Ladies and gentlemen, welcome to Equinor's third quarter earnings presentation. My name is Hilde Møllerstad, and I'm the head of Investor Relations in Equinor. This morning at 7 A.M. CET, Equinor announced the results for the third quarter of 2014. The press release and presentations for this event were distributed through wires and through Oslo Stock Exchange. The quarterly report and the presentations can, as usual, be downloaded from our website, equinor.com. Please make special note of the information regarding forward-looking statements, which can be found on the last page of the presentation. Today, Equinor's CFO, Torgrim Reitan, will go through the earnings and outlook for the company. The presentation will be followed by a Q&A session. We will aim to end the conference at the latest at 2:30 P.M. CET.
Please note the questions can be posted by means of telephone, but not directly from the web. The dial-in numbers for posting questions can be found on our website. It is now my privilege to introduce Equinor's Chief Financial Officer, Torgrim Reitan. Please go ahead, Tor.
Thank you, Hilde, and good afternoon, and good morning to all of you in the US. In the third quarter, Statoil delivered adjusted earnings of NOK 40.4 billion. This is in line with the same period last year. The net operating income was positively impacted by gains from the Wintershall transaction. However, impairments on our refineries and commercial provisions impacted financial results negatively. We delivered good operational performance in the third quarter, producing as expected. In fact, underlying growth was around 6% if we adjust for the divestments we have made and the redetermination at Ormen Lange. The transactions created significant value, and I have, of course, no regrets in seeing the production being impacted as a consequence.
Ramping up new production on the NCS as planned and carrying out high maintenance activity, and we maintained good cost control and capital discipline. We produced record volumes from a portfolio outside Norway. We continued to deliver on our exploration strategy. We announced a new high-impact discovery offshore Canada. This is the world's largest oil discovery this year, and it is our 10th high-impact discovery in 30 months, and it's our third oil discovery in the Flemish Pass Basin. Our chief explorer, Tim Dodson, and his people are doing very well. We continued to shape the portfolio, announcing divestment of assets in Norway and in the U.K. to OMV. $2.65 billion in proceeds and an expected gain of $1.4 billion.
This transaction will also reduce our future CapEx exposure by $7 billion, and most of this is before 2020. This demonstrates the value of our portfolio. Recent asset divestments in the North Sea priced our assets at around 50% premium to Wood Mackenzie estimates. We expect to close the OMV transaction shortly. Finally, we have further strengthened our financial position in the quarter, generating strong cash flow and reducing our net debt. Our reported results. Our reported net operating income is down slightly compared to the third quarter last year. We booked a gain of NOK 6.4 billion on the sale of assets to Wintershall. However, we also booked NOK 5.6 billion in impairment losses, mainly related to our refineries. Then we made commercial provisions that negatively impacted the group by NOK 4.3 billion.
As always, we make adjustments to reflect the underlying business. Our adjusted earnings increased slightly. Liquid prices are up 4%, and we produced 4% more. This was partly offset by lower average gas price and increased royalties and depreciations. We continued with stable underlying operating costs. This is as expected and something that I watch very closely. I will come back to our costs in further detail later. The tax rate is 70% and within our guided range. We delivered adjusted earnings after tax of NOK 12.1 billion, and this is quite up from the third quarter last year. In the third quarter, we produced as expected. We carried out a high maintenance activity, and that went just as planned.
Production in Norway was slightly down compared to the same period last year, but this was impacted, as you know, by the divestments we have carried out to create more value. The Wintershall transaction closed at the end of July and impacts production by 40,000 barrels per day from closing. In total, the transactions, the transaction with Wintershall and the redetermination of Ormen Lange reduced production by around 60,000 barrels per day in the quarter. If you adjust for that, we see an underlying solid production growth for Statoil. Outside Norway, we continue to ramp up new production, producing at a record level. As we have earlier said, we expect to produce less in 2013 for the year as a whole compared to last year. You know, this is due to the divestments, gas optimization, and redetermination at Ormen Lange.
I will come back to this when we talk about the outlook later on. Let's take a look at the various segments. From our Norwegian business, we delivered adjusted earnings of NOK 30.6 billion. This is similar at the same quarter last year. We largely offset the natural decline on mature fields and divestments by ramping up production, such as Skarv in the Norwegian Sea. This increases the DD&A, as expected, in DPN on a year-on-year basis. From our operations outside Norway, adjusted earnings were NOK 6.2 billion. This is 40% up from the same period last year. The cash flow per barrel from our international portfolio is at least as good from, as from our Norwegian production. We increased our equity production by 13% and the entitlement production by 23%.
This is done by successfully ramping up U.S. onshore production in Angola, and in Brazil. The increase was partly offset by natural decline at several fields, particularly in Angola, and decreased production at In Amenas, as you are aware of. In all, we know we produce four out of ten barrels outside Norway this quarter. The results from marketing, processing, and renewables were at NOK 3.9 billion. This is a strong result, and it's a significant improvement from last quarter. As you know, results for MPR will be volatile. 2012 was a very strong year. The first half of 2013 was weak. Going forward, I expect to see results to be somewhere in between. We see strong trading results within the natural gas business.
Our overall realized gas price is down, but that is due to a higher share of US gas in the global mix. Our European price realization is good, and it's on par with last year, and last year was a year where we had a record price realization in Europe. Finally, the results are impacted by lower refining margins. Let me spend some time on the refineries. First of all, we have a low exposure to refining and midstream than our peers. That said, we book impairments on Mongstad and Kalundborg this quarter, more than NOK 4 billion in total. There are two clear drivers for this. First, we are realizing lower margins in the market. Secondly, we also see a weak outlook going forward. Let me be very clear. Our ambition is to see profitability within our refining business.
We are doing what we can to bring down the costs that we can control. Our improvements programs have brought down costs significantly. Around NOK 1 billion on a yearly basis is the improvements done at Mongstad, for instance. We have no plans to close the refineries, but we will work very hard on further improvements. We must ensure that we have the right structure in place for this business to develop successfully. Our cash flow from underlying operations is NOK 156 billion year to date. The change from last year is mainly due to lower prices and a lower production. We continue to generate a strong cash flow.
We have invested NOK 84 billion so far this year, and this is in line with our guidance on investments. Since the financial crisis, we have reduced our net debt from 27% in 2009 to 12% last year. At the end of this quarter, we have reduced net debt from 21% in the second quarter to 17% by end of this quarter. As we expect net debt to come further down during the fourth quarter, and this is despite two tax payments, two installments in Norway in the fourth quarter. We currently hold around NOK 100 billion in the cash and cash equivalents. We continue with a firm financial framework and with a solid balance sheet. We are working constantly to improve our cost position further.
In DPN, we have maintained a stable underlying total cost for seven quarters in a row. This is despite having more fields in production and despite industry cost inflation. I'm very glad to see that all the efforts are really showing up in the bottom line. In MPR, improvement program we have put in place is really paying off with concrete improvements and clear impacts. In the international segment, we continue to deliver profitable growth. The increase in costs comes from royalty payments and transportation costs. These are a function of increased production and prices. Compared to last year, diluent cost in Canada is now being included in the operating cost. The underlying costs, underlying operating cost is stable. Let's move to depreciation.
Compared to the same period last year, we see an increase as new fields are put on stream with higher depreciation at the start of the life cycle, as we have discussed earlier. We do expect to see an increase for DD&A on the NCS also for the next year, as we continue to add on new fields, and they come on stream. The increase will not be as large as the increase seen this year. Outside Norway, I expect the DD&A to be relatively stable. In general, DD&A will vary between quarters also in the future, but you should expect this to be impacted by new fields being phased in. As we move forward, we will continue to improve our cost base and further strengthen our competitiveness. Let me touch upon the strategic progress we have seen in the quarter.
First, the high-impact oil discovery called Bay du Nord, offshore Canada, is between 300 and 600 million barrels of oil recoverable. This is light sweet and a high-quality reservoir. This adds further resources to the Flemish Pass, in addition to the 100-200 million from Mizzen and also Harpoon, which is under evaluation. We are the operator. We have a 55% ownership share. Needless to say, this field will be highly profitable. A large potential oil development at the core of what Statoil does best. Giving us a potential for a new offshore cluster. It also takes Statoil to the top of the list of oil and gas companies in terms of conventional discovered volumes so far in 2013.
Actually, we now have four out of the 12 largest conventional oil discoveries over the past three years in the world. We have, as discussed earlier, a large inventory of prospects. Therefore, we have decided to drill some more wells this year than earlier planned for, and this will slightly increase our exploration spending in 2013. We continue to actively manage our portfolio. In July, we closed the $1.45 billion transaction with Wintershall, and in August, we announced the $2.65 billion transaction with OMV. Over the past few years, we have realized some $17 billion in proceeds and more than $8 billion in gains from strategic divestments.
That means around $4 billion on average per year in proceeds, making the net investments significantly lower than the gross investments, which is what we guide on. These transactions have shaped our portfolio further to fit our strategy, reallocating capital and realizing significant value. Let's talk about the outlook. As we have discussed earlier, our growth will not be linear. 2013 production will be lower than 2012. Ormen Lange redetermination will reduce production by 20,000 barrels per day on an annual basis this year, and this means around 40,000 barrels in the second half of the year. The divestment to Wintershall will also impact our production. 40,000 barrels per day from the closing, which was July 31. The OMV transaction will impact production by some 30,000 barrels per day from closing.
We will invest $19 billion in 2013. This is as expected. Projects, they are on schedule, and they are at cost. We will continue to mature our large portfolio of exploration assets. We now expect to complete around 60 wells this year. Total exploration activity level will be around $3.75 billion, excluding signature bonus. We will drill around 20 high-impact wells from 2013 to 2015. Turning to next year. For 2014 production, there are effects that you need to be aware of. We have divested producing assets to OMV. We will also see full-year production impact from the Wintershall transaction. On Ormen Lange, we will also have full-year impact of the redetermination.
These three elements will impact production by around 110,000-120,000 barrels per day in 2014, and this is around 80,000 barrels per day more than the impact in 2013. 2014 will be a year where a number of new fields come on stream. The Statoil-operated fields are progressing as planned. Remember that the majority of these will come on stream, and they will start to ramp up during the second half of the year. Despite the underlying growth, it is of course difficult to compensate for the impact from divestment and redetermination. We are also using the flexibility in our onshore U.S. assets. We have reduced the activity to optimize for the market condition.
This implies limited growth in 2014 from all our U.S. onshore assets compared to the current level. As you will remember, we increased our production by 8% from 2011 - 2012 by ramping up new fields. Going forward, we have the capacity to deliver beyond 2.5 million barrels per day. However, we have been clear that we are not driven by volume ambitions, but by value creation. We are in a privileged situation with a lot of great investment opportunities. This enables us to prioritize our investments, and we will come back to more details on our long-term outlook at our capital market update in February. Finally, I know you like to watch our wells. Let me give you some wells to watch.
This time, I will talk about some key regions to look out for. The Barents Sea campaign in the Johan Castberg area continues. We believe in further oil potential in this area. Skavl is next out, and we expect that to be completed during the fourth quarter. We also continue drilling in Tanzania, where Mronge is in progress, and we will commence, and that will be finalized in the quarter. Also in 2014, we have drilling campaigns coming up in the Hoop area in the Norwegian Barents Sea, the Kwanza Basin in Angola, and in the Gulf of Mexico. To round off. Strong underlying earnings in the quarter. Somewhat impacted by impairments. Our operational performance was good with production as expected. A 6% underlying growth and record international production. A high project activity level progressing according to plan.
A great new high impact discovery. We realized significant gains through continued portfolio optimization. We are on track and maintain our guiding for 2013. Looking ahead, Statoil is well positioned. We continue to efficiently develop our projects. We have a strong resource base, and we are prioritizing hard. We will maintain a firm financial framework, and we will continue to pay a predictable and growing dividend to our shareholders. We will do all of this while we are keeping our balance sheet solid. Thank you very much for your attention, and then I will leave the floor to you, Hilde, to lead us through the Q&A session. Thank you.
Thank you, Torgrim. For the Q&A session, Torgrim will be joined by our Senior Vice President for Performance Management and Risk, Svein Skeie, and our Senior Vice President for Accounting and Financial Compliance, Ørjan Kvelvane. We'll start out by taking questions from the audience here in Oslo, and then we'll turn to the audio audience. I'll first ask the operator to explain the procedure for posing questions over the telephone. Please, operator.
As a reminder, to unmute and ask a question via audio, please press star-one on your telephone's keypad.
Okay, we'll start out here in Oslo then. Please remember to push the button and hold it on your microphone as you speak in order to broadcast your question. We have, Trond.
Trond Omdal, Arctic Securities.
Please hold the button while you speak.
Trond Omdal, Arctic Securities. On the Troll field, you're going to install a new compressor, and I think your guidance was second half of 2014. Is that still the case? How will that impact your plateau or peak production in Q4 and Q1? The second question, you've now taken over ownership in Eagle Ford, and you've been drilling for three years. Has the company's view of the liquids component versus the dry gas component changed since you did the acquisition?
Okay, thank you, Trond. First, on the Troll field, you are right. One compressor is for repair or, you know, new compressor will be installed. The plans are as they have been. While we have reduced capacity at Troll, the maximum capacity is typically 95 million standard cubic meter per day, while the full capacity is 120. This means, first of all, a reduced flexibility around Troll production. On Eagle Ford, drilling is progressing well. Since we have taken over the operatorship, we see that there is a significant potential to improve efficiency and reduce costs. And so far, that asset delivers pretty well and in accordance with, you know, our expectations.
Any more? Yes, Morten.
Morten Lindbæck, Fondsfinans. Could you please elaborate on Snorre and on the processes that you have been through and also on how the last tax changes has affected the economics on the project? Thank you.
Thank you, Morten. Snorre, 2014 is, you know, an IOR, potential IOR investments. We have not made any decisions. What we have agreed is to work on a concept and plan for an investment decision in 2016, which is actually later than was planned for earlier. We will work very hard to improve that project as much as possible. No decisions have been made. In 2016, this project will compete with other investment opportunities, as such. When it comes to specifically on the tax changes made in the spring, that, you know, deteriorated the profitability of that asset. Adjustments to that will, you know, improve the economics and make it easier to make a positive investment decisions when that is relevant.
Do we have any further questions here in Oslo? I can't see any, so then we will turn to the audio audience. Our first question comes from Alejandro Demichelis from Exane. Please go ahead, Alejandro.
Yes, good afternoon. Just one question here. You have been talking about your costs being under control here. Maybe you can give us some kind of indication, at least directionally, in terms of how we should be thinking about CapEx going into next year.
Okay. Thank you, Alejandro. The guidance that we give is $21 billion on average investment 2013-2016. Excuse me. This is consistent with a production in 2020 of 2.5 million barrels per day. That is still valid. But we also are saying that this production ambition in 2020 is what it is. Our target is to create value and not necessarily steer on one single number at one point in time. We are, you know, doing portfolio adjustments, as you know. We will revert at the Capital Markets Day in February with a fuller update on the totality.
Okay. Just in terms of, you know, you're doing the divestments here, can we see some kind of reduction in CapEx because you have less assets to spend your money on?
I won't go into details. We will have to revert to that in February. Generally speaking, yes, these transactions reduce our investment or free up investment capacity going forward.
That's very clear. Thank you.
Thank you. Our next question comes from Theepan Jothilingam from Nomura. Please go ahead, Theepan.
Yeah, no, thanks, Hilde. A couple of questions, actually. I was just coming back to the disposal strategy, particularly after the OMV transaction. Is management thinking that there could be a greater emphasis to sell some of the growth assets, particularly in Norway? Then in that context as well, I was wondering whether there had been any progress in terms of development plans on Johan Castberg. I think the Energy Minister made some comments recently there. And I must just follow up. I understand that you'd like to give more details on CapEx for the longer term and the 2020 target. But just, you know, I think following up on the first question, directionally, do you see investment, organic investment up year-over-year or not, given that you've given us a production profile? Thank you.
Okay. Thank you, Theepan. When it comes to disposal strategy, portfolio management is a key part of our strategy, and I think that is very well demonstrated by the transactions over the last three years. We will continue to high grade the portfolio to sharpen our growth further, seeing to that we invest into the most profitable projects. Going forward, you should expect this to be a part of the strategy and what you should expect to happen. When it comes to Johan Castberg, we have a drilling campaign in that area. We will await that. It has been said that fiscal framework will be looked upon in this area. We also await fiscal clarification for that asset.
When it comes to investments, I can understand your question and your curiosity, but I must ask you to show up at the Capital Markets Day in February instead.
Okay. Can I just follow up back on disposals? Just in terms of thinking, though, is there more emphasis in terms of being more active on early cycle assets, trading some of the exploration success that you've clearly had over the last, you know, 18 months, 2 years? Is that now more in your thinking, or are you still thinking more around the mature producing assets in the portfolio?
If you look back on the transaction that has been done over the last year, you see actually quite a broad, you know, spectrum of, excuse me, assets, from mature assets to more exploration and early-phase assets. We take a rather broad perspective on this. I think that must be part of forming your expectation. I will give no clear guidance on, you know, specific type of assets, but, you know, we have regularly review of the portfolio to decide on what do we want to continue with and what we want to do something else with.
Okay. Thanks very much, Torgrim.
The next one is Haytham Rashed from Morgan Stanley. Please go ahead, Haytham.
Thanks, Hilde. Good afternoon, all. I may be sort of repeating sort of earlier questions. Perhaps if I could ask it a slightly different way. I'd like to come back to sort of portfolio management again. But I just wanted to understand, because I know in the past you've chosen not to sort of give any explicit guidance on disposals, and you clearly have a very strong track record in actively managing your portfolio. But is there any sort of scope to provide any sort of guidance or color on the sort of amount of, should we say, spending saved through the inactive portfolio strategy?
Putting that in a slightly different way, would it be fair to say that your focus or your priority when you're looking at sort of assets in the sort of
Disposal phase, you would be looking at those with sort of perhaps disproportionately high levels of spend associated with them. Is that something that is an increasing focus for management? Second question is on U.S. onshore gas production. It was quite a bit stronger Q-on-Q. I know you've sort of made some comments about 2014, sort of low-level activity levels in the U.S. continuing to remain relatively subdued. I just wanted to sort of if you could give a bit of color as to how we should think about the trajectory for that going forward over the next 12 months. Is sort of 3Q more of an anomaly? Should we be seeing sort of those productions normalizing back down again? Thank you.
Okay. Yeah, thank you. The first question, I think I got it. Looking at, you know, further, portfolio assets, I think I'll just have to repeat my answer. It's sort of a bit approach to looking at portfolio. We keep on making big discoveries that are very profitable and that will be prioritized. We currently run a very hard, you know, prioritization, what to invest in and what not to invest in. Certainly there will be assets that are in the investment phase that are part of that discussion. Then there are other assets that are less strategic than others that we want to capitalize on. On US onshore production, to give some more color on that.
Currently, we run with five rigs in Bakken. We run with five rigs in Eagle Ford and a total of 14 wells in Marcellus. This is down since the start of the year and significantly down from what it was before that. When it comes to Marcellus, in the start of the year, we had 400 wells, drilled, waiting for completion and hookup to gathering systems. A lot of them have now been hooked up and are in production. The current inventory is down to 100, and 100 wells is, you know, a normal inventory when you are in a steady state. There have been a sort of, what should we call it, a backlog of wells waiting for transportation.
That is a part of the explanation why the growth within this segment has been so high so far this year. As you understand, a stable situation with few rigs means lighter growth from the Marcellus area. When it comes to Bakken, at one point in time, we had 16 rigs. We are currently at 5. To give some color on why that is, for us, it's very important to take a long-term perspective on that asset. What we do see is that when we run with such a number of rigs, we are able to take learnings across the rig portfolio and apply it. That makes very much sense.
That is, you know, explains why it will be a slower ramp up than it has been this year. Okay.
Thank you.
Thank you, Haytham. The next question comes from Jon Rigby with UBS. Please go ahead, Jon.
Yeah, thanks, Hilde. Two questions. The first, just going back to your Bakken comment, you talked about value, not volume, but surely everybody's driven by value. If you look at your competition, which is mainly independents, they're clearly growing production significantly faster than you in the basin. I just wondered what it is more specifically that you are concerned with about not growing production that they clearly are not, and maybe what it is we're missing in the comparison between the two. Then the second question is, I'm fully behind your strategy of realizing value. I think it's a good one, and particularly with your exploration success, it makes sense to continue to high-grade.
Has there been any thought at board level of allowing shareholders to participate in that, you know, that the final link between realizing capital value within the portfolio and delivering to shareholders could be something exceptional in terms of payback to shareholders? I'm thinking primarily of share buybacks. Thanks.
Okay. Thank you, Jon. It will be the easiest thing to boost short-term production in Bakken. It is just to frack very hard, and then you'll see the initial production go very, very high and then decline very rapidly. The key here is to frack as subtle as you can, reduce the distances between the fracks, and get the maximum out of your reservoir. You get higher recovery rate with a much flatter production profile and much less initial production. Without naming anyone, companies that want to dress up for being acquired really have the incentive to boost initial productions. We have not that driver. I think that is a short and brutal comment.
Right.
When it comes to your second question on share buybacks. Yeah. You know, we have a mandate from the annual general meeting like we have every year. It is part of the toolbox that we have, and if that is judged as being prudent, we will use it.
Thank you.
Thank you.
Thank you, John. The next question comes from John Olaisen with ABG. Please go ahead, John.
Yeah, two questions. First, you tend to give a lot of warnings about production for 2014. How strongly should we take these indications? Do you expect another year with production down year on year, or do you expect production growth in 2014?
Thank you. Thank you, John. My main purpose is to get across clearly the impact of the changes that have happened over the years. You have that with you when you know, make your forecast into the future. I will not give, you know, any directions into it next year. We have a guiding from 2%-3% growth toward 2016. That is still valid, but you should remember that impact from the OMV transaction is 60,000 barrels in 2016.
Sure. Yeah, also your organic investments have gone from $16 billion- $19 billion - $21 billion. Should we really not expect any production growth from all this increased CapEx?
I think it is we are currently investing $19 billion, and yes, it is investing into growth, and there will be growth. I think it's relevant to also take into account, you know, what is the net investments in this perspective, all the proceeds that has been brought in, and then of course reduces their production.
Okay. My final question is regarding the NOK 4.3 billion in provision for changing ownership interests in an international field. Could you specify which field that is? What's the dispute?
This is related to an offshore field internationally, due to commercial reasons, unfortunately I can't be more specific than that.
Could you tell us a little bit how much it would impact your production, if you lose on that dispute?
That is too early to say, but the expectation is that it is not too large impact on production.
Okay. Thank you.
Thanks.
Thank you. Next question comes from Peter Hutton at RBC. Go ahead, Peter.
Thank you. Just two questions. Again, coming back to the guidance or marginal guidance that we've got for 2014 production. You said that the impact of the Ormen Lange and disposals, et cetera, would be 110, 120 in 2014. Can I just check? 'Cause looking through the sort of the logic that you gave in getting to those numbers, that would imply that's 2014 compared to 2012. Is that correct? 'Cause you also said, you know, that's bigger than the 80,000 barrels a day that we saw in. Sorry, that's eighty bigger than the impact we saw in 2013. So that, the base of that is 2012. Can I confirm that one?
Thank you for the update on Johan Castberg. When do you think we might be able to get to a stage where there's more information on that one, given that you're awaiting the campaign and also the fiscal framework and also on dates? Are we still on track to get an update on Johan Sverdrup by the end of this year? Thank you.
Okay. Thank you, Peter. Svein, if you can, you know, give the, you know, more granularity into the 110-120, that would be appreciated. On Johan Castberg, Skavl is being drilled. When that is done, the next one is going to be drilled and as far as I recall, it's called Kramsnø. Then we are done with the campaign around Johan Castberg. Then we know more whether there is additional volumes. When it comes to fiscal framework and clarification, we are awaiting that, and that will of course be an important factor in deciding on the way forward. It is a great reservoir. It is large. We'll see.
When it comes to Johan Sverdrup, the plan is to make a concept selection by end of this year, where an updated resource estimate, you know, total resource estimate from us will be given. That is the plan, and we will see to that information is presented in a prudent way.
Regarding the 110,000-120,000 barrels impact next year, that comes from the Ormen Lange, which is then estimated to be around 40,000 barrels per day at the full year. The OMV transaction, which is then also estimated to be around 40,000. As we have said also for the Wintershall transaction, that the impact then of the closing is around 40,000. Those are the three elements adding up to the full impact of 110,000-140,000.
110-120 thousand.
That's not against sort of full year average 13, because some of those elements have been included already. Wintershall from the end of July, Ormen Lange is 20,000 and 90,000.
Yes. This is the impact in 2014. Also as Torgrim mentioned in his speech, is that the increase will be around 80,000 from this year.
With Ormen Lange, the annual effect is 20, but the second half effect is 40.
Right.
Right.
Okay. Thank you, Peter. We'll turn to the next question then. It's Michael Alsford from Citi. Please go ahead, Michael.
Thanks, Hilde. Yeah, good afternoon. I've got two questions actually, please. Firstly, just on cash taxes. Despite obviously lower profitability in 2013 versus 2012, cash taxes are running high year to date. Can you just tell us what's driving this? Does this, I guess, unwind in fourth quarter? How should we think about, I guess, cash taxes relative to P&L taxes into 2014? That was my first question. Then secondly, maybe one more go on CapEx. You've obviously given us the guidance on production impact for the asset transactions that you've made. You mentioned, I think when you did the OMV deal, that you were sort of freeing up around $7 billion of CapEx, of which I think $5.5 billion was before 2020.
Could you maybe provide us with what the, I guess, saving is from that asset divestment for the period 2013 - 2016, so we can reconcile with your current group guidance on CapEx, please? Thank you.
All right, thank you.
Okay, the first question on cash taxes this year. I'll make a comment to the Norwegian taxes because that is paid with a six-month delay. The Norwegian taxes paid in the first half of the year was based on the 2012 earnings, and they were high. The tax payments in the second half of the year is lower than in the first half of the year. When it comes to the OMV transaction, you are absolutely right. It takes down the investment levels from these assets from the $7 billion-$5.5 billion within the period up to 2020.
If you look at the profiling, it is more in the early years than in the later years related to those.
Okay. Just to confirm that NOK 5.5 billion is gonna be in the 2013-2016 period. Is that right?
be in the period up to 2020. If you profile it is more in the earlier years than in the later years of that period.
Okay. Okay, that's great. Thank you very much.
Thank you. Next question comes from Rahim Karim from Barclays. Please go ahead, Rahim.
Thank you, Hilde. I have two questions, if I may. The first was just around Tanzania. We've seen a few comments on the headlines in the last week or so around the fact that there was concerns about there not being enough resource to develop LNG facilities there. I was a bit surprised by those, and also by others suggesting that Statoil and ExxonMobil might be looking to sell down a stake there. I was wondering if you could perhaps provide an update and your current thinking around Tanzania. And then the second question was just about the impairments seen in the upstream.
You've talked a bit about the provision, but I was wondering if you could provide any color on the impairments, especially in the international business, what those relate to, whether any of it relates to the US onshore, and whether there are any associated reserve impacts. Thank you.
Thank you. All right. On impairments, Ørjan, if you can take that afterwards. On Tanzania, yeah, thank you, Rahim. On Tanzania, there is enough resources for a development of 15-17 TCF. We are working, you know, closely with BG in the neighboring block, as you know. We have one well being drilled currently, Mronge, which is the first in a campaign. Of course, more volumes are better when you talk about LNG developments. To us, the priority is to do this right. This will have no impact on 2020 production, so this is for the next decade. On impairment, Ørjan?
Yes. On impairment, we of course test the triggers every quarter, and this quarter it's mainly impacted by the refineries of NOK 4.3 billion. In addition, we have a part in DPI, NOK 0.9 billion, and also in DP Norway, NOK 0.4 billion. I don't think we should go into details further.
Can you?
Will this have a share of impacts, these impairments?
No. No, they will not.
Can you confirm that they're not associated with the U.S. onshore activity?
Associated with the U.S. onshore, you are right. They are not associated with that.
Okay, thank you.
Next question comes from Oddvar Bjørgan from Sparebank. Go ahead, Oddvar, please.
Yeah. Hello. I'm afraid it's a CapEx question again. As you know, this is the main investor worry in the stock. I just try to rephrase the question a bit. Your last CapEx guidance for 2014 to 2016 was given in February this year. Today, what has changed? Do you see more CapEx or do you see less CapEx in that period now? Can you answer that?
Okay. Thank you, Oddvar . 2.5 million barrels per day is consistent with NOK 21 billion in the period 2013 to 2015. If we elected to grow harder, which, you know, all the assets and discoveries and everything, you know, gives the potential to, then investments, you know, can be significantly higher than that. On the other hand, if we decide to do something else than producing 2.5 in 2020, lower, then the investments will be lower. It is a pretty consistent picture. We see that still is the case.
You know, what has changed since February, I think first of all, it's a series of you know great discoveries and explorations results that is you know has brought into the prioritization work that we are currently doing.
Okay, thank you.
Thank you, Oddvar . Then, Our next question comes from Robert Kessler with Tudor, Pickering & Holt. Please go ahead.
Good afternoon. I wanted to come back to refining if I could. I recognize it's not the largest portion of your portfolio, but I wanted to see if I could get some color nonetheless. You said no plans to close the refineries, but any thoughts about temporary reduction in runs and also any possibility of divestment for those assets?
Okay. Thank you. The production of both assets are optimized and runs are reduced to optimize it. When it comes to any plans for divestments, I won't comment on that. On a general note that selling refineries in Europe is not an easy task these days.
Understood. Have you been below cash costs on the margin in recent history, say the last couple months at those refineries?
Both refineries, you know, so far this year is balancing neutral, both in the quarter and so far this year.
Okay, thank you.
Thank you, Robert. Next question comes from Iain Pyle from Bernstein. Please go ahead.
Thank you. Perhaps just two questions on Flemish Pass. Firstly, when might you expect to have some more information on Harpoon? And then secondly, given a fast-track development of what looks to be pretty attractive assets there, is there any potential for these to contribute to the 2020 production target? Thank you.
Okay, thank you, Ian. The Harpoon, you know, the finishing of that evaluation, that is ongoing. I'm not sure if you have the dates there.
Well, I think we are in the phase of then doing the final evaluations and then taking the totality.
Yeah.
When we have the portfolio review, we need to come back to.
Sure.
For updates.
Yeah, exactly. There are, you know, there is such a huge acreage that we hold around this, and we do see other very interesting drilling targets in this area. So we will work on bringing rig back, and do more work. You should not expect this to be part of the production in 2020.
Thank you.
We have time for just one more question. That will come from Blake Fernandez with Howard Weil. Go ahead please, Blake.
Hi, Torgrim. Thanks for taking the question. I had a couple of questions on back to North America. I'm just curious, it sounds like your activity levels, as you say, will be modest as you kind of develop your drilling and completion techniques. Is it fair to say at this point you're really focused on optimizing cost, and not so focused on testing other formations and downspacing in some of the plays like the Eagle Ford?
Okay, Blake, thank you. I think you are absolutely right. We see a big potential in, you know, improving the operations and making it optimal. We are satisfied with the acreage that we have and the positions that we have. You know, optimizing around that is a natural part of running that business, of course, but as I said, quite comfortable with what we have.
Okay. If I could just follow up. Do you have a first right of refusal on your Eagle Ford acreage with Talisman?
I think those commercial considerations. I'm not prepared to share.
Got it. Thank you.
Thank you. That will have to conclude our Q&A session for today. The presentation and the Q&A session can be replayed from our website as usual in a few days, and there will also be transcripts available. If you have any further questions, please don't hesitate to contact us with the Investor Relations department, and thank you all very much for participating.