first quarter last year, and that is mainly due to the Gudrun field, where we have had some outages. Apart from that, a very strong performance.
Great. Thank you.
Thank you. We'll take our next question from Mark Bloomfield in Deutsche Bank.
Thank you. A question on DPN depreciation, please. On a rolling four-quarter basis, it looks like your unit depreciation in that business has been trending up quite sharply. Just wondered if you can help us understand if there's any unusual factors in there beyond project startups, and perhaps provide us with some forward guidance for where that's likely to go over the next couple of years. Thanks.
Thank you, Mark. On the DD&A per barrel on the NCS, it is an increase from last year up to NOK 95 per barrel. The drivers behind this is related to reserve revisions to a large extent. The proved reserves have been taken down a bit due to Njord being taken onshore to a yard for service. Then sort of we have to debook, if you like, the reserves related to that. Those reserves will come back when we take it back offshore afterwards. That is the main driver. A little bit of a peculiar effect this quarter.
Thanks.
Thank you. Mr. John Olaisen from ABG, please go ahead.
Yeah, good afternoon. A question related to the impairments. Could you tell us the tax effects of the impairment, both non-cash and cash effects going forward? Secondly, how will the impairments impact the unit depreciation when you report the numbers going forward, please?
Okay, thank you. I'll leave the answer to Ørjan Kvelvane, my head of accounting.
Based on where these impairments are taken, and as you see from the report, we have the significant part in the U.S. or in North America. We are not having reported taxes on these areas. They are quite similar after tax as pre-tax. When it comes to unit depreciation, there will be an effect of, but we haven't got any exact number for you right now.
Thank you.
Thank you. Our next question comes from Michael Alsford in Citigroup.
Thank you. Thanks for taking my question. Just a quick question on Johan Sverdrup. I was just wondering whether you could comment on obviously the NPD submission of the plan of development, talking about the fact that the timing on that project looks pretty ambitious, targeting the startup in sort of fourth quarter 2019. The CapEx guidance that you provided looks a little bit optimistic too. I just wondered whether you could just comment on the, maybe where you differ and what why you're confident on the fourth quarter 2019 startup. Thank you.
Yeah. Thank you. Yeah. I mean, we do very rigid analysis and planning when we put forward PDOs like this. Our plan remains firm late 2019 and also the investment level. So far, what we see, too, you know, contract awards and all of tha t makes us it sort of confirms the picture that we have based our decision upon. NPD has a role of sort of having a second voice and challenge, and that's much appreciated.
Okay, thanks. Maybe just to follow up on the kind of contingency you have around that start-up date. Is there much contingency built in to your current schedule or is that sort of the best case type scenario that you offer the market? Thanks.
You know this is all of our analysis and all our planning certainly have a certain amount of contingency in there. It shall reflect the expected date and the expected investments. When that is said that this is a huge development and it will go over several years. As you know, we have pretty strong track record on delivering on projects currently. We are confident on this project.
Okay. Thank you.
Thank you. Our next question comes from Lydia Rainforth in Barclays.
Thanks. Good afternoon. On the impairment, if I can just come back to that. It does, the fact that you've had to take the impairments given the oil price coming down to $80, does suggest that you needed a higher oil price than that when you acquired the assets to make them work. Can you just talk through from a corporate standpoint, when you're looking at acquisitions how you would assess the downside protection that you want in there, and just how robust or at lower prices you would want it to be? Partly related to that is have you had any conversations with Talisman since the Repsol in terms of the ownership of that joint venture that you have in the U.S.? Thanks.
Okay. Thank you, Lydia. When we acquired the assets, since then, a lot of things have changed in the assets. First of all, prices have come down and differentials have widened up more than what we assumed. On the other side, the resource potential of the assets and what we get out of the reservoirs are much larger than what we based the acquisition on. We also see a significant improvement in drilling efficiency and completion efficiency. There are several moving parts here. Going forward, these are important assets to us. They perform well, and they certainly have an important part of Statoil's future.
You are right, these assets were acquired in a period of oil prices above $100 per barrel, and that was also reflected into the acquisition price, making them more vulnerable to the changes in macro as we have seen over the last six months. On your last question on Talisman, I mean, we cannot comment on any of those type of things.
Okay, perfect. Thank you very much.
Our next question comes from Teodor Nilsen in Swedbank.
Good afternoon, and thanks for taking my question. One question on your CapEx flexibility versus production. You have previously highlighted that you could cut CapEx by $5 billion-$7 billion from 2017 and beyond. Assuming that you use your full CapEx flexibility and cut CapEx by $5 billion-$7 billion, how much should we assume that production in 2020 will decline compared to the scenario where you not cut your CapEx or use the maximum CapEx flexibility?
Okay. Thank you, Teodor. We will grow production all the way to 2020 based on projects that are already under execution. The growth will come independent of us using the flexibility. The flexibility will impact the period beyond 2020. The flexible part in the short term is our conventional U.S. business, and that will be, you know, adjusted up and downward based on sort of market situations.
Just to be clear, if you invest $12 billion per year going forward, you will actually be able to have at least as high production that you had in 2014?
Yeah. The flexibility in the investment program increases over years. There is lower flexibility in the nearer years. When you get to 2017 and 2018, there is significant flexibility.
That's clear. Thank you.
Thank you. Our next question comes from Thomas Adolff in Credit Suisse.
Hi, thanks for taking my question. Very easy ones, hopefully. You know, impairment charges aside on your U.S. assets, I wondered how much you've been able to lower your break even over the kind of the past six months since the oil price decline. I guess that's where you've seen the biggest movements in costs to the downside. Another question quickly related to the U.S., but this one on the U.S. Gulf of Mexico. You said you're quite encouraged by the Yeti discovery. I wondered whether you're also bidding for new acreage around that discovery. Thank you.
Okay. Thank you, Thomas. Yes, we see significant improvements in the U.S. assets and on the efficiency. Drilling efficiency. I think in Eagle Ford, we have improved drilling efficiency by some 70% over the last couple of years, in Bakken, between 40%-50%, and in Marcellus, also significant improvement in efficiency. We also see that cost levels are, you know, being adjusted. When it comes to new acreage in the Gulf of Mexico, I cannot comment specifically on that.
Can I just go back to the, you know, the break-even question on the U.S.? I was more interested in specifically how much in terms of dollar per barrel you've been able to lower it over the past six months or so, just to kind of get a sense for how, you know, how quickly your business there is improving.
I don't have that number with me, so I suggest that we follow that up with Investor Relations afterwards.
Okay. Thank you.
Thank you. Our next question comes from Anish Kapadia in TPH.
Hi, good afternoon. I wanted to ask about your U.S. production, given it's gonna be a big contributor to your post-tax cash flow over the next few years. In particular, the offshore. You've got some major projects coming online or that have just come online, and I was wondering if you could run through for the likes of Big Foot, Jack, Julia, and Heidelberg, when do you expect each of those projects to get to plateau? How long do they stay at plateau? And then what kind of decline rates do you expect after that? Just kind of relates to that as well, you know, in general, in terms of your onshore production, what kind of growth rates do you expect in this kind of current environment? Thank you.
Yeah, thank you. It was a lot of very detailed questions. When it comes to production profiles and all of that, I suggest that my great investor relation teams have that discussion afterwards. You are absolutely right. There is a stream of U.S. production coming on. We have Big Foot, you know, early 2016. We have also Julia in 2016 and Heidelberg coming on, in addition to the production we already have there. This is an important part of the growth in the cash flow from operations because we are not paying tax in the U.S. currently due to the tax position. Then over to Svein Skeie.
Just a comment on the current production from the Gulf of Mexico, it has increased to 14,000-35,000 barrels per day coming from Jack and St. Malo among others which have started.
Just to follow up, what I was just kind of really trying to get a sense of is, are these generally developments where they get to plateau quickly and very quickly come off plateau as well? We're likely to see pretty sharp decline rates quite soon after reaching plateau.
Thank you. I think we will deal with those details afterwards, so thank you.
Okay, sure. Thank you.
Thank you. Our next question comes from Aneek Haq in Exane BNP Paribas.
Hi. Thanks very much for taking my question. Just a question on the NOK movement, please. If I sort of pick up your sensitivity correctly from 2014, it's basically allowed you to offset a lot of the oil price weakness that you've had in Q1. I'm just wondering if you've taken any steps through Q1 to perhaps hedge out currency effect and what kind of impact that might have on your sensitivity through 2015, please. Thank you.
Yeah. Thank you very much. A few words on how we run this company, because we define ourselves as a dollar company, running our business in dollar. We are keeping our debt in dollars, and we are risk managing the company based on dollars, and then we present ourselves in Norwegian kroner. That's the basis for our decisions. The only hedging we do on the currency front is from taxes are incurred until they are paid, and also the dividends from it is incurred until it's paid. We do translate or exchange from dollar to kroner every day to match the sort of growing kroner commitment.
Okay, we stick with the same guidance as you said at the end of 2014 for the sensitivity?
Yes, we do.
Okay. Perfect. Thank you very much.
Thank you. We'll take the next question from Mehdi Ennebati in Société Générale.
Hi. Good afternoon, all. One question. I would like to come back to your declarations during CERAWeek. Management highlighted that Statoil is looking at acquisition opportunities. I just wanted to know if you consider the current valuation of the oil and gas companies attractive currently. Thank you.
Thank you very much. We will never comment on questions related to M&A. Sorry for that.
All right. Maybe in that case, maybe just one question on Gudrun. You've had, you know, some gas leak by mid-February. If I remember well, you started one producing well since then. Can you just maybe update us on this?
Let me see. I'm not sure I got the question. Could you please repeat it?
Yes, of course. You've had a gas leak on Gudrun which was ramping up production.
Yeah. Yeah, sure. Absolutely. I apologize. Gudrun was out for one month, and Gudrun is now running.
At full capacity?
At full capacity.
Thank you very much.
Thank you. Our next question is from Morten Lindbæk of Fondsfinans. Please go ahead.
Thank you. Torgrim, you said that you're going to spend more time on Snorre 2040 and the Johan Castberg development. Last week, the government presented the Johan Sverdrup proposition to the Storting, which also included the white paper part, where they say that oil companies have an obligation to make the most out of potential resources in their licenses. I believe that this also includes the Snorre 2040 as a time-marginal large field. What is the status of Snorre 2040? Is it little flexibility? Are you obliged to develop? Is that a correct interpretation?
Our job is to maximize the value of these assets, and that will benefit both shareholders and society. What we are doing, we are looking at simpler concepts and optimize the whole development. I am sure that Snorre 2040 will be developed.
Thank you.
Thank you. Marc Kofler from Jefferies, please go ahead.
Oh, hi there, Torgrim. Just a quick question, please, coming back to the U.S. I was wondering if you could give a few, a bit more color around your operations in the Marcellus, and what the operating environment is like, over there at present, particularly thinking about the rigs you're running, and the trajectory going forward. Thanks very much.
Okay. Thank you very much. Currently we are running five rigs in Marcellus. One is run by Chesapeake, two by Southwestern, and one by ourselves. Work there are continuing and we see, you know, positive developments on all cost categories. In the current environment, it is extremely important to take care of your gas in these markets, and that is why the pipelines out of Marcellus to both Toronto and to Manhattan have been so important, creates such great values in these days.
Thanks. Sorry, just come back on the sort of any guidance around in NETA and trajectory?
NETA. Well, we will keep running with the current rig rate if we've found that appropriate. You know that it can be adjusted if that is found appropriate.
Okay, great. Thanks very much.
Thank you. Our next question comes from Oddvar Bjørgan from Nordea Markets.
Yes, hello. It's actually back to the impairment tests again. I guess you said that you're using $80 oil price as the price deck. Can you also say something about what you have assumed with respect to natural gas prices?
Okay. Thank you, Oddvar. We have also adjusted downwards the gas prices in all markets as a follow-on from that, both in the U.S., in Europe and in Asia. I'm not prepared to give the specific prices, but similar approach as we have done on oil price.
Could you say something about the split of impairments, Bakken relative to Marcellus?
We give a deeper split than the business area levels. The NOK 46 billion is split into NOK 30 billion related to the U.S. unconventional, NOK 11 billion rest of U.S., which is Gulf of Mexico. The rest of world is NOK 4 billion, where a very limited part or there is NCS impairments there as well, but they are immaterial.
Okay. Thank you.
Our next question is from Neill Morton in Investec.
Thank you. Good afternoon. I thought I'd spare you another question on the write-downs. I wanted to ask about the recent appointment of your Chief Operating Officer. Not all big oil companies have a COO, so why didn't you feel you needed one before, and why do you need one now? Thank you.
Thank you. Anders Opedal has been appointed as the Chief Operating Officer. That is to underline the importance of delivering on the efficiency program and making sustainable change to the way we operate our business. It is all about addressing the fundamental challenge of our industry, which is complexity. Simplicity is much harder than complexity. He has a strong track record in delivering on these areas. It's a strong signal from the new CEO that he is serious about this.
Great. Thank you.
Thank you. Our next question comes from Nitin Sharma in JP Morgan.
Torgrim, hi. Afternoon. Question on gearing. It's more than doubled since end Q1, and fair to say it's in line with what you'd guided. At what level does this gearing become a source of concern? Thank you.
Thank you, Nitin. It has increased this quarter, mainly due to currency and impairments. What is very important for me is to run with a very solid balance sheet and with sufficient liquidity. That ensures us to be able to take long-term decisions and be consistent through the cycle. We are receiving today the money from the Chad and Niger transaction that will reduce the gearing by 2-2.5 percentage points, but you should expect it to grow further the rest of the year if the current prices continues. We have guided on a gearing range between 15% and 30% that we want to navigate within. That remains firm.
You know, a 30% gearing is not a hard line, but it is sort of an indication of a range that we want to operate within. It is a much lower gearing that we have run the company on earlier, but we find it strategically important to be financially solid.
Torgrim, can I just ask one more on impairments, please? I get your explanations in terms of the rationale behind and why these are flowing through. The question is more on timing. You recently had your presentation in February, and so soon after that, wherein we've seen some recovery in commodity prices, if anything else. Why now is the question. Is there something else that you've seen, that you've discovered? Or why instead of February and now such a big impairment that's coming through, please?
Thank you very much. You know, we make changes to our forward price outlook regularly. This is the long-term price outlook. We see that you know, the uncertainty and volatility is large, and the uncertainty is still there. The most important thing for us, for me and my boss, Eldar Sætre, is to provide a very solid foundation for the investments we are doing going forward. We find it appropriate to take a more cautious view in the current environment. That is the driver behind it.
Thank you, Torgrim. Thank you.
Thank you. There's currently no more questions in the queue.
Thank you. Well, with that, I'd like to thank everybody for their participation this afternoon. As always, investor relations will be available for any follow-up questions. With that, I wish you a Happy Bank Holiday, weekend starting Friday for those of you in Norway and on Monday in the United Kingdom. Thank you very much. Bye-bye.