Hilde Merete Nafstad - Senior Vice President of Investor Relations Torgrim Reitan - Chief Financial Officer, Executive Vice President, Chairman of Corporate Risk Committee and Member of Corporate Executive Committee Svein Skeie - Senior Vice President for Performance Management and Analysis

Trond Frode Omdal - Arctic Securities ASA, Research Division Helge André Martinsen - Nordea Markets, Research Division Jon Rigby - UBS Investment Bank, Research Division Brendan Warn - Jefferies & Company, Inc., Research Division Michele Della Vigna - Goldman Sachs Group Inc., Research Division Kim Fustier - Crédit Suisse AG, Research Division Michael J. Alsford - Citigroup Inc, Research Division Teodor Nilsen - Sparebank 1 Markets AS, Research Division Oswald Clint - Sanford C. Bernstein & Co., LLC., Research Division Haythem Rashed - Morgan Stanley, Research Division Rahim Karim - Barclays Capital, Research Division Kristine Beese - RBC Capital Markets, LLC, Research Division

Ladies and gentlemen, welcome to Statoil Second Quarter Earnings Presentation, both to the audience here in Oslo and to the webcast audiences. My name is Hilde Nafstad, I'm the Head of Investor Relations in Statoil. Before we start, let me say that there are no fire drills planned for today. In case the fire alarm goes off, you will need to exit through the 2 doors in the back of the room or the one to my left and continue downstairs. This morning, at 7:30 Central European Time, Statoil announced the results for the second quarter of 2012. The press release and presentations for today's events were distributed through the wires and through Oslo Stock Exchange. The quarterly reports and the presentations can, as usual, be downloaded from our website, statoil.com. I would ask you to kindly make special note of the information regarding forward-looking statements, which can be found on the last page of the presentation. Today's program will start with Statoil CEO, Torgrim Reitan, going through the earnings and outlook for the company. As usual, the presentation will be followed by a Q&A session. Please note that 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 the website. It is now my privilege to introduce Statoil's Chief Financial Officer, Torgrim Reitan.

Okay. Thank you, Hilde, and good afternoon to you here in Oslo. And good morning and good afternoon to all of you on the webcast. And particular greetings to our good friends in London, who are gearing up for a big day tomorrow, the opening ceremony. It is a pleasure to present Statoil's results for the second quarter of 2012. Strong financial results, 17% production growth, in line with our expectations. Yet another quarter with significant discoveries, and we keep on streamlining our portfolio. So another good quarter. But before I get started with production and financials, I want to talk about the strategic progress. We have made 2 new high-impact discoveries in Norway and Tanzania. King Lear in the North Sea, this discovery is between 70 million and 200 million barrels. It is in the mature areas of the shelf, just 20 kilometers from the Ekofisk field. The Lavani gas discoveries offshore Tanzania supports our ambition for East Africa. We now have access to 9 Tcf in this block. Both are operated by Statoil. This means 8 high-impact discoveries over the last 15 months. And then we have added new acreage, including 26 new licenses in the Gulf of Mexico and shale opportunities in Australia. So far, 2012 has been a very good exploration year. We have discovered more than 1 billion barrels of resources. And this is actually similar to the full year result of 2011, a year where we discovered Johan Sverdrup, Skrugard and others. We have taken steps to implement the strategic cooperation with the Rosneft, signed agreement on the joint bidding for exploration in the Norwegian Barents Sea and the joint technical evaluation, covering 2 Russian offshore -- onshore assets. The speed ahead reflects our joint commitment and determination, and it marks an important milestone…

Thank you very much, Torgrim. For the Q&A session, Torgrim will be joined by Senior Vice President for Accounting and Financial Compliance, Kåre Thomsen; and Senior Vice President for Performance Management, Svein Skeie. We will take questions from the audience and over the telephone. I will first ask the operator to please explain the procedure for asking questions over the telephone.

[Operator Instructions]

We'll start with questions from the audience here in Oslo. And here, are there any questions? If so, microphones will be passed. Please state your name and your company. Yes, I see one question.

Trond Omdal, Arctic Securities. Could you comment a little bit on the lower realized -- or the bigger spread from Brent to realized prices? Is -- how much is related to Peregrino and Bakken oil and how much is related to NGL? And on the second also, exploration expense in national was quite high at almost NOK 5 billion, could you talk a little bit of a couple of wells that, that is linked to?

Okay, first on prices. You mentioned Peregrino and you mentioned Bakken, which is currently at a discount compared to Brent. However, the volumes is very limited, so it doesn't have a large impact on the average realized price. The real thing that makes an impact this quarter is the NGL prices. And we have had high gas production in the quarter, and gas production leads to higher NGL production. And also the NGL prices, they have developed weaker than the Brent price in the quarter. So the NGL price and the NGL content is the main explanation for that. When it comes to exploration expense, that is especially valid in the international segments. So this is driven by wells that has been expensed. Two wells that I can mention here today, it is the Kakuna Well in the Gulf of Mexico, Nexen operated; and the other one is Jaguey in Cuba, operated by Repsol. So those had been expensed. And then there are other ones that I can't comment on from -- due to -- it is mainly a partner-operated wells. So that has an impact in the quarter. And furthermore, we have stepped up our seismic activity as well compared to last year. And especially, I would like to mention what we are doing currently in the Kwanza Basin outside Angola. We are shooting significant amount of seismic to prepare for exploration in the 5 blocks that we have there, and we will come back to it later on. So that is the main explanations. I think I would like to say that you should expect that exploration expenses are sort of volatile from quarter-to-quarter. First quarter was a quarter with very little exploration expenses, while this is high. So, so far this year, the average capitalization of exploration is 35%, which is a bit higher than the normal assumption that we use. So, so far this year, it's sort of in line with what we expect, but there are things among -- between the quarters.

[indiscernible] a simple, while I have the chance. You talked about Troll production being very strong and I assume part of it is of course the strong uptick from customers and also the production permit from NPD was higher this year. Is there any -- of course, I assume you haven't confirmed this but is there any reason that it should not be the same production permits for the next gas year?

So the production permits are very important for us. They are granted on an annual basis. But I see no reason why there should be any change to the current permits.

Do we have any further questions in Oslo? Yes, Helge? Helge André Martinsen - Nordea Markets, Research Division: Helge Martinsen, Nordea. Just a question on the Peregrino ramp-up. Volumes are dropping a bit this quarter, so can you comment on when you expect it to be on full capacity? And also if you can comment on development of water gap and oil-water separation, is it -- is there any issues there? Or is it running smooth?

Okay. So Peregrino is ramping up. We have had a few issues in some wells coming on stream, so that is being worked. But that has sort of impacted somewhat the production this quarter on Peregrino. Ramping up towards full capacity, it is within the year. It's what we say that we expect Peregrino to be on full capacity.

If there's no further questions in Oslo, we'll turn to the audio audience, and our first question comes from Jon Rigby with UBS.

Two questions. The first is, I appreciate that you like to give health warning around your production outlook each quarter. But we're now halfway through the year, so given your more risk to downside than the upside, how will you contrast that with your more risk to the downside than the upside in the first quarter? Do you have great comforts upon your 2012 outlook now than you did 3 months ago, after your impressive performance in the quarter. And the second is just on gas realization. I think there's been some concern as Europe renegotiates gas pricing, that your realizations would come under pressure, but it's not obvious from looking at the evolution of oil prices and gas prices. When you renegotiated, you've talked about taking back flexibility back to you from the buyer. And I think analysts and investors have found it difficult to incorporate in their view. Are you benefiting from that? And if you are, can you sort of go through how that might be helping you in terms of your effective realizations as you trade and sell gas?

Okay. Production outlook halfway through the year. Yes, production, so far this year, has been strong. For me, it's important to give some granularity to the drivers of the production. And it's also important for me to get across that in the next quarter, production will be lower than what we have seen in the second quarter. So there is no new signals, no new messages in what I've said today. It should be the exact same wordings that has been used over the last quarters. But things are progressing as expected. Things are progressing as planned, and then there are still uncertainties in place, especially related to customer offtake on the gas side. If they end up taking more than they have to, it will certainly have a positive impact on the production. Maintenance, if that runs smoothly, is also -- everything is risk related to that. And then we have startups over the year. We have Skarv in the fourth quarter, BP operated, which is sort of the main one to watch in that respect. So there are -- it is sort of the same risk elements that has been in place. But we are half through the year. But I still consider that to be more risk to the downside than to the upside of our production guiding. Then on gas realizations, you are right, we have been through a period of renegotiations of our gas contract portfolio in Europe. In those renegotiations, it has been very important for us to say, one, yes, we are willing to put more spot indexations into the contract. But it needs to come together with that flexibility, comes back to where it belongs and also access to the hubs. So the market is developing towards a more liquid market. So it will mean that the seller sits on the flexibility on the gas volumes instead of the customers, going forward. And it provides us with significant flexibility to decide which markets the gas should end in and also which period the gas should end in the market. And this has, from time to time, significant value to us. And it has had good values from -- created good values from us over the last year. But I can particularly mention in 2009, when the gas markets more or less collapsed. I mean, price has dropped from 70p to 20p per term. We elected to tune down production in December and sell it into the next summer at 40p per term. So we realized 100% gain on those volumes. And that was based on the flexibility that we had and the customer didn't. So it's just an example on how we use this tool. And we have some really fantastic big assets that are flexible. Troll, you can look upon as a seasonal storage. Oseberg, you can look upon as the world's largest short-cycled gas storage.

So effectively, you can see -- would it be fair to conclude that you're seeing the flexibility is compensating or least compensating for what would it sensibly be, at current prices, a lower realized price in the new contracts such it -- so net-net, you are at least coming out neutral. It seems to be the case.

No, I cannot give specific guiding in that respect, but there comes value out of the flexibility that we call back [ph].

The next question comes from Brendan Warn from Jefferies. Brendan Warn - Jefferies & Company, Inc., Research Division: Brendan Warn from Jefferies. Just probably on the same topic in terms of production, I'm just wondering if -- obviously, because the right to growth from the international division. If you can give us some sort of exit rate indication and maybe if you split it out so the international from North America. Just secondly, too, obviously in light of BG making some non-cash sort of the impairment to the U.S. gas shale business, Torgrim, just so if you can make any comments on what you're carrying to your gas assets in the U.S. And do you see anything similar that Statoil may be doing? And just lastly, just while we're on North America, in terms of gas price and rig count, if you just sort of step through -- and it ties back to the production rate rig count in your various regions back in Marcellus, Eagle Ford.

All right, Brendan. Thank you very much. When it comes to production growth from the various assets, the risk in the supplementary package, which is on the web, you see it break down on an asset-by-asset level. So it is all there. But I think it's fair to say that the U.S. production -- the North American production has doubled. International, in total, has grown by 32%. So it's a significant contribution to production. Then over to the U.S. and gas prices and shale, I can, of course, not comment on BG's accounts. But I can comment on how we look upon that assets. And I reviewed the production profile for Marcellus a few weeks back, and I certainly recognized that when I'm 100 years old, this asset is actually still producing on plateau. So this is here for the long term for Statoil. Current gas prices in the U.S. is low. And in a situation with low prices, it is extremely important to take care of your gas. And I'll give you a couple of examples on the what we are doing in Marcellus. From 1st of October, we will start selling Marcellus gas into the Toronto area. Toronto has, over the last quarters, been priced at $1 dollar per MMBtu higher than around the Marcellus area. So it's a significant premium market to the area around Marcellus. And in 2009, I think it was, we took all the capacity at National Fuel to get to Canada. I think it was $0.11 per MMBtu to get to the border. So from 1st of October, we will realize a higher price on our gas in Marcellus than it currently was. And I would also like to mention that we are working on a pipeline solution to Manhattan. We will cross…

We'll take the next question from Michele Della Vigna of Goldman Sachs.

I had 2 quick questions. The first one is, after your successful disposal to Centrica, would you consider more disposal of mature NCS assets? And then the second one is regarding Tanzania, you clearly had a lot of exploration success there. I was wondering how quickly you can proceed with its pre-deployment [ph] in [indiscernible] plants and whether you've got ongoing dialogue to one of the players there to join forces?

Okay. Thank you, Michele. Centrica transaction, significant value created out of that. Further portfolio optimization is a natural part of what we do. We do it all the time. I think in 2011, we had 8 transactions on the NCS and several internationally as well. So you should expect further streamlining of the total portfolio and also our NCS portfolio going forward. And we would like to send our money to where we make the most impact with our money into the core assets and where we want to be. So that is just a natural ongoing business, there's nothing special to it than a continuous portfolio optimization. When it comes to Tanzania, I think it's too early to conclude on what will happen when we have made 2 significant discoveries in the block. There are -- this is a huge block. There's several other structures that we would like to test. So this is something we would like to work further before we conclude on how to proceed. And as you pointed out, it is natural to discuss with all the companies in the areas on how to optimize the area.

We'll take the next question from Kim Fustier of Credit Suisse. Kim Fustier - Crédit Suisse AG, Research Division: I had 2 questions please. Firstly, just on CapEx, you've guided to a $1 billion increase to $18 billion dollars versus your previous plans, so half of that is coming from exploration and presumably, the other half from development. I was wondering if you were able to say on which project you're spending more development CapEx. Or is this really to do higher CapEx on maintenance? Secondly, on international P&P, you've talked about higher operating costs coming from field ramp-ups for quite a few quarters in a row now. I was wondering how much of this OpEx increase is structural and how much you expect to see falling off going forward.

Okay. Svein, maybe you can prepare on the CapEx question. When it comes to the operating cost internationally, it is related to increased production. A couple of examples, royalty has increased due to higher production. So royalty is normally a function of production and price. And sort of the higher the royalty, the more you earn. So that is sort of cost that we think is okay and that increases. Then within international, there are some increased transportation costs, and it is also related to more wells producing, especially within the unconventional area. So it is sort of structural in a way that it is directly linked to higher production and better earnings.

On the increasing CapEx, we increased capital expenditure from around $17 billion to around $18 billion, and it's coming partly from the exploration, as we mentioned, due to the fact that we also then increased the guiding for the exploration activities from $3 billion to $3.5 billion. In addition, it's high activities on the Norwegian continent as Torgrim mentioned in his presentation, on projects -- fast-track projects but also on other projects where we see that we have better progress than we planned for. In addition, the success for the release run [ph] where we had done acquired 26 leases in [indiscernible] from Mexico, which also then contribute to capital signatures for 2012. And that are the main reason why we increased. So around 50% of the CapEx increase will be from Norway and the rest, from the international part of it.

The next question comes from Michael Alsford from Citi.

Two questions, if I can. Firstly, actually follow on from that CapEx question, could you more specifically give us an indication of what the cost inflation you're seeing on the NCS for the service industry? And then secondly, maybe you can give an update on Shtokman? Not a press report, obviously over the last few weeks and [indiscernible] deferred agreement expired by the end of, I think, end of June. So maybe you can give an update to Statoil's position on that project?

Okay. I'll take the Shtokman. And Sven, you can continue with the CapEx issue or CapEx question. On Shtokman, you are right. The framework agreements with Esoteric [ph] expired. So that is true. We are continuing the negotiations related to Shtokman. So those negotiations are progressing. For us, it is very important that investment levels come down to a level where we see no significant profits from the project. It is also important that physical framework are put in place, so it is -- becomes a sound project. And there are also other commercial terms. So negotiations are ongoing more or less from the same parameters that we have discussed among ourselves over the last period. So we are still negotiating.

On the NCS, the main increase is then related on to a higher activity level. And if you look at the pressure in the industry, yes, there is pressure. But we are responding to that. Erik, for example, mentioned, what we have done within the drilling segments, where we have gone into long contracts for cat B rigs. Dedicated welders, rigs that could drill wells on the Norwegian continental shelf, so that we are able then to take down the expected cost for that going forward. And that we're also seeking in other segments, where we'll see pressure. Trying to find good solutions between us and the supplier going for contracts, where we see that we can have benefit both for us and for the supplier.

The next question we'll take from Teodor Nilsen of Sparebank.

And just a question on the increased exploration guidance. Where will the increase or the incremental increase in exploration spending come from? Will it be in Norway or internationally? And also a question on the tax rate, you have said that the 2012 tax rate will be in the [indiscernible] or end of the guided range? What can you say about the 2013 tax rate?

Okay. On the exploration guidance, more wells will be completed and more wells will be started during 2012. It is pretty well distributed across the portfolio. It is both in Norway and internationally. With us, something to mention, I mean, we will start a new campaign around the Skrugard and Havis discoveries. And that campaign will be started off in the back end of this year. Further appraisal programs around the Johan Sverdrup as well. And then there are other exploration wells as well. But it is fairly spread around. Tax quarter...

Yes. Year-to-date, we have 73% tax on adjusted earnings. And we have guided 70% to 72% in the upper end of it for 2012. And we still maintain that guidance, and you should also foresee similar guidance for the year of 2013.

Okay. So we do not expect that tax rate will decline as international production builds up.

Not in 2013, but as we progress, we expect the tax rate from the international part to come down to the previous level, which we guided on between 40% and 50%. Now we guide on 50% to 55% and has to do with the composition from where we get the taxable profit, whether -- what's the tax structure in those companies. And as we see it, at least in 2000 -- or in 2013, it will be more or less the same composition. But later on, we expect it to come down more to the level we indicated or had before.

The next question will come from Oswald Clint of Sanford Bernstein. Oswald Clint - Sanford C. Bernstein & Co., LLC., Research Division: My first question is just on the ACG field in Azerbaijan. It's showing up sort of steady decline over the last 1.5 years. It's a good 10% of your international portfolio. I just wondered, is that decline in line with your expectation to -- again, I think you're pointing to well problems, operational problems there this quarter again. But I just wonder if you can talk about that particular asset. Secondly, on the Bakken, you've talked about the number of rigs you have and the number of wells you drilled. I'm just curious to know, with all the new wells you're drilling, are you still seeing the same healthy flow rigs? Are there any initial production rigs as nothing there or at least everything is consistent with -- again, with what you saw at the very beginning of the acquisition? And finally, just on your oil sort of onshore assets you're participating with the Rosneft in Russia, could you give us a sense of activity levels or what the next couple of steps are in terms of appraising that onshore asset?

All right, thank you Oswald. On ACG, producing well. There has been some issues with wells. It seems to improve and be working well, but BP is the right one to answer on that progress as the operator. On Bakken, initial production rates are good and as expected. It varies like it is expected and -- but it is progressing as it should. Maybe, while I have the opportunity to talk about Bakken is that evacuation or marketing of the oil is an important part of creating value out of that asset. We are taking on train capacity that will be available to us from October, so then we will narrow the discount that you have seen from that asset in this quarter. When it comes to the onshore part of the Rosneft deal, it is actually very interesting, if you look at the potential on unconventionals in U.S. So we have 2 areas we have access to. And we will first study and work on a technical program related to it. And then we will progress from there. But it is pretty obvious that this is hydrocarbons with potential -- with high potential, so we're looking forward to further exploring those opportunities.

Our next question comes from Haythem Rashed of Morgan Stanley.

Just very quickly, I wanted to touch base on 3 things. Firstly, on CapEx for 2013, just wanted to ask if you had any comments you can make there, in particular with regards to the fact that obviously, 2012 has been increased and in the past, you'd indicated that 2013 was likely to be same as 2012. So should we expect a similar increase with 2013 CapEx levels? And secondly, on production guidance, you've clearly highlighted the downside risks on production in the second half. I just wondered if you could give a sense of which is the most significant of those 3 that you talk about. Perhaps, even if you could even rank them in terms of the asset value volume and the start-ups and ramp-ups and obviously, the maintenance. And then thirdly, I just wanted to quickly ask on the 5 extra wells to be drilled this year, could you indicate if any of those are high impact or in other words, have you shifted any of the high-impact wells that you drilled over the next 2 years into this year?

All right, thank you Haythem. On the CapEx for 2013, we will refer to that later. What is important for me to talk about when I talk about CapEx is the project portfolio. More than 150 projects, average breakeven price of $50 per barrel. We are all set to deliver 2.5 million barrels per day in production in 2020 from these set of projects. And I'm always becoming very enthusiastic when I talk about our project portfolio, but you have heard it before, and I'm sure you will hear about that later on as well. When it comes to the CapEx development going forward, I can give you some color to it. And that is that -- what we have seen over the last years is a CapEx increase related to increased activity, more projects being developed and not related to cost inflation or cost overruns. When that is said, I mean, we will always have some projects, which are doing better and some projects are doing worse. But then on overall level, not a part of the explanations as such. So we have a large project portfolio that we would like to realize, and of course, the set of projects will cost money to develop. And that will be reflected in the investments going forward. For me, it's extremely important to have a firm financial framework around our investment program, meaning a solid balance sheet, meaning a predictable dividend policy and strict decision criteria around this. So this will be managed in a very diligent way. But we will come back to that very interesting issue at another point in time. When it comes to production guidance and main uncertainties, I think it's fair to say that on top of the list, it is sort of gas production that is the main uncertainty. So that is sort of the one that is the main uncertainty. When it comes to high-impact wells going forward, the 2 wells that I would like to draw your attention to in the 2012 drilling program, it is the Brugdan II well in the Faroes, that has already been spudded. And it is the Gyoko [ph] well in the Gulf of Mexico that has also been spudded. So those 2 are the most imminent wells to watch. Furthermore, in the Gulf of Mexico, we are working to acquire or to get a permit on the candy bar, which will -- when that is in place, we are ready to move along with that one as well. So those are maybe the few that I would like to highlight. So thank you, Haythem.

We'll take the next question from Rahim Karim coming from Barclays.

Torgrim, just a couple of questions. The first was just around potential progress in Angola and in the [indiscernible] there and if you could perhaps give us an update on how far seismic is progressing there? And then the second question is on the finances. Perhaps you give us some guidance in terms of what we should expect given at yearend will be, given the divestment process that we've seen so far?

Okay, thank you. Seismic in the Kwanza basin in Angola is progressing well. They are significant. I mean, that's a big area. So it takes its time to sort of get it [indiscernible]. So when that is done, we will of course work the seismic extensively and prepare ourselves for starting exploration, which we expect to be late next year or early 2014. So, progressing as planned in Angola in the Kwanza Basin, when it comes to financing and gearing. So our net debt rates is at 13% currently. It came down from 15% in the second quarter, and it's -- at year end, I think it was 21%, if I report right. So it is moving down towards the end of the year. It will, of course, be very dependent on the oil price development for the rest of the year. So if sort of oil prices are at the 110 [ph] to 115 [ph] level that we saw in the end of first quarter, this will sort of come down to around 10-ish that we talked about at that point in time. So that is sort of the framework around that one. And that is that, and as I said earlier, it is extremely important for us to, in the current market uncertainty, to run with a solid balance sheet and also run with a significant amount of liquidity and prepare ourselves well. So we work with several scenarios that we have talked about for the world to be as prepared as we can.

And we have one more question from Nick Coleman of Argus Media.

Just a question about the industrial action that we've seen this year in Norway. I presume the impacts on production would be extending into the current quarter. Can you say whether the Oseberg output is now back to normal after the industrial action? And give any assessment of what the impact has been in terms of production and any views on the -- any possible recurrence of industrial action, later in the year?

First of all, it is very important to us that we are able to solve the differences between the company and the employees on an ongoing level. This time it ended up in an industrial action. The impact of that, we will have to sort of get back to you in the next quarterly result, but it has been limited in production terms. So not impacting the overall picture significantly. What was said earlier that the total impact of the strike was some NOK 3 billion for the NCS a totality -- as a totality, pre-tax, that was statements from the OLF, which is one of the organizations that faced the negotiations. Whether this is a further risk going forward, it's hard for me to comment on. To me, it's important that we're able to solve the differences that we, from time to time, have and do that in the best possible way.

Could you just clarify if Oseberg is normal?

Yes, Oseberg is back and available as it should be.

We have another question from Kristine Beese from RBC.

I was wondering if you can give some color around the NOK 2.5 billion financial item charge?

Yes, thank you. On that, it is higher than normal this quarter, and it is related to the accounting treatment of the Shtokman investment in the Asgard [ph] as we set the framework agreement expired. We handed back our shares. And from an accounting perspective, we have to take the value down of those shares as such. So that is explaining the financial charges. So that is impacting the quarter aspect. So we have -- so that is from the way we deal with it from an IFRS point of view, and then they have taken the necessary steps to protect our positions as we should. And we are continuing the negotiations for the future of the Shtokman together with Gazprom.

That was the final question on my list. So this will conclude our Q&A session for today. But the presentation and the Q&A session can be replayed from our website in a few days, and transcripts will also be available. If you have any further questions, please don't hesitate to contact Investor Relations in Statoil. Thank you, all, very much for participating, and have a good afternoon.