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    shaping the future Annual report and accounts 2006


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    Shaping the future today Students get the chance every year to participate in our summer project and have a go at specific assignments. This team has produced a model which shows subsea separation. From left: Magne Hestness, Anne Person, Øystein K Rande and Oddbjørn R Nilsen. The way to the real world is short: we are starting up the world’s first commercial subsea facility for separating oil and gas from water and sand on our Tordis field in the North Sea. This is one of many examples which demonstrate our ability and courage to develop and adopt new technology which can enhance our value creation. An article on pages 8-13 describes the subject in more detail. We look at tomorrow’s technological challenges, which some of the students in this opening illustration to our annual report may be involved in solving a few years from now. A company which is a front runner in key technology areas does not wait for the future to happen but forms the future itself. This applies not least in the environmental area, and in 2006 we demonstrated our ability to be innovative and our will to tackle the climate challenges with new industrial solutions.


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    Key figures INCOME CASH FLOW RETURN NOK billion NOK billion Per cent 120 70 30 100 60 25 50 80 20 40 60 15 30 40 10 20 20 10 5 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 Income before financial items, other items, Cash flow used Return on average capital income taxes and minority interest in investing activities employed after tax Net income Cash flow provided by operating activities OIL PRODUCTION/PRICE GAS PRODUCTION/PRICE PROVED OIL/GAS RESERVES USD/barrel 1,000 bbls per day NOK/scm 1,000 boe per day Million boe 800 2.00 500 5,000 450 700 60 400 4,000 600 1.50 350 500 300 3,000 40 400 250 1.00 300 200 2,000 150 200 100 1,000 20 0.50 100 50 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 Entitlement oil production Sales equity gas production Natural gas Average oil price Brent Blend Average gas price Oil and NGL CARBON DIOXIDE (CO2) TOTAL RECORDABLE INJURY FREQUENCY SERIOUS INCIDENT FREQUENCY Million tonnes 14 8 12 12 10 6 10 8 8 6 4 6 4 4 2 2 2 0 -2 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 Number of total recordable injuries per million Number of serious incidents per million working hours CO2 reductions made through measures working hours implemented between 1997 and 2006 for Statoil operations Total CO2 emissions from Statoil operations


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    USGAAP USGAAP––Hovedtall Financial highlights 2004 2006 2003 2005 2002 2004 2001 2003 2000 2002 Finansielle data (i millioner Financial information (NOKkroner) million) Driftsinntekter Total revenues 306 218 425,166 249 375 387,411 243 814 301,443 236 961 245,640 230 425 240,447 Resultat før finans, Income before andreitems, financial poster, skatt other og minoritetsinteresser items, income taxes 65 107 48 916 43 102 56 154 59 991 Årets resultatinterest and minority 24 916 116,881 16 554 95,043 16 846 65,085 17 245 48,873 16 153 43,065 Kontantstrøm Net income fra operasjonelle aktiviteter 38 807 40,615 30 797 30,730 24 023 24,916 39 173 16,554 56 752 16,846 Kontantstrøm benyttet Cash flow provided til investeringsaktiviteter by operating activities 31 959 60,913 23 198 56,250 16 756 38,807 12 838 30,797 16 014 24,023 Rentebærende Cash flow usedgjeld in investing activities 36 189 40,084 37 278 37,664 37 128 31,959 41 795 23,198 36 982 16,756 Netto rentebærende Interest-bearing debtgjeld 20 326 35,786 20 906 34,093 23 592 36,081 34 077 37,278 23 379 37,128 Gjeldsgrad Net interest-bearing debt 19,0% 24,945 22,6% 19,287 28,7% 20,218 39,0% 20,906 25,0% 23,592 Avkastning Net debt topå gjennomsnittlig capital employed sysselsatt kapital etter skatt 23,5% 16.8% 18,7% 15.1% 14,9% 18.9% 19,9% 22.6% 18,7% 28.7% Return on average capital employed after tax 27.1% 27.6% 23.5% 18.7% 14.9% Operasjonelle data Olje- og naturgassproduksjon Operational information (tusen fat o.e./dag) 1 106 1 080 1 074 1 007 1 003 Sikre olje- og Combined naturgassreserver oil and gas production(millioner (thousandfatboe/day) o.e.) 41,135 289 4 264 1,169 4 267 1,106 4 277 1,080 4 317 1,074 Proved oil and gas reserves (million boe) 4,185 4,295 4,289 4,264 4,267 Produksjonskostnader (USD/fat) 3,5 3,2 3,0 2,8 3,0 Funn- og utviklingskostnader Production cost (NOK/boe) (USD/fat) (3-års gjennomsnitt) 8,5 26.6 5,9 22.3 6,2 22.4 9,1 22.4 8,2* Reserveerstatningsrate (3-års Reserve replacement ratio gjennomsnitt) (three-year average) 1,01 0.94 0,95 1.02 0,78 1.01 0,68 0.95 0,86 0.78 Share information(i(in Aksjeinformasjon kroner, NOK, unntatt antall aksjer) except number of shares) Resultat per per Net income aksje share 11,50 18.79 7,64 14.19 7,78 11.50 8,31 7.64 8,18 7.78 Aksjekurs Share priceOslo Børsstock at Oslo 31. desember exchange (Oslo Børs) 31 December 95,00 165.25 74,75 155.00 58,50 95.00 61,50 74.75 - 58.50 Vektet gjennomsnittlig Weighted antall average number ofutestående ordinary aksjer 2 166 142 636 2 166 143 693 2 165 422 239 2 076 180 942 1 975 885 600 shares outstanding 2,161,028,202 2,165,740,054 2,166,142,636 2,166,143,693 2,165,422,239 (1) Engangseffekter gjelder spesielle effekter knyttet til fjerningsfordelingsloven, salgsgevinster, nedskrivninger og avsetninger. Se «Ledelsens finansielle analyse». * Follow-up changed from USD/boe to NOK/boe. Netto rentebærende gjeld Net interest-bearing debt == Produksjonskostnader Production costs per barrel per fat oilo.e. = virksomhet. Totaltengines, boilers, furnaces, CO 2 -utslipp flares,omfatter drilling of Definisjoner Definitions Brutto rentebærende gjeld Gross interest-bearing debtfratrukket betal- less cash and Driftskostnader equivalent = forbundet med produk- alle utslippskilder exploration som turbiner, and production wellskjeler, and well ingsmidler og kortsiktige investeringer. cash equivalents. sjonen av olje Operating og naturgass, expenses associateddividert med with pro- ovner, motorer, fakler, testing/workovers. boring avinlete- Reductions og emissions samlet ductionproduksjon (løfting) of oil and natural av olje og gas divided by total produksjonsbrønner are accumulated for the og period 1997-2006. Gjeldsgrad Net debt to=capital employed = naturgass. production (lifting) of oil and natural gas. brønntesting/brønnopprenskning. Forholdet mellom The relationship netto rentebærende between net interest- Oppnådde reduksjoner Total recordable injuryi frequency utslippene er = gjeld ogdebt bearing sysselsatt kapital. and capital employed. Funn- Reserve ogreplacement utviklingskostnader ratio = = akkumulert The number for perioden of total 1997-2004. recordable injuries per Beregnes Additions tout proved fra nye reserves, sikre reserver, including million working hours. Employees of Statoil Gjennomsnittlig sysselsatt=kapital = Average capital employed eksklusiv acquisitionskjøp andogdisposals, salg av reserver. divided by volu- Personskadefrekvens = and its contractors are included. Gjennomsnitt Average of theav kapitalen capital som er employed atsyssel- the mes produced. Antall personskader per million arbeids- satt ved begynnelsen beginning og accounting and end of the slutten av period. Reserveerstatningsrate = timer. SeriousStatoil-ansatte og leverandører incident frequency = er regnskapsperioden. Sysselsatt Capital employed is net kapital er interest-bearing Tilgang Barrel of avoil nye sikre reserver, equivalent (boe)inkludert = kjøp inkludert. The number of incidents of a very serious netto rentebærende debt plus gjeld shareholders’ pluss equity andegenkapital og Oil salg, dividert and gas volumes med produserte expressed as areserver. common nature per million working hours. An incident og minoritetsinteresser. minority interest. unit of measurement. One boe is equal to Alvorlig hendelsesfrekvens is an event = or chain of events which has Oljeekvivalent one barrel of crude,(o.e.)or =159 standard cubic Antall causeduønskede hendelser or could have causedmed stor injury, alvor- illness Avkastning på gjennomsnittlig Return on average capital employed Olje og gass metres of gas.omregnet til felles måleenhet. lighetsgrad and/or damageperto/loss millionofarbeidstimer. property, theEn sysselsatt after tax =kapital etter skatt = 1 fat oljeekvivalent er lik 1 fat råolje eller uønsket hendelse environment er en or a third hendelse eller et party. Årets resultat Net income pluss plus minoritetsinteresser minority interest and net og 159 Carbonstandard dioxide kubikkmeter (CO2) = naturgass. hendelsesforløp som har forårsaket eller netto finanskostnader financial expenses afteretter tax asskatt i prosent a percentage Carbon dioxide emissions from Statoil ope- kunne ha forårsaket personskade, sykdom av gjennomsnittlig of capital employed.sysselsatt kapital. Karbondioksid rations embrace(CO 2) = such as turbines, all sources og/eller skade på/tap av materiell, skade Karbondioksidutslipp fra Statoil-operert på miljøet eller tredjepart.


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    Contents Our future Chief executive Helge Lund: A will to shape the future 2 Statoil’s strategy 4 Statoil today 6 Our history 6 Topic: An early and bold adopter of technology 8 Our business Overview of our business 14 Exploration & Production Norway 18 International Exploration & Production 21 Natural Gas 24 Manufacturing & Marketing 26 Technology & Projects 29 People and society 31 The environment 34 Our results Directors’ report 2006 40 The corporate executive committee 50 Corporate governance 52 Articles of association for Statoil ASA 54 The Statoil share 62 Operating and financial review and prospects 64 The Statoil group - USGAAP 95 Auditors’ report 139 Proved reserves report 140 HSE accounting for 2006 142 General information 150 In addition to this report we publish the sustainability report, the financial statements according to the Norwegian accounting principles and the 20-F report as specified by the US Securities and Exchange Commission. Read more about these reports on page 152. STATOIL ANNUAL REPORT AND ACCOUNTS 2006 1


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    2 STATOIL ANNUAL REPORT AND ACCOUNTS 2006


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    Our future A will to shape the future by chief executive Helge Lund For the third consecutive year, Statoil has delivered its best-ever annual result. We are well equipped to face increased competition. We are a company with great ability to create value and results, and a strong determination to grow and to shape the future. The planned merger with Hydro’s oil and gas division energy project (EVM). Through this project we will the expertise and experience we have developed is a distinct sign of this determination. We want to demonstrate innovation and determination to deal over several decades on the NCS. create an even more powerful company by bringing with the climate challenge by implementing industrial We in Statoil have worked systematically to together the best of Norwegian industrial experience solutions. This is also a good example of Statoil as an simplify and improve our systems and work and expertise. Through world-class technology and early and bold user of technology. processes. We have developed a customised expertise teams, we will further develop the We have made our core activities more robust management model, simplified requirements and Norwegian continental shelf (NCS) and increase through sales and acquisitions. Our downstream procedures, and established the parameters for a international growth. results have shown such a dramatic improvement value-based performance culture with clear Despite high oil and gas prices, the world around that we have met our profitability targets one year requirements with regard to attitude and deliveries us has become ever more demanding in recent years. ahead of schedule. The gas business has been made among our leaders and employees. Together with The competition for available reserves has become more robust through new supplies and infrastruc- operational improvements in key areas, this has much tighter. Mergers and takeovers have created ture, the development of a global LNG position, and strengthened our competitiveness and our ability to larger and more powerful players. A big demand for increased trading activity in the short-term gas deliver at the right tempo, with quality and precision. expertise, and for goods and services related to market. We will take this with us in establishing the merged exploration activities and increasingly more complex Statoil is making an aggressive commitment on company. developments, has squeezed costs and lead times. the NCS in both developed and unexplored areas. Two robust companies with an assertive Overall, it has become more difficult for the oil Last year we brought five new projects on stream, approach to environmental and sustainability and gas companies to grow in line with their sanctioned the development of five new projects, challenges are now planning to merge. The new expressed goals. The plan to merge Statoil with and stepped up our exploration efforts. With the company will be in a position to work with more and Hydro’s oil and gas division is an emphatic response to Snøhvit development, promising discoveries and a greater opportunities than Statoil and Hydro could the growth and competitive challenge faced by the purposeful exploration programme we have laid the do separately. Together we have a historic industry. foundation for a new industrial province in the opportunity to create a new, global company with a We set high requirements for results, and Barents Sea. Norwegian starting point. The conditions are right for continuous improvement within health, safety and In the past three years our international us to continue to create profitable and sustainable the environment. It is therefore gratifying to note production has increased by almost 80%. In 2006 growth for our owners, employees and the host that in the past year we have continued the progress we brought important upstream projects on stream communities in the future. in important areas. Since 2001 we have more than in Azerbaijan, Angola and Algeria. The opportunities halved the number of serious incidents. for international growth and value creation have During the past year we have seen a substantial been strengthened through record-high exploration increase in the focus on global warming. We will activity, access to new licences and acquisition of continue the resolute attitude which characterises us new areas rich in resources. In the course of a in order to identify new solutions that will contribute relatively short time, we have established a solid to a reduction in greenhouse gas emissions. In 2006 platform for long-term growth in the Gulf of Mexico. we stepped up our commitment to renewable fuels We have a very promising deepwater portfolio there, Helge Lund and commenced the construction of the Mongstad which provides many opportunities to implement President and CEO STATOIL ANNUAL REPORT AND ACCOUNTS 2006 3


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    Statoil’s strategy Globally competitive A unique workplace for performance and development Statoil’s ambition is to be a leading international greater competition over new projects and important company with an increasing share of its production input factors. Keen competition is reflected in higher outside Norway. Competition in the energy sector is costs. High oil prices have also contributed to host becoming increasingly tougher, and to succeed in countries increasingly tightening their framework developing our national and international positions, we conditions for international oil companies. must beat the competition from the world’s best oil and We are experiencing intense exploration activity, gas companies. The necessary competitive leverage will with 2006 seeing NOK 7.5 billion spent on exploration. be secured through improvement programmes and Completed wells totalled 41 in 2006 and 21 finds were restructuring, and through further development of our made. We were also awarded new exploration acreage employees. We will offer attractive development both in Norway and internationally. opportunities to talented young people and be at the forefront of technological development in selected Merger with Hydro’s oil and gas division areas. We will also be leading on safe, environment- The planned merger of Statoil and Hydro’s oil and gas friendly and efficient operations of all our facilities. division, which the boards of the two companies agreed on in December 2006, is a natural result of Statoil’s Statoil’s strategic direction growth strategy. The new company will have further • Maintain the role of leading player on the Norwegian and bigger growth opportunities both on the NCS and continental shelf (NCS). internationally. It will be the world’s biggest offshore • Develop new international growth platforms. operator at depths greater than 100 metres, and a • Strengthen our natural gas position in pipeline and leader in subsea technology. The merger secures long- liquefied natural gas (LNG) value chains. term value creation for shareholders by strengthening • Increase value creation in the product market. its international competitive position. • Be world-leading in project execution and in selected technology areas. Investment and future growth To achieve future production growth, we will invest High oil and gas prices in 2006 gave Statoil its best-ever around NOK 120 billion exclusive of acquisitions in the annual result. We have a strong financial position which period 2005-07. The level of investment is also provides the basis for future freedom of action and expected to be high throughout 2008 as a result of growth. At the same time, the high oil prices have led to access to profitable projects. Statoil’s strong commit- 4 STATOIL ANNUAL REPORT AND ACCOUNTS 2006


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    Our future Lars Rennan at Statoil’s ment in coming years will depend on meeting our Values and culture research centre in Trondheim requirements for profitability and robustness. analyses heavy oil from the Our employees’ expertise and experience will always be Orinoco area of Venezuela our most important resource. Strong international using computer tomography. HSE and financial results growth will characterise us for a number of years to Statoil is partner in a project Great attention is devoted to work on health, safety and come. This means that our organisational entities and involving land-based oil the environment (HSE), which has high priority. We can our employees must be willing and able to adapt swiftly, production here. Big assets report improvements in most areas where HSE results and we must also be good at integrating new personnel. can be realised if Statoil are measured. We believe that there is a close relation- We work actively to create a healthy performance succeeds with new ship between a good HSE performance and a company’s technology which improves culture which delivers results and we devote significant the recovery factor. financial results. Our work with sustainability is resources to trainee programmes and to building important and this commitment was rewarded in 2006 expertise. Strict requirements are set for the way in when we came top for the third year running among oil which the group is run and results achieved. Statoil will and gas companies in the Dow Jones Sustainability be an enterprise with clear values and leadership. World Index. Statoil’s key operational goals • Maintain an output of one million barrels of oil chain and increase the sale of equity natural gas equivalent per day from the NCS until 2015. towards 50 billion cubic metres per year by 2015. • Develop further the existing international portfolio • Increase value creation in the product markets and build new international positions that contribute through efficient operations and better integration to the company achieving long-term production between manufacturing and marketing. growth. • Be a world leader in project execution and in selected • Maximise the value of existing positions in the value technology areas. STATOIL ANNUAL REPORT AND ACCOUNTS 2006 5


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    Statoil today Statoil is an integrated oil and gas company based in Norway. We are the leading operator on the Norwegian continental shelf and are also experiencing strong growth in our international production. Production outside Norway represented 15.7% of our We have substantial industrial activity and operate total output, which averaged 1,135,000 barrels of oil 1,803 service stations in Scandinavia, Poland, the Baltic equivalent per day in 2006. states and Russia. Represented in 34 countries, we have exploration We are one of the world’s most environmentally and production activities in 15 of these. At 31 Decem- efficient producers and transporters of oil and gas. ber 2006 we had 25,435 employees. Our goal is to create value for our owners through www.statoil.com/ statoils_world We are one of the world’s largest sellers of crude oil profitable and safe operations and sustainable business and a substantial supplier of natural gas to the European development without causing harm to people or the market. environment. Our history Statoil was founded by a decision of the Norwegian established a comprehensive network of service Storting (parliament) in 1972. Wholly owned by the stations. In Denmark and Sweden, we acquired Esso’s Norwegian state, the company’s role was to be the service stations, refineries and petrochemical facilities. government’s commercial instrument in the develop- The 1990s were characterised by intense techno- ment of the oil and gas industry in Norway. logical innovation on the Norwegian continental shelf In 1974 Mobil discovered the Statfjord field in the (NCS), with Statoil becoming a leading company within North Sea which was to have enormous significance for floating production facilities and subsea developments. Statoil’s development. We met great challenges in Statoil grew strongly, expanded in product markets and developing Statfjord, one of the world’s largest offshore oil made a commitment to international exploration and fields. Statfjord came on stream in 1979 and we took over production in alliance with BP. as operator eight years later. We have a 44% interest. In 2001, Statoil was partially privatised with listings on The 1980s saw us become a big player in the the Oslo and New York stock exchanges. We have strength- European gas market by entering into extensive ened our position on the NCS, and our international contracts to develop and operate gas transport systems exploration and production operations are set to increase and terminals. substantially over the rest of the decade. In December In the same decade, we were heavily involved in 2006, the boards of Statoil and Hydro recommended a manufacturing and marketing in Scandinavia and merger of Statoil and Hydro’s oil and gas division. 6 STATOIL ANNUAL REPORT AND ACCOUNTS 2006


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    Our future Norway Denmark Sweden Estonia Faroe Islands Latvia UK Russia Ireland Lithuania Belgium Poland France Germany Kazakhstan Georgia USA Turkey Azerbaijan Algeria Iran Egypt Qatar Libya United China Saudi Arabia Arab Emirates Mexico Venezuela Nigeria Singapore Indonesia Angola Brazil Statoil is represented in 34 countries. Events and highlights of 2006 • The boards of Statoil and Hydro recommended a merger of Statoil and Hydro’s oil and gas activities. • Net income of NOK 40.6 billion – our best result ever, up 32% from 2005. • For the third year in a row we were ranked by the Dow Jones Sustainability World Index as the world’s best oil and gas company in terms of sustainability. • Record-high exploration activity but a slight decline in production and reserves. • Four new international projects started pro- duction and five were brought on stream on the Norwegian continental shelf (NCS). STATOIL ANNUAL REPORT AND ACCOUNTS 2006 7


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    Topic: Technology An early and bold adopter of technology Statoil’s history and development are closely linked to the ability and boldness to adopt new technology which can enhance value creation. A fruitful collaboration between able suppliers and very creative in-house specialists has put the group right at the forefront in important technological areas. 8 STATOIL ANNUAL REPORT AND ACCOUNTS 2006


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    Our future “The difference between what is possible and impossible today is a question of time.” Arve Johnsen These areas include environmental solutions, where Three comments over an 18-year span illustrate Statoil is an international leader in carbon dioxide Statoil’s willingness to be creative and innovative in the capture and storage. technological arena: They also embrace exploration, where the group has “The difference between what is possible and developed and commercialised subsea logging as a tool impossible today is a question of time,” Arve Johnsen, which makes it possible to determine the presence of oil Statoil’s first chief executive, observed in 1986. His and gas ahead of drilling. And exploiting and coordinat- young organisation had already provided confirmation of ing engineering, geological and geophysical expertise this belief by crossing the Norwegian Trench in 300 have also enabled the group to maximise oil and gas metres of water with the Statpipe gas line. recovery. That not only has great significance for value “Åsgard is the boldest and most complex subsea creation on the NCS, but the underlying knowledge is project ever launched,” wrote Leo Aalund, technology also very important in international competition for editor of Oil and Gas Journal in 1998. This field ranks as upstream positions. the world’s largest subsea development, with 58 wells In addition, Statoil is a front runner in subsea in 16 templates. production and transport solutions, which are following “Statoil is a bold and early user of technology,” said two exciting development paths: Helge Lund when he took over as chief executive in • operations carried out from ships or other surface August 2004. “This will remain an important competi- installations are increasingly being transferred to the tive platform. We are going be in the forefront.” seabed. • monitoring and control functions are being exercised A young company over ever greater distances, making it possible for Statoil displayed no shortage of courage and boldness jobs to be moved ashore. when it got to work on its first operator assignments – STATOIL ANNUAL REPORT AND ACCOUNTS 2006 9


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    Snøhvit the development and production of the Gullfaks field and Melkøya the Statpipe system with the associated gas terminal at Kårstø. Approved by the Storting (parliament) in 1981, these projects were among the largest in the world at the time. Yet the company responsible for them had only existed for nine years. The dimensions and perspectives Norne were huge, but few outside the industry grasped them. At Heidrun Åsgard that time, the oil and gas business still seemed a little remote and exotic to most Norwegians. Tjeldbergodden Others understood, though. The management of America’s Sonat visited Norway and Gullfaks after the Kvitebjørn NORWAY Statfjord field had come on stream in 1986. Kollsnes “It’s incredible that such a young company and oil Kårstø nation has accomplished this,” one executive comment- Sleipner ed. “You don’t have a bigger population than we’ve got in St Fergus Brooklyn.” Ekofisk Strong gas position Teesside Statpipe and Gullfaks gave Statoil valuable development Dornum Easington Emden experience, which the group has retained. UK These projects formed the basis for a strong position GERMANY Zeebrugge in gas transport and for developing an expertise on gas Dunkerque 10 STATOIL ANNUAL REPORT AND ACCOUNTS 2006


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    Our future “Åsgard is the boldest and most complex subsea project ever launched.” Oil and Gas Journal value chains which link such systems with production Even before Statoil became an operator, its IOR and sales. Statoil has developed and is now technical ambitions had become clear. They found expression in a service provider for a submarine pipeline network 8,000 1984 agreement over collaboration with the Norwegian kilometres long, which ties more than 40 fields on the Academy of Science and Letters on financial support for NCS to the European market. The group is also working increased basic research. “Statoil takes the view that on gas-to-liquids (GTL) technology to turn natural gas substantial opportunities exist for increasing the into liquid fuels, primarily diesel oil and naphtha. GTL recovery factor – and thereby the production value – of makes it possible to find sales solutions for natural gas petroleum resources on the NCS,” the contract states. It when export by pipeline or ship is not commercial. This emphasises the importance of pursuing purposeful technology is now ready for full-scale application. research to increase knowledge about and understand- ing of physical processes in the reservoirs. Started on Gullfaks IOR involves rather more than drilling additional Gullfaks and Statfjord in the North Sea allowed Statoil to wells. At times, it presents complex issues which must lay the foundation for its current position as a leading be resolved through both research efforts and practical international specialist in improved oil recovery (IOR). collaboration between such disciplines as geology, The Gullfaks organisation was awarded the Norwegian geophysics, mathematics, physics, chemistry and Petroleum Directorate’s IOR prize for 2005. According biology. to the original development plan, this field should have been fully depleted by then. But systematic efforts to Statoil goes subsea improve reservoir understanding have doubled its It was also on Gullfaks that Statoil made the first move recoverable reserves. This increase is sufficient to meet in 1986 towards what has become a seabed adventure Norway’s oil requirements for more than 13 years. – subsea production. This step involved five production STATOIL ANNUAL REPORT AND ACCOUNTS 2006 11


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    wells completed on the seabed up to a couple of impossible possible. Adequate economics were kilometres from the Gullfaks A platform. Twenty years previously out of reach in a development based on later, the group operates 272 subsea wells split known technology, involving a staffed platform installed between 29 facilities and produces a larger total volume offshore. from these than from platform wells. “Multiphase flow over long distances will accordingly A development thread links the five wells on Gullfaks become increasingly important in assessing new with the Snøhvit field in the Barents Sea, which is being projects,” says Margareth Øvrum, executive vice developed entirely on the seabed. The production president for Statoil’s Technology & Projects business facilities are remotely operated, with the unprocessed area. “Moving processing facilities to land opens wellstream – a mix of gas, oil and water – piped for 143 opportunities for developing oil and gas resources in kilometres to a separation facility on land. Known as environmentally sensitive regions and in areas remote multiphase flow, this technology permits wellstreams to from existing infrastructure.” be piped over long distances and thereby allows processing facilities to be placed on land with a Innovative solutions consequent reduction in costs. This opens entirely new Measurements indicate that no less than 70% of perspectives for oil and gas production. Statoil’s development projects involve innovative technology. The closest rival is at 40%, and the industry Long-term research average lies as low as 10-12%. A high innovation Statoil began researching multiphase flow as early as in content increases the risk of cost overruns, as happened 1981, three years before Snøhvit had even been in the Åsgard development. discovered, and has become a leader in this area. The But this field has become very good business. At 31 Snøhvit development is a good example of making the December 2006, the sales value of Åsgard’s output had 12 STATOIL ANNUAL REPORT AND ACCOUNTS 2006


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    Our future “Statoil is a bold and early user of tech- nology. This will remain an important competitive plat- form. We are going be in the forefront.” Helge Lund reached NOK 310 billion or five times its development • the Norwegian authorities set strict standards for costs. The project came on stream in May 1999 and its environmental protection and resource utilisation. sales revenues by 2003 already exceeded investment on the field, the gas pipeline to Kårstø, expansion of that “That’s made it necessary to be creative and receiving terminal, the Europipe II export pipeline and innovative in coming up with the best solutions in operating costs during the period. financial terms,” she says. “However, we have very able and creative engineers who aren’t afraid to challenge More on the seabed accepted truths and to strike out in new directions. That Subsea technology is developing rapidly, and is now means a lot.” characterised by transferring new and fairly advanced Ms Øvrum says it is also important to note that we operations to the seabed. Separation of the wellstream cooperate with suppliers who are among the most into its components has so far been carried out on fixed competent in the world within their specialities. and floating installations. Statoil is currently adopting “We’ve worked with a number of them for many the world’s first full-scale subsea facilities for well- years, and I know that they find this collaboration stream separation, and injecting unprocessed seawater stimulating precisely because we’re a client who on the Tordis and Tyrihans fields respectively. These demands innovative solutions. That gives them exciting projects are described in more detail on page 38. challenges.” Ms Øvrum identifies three factors which have been important in developing Statoil as an innovative technology company: • the NCS has been and remains demanding to develop • the level of costs is high STATOIL ANNUAL REPORT AND ACCOUNTS 2006 13


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    Our business With sand as far as the eye can see, Statoil is searching for gas under the Saharan dunes. 14 STATOIL ANNUAL REPORT AND ACCOUNTS 2006


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    Our business was characterised in 2006 by good results in safety work, an aggressive attitude to business development through a sharp expansion in exploration activity and preparing for new production, and a willingness to tackle climate challenges with industrial solutions. Nobody lost their life working for us in 2006, and the serious injury frequency reached a lower level than ever before. Our oil and gas production totalled 1,135,000 barrels of oil equivalent per day, a decline of 34,000 barrels from 2005. This downturn primarily reflected lower output from mature fields and a temporary reduction in production from other developments. We sharply expanded our exploration activity in 2006, with 37 wildcat and appraisal wells completed, compared with 20 the year before. Nine new projects were brought on stream. STATOIL ANNUAL REPORT AND ACCOUNTS 2006 15


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    Business strategies Exploration & Production Norway The business area’s ambition is to maintain daily production of one million barrels of oil equivalent (boe) from the Norwegian continental shelf (NCS) until 2015 and improve and strengthen Statoil’s position as the leading company on the NCS. Good results within heath, safety and the environment (HSE), cost-effective operations and improved recovery from existing fields, development of new finds, good area solutions, proving of new reserves through intense exploration activity and increased access to new licences, are clear preconditions for success. International Exploration & Production The business area’s goal is to secure long-term production growth internationally. This is done in close collaboration with various companies around the world. With a foundation in Statoil’s strong technological base, developed on the NCS, growth will be secured by accessing new areas and expanding the existing portfolio. Together, this will contribute to the group’s long-term production growth through effective business development and exploration in potentially resource-rich areas. Natural Gas Statoil aims to further develop its position on the Norwegian continental shelf (NCS) and internationally through increased production and investments in new fields and infrastructure to serve the European and US gas markets. The business area will strengthen established market positions in Europe with gas from Norway, the Caspian Sea and north Africa. The position of the Cove Point terminal on the USA’s east coast will be further developed with equity gas supplied from the Snøhvit field, and third-party gas. Manufacturing & Marketing Manufacturing & Marketing has a comprehensive improvement programme and has made considerable progress relating to operations, efficiency and cross-disciplinary value creation in 2006. Market positions have also been strengthened and this work will continue. Growth within existing activities, increased vertical integration in the oil value chain and focus on new energy carriers and carbon dioxide value chains, are also being considered. M&M is developing downstream positions outside Norway to help Statoil achieve its ambitions for increased international oil and gas production. Technology & Projects The most important commercial challenges within Statoil’s technology strategies are to increase the group’s oil and gas output from existing fields, help to find new reserves, establish a basis for future business opportunities and strengthen project execution. The most important areas on which this commitment will concentrate are exploration technology and reservoir management, subsea technology, environmental technology, gas technology, and cost-effective and safe operations. 16 STATOIL ANNUAL REPORT AND ACCOUNTS 2006


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    Our b us iness Facts Key events in 2006 Exploration & Production Norway is responsible for Statoil’s operations on • The Troll and Gullfaks fields celebrated their 10th and 20th year the NCS. Fields operated by the group account for about 60% of total of production, respectively. Norwegian oil and gas production. Statoil is operator for 25 on-stream oil • The plan for development and operation (PDO) of Sleipner B and gas fields, which comprise 20 platforms or production ships with crew, compression was approved by the Norwegian Storting four unstaffed installations and 23 subsea facilities. (parliament). Employees: 6,489 of whom 3,531 work offshore. • PDO for the Gjøa and Alve fields submitted to the Norwegian government. • Statoil was awarded three operatorships and shares in five licences International Exploration & Production is responsible for Statoil’s • Significant production capacity added through bringing ACG exploration, development and production of oil and gas outside the NCS. In phase II, In Amenas and Dalia on stream. 2006, the group had production in Angola, Algeria, Azerbaijan, China, the UK • US Gulf of Mexico position further strengthened through and Venezuela. The business area stood for 16% of Statoil’s total oil and gas acquisition of discoveries and exploration prospects. production and output shows strong growth. • Intense exploration activity with 20 exploration wells Employees: 819, of whom 469 work outside Norway. completed. • New exploration acreage secured in Angola, Ireland, Indonesia, Egypt and the US Gulf of Mexico. Natural Gas is responsible for transporting, processing and marketing • Record gas sales, good gas prices and high export regularity. Statoil’s own gas from the NCS to European destinations. The company • Opening of the Langeled pipeline from the Sleipner area to the accounts for two-thirds of all Norwegian gas exports. Statoil has large interests UK. in, as well as responsibility for, technical operation of the majority of export • Expansion of the Cove Point terminal in the USA begun. pipelines, onshore facilities and terminals in the processing and transport • Gas pipeline from the Shah Deniz field in Azerbaijan via Georgia systems for Norwegian gas. The business area is responsible for international to Turkey completed. gas marketing and for Statoil’s commitment to the market for liquefied natural • Customer base and relevant landfall sites identified for a new gas (LNG) Employees: 938 of whom 184 work outside Norway. gas pipeline from Norway to continental Europe. Manufacturing & Marketing embraces the group’s combined operations in • Decision taken for go-ahead with the combined heat and power transportation of oil, processing, sale of crude oil and refined products and (CHP) station at Mongstad. retail activities in 12 countries. Statoil operates two refineries, one methanol • Collaboration with the government on construction of a carbon plant and has international trading activities and an extensive distribution capture facility at Mongstad. network for businesses and private customers. Over one million customers • Service station network in Ireland sold. visit Statoil’s 1,803 service stations daily. M&M processes and sells Statoil’s • Statoil’s retailing arm and energy business merged into one and the Norwegian government’s production of crude oil and natural gas business cluster. liquids, and markets natural gas in Scandinavia. Employees: 12,966 of whom 10,787 work outside Norway. Technology & Projects is responsible for Statoil’s strategic procurements, • On schedule for start-up of Snøhvit in December 2007. technology expertise, research and development, planning and executing • The southern leg of the Langeled gas pipeline from Sleipner to large development projects, and for contributing to safe and efficient Easington came on stream in October. operations. The group’s research centre in Trondheim is part of the business • Organisation established to carry out planning, operation and area and has a special responsibility for technological innovation which processing of land-based seismics and drilling in desert areas of contributes to finding more oil and gas, and to recovering more of the Algeria and Libya. resources in producing fields. It is in charge of commercialising technology • Collaboration agreement signed with the University of California and industrial rights. Employees: 2,205, of whom five work outside Norway. for a management programme relating to large and complex development projects. STATOIL ANNUAL REPORT AND ACCOUNTS 2006 17


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    Exploration & Production Norway important year for the project. The goal is to deliver a PDO Key figures (NOK million) 2006 2005 2004 in December 2007. At the same time, work to ensure Total revenues 116,967 97,623 74,050 improved oil recovery from the field is underway. Income before financial items, other items, taxes and minority interest 89,389 74,132 51,029 Gjøa and Vega to be developed Gross investments 20,921 16,257 16,776 In December 2006 Statoil submitted a PDO for the Gjøa field in the North Sea. Start-up is planned for the autumn of Statoil’s equity production of oil and gas on the NCS 2010. The field will be developed using subsea templates averaged 958,000 boe per day in 2006. This represents a and semi-submersible platform processing. The field will be decrease compared with 2005 production, which averaged powered mainly with onshore-supplied electricity. The field 985,600 boe per day. NCS production is expected to development, which lies north of the Troll field, will open up increase in 2007. The decrease is not due to fewer a new part of the North Sea. reserves, but to postponed production resulting from At the same time, Hydro submitted its plan for challenging reservoirs and complicated well operations. development and operation of the North Sea’s Vega and www.statoil.com/ Statoil has ambitions to maintain production of one million Vega South fields, with planned start-up in the autumn of norwegian_fields boe per day until 2015 on the NCS. In the short term, the 2010. They will be tied back to Gjøa. The advantages of goal is to produce 1,060,000 boe per day in 2007. The coordinating Gjøa with these fields will be considerable. reason for the increase is the planned start-up of new fields Statoil has a total share of 20%. and projects, including Ormen Lange, Volve, Snøhvit, the Gullfaks satellites and Statfjord late life, while Kristin is Subsea processing on Tordis expected to reach plateau production during 2007. The Tordis field in the Tampen area will become the world’s Towards the end of 2006, Statoil and the Kvitebjørn first commercial field with subsea processing. Water and licensees decided to temporarily reduce gas and oil sand will be separated from the oil on the seabed and production by 50% to support adequate reservoir pumped into the sub-surface. Oil and gas will be transport- management and safe drilling of the remaining wells. Part of ed via an existing 10-kilometre pipeline to the Gullfaks C this reduction will be offset by increasing production on platform. The project was sanctioned by the authorities in other fields. 2005 and the first phase was started in 2006. It is expected to boost recovery by around 35 million barrels of Ten years of gas production on Troll oil. Plans call for production start-up with subsea separation The Troll field in the North Sea celebrated its 10th year of in October 2007. production in 2006. During the year, there was great activity in the Troll future development project. This The Halten/Nordland growth area involves increasing the production capacity and export Statoil’s production from the Halten/Nordland area of the from Troll from the autumn of 2011, and 2007 will be an Norwegian Sea averaged 210,000 boe per day in 2006. Kristin inaugurates Kristin Kristin Halvorsen, the Norwegian finance minister, has the same first name as the field she inaugurated on 21 September 2006. The Kristin gas and condensate field, which lies off the coast of mid- Norway, has been technologically demanding to develop due to an extremely high reservoir pressure and temperature of 910 bar and 170 degrees Celsius, respectively. It has been developed with 12 production wells, split between over four subsea templates tied back to a floating production platform. 18 STATOIL ANNUAL REPORT AND ACCOUNTS 2006


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    Our b usiness This is an increase of 30% on the previous year. The fields in The ship unloaded LNG for cooling and testing the loading this area represent 22% of Statoil’s production on the NCS. and storage systems at the plant. It is expected that this share will increase to roughly a third Plant activity reached a peak in the summer of 2006 in 2015. with a workforce of 3,200 personnel. During the year, the The Heidrun and Norne fields have passed peak bulk of the installation work was completed and testing of production, while the Kristin field’s production is under the plant’s facilities is now well underway. Snøhvit is development. Kristin is a technically demanding field with high pressure and high temperature, making drilling and Statoil’s average oil and gas production - Norwegian continental shelf completion of high-deviation wells more complex. All wells 1,000 barrels of oil equivalent/day must be completed before the field can commence Field 2006 Statoil’s share production as planned. Plans call for completion of the final Statfjord 58.2 44.34% high-deviation well during the first six months of 2007. Statfjord East 7.2 25.05% Because of the special reservoir conditions, Kristin Statfjord North 5.9 21.88% operations are the most demanding now being carried out Sygna 1.8 24.73% on the NCS. Gullfaks 148.8 61.00% The Ormen Lange gas field is planned to come on stream Gimle 2.1 47.23% in the autumn of 2007. The PDO for Tyrihans, which will be Snorre 22.4 15.55% tied back to the Kristin platform, was approved by the Vigdis 20.5 28.22% Storting in February 2006. The PDO for Alve which is a Visund 13.2 32.90% subsea installation that will be tied back to the Norne Tordis 9.0 28.22% production vessel, was submitted in January 2007 with Troll Gas Phase 1 106.9 20.80% start-up planned for late 2008. The PDO for the Skarv/ Kvitebjørn 71.9 43.55% Idun fields in the Norwegian Sea is expected to be Sleipner West 103.4 49.50% submitted in 2007. The development solution comprises Sleipner East 30.2 49.60% seabed wells and processing on a production ship. Start-up Gungne 16.1 52.60% is planned for 2011. Veslefrikk 3.7 18.00% We are working actively to increase recovery from Huldra 5.9 19.88% existing fields through better reservoir mapping, new Glitne 5.9 58.90% reservoir measuring methods and by drilling cheaper and Norne 28.5 31.00% smarter wells. We are also evaluating carbon dioxide Urd 18.5 50.45% injection and the possibilities for increased injection of gas. Kristin 44.4 41.30% We have bought BP’s 25% holding in the Luva licence Heidrun 19.7 12.41% and taken over its operatorship. Åsgard 81.9 24.96% Mikkel 16.9 33.97% Snøhvit in the Barents Sea Total Statoil-operated 843.0 The Snøhvit development is expected to be completed in Total partner-operated 115.0 2007 with the first liquefied natural gas (LNG) shipment Total production 958.0 planned for export during the autumn. The Hammerfest Underlifting 1.5 LNG plant received its first LNG carrier in December 2006. Total lifted production 956.5 958 985 991 989 940 436 1 423 319 366 249 691 670 1 625 Statoil’s share of oil and gas production, 521 562 Norwegian continental shelf 2006 2005 2004 Oil (thousand barrels per day) 521 562 625 2001 2002 Natural gas (thousand boe per day) 436 423 366 Olje Gass Total production (thousand boe per day) 958 985 991 2006 2005 2004 Oil Gas STATOIL ANNUAL REPORT AND ACCOUNTS 2006 19


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    Europe’s first export facility for LNG and there have been because Statoil has in recent years secured rig capacity and many visits to the plant. new employees in an ever more demanding market. Exploration Health, safety and the environment There was a big increase in exploration activity on the NCS We experienced a serious gas leak on the North Sea’s Visund in 2006. Seventeen wells with Statoil involvement were platform in January 2006. An incorrectly designed scrubber completed, compared to nine the previous year. Finds were caused damage to the flaring system and consequently made in eight wells, while six were made in 2005. We took caused the leak. The safety systems worked as intended part in four exploration extensions and production wells and and there were no injuries to personnel. Production on the INVESTMENTS PER BUSINESS AREA made two finds. We were also involved in six wells where Visund platform was stopped for more than four months drilling was taking place at the end of the year. In total, following the leak. Statoil has received positive feedback 46.2 46.2 42.8 Statoil spent NOK 3.5 billion on exploration on the NCS. from the Petroleum Safety Authority Norway with regard With the awarding of the 19th licensing round in the to how the incident was handled. A lot of work is carried out spring of 2006, Statoil scored well with five awarded on risk assessments and measures to avoid damage to licenses, of which three were as operator in the Barents health, but there is room for improvement. In 2006 EPN has Sea. Through six new operatorships and two further licence maintained considerable focus on work operations and shares in Norway’s awards in predefined areas (APA) chemical hazards. A working group has reviewed the announced in January 2006, Statoil got access to company’s routines and a plan of action has been prepared interesting exploration acreage in more mature areas. which will contribute to avoiding exposure to dangerous Drilling results from these new licences will be available chemicals and securing better follow-up of personnel. from 2008. NOK bn Lifeboat project More exploration in 2007 In 2005 construction weaknesses were revealed in free-fall In 2007, Statoil plans to participate in 16-20 exploration lifeboats. During 2006, a total of 212 lifeboats on the NCS 2004 2005 2006 wells. The group is operator for around half of these. The were reinforced to withstand water column pressure on the Other competition for drilling rigs and personnel is still expected to superstructure during towing from the installations. The Manufacturing & Marketing be intense, but the increase in activity will be possible lifeboat project is planned to end in the first half of 2007. Natural Gas International Exploration & Projects under development Production Statoil’s Statoils Production Plateau production Lifetime Exploration & Field share investment * start Statoil’s share ** in years Production Norway Ormen Lange *** 10.84 % 6.1 2007 50,000 30 Snøhvit 33.53 % 19.8 2007 40,000 30 Skinfaks/Rimfaks IOR 61.00 % 2.1 2007 22,000 11 Volve 49.60 % 1.1 2007 30,000 6 Statfjord late life 44.34 % 7.2 2007 43,000 **** 12 Tyrihans 46.84 % 6.8 2009 50,000 17 Fram East *** 20.00 % 1.1 2006 9,000 16 *) Estimated in NOK bn .**) Boe/day. ***) Partner-operated project. ****) New additional production. 20 more years for Gullfaks Odd Roger Enoksen, Norway’s minister of petroleum and energy (right) and Lars Chr Bacher, Statoil’s senior vice president for the Tampen business cluster, at the ONS conference in Stavanger, August 2006, are optimistic about the Gullfaks field’s extended life-span and further production. In 2006, Statoil celebrated 20 years of Gullfaks production. According to original plans, the field was due to be shut down by now, but we aim to continue producing for at least another 20 years. It was Statoil’s first major field development and has been of great significance for the group. 20 STATOIL ANNUAL REPORT AND ACCOUNTS 2006


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    Our b usiness International Exploration & Production During the next few years a comprehensive drilling Key figures (NOK million) 2006 2005 2004 programme for expanding the deepwater portfolio is Total revenues 24,643 19,563 9,765 planned. Income before financial items, other items, taxes and minority interest 10,928 8,364 4,188 Angola Gross investments 19,974 25,295 18,987 The Angolan continental shelf is the largest source of Statoil production outside Norway. It yielded over The operating income for the International Exploration 70,000 barrels of oil per day at the end of 2006, & Production business area increased by 31% from representing around 40% of the group’s total interna- 2005 to 2006. Entitlement production decreased to tional oil and gas output. 178,000 barrels of oil equivalent (boe) per day from Statoil has a 13.33% share in each of the blocks 15, 184,000 boe per day in 2005. The reduction is related 17 and 31. Current production from Angola comes from to oil price effects in our production sharing agree- the Girassol, Jasmim, Kizomba A and B, Xikomba and ments. Dalia fields. Developments are ongoing at Rosa in block In 2007 our goal is to increase output to around 17 and at Marimba, Mondo and Saxi-Batuque in block 240,000 boe per day through the build-up of produc- 15. tion from fields in Angola, Azerbaijan and Algeria that In 2006 a further three discoveries have been made came on stream in 2006, and start-up of Angolan fields in block 31. A total of 12 finds have been identified in in 2007. Exploration activity will help lay the foundation block 31. This forms a basis for several more possible for further long-term growth. INT expects to partici- stand-alone developments. A successful appraisal of the pate in over 20 exploration wells in 2007, of which Orquidea find in block 17 was carried out which could around one third are expected to be Statoil operated. warrant a combined stand-alone development of the Cravo, Lirio, Orquidea and Violeta fields in the north- USA western part of the block. In less than two years, Statoil has developed a significant Dalia in block 17 came on stream in December and deepwater portfolio in the American sector of the Gulf the field is expected to reach a combined output of of Mexico. Through three large-scale acquisitions in 240,000 barrels per day. Dalia is the third stand-alone 2005 and 2006 totalling USD 3.6 billion, Statoil now development to be brought on stream in block 17. The has shares in 11 finds including the Tahiti field which is recoverable reserves are estimated at almost one billion under development. Plans call for production from this barrels of oil. field to commence during 2008. In November 2006 Statoil entered into an agree- In the autumn of 2006 a successful production test ment with the Angolan government which gives Statoil on the Jack find in the Walker Ridge area was carried a 5% share of block 15/06 exploration acreage. The out, where Statoil is one of the biggest licensees. Italian company ENI is operator. 184 178 43 29 149 142 115 15 Statoil’s share of oil and gas production 100 outside Norway 2006 2005 2004 Oil (thousand barrels per day) 149 142 100 Natural gas (thousand boe per day) 29 43 15 Total production (thousand boe per day) 178 184 115 2006 2005 2004 Oil Gas STATOIL ANNUAL REPORT AND ACCOUNTS 2006 21


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    Algeria safe behaviour programme adapted to Algerian In June 2006 gas production commenced from the In conditions. Around 15,000 employees will take part in Amenas field, where Statoil is joint operator with a 50% the programme up to 2009. STATOIL’S OIL AND GAS RESERVES share. The BP/Statoil partnership has access to volumes of wet gas, condensate and LPG via the processing Azerbaijan 4,295 4,185 facilities which underwent final testing in December Phase two of the main development for Azeri-Chirag- 2,534 2,510 2006. Gunashli (ACG) came on stream in 2006 with output The In Salah field, where Statoil is participating with a from East Azeri. Statoil’s share in the field is 8.56%. Million boe 31.85% share, has produced gas since start-up in 2004. Phase three includes the Gunashli deepwater field which In November 2006, we commenced drilling of the first is planned to come on stream in 2008. ACG is expected onshore exploration well in the group’s history. Drilling is to produce over one million barrels of oil per day when 1,761 1,675 taking place in the Hassi Mouina block which was the field reaches plateau production in 2009. Oil is awarded in 2004. The area lies north-west of the In transported to market primarily through the 1,768- 2005 2006 Salah gas field. A minimum of two wells will be drilled in kilometre Baku-Tbilisi-Ceyhan (BTC) pipeline. Statoil is Oil Gas the area. Statoil has a 75% share in the exploration co-owner in BTC with an 8.71% share. The first cargo of block. Partner Sonatrach has 25%. oil from ACG was shipped from Ceyhan in June 2006. Sonatrach started the implementation of Statoil’s The BTC pipeline terminates at Ceyhan on Turkey’s Mediterranean coast. Consequently, oil does not need to be shipped from Azerbaijan via the busy and narrow Statoil’s international oil and gas production Bosporus. (1,000 barrels of oil equivalent/day) The Shah Deniz gas and condensate field was Field 2006 Statoil’s share completed and brought on stream in December 2006. InSalah (gas), Algeria 27.4 31.85% Statoil’s share in the BP-operated field is 25.5%. The In Amenas, Algeria 1.7 50.00% main bulk of volumes are exported via the South Kizomba A, Angola 26.9 13.33% Caucasus Pipeline (SCP) to Turkey. Statoil is commercial Kizomba B, Angola 28.0 13.33% operator for the SCP and the Azerbaijan Gas Supply Xikomba, Angola 1.9 13.33% Company. Girassol/Jasmim, Angola 13.5 13.33% Dalia, Angola 0.3 13.33% Venezuela ACG 35.2 8.56% Statoil has had operations in Venezuela since 1995 and Lufeng, China 4.9 75.00% has built up a robust business in the country. The group Alba, UK 8.8 17.00% is joint owner (15%) in the Sincor heavy oil project Caledonia, UK 0.2 21.32% which has produced an average of around 22,000 daily Dunlin/Merlin, UK 1.4 28.76%, 2.35% Jupiter (gas), UK 1.4 30.00% barrels of oil in 2006. Schiehallion, UK 3.9 5.88% In August 2006, Statoil resumed drilling of the LL652, Venezuela 0.2 27.00% Cocuina 2X exploration well which forms part of the Sincor, Venezuela 21.8 15.00% block 4 drilling programme in the Plataforma Deltana Total 177.7 area off Venezuela’s east coast. It was completed in December. Three well zones were tested and the Largest production outside Norway In Luanda, Angola, it is hot and the path is steep for the children carrying water home. Statoil established an office here in 1999. Today, Angola provides Statoil with the biggest oil production in the business outside the Norwegian continental shelf. Investments and activities in further exploration were also stepped up in this west African country in 2006. 22 STATOIL ANNUAL REPORT AND ACCOUNTS 2006


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    Our b us iness presence of lean gas was confirmed in all of these. The develop the Shtokman field without the involvement of scope of reserves in block 4 cannot be confirmed until foreign partners as owners. the entire exploration programme is completed. A Statoil has a long-term perspective to develop further two wells will be drilled in 2007. Statoil is licence business opportunities in the country. The group is PRODUCTION IN 2006 operator with a 51% holding, while Total has a 49% working on value creation through strong technological share. Petróleos de Venezuela SA (PdVSA) Gas has the expertise and experience from large-scale, complex 15.7% right to a participating interest if commercial reserves development projects. are proven. In the first quarter of 2006, Statoil’s rights to the LL 652 field were sold to PdVSA. International exploration activity During 2006, 20 exploration and appraisal wells were Iran Statoil is operator for the offshore part of development 84.3% phases six, seven and eight on the South Pars gas field, TOTAL OIL AND GAS PRODUCTION 1,400 International comprising three platforms, 30 completed production NCS wells and three pipelines to land. The platform jackets 1,169 1,135 1,074 1,082 1,106 and two of the pipelines are already installed. The drilling, completion and test programme was finalised in 1,000 boe/day January 2006 with good results. The completion and installation of the decks as well as laying of the third pipeline remain. This work has been significantly DISTRIBUTION OF RESERVES IN 2006 delayed. 20.6% Russia 2002 2003 2004 2005 2006 2007 In October 2006 Gazprom announced that it will Oil Gas Target Projects under development Statoil’s Production Plateau production Lifetime 79.4% Field share start Statoil’s share1 in years International Rosa 13.33 % 2007 18,000 19 NCS Corrib 36.50 % 2009 20,000 18 ACG Phase 3 8.56 % 2008 20,000 19 Shah Deniz 25.50 % 2007 37,000 25 South Pars 678 37.00 % 2008 15,000 42 Agbami 18.85 % 2008 40,000 17 Tahiti 25.00 % 2008 30,000 25 Saxi Batuque 13.33 % 2008 13,000 20 Mondo 13.33 % 2008 12,000 22 Marimba 13.33 % 2007 5,000 15 1) Boe/day based on an oil price of approx USD 30/bbl. 2) Pay-back period. USA USA Houston Strong growth in the Gulf of Mexico Atwater Valley The building of Statoil’s Gulf of Mexico (GoM) portfolio began in 2004 when Claymore Greater Tahiti Statoil bought a share in an exploration Sturgis Tahiti Perdidio Fold Belt Caesar prospect from the US company Chevron. Tonga Puma In 2006, Statoil had shares in 11 finds, Big Foot and is now well on its way to establishing St Malo Jack the GoM as an international core area. Tiger Output here is expected to average 100,000 barrels per day in 2012. MEXICO Walker Ridge STATOIL ANNUAL REPORT AND ACCOUNTS 2006 23


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    completed internationally with Statoil as participant or petroleum and energy minister. The group was awarded operator. Discoveries in Angola, the US Gulf of Mexico two onshore licences in October 2005. The plan is to and Venezuela have been announced. shoot seismic in 2007 and drill the first exploration well In August, Statoil was awarded exploration acreage in 2008. off Ireland, near the Corrib field. In January 2007 Statoil signed a production sharing In Egypt, Statoil and Sonatrach were offered shares in contract for a share in the Kuma exploration licence off two blocks in a 2006 licensing round. Statoil will be Indonesia together with operator ConocoPhillips. This is operator with an 80% share. The final agreement is the first time Statoil has been awarded exploration expected to be signed in the spring of 2007. acreage in Indonesia. The group was awarded a 40% Statoil’s Libyan office was officially opened in Tripoli share in the block, which lies off the west coast of the in December 2006 by Odd Roger Enoksen, Norway’s island of Sulawesi. Natural Gas have begun with the purchase of third-party gas Key figures (NOK million) 2006 2005 2004 pending regular supplies from Snøhvit towards the Total revenues 61,134 45,823 33,326 end of 2007. Income before financial The company has therefore taken new steps towards items, other items, realising its ambitions to double its own production of taxes and minority interest 10,009 5,901 6,784 natural gas from 2005 to 2015. This ambition involves Gross investments 2,335 2,542 2,368 an increase of annual equity gas deliveries from around 25 billion cubic metres (scm) to 50 billion scm while the Statoil ranks today as one of the largest suppliers of collective volume Statoil will sell will be around 100 natural gas to Europe. The bulk of this gas is billion scm. recovered from the NCS but Statoil is also working with international projects which will entail signifi- Increased consumption and prices cant future growth in gas production. In 2006 The consumption of natural gas in Europe also increased Norwegian gas exports increased. At the same time, in 2005 and reached 548 billion scm. This growth is the group started gas deliveries from the Caspian to expected to continue, particularly since natural gas will Azerbaijan and Georgia as well as gas exports from become an ever more important element in electricity Algeria to the European markets. Supplies of LNG as generation. Gas-fired power stations currently account part of the Snøhvit contracts to the USA and Spain for 20% of EU electricity production. The International Red, hot tomatoes Dutch Ismail Ud can harvest a lush and tempting tomato crop in a greenhouse regulated by natural gas. The gas heats up a generator which produces electricity and hot water. The water is carried in an ingenious piping network between metre-long rows of tomato plants, and ensures optimal growth conditions. 24 STATOIL ANNUAL REPORT AND ACCOUNTS 2006


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    Our b usiness Energy Agency (IEA) expects that this share could Another has been to fulfil long-term contracts with increase beyond 30% by 2030. deliveries from purchased third-party gas, while equity High oil prices in combination with a decline in equity gas is sold in markets with higher pricing. production are the most important reasons for this last The development is in the direction of a more year’s high natural gas prices in Europe. The price of gas globalised gas market where LNG trading binds the is to a great extent index linked to oil products in most markets together. The IEA expects that LNG trade will of Statoil’s long-term sales agreements. In the UK and increase fivefold between 2004 and 2030. Statoil has USA, the shortage of gas has contributed to particularly established important positions within LNG. The Snøhvit high prices at different periods in 2006. In March, UK field in the Barents Sea has been Statoil’s springboard for gas prices reached NOK 8.50 per scm on certain days, this activity, with the Cove Point terminal and deliveries which is equivalent to an oil price of over USD 200 per to the American east coast market being the most barrel. However, demand fell in the final months of 2006 important sales strategy. as a result of high temperatures. At the same time we saw an improvement in the supply situation which as a New pipeline to the UK whole led to falling prices in both markets. The Norwegian gas transport system is owned by the The gas market has shown cyclic characteristics in Gassled partnership with the state-owned company recent years, with big price swings and an ever- Gassco as operator. The latest addition to the gas increasing competition over market position. Statoil is transport system is the Langeled pipeline which runs meeting this challenge with cost-effective, environ- from the Ormen Lange field in the Norwegian Sea to the mentally justifiable and safe operations. UK. Statoil has been responsible for the engineering and laying of the pipeline. The project has been implemented Strong market position on time and NOK 3 billion under budget. Statoil has also In addition to its equity production, Statoil markets gas been given the job of technical service provider for for the state’s direct financial interest (SDFI) on the NCS. Langeled operation. Statoil’s sale of gas to Europe in 2006 was the highest The company is technical service provider for all the ever with a total of 53 billion scm, compared with 51.5 large Norwegian pipelines to Europe and for the Kårstø billion scm in 2005. The group has a 10% market share, processing complex north of Stavanger. Kårstø is including the SDFI, in Europe as a whole. Statoil has more important for Norwegian gas exports to Europe and than 25 large customers in 13 countries, with the requires continual upgrading and development to meet largest gas volumes going to Germany, the UK and technical requirements and new needs. The planning of France. Statoil’s market share was around 15% in new projects at the site is under way with the aim of Germany and 25% in France. The group has strength- completion in 2010. ened its UK market position with increased transport capacity and volumes through long-term agreements New sales and new infrastructure and short-term sales and commercial activities in The Troll field in the North Sea is the key to continued relation to end-users. growth on the NCS after Ormen Lange and Snøhvit In 2006 Statoil has realised significant value by come on stream in 2007. The Troll future development optimising gas sales. Short-term sale to countries and project has received high priority in 2006 with plans markets with good prices has been one method. calling for decisions in 2007 on new gas volumes to the World’s longest underwater pipeline In 2006 Statoil completed the engineering and laying of the Langeled pipeline, commissioned by Hydro. The price was NOK 17 billion, three billion under budget. Gas now flows from Statoil’s Sleipner East field to the receiving terminal at Easington, Yorkshire, on the England’s east coast. In 2007, gas from Hydro’s Ormen Lange field will be supplied through the 1,200- kilometre pipeline. STATOIL ANNUAL REPORT AND ACCOUNTS 2006 25


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    European markets from 2011. Dialogue in 2006 West. This will require a new export pipeline to between Statoil and potential European customers has continental Europe or the UK. The pipeline will have a shown that there is great interest in increased gas capacity over and above that of the increase from Troll volumes from Norway. and will provide room for other gas from the Troll area as Statoil and the Troll partners have worked on a well as further gas from the Norwegian Sea. These plans concept for Troll future development in 2006 that could will give Statoil new volumes of competitively priced gas provide around 10 billion scm in increased annual output as well as access to a more flexible and integrated based on higher offtake from Troll East, as well as laying infrastructure on the NCS. the groundwork for future gas production from Troll Manufacturing & Marketing uted strongly to the good results. Statoil used 17% of its Key figures (NOK million) 2006 2005 2004 equity oil in its own refineries and produced around 15 Total revenues 354,024 333,493 262,402 million tonnes of refined products in total in 2006. Forty Income before financial per cent of these refined products were sold through items, other items, the group’s marketing operations. All upstream taxes and minority interest 6,998 7,593 3,899 production not processed at the group’s facilities and Gross investments 2,501 1,630 4,162 refinery output not distributed through Statoil’s own marketing operations, was sold in the market. Principal markets are north-west Europe and North America. The business area’s goal is to maximise the value of Statoil also sells significant volumes for other oil Statoil’s global oil production. Robust results were companies. delivered in 2006. The decline from 2005 is due to the gain from the sale of Borealis which was booked in Strengthened shipping activity 2005. Good positioning in a volatile market characterised by Statoil is one of the world’s largest net crude oil large price fluctuations gave good oil sale, trade and traders and sold some 1.9 million barrels of oil per day supply returns. Statoil continued to strengthen its on average in 2006. That corresponds to about seven position in the North American market. Shipping is an times Norway’s daily domestic requirements. important part of the oil trading business. This High regularity throughout the entire year and high activity was strengthened in 2006 through new deals refining margins towards the end of the year contrib- with shipping companies supplying shipping services, Further development of service stations The Lean improvement programme will create continued high customer satisfaction in combination with effective service station management. This involves both standardising of stations’ fascia and an employee training programme; 22,000 station employees are participants in the programme which will take place before the end of 2008. At the same time Statoil will introduce a new service station concept with a Nordic-inspired design. The first four test stations were opened in Estonia, Latvia, Poland and Norway in 2006. 26 STATOIL ANNUAL REPORT AND ACCOUNTS 2006


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    Our b us iness and the decision to set up a separate chartering If we are successful in sufficiently reducing costs for entity. carbon management, the technology could be used at point emissions of carbon dioxide globally. This can have Improved results real significance for efforts to reduce greenhouse gas Increased pressure on fuel margins in certain countries emissions. and rising oil prices characterised the retail sector in The EU’s carbon trading scheme was established in 2006. The results are an improvement on previous 2005. M&M has built up expertise and systems for years. To achieve a more integrated and powerful active participation in the scheme. This will stimulate market input, the Nordic energy and retail clusters were cost-effective environmental measures. merged into one business cluster in 2006. Statoil sold its retail and commercial and industrial business in Ireland Biofuel pioneer and is concentrating its focus in Scandinavia, Poland and Statoil’s ambition is to be a leader in the sale of biofuel the Baltic states. which could be an important contributor to reducing carbon emissions in the transport sector. Statoil is Growth in M&M focusing primarily on a low blend of biofuel in petrol and M&M has strengthened its strategy and business diesel. Biofuel can then be used in existing vehicles. development in 2006 by establishing its own business For several years, Statoil has been working to cluster for this work. We are evaluating growth introduce bioproducts added to petrol and diesel in possibilities in existing activities, new geographical Sweden, Lithuania, Estonia, Poland and Latvia. We focus areas, increased vertical integration in the oil value introduced Bio 95 in Denmark in 2006, a petrol fuel chain, as well as new energy carrier initiatives and with 5% ethanol. In a mature market, this contributed to carbon value chains. The business area is working a market share increase from 16% to 17%. In Norway, actively with projects to support Statoil’s ambitions to Statoil is now offering E85 fuel which consists of 85% increase oil and gas production internationally. ethanol and 15% petrol. Blends of biofuels are estimated to account for over 2% of total fuel volumes sold by The carbon challenge Statoil at the end of 2006. The reduction of carbon emissions is a big environmen- tal challenge. Statoil is working actively in several areas Renewable heating to contribute to a more sustainable development. In 2006, Statoil sold around 150,000 tonnes of wood In 2006 Statoil and the Norwegian government pellets in Scandinavia. Wood pellets are a renewable decided to form a technology company which will resource and contribute to reduced carbon emissions manage the first development phase of a facility for the compared with fossil fuels. The Scandinavian market is capture of 100,000 tonnes of carbon dioxide per year around 2.5 million tonnes. More than a doubling of the at Mongstad, near Bergen. The goal is to test, qualify market volume is expected by 2010. and develop carbon management technology in order to reduce costs and risk. Based on experience from and development of this facility, a decision to build a full- scale carbon capture plant at the refinery will be made in 2012. Thinking and filling green Environment minister Helen Bjørnøy opened Norway’s first ethanol (E85) pump at a Statoil station in Oslo in 2006. The fuel comprises 85% bioethanol and 15% normal unleaded petrol. While Statoil supplies ordinary petrol to its customers, the group wants to focus on these kinds of biofuels in the time ahead. STATOIL ANNUAL REPORT AND ACCOUNTS 2006 27


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    Mongstad energy project (EVM) underway On 12 October 2006, Statoil was given the go-ahead to increases profitability and safeguards the refinery’s build a combined heat and power (CHP) station as part competitiveness in the years ahead. of the EVM project at Mongstad, near Bergen. Ten million tonnes of crude and condensate for high- At the same time the Ministry of Petroleum and value products like petrol, diesel and aviation fuel are refined Energy and Statoil entered into an agreement for at Mongstad annually. Refining consumes just as much developing solutions for future carbon capture. energy as the city of Oslo: around 890 megawatts (MW) of Construction work began in January 2007 and the heat energy and 60 MW of electricity. Much of this energy project will be completed in 2010. is presently wasted. The CHP station is a good environmental Work on the development of technological and solution with an energy efficiency of up to 80%. commercial solutions for carbon management at The CHP station will have a production capacity of Mongstad is under way. around 280 MW of electricity and 350 MW of heat. Strategically, EVM is an important project. Use of This will cover a significant part of the refinery’s energy heat from the CHP station will give significantly greater requirements when it comes online in 2010. energy efficiency at the Mongstad refinery. This In 2006, the oil market was characterised by an assumption that the Organisation of Petroleum Exporting Countries (Opec) would not have available capacity. At the Oil prices (USD per barrel) 2006 2005 2004 same time, the unstable political situation created fear of a shortfall in production, Lowest: 55.89 38.21 29.13 especially from Iran, Iraq and Nigeria. Fears of new hurricanes in the Gulf of Mexico Highest: 78.69 67.33 52.03 further contributed to a record-high oil price of USD 78.69 per barrel in early Average: 65.14 54.52 38.27 August. The oil price fell when no hurricanes occurred and the market shifted its Dated Brent Blend focus towards high stockpiles and plans for significant non-Opec production growth. The price fall ceased in October when Opec announced production cuts of 1.2 million barrels of oil per day. The oil price was also bolstered by significant offtake from American stockpiles towards the end of the year. 28 STATOIL ANNUAL REPORT AND ACCOUNTS 2006


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    Our b us iness Technology & Projects Technology & Projects is responsible for technology • Achieve the maximum value creation from ongoing expertise, technology development and research, activities and lay the basis for future growth. procurements, and planning and execution of large • Prepare for operations in new areas; develop the development projects. Arctic region into a core area, position Statoil as a Statoil’s ambition is to maintain daily output on the deepwater operator and gain access to significant NCS at one million barrels of oil equivalent up to 2015. volumes of heavy oil. At the same time, new discoveries are generally much • Lay the basis for future activities; commit to pioneering smaller than they once were. The environmental technology in order to identify solutions in which requirements with respect to new developments are today’s business does not have the answers. Examples also stricter than previously. It is therefore challenging are new energy and environmental technology. to keep unit costs down, and purposeful technology development is necessary if we are to achieve the The development of existing technology must be lowest possible development and operating costs, and speeded up and we must introduce new knowledge and at the same time a cleaner production. new solutions in order to create a profitable business in the future. The results will be achieved by concentrating High project activity efforts on exploration technology, reservoir manage- Statoil and the other operators on the NCS have experienced ment, subsea technology, gas technology and environ- a high level of project activity in 2006. This has led to a mental technology. dramatic increase in supplier costs and a big demand for skilled personnel. The level of activity will also remain high in Exploration technology 2007. Statoil has prioritised and will continue to prioritise Long-term production growth and value creation are the projects in order to keep to the budget, ensure progress ensured through Statoil’s continued commitment to and meet production start-up deadlines. The high oil price is exploration activities. By coordinating geophysical one of the main causes of the current suppliers’ market for methods and geological models with high-speed the delivery of material and services. Nevertheless, Statoil computers, the risk of drilling dry wells is reduced. has secured adequate rig capacity in an overheated market. Nordland VI and VII on the NCS have not been opened for petroleum activities, while expectations to discover oil Technology strategy and gas in these areas are high. Consideration to the The objective of Statoil’s technology strategy is to fishing industry means that we will face strict environ- identify technology areas, specific technologies and the mental requirements if Nordland VI and VII and other necessary skills to fulfil the group’s ambitions and environmentally sensitive areas are to be opened for contribute to the further development of Statoil as an exploration activities. Approval of operating licences in internationally competitive company. This strategy must these areas will be contingent on clean drilling operations. address the following important commercial challenges: A good example is the drilling programme on the Snøhvit Ready, aim, fire A hi-tech convoy on four wheels rolls through the Algerian desert. The machines shoot seismic down into the ground below the Saharan dunes. The 30-tonne vibrators move slowly in the terrain, but have gathered large amounts of geological data in the 23,000-square- kilometre Hassi Mouina exploration licence. Statoil is conducting onshore exploration drilling for the very first time as operator. STATOIL ANNUAL REPORT AND ACCOUNTS 2006 29


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    field, where 10 wells have been drilled with zero harmful facilities tied back to the North Sea’s Kristin field, will be discharges to the sea. This shows it is fully possible to provided with the first seabed facilities in the world for the operate under the strictest environmental requirements. injection of untreated seawater. The facilities will be in use in 2009, and may lead to improved output of up to 18 Seabed facilities million barrels of oil. The next stage is to develop a seabed We are faced with new and demanding tasks in compressor for processing natural gas liquids (NGL) on the established areas with regard to maintaining and Åsgard field. In order to maintain production from the increasing output. New reserves are located in sensitive Mikkel and Midgard fields, plans call for NGL injection areas, far from land or existing infrastructure. There are through the seabed compressor. If this succeeds, Statoil additional reserves in deepwater basins that could go will have all the “building blocks” for a seabed processing down to depths of 3,000 metres. In order to gain access plant. The next challenge will be to develop the technology to these reserves and bring them on stream, seabed further, so that it can be applied in field developments in technology must be developed further so that we have deeper waters and far from existing infrastructure. facilities for complete processing on the seabed. Separation of the different components in the well Integrated operations stream in the seabed facilities followed by pumping and Integrated operations (IO) were established in Statoil in compression enables the oil and gas to be transported 2004. from low-pressure reservoirs and deepwater areas. The Statoil defines IO as new work processes that use well stream from distant fields can be piped to existing real-time data to enable collaboration between facilities. In extremely sensitive environmental areas, specialist disciplines, organisational entities, companies closed systems with zero discharges or emissions may and across geographical boundaries in order to achieve be the only solution allowed by the authorities. more reliable, better and faster decisions. Real-time www.statoil.com/co2 data enables specialist personnel from different Seabed separation disciplines to receive and share information at the same Statoil has a systematic approach to technology develop- time. Through the application of interactive communi- ment. This can be illustrated by the Tordis field in the North cation technology, the group can control drilling, Sea, which is a subsea development tied back to the Gullfaks production and other activities both on the fields and on field and which came on stream in 1994. With falling reservoir land. pressure, it will not be long before there is no driving force left The Norwegian Oil Industry Association (OLF) has to transport the well stream across to Gullfaks. In 2007 the estimated that IO have a potential value of up to NOK field will be provided with the first full-scale seabed separator 250 billion on the NCS. Statoil is operator for more than in the world for the removal of sand and water, thereby 60% of the oil and gas output on the NCS. This provides enabling transport of the well stream. The sand and water will the group with not only an opportunity, but also an then be injected and stored in a dedicated reservoir in order to obligation, to be a leader within IO. Statoil can already prevent discharges to the sea. This measure will improve the show good results within subsurface work, operations recovery factor from 49% to 55%. and maintenance. Åsgard is one example, where it is estimated that IO have created a net present value of Improving output NOK 7 billion, with opportunities to realise a further The Tyrihans field, which is being developed with seabed NOK 2-5 billion. Improved oil recovery The seabed separator on the Tordis subsea field, near Gullfaks, will be in place in 2007. The technique gives improved oil recovery from the field which has been producing since 1994 and where the reservoir pressure is decreasing. The new technology facilitates the recovery of millions of extra barrels of oil from Tordis. Statoil presently has nearly 300 subsea wells in production from such mini- platforms on the seabed. This is oil and gas field technology of the future at ever greater depths. 30 STATOIL ANNUAL REPORT AND ACCOUNTS 2006


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    Our b usiness Project management generational change with regard to project managers, In May 2006 Statoil entered into an agreement with the and needs to train new ones. University of California for the training of project The collaboration with the University of California is managers. The two partners will develop and run a part of Statoil’s Project Academy, which is a result of the programme for the management of the group’s large and corporate initiative entitled ‘World-class project complex development projects. The agreement is valid performance’. The Project Academy will help strengthen for three years. Statoil has an option to extend the Statoil’s position as one of the world’s top performers in agreement by a further two years. Statoil is facing a project development. People and society Our values, leadership principles and personnel traditionally been high, efforts to reverse the trend processes are integrated in our performance-oriented reduced the figure from 18.7% in 2005 to 15.6%. management system and described in The Statoil Book, We recruited 43 new participants to our corporate which is our principal governing document. trainee programme in 2006, including 16 from countries Communication of our values base, ethical code and outside Norway. A large proportion of the Norwegian standards forms part of the People@Statoil dialogue, entrants have also studied abroad. Plans call for the where goals and results for each employee are set and number of corporate trainees to be increased in 2007. evaluated. In this feedback, the way results are achieved Statoil ASA is Norway’s largest employer of in relation to the values base is just as important as the apprentices, and took on 116 in 2006 compared with results themselves. 129 the year before. We now have 258 apprentices in a large number of trades. More than 25,000 employees Our workforce totalled 25,435 people at 31 December. Equal opportunities This represented a decline of 209 from the year before, Equality of opportunity is an important and integrated which partly reflects a net reduction of 1,250 employ- part of our human resources policy. Women currently ees from the disposal of our service station chain in account for 27.7% of the parent company’s workforce Ireland. Overall workforce turnover in our group is 8.7%, and represented 28.8% of externally-recruited and varies from a very low level of less than 1% in the personnel in 2006. That represents a decline of about parent company to higher rates in other parts of the four percentage points from the year before. group. In the downstream business, where turnover has Women account for 26% of managers in our group, Katie Melua on the seabed Katie Melua and her band played their way into the Guinness Book of Records when they performed the world’s deepest underwater concert at the bottom of one of the Troll A platform’s shafts on 2 October. The idea was platform manager Jan Hauge’s brainchild who wanted to mark Troll’s 10th anniversary. He accompanied the popular artist on piano on one number. Ms Melua is an environmentally conscious artist, agreeing to the concert after examining Statoil’s environmental profile on the group’s website. STATOIL ANNUAL REPORT AND ACCOUNTS 2006 31


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    as against 25% in 2006, and for an unchanged 34% of possible without causing undue inconvenience for the people below the age of 45 in such positions. We have business. special development programmes for managers, and the Employees on maternity leave maintain their relative proportion of female participants in these has been salary grade during their leave. We meet the difference around 30% in recent years. All respondents to our between state maternity benefits and actual pay Global People Survey on the working environment say received from us. that they feel their career opportunities are good. Women are more positive than men. Occupational health and the working environment A good working environment is of great importance to Women in technical jobs the individual and is crucial if Statoil is to meet its goals. We are a knowledge-based company, where 55% of our We devoted greater attention in 2006 to occupa- workforce has a college or university education and 25% tional health and working environment challenges hold a skill qualification. related to the expansion of our international business. Women are relatively well-represented in technical Weight is given to understanding of risk and measures to disciplines. Twenty-two per cent of our staff engineers ensure an inclusive workplace. are female, and their average pay is 98% of the A number of precautionary principles intended to corresponding figure for their male colleagues. Women safeguard occupational health and the working account for 33% of staff engineers with up to 20 years environment have been implemented, including of experience, and their level of pay is for all practical preventive measures against illnesses, the adoption of purposes the same as for men. Salary differentials strict health requirements for working in extreme primarily reflect length of experience. climatic conditions, and tighter control of hygiene. Eighteen per cent of our skilled workers are women. We give weight to ensuring that employees with Their average basic pay was rather lower than for their health problems should be able to remain at work with male colleagues, reflecting differences in posts and length good monitoring and customised arrangements. Our of experience. We will be following this up during 2007. average retirement age in 2006 was 62.3. Sickness absence showed a slight increase over the year, but Equal opportunities agreement remains low at 3.5% – well under the Norwegian An equal opportunities agreement has been concluded average. with the unions in parent company Statoil ASA. Employees are remunerated in accordance with their Working environment and organisation survey post, competence, results and behaviour. In annual pay Employee assessments of management and organisa- awards for individual employees, we also apply the tional conditions are identified through the Global principle of equal pay for work of equal value. People Survey. This poll is anonymous, and the response As a general rule, all permanent personnel in Statoil rate has lain at 85% of the workforce in recent years. ASA are employed on a full-time basis. We can grant a Results from the survey carried out in the autumn of temporary reduction in working hours on application. 2006 show that both trust between employees and Women account for the majority of such applicants. We management and the working environment are good. have arrangements such as flexible working hours and Employees also consider that high priority is given to teleworking when the nature of the job makes this health, safety and the environment. GEOGRAPHICAL DISTRIBUTION OF LOCAL EMPLOYEES IN SELECTED COUNTRIES/CONTINENTS (AT 31 DECEMBER 2006) Norway 13,128 Azerbaijan 47 Belgium 54 Women in Statoil 2006 2006 2005 Brazil 15 China 1 Employees in Statoil ASA 27.7% 27.5% Germany Denmark 81 3,573 Algeria 1 Management posts in the group 26% 25% Estonia 679 Faroe Islands 124 Apprentices in Statoil ASA 35.8% 31% France UK 10 176 Ireland 5 New recruits in Statoil ASA 30% 33% Lithuania 714 Latvia 830 Nigeria 48 Poland 3,015 Russian Fed. 137 Sweden 1,782 Singapore 15 USA 96 Venezuela 45 32 STATOIL ANNUAL REPORT AND ACCOUNTS 2006


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    Our b usiness Good safety from our core business in order to support the host The goal is to conduct our business in such a way that it country’s development ambitions. We also commit causes no harm to people or the environment. Our ourselves to observing standards of working life, overall results were good in 2006, and there were no respecting human rights, showing openness and fatal accidents. Measured per million working hours, the combating corruption. serious incident frequency declined over the year while personal injuries rose compared with 2005. The serious Solidly rooted obligations incident frequency has halved since 2001 and fallen by Our obligations on human rights and transparency are 25% since 2005. Where personal injuries are concerned, entrenched in our own governing documents and in the frequency rose slightly from the record-low figure in international initiatives. These include the principles 2005. enshrined in the UN’s Global Compact on human rights, We launched an extensive effort in 2006 to reduce labour standards and fighting corruption, and the the number of incidents caused by dropped objects. The Voluntary Principles on Security and Human Rights chief executive’s HSE prize for the year was awarded to which cover the use of security services. We will include a team working to achieve zero dropped objects, which references to these initiatives in our contracts with has involved identifying and eliminating the risk of such suppliers and partners where relevant. Particular incidents on offshore installations. attention is paid in our standards and guidelines to The Visund platform in the North Sea was shut down indigenous people and work in zones of conflict, where for four months in 2006 because of a serious gas leak. human rights challenges can be very substantial. Caused by a design fault in a flare knock-out drum, this Where openness is concerned, we support the incident was the most serious of its kind that we Extractive Industries Transparency Initiative (EITI), the suffered in 2006. A gas leak occurred on the Sleipner T World Economic Forum’s Partnering Against Corruption platform in the fourth quarter. This shows that great Initiative (PAIC) and the Global Compact principle of attention needs to be paid to process safety. combating corruption. In addition, we back Transpar- Our safe behaviour programme is continuing in ency International through a corporate agreement. 2007. It is intended to encourage individual and organisational entities to work on improving their own Creating positive spin-offs behaviour and avoiding errors. The aim is to make daily The oil and gas industry can give valuable stimulus to life injury-free. More than 30,000 people had partici- economic growth. However, requirements for special- pated in the programme by 31 December. ised professional knowledge and technology could mean that the direct benefit is reserved for a relatively small Social responsibility minority. Our strategy for social responsibility aims to Our principles and guidelines for social responsibility are generate positive spin-offs by recruiting and making a incorporated as one of six corporate principles. Our core commitment to local employees. We will utilise local business in the countries in which we operate provides business and labour as suppliers and contractors, and the basis for work on social responsibility. In our promote expertise development and exchanges with practical efforts, we undertake to make choices based local companies. We will also make social investments in on the way they affect both our own and the host affected communities, so that more people can benefit country’s interests, and to generate positive spin-offs from the economic spin-offs. Work on creating local Doubling of trainees Lenka Sedencka (left) from Slovakia and Andrea Scarabello from Italy are two of 43 new trainees who joined Statoil in 2006. The number of trainee pro- gramme participants has increased by 20 from 2005, with 27 from Norway and 16 from 12 other countries. Over half the entrants have international experience and the programme is a tool for building an international organisation. It is among the biggest of its kind in Norway and was started in 2001. STATOIL ANNUAL REPORT AND ACCOUNTS 2006 33


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    spin-offs should always aim to build up sustainable million from the year before, which reflects our expanding economic activity. We will avoid creating dependency or international operations. These investments are spread supporting unproductive projects. over various projects which fall within our three priority areas of openness, human and labour rights, and local Social investment spin-offs. Our sustainability report gives a more detailed We devoted about USD 9.5 million to social investment description of investment projects through examples projects in 2006. This represents an increase of USD 1.5 drawn from our activities in Azerbaijan. The environment Statoil’s environmental work is rooted in our stated goal of • Applying carbon quota trading, including the Kyoto zero harm to people and the environment. The conse- mechanisms and the EU quota trading system, as quences of global warming now overshadow any other important tools to achieve cost-effective reductions in environmental challenge and will result in stricter global emissions. requirements for industrial operations. • Concretising and implementing solutions for the Statoil has worked for many years with the greenhouse capture, storage and commercial use of carbon dioxide. gas challenges, and in 2006 intensified this work. The envi- ronmental challenges are, however, multi-faceted and Improving energy efficiency range from biofuels to the preservation of coral reefs. We Statoil’s ambition is, through various measures, to trim 1.5 in Statoil will continue our assertive attitude and our million tonnes of carbon dioxide equivalent from its annual technology commitment in order to identify solutions that greenhouse gas emissions by 2010, compared with the can contribute to a better environment. emission levels without such measures. We are well on the way to achieving the goal, and by the end of 2006 had Climate strategy reached 67% of the target for 2010. In 2006 carbon Statoil acknowledges the connection between the emissions from Statoil-operated facilities were 10.0 million production and use of fossil fuels, carbon dioxide emissions tonnes, compared with 10.3 million tonnes the year before. and global warming. The most important contributions to improving energy Four areas are important in our commitment to reduce efficiency are achieved by selecting solutions for new the effects of our activities on the climate: facilities that produce low carbon emissions. Examples are • Using energy in an increasingly effective manner. the development of the Kristin field in the Norwegian Sea, • Developing cleaner energy carriers. Increasing the use Snøhvit in the Barents Sea and Gjøa in the North Sea. of renewable energy. Carbon emissions per tonne of oil and gas produced Norway’s first hydrogen filling station Norway’s first hydrogen filling station opened in Stavanger in August 2006. The station is a demonstration project that will initially cater for a limited number of vehicles. It represents the start of the Norwegian hydrogen highway between Oslo and Stavanger (HyNor), part of the Scandinavian hydrogen highway network. The station offers both pure hydrogen and a mixture of natural gas and hydrogen, called hythane. The focus on hydrogen as an energy carrier is long- term. www.statoil.com/newenergy 34 STATOIL ANNUAL REPORT AND ACCOUNTS 2006


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    Our b usiness Gas processing platforms One million tonnes of CO2 reinjected every year Utsira formation CO2 injection well October 2006 marked the 10th USD 100,000 saved anniversary of carbon capture and daily in CO2 tax storage in the Sleipner area of the North Sea, where we are operator. This project has attracted great international attention, and the operating experience acquired Production wells from it has been very important for the further development of our expertise in this important area. The process is illustrated on the Natural gas reservoir left. Big in capture and storage Statoil is regarded today as a world leader for capturing project north of Bergen will be developed in two and storing carbon dioxide. We are currently involved in stages. The first embraces a plant to capture 100,000 five large-scale capture and storage projects. tonnes per year, and will be followed by a large-scale • Eight million tonnes of carbon dioxide from the Sleipner capture facility. In the long term, the Mongstad refinery area of the North Sea have been stored in the Utsira is likely to have the world’s lowest carbon emissions. formation over a 10-year period. • We are cooperating with Shell in the Halten carbon • Up to 700,000 tonnes per annum of carbon dioxide dioxide project, which is investigating opportunities for produced from the Snøhvit gas field in the Barents Sea a gas-fired power station at Tjeldbergodden to supply will be stored beneath the seabed. carbon dioxide for improved oil recovery on the • Underground sandstone formations are being used to Draugen and Heidrun fields in the Norwegian Sea. store 1.2 million tonnes of carbon dioxide removed Roughly 2.5 million tonnes of the greenhouse gas could annually from production on the In Salah gas and be used and stored every year in these fields. The condensate field in Algeria. partners are also investigating the possibility of • Carbon capture and storage in the Mongstad energy supplying these fields with electricity from land. Part of the solution In its climate strategy, Statoil recognises a link between production and consumption of fossil fuel, carbon emissions and global warming. As an integrated oil and gas company, Statoil is part of the problem, but also an essential part of the solution. Our goal is to reduce carbon emissions from the group’s facilities through four key initiatives: energy efficiency, renewables, quota trading and carbon capture and storage. STATOIL ANNUAL REPORT AND ACCOUNTS 2006 35


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    from Statoil-operated fields are 36% of the industry components. Product quality is developed continuously in average. order to keep abreast of the innovation taking place within, for instance, engine and exhaust technology. Quotas and the Kyoto mechanisms The use of biofuels gives lower greenhouse gas Statoil carries on business development by developing emissions because the production is based on renewable projects that give credits for emission reductions in raw materials. accordance with the regulations in the Kyoto protocol and Statoil therefore wants to offer its customers fuels with 110.7 the development of new energy solutions through its an increasing content of biocomponents and aims to be at commitment to hydrogen, energy efficiency, renewable the forefront in bioproducts in its markets. energy and carbon management. The aim is primarily to Sweden is the group’s largest market for biofuels. It is minimise the overall cost of Statoil’s emission allowances in estimated that in 2006 the overall sale of biofuels in the trading systems in Norway and the EU. Sweden, Denmark, Norway, Poland and the Baltic states In 2006 the first commercial agreement for the has led to a 67,000-tonne reduction in carbon emissions. purchase of carbon reduction certificates was signed. The Detailed information about biofuels is available in the project is based in the Kursk region in Russia, and is chapter on the environment in our sustainability report. 40.2 Kg CO2/scm o e intended to seal the gas leaks in the pipeline network there. Emissions are expected to be reduced by an overall amount Research and development of 1.2 million tonnes of carbon dioxide equivalent in the Statoil’s technology strategy identifies environmental period 2008-12. technology as one of five prioritised commitment areas in Statoil assumes that Norwegian oil and gas activities order to fulfil the group’s ambitions. Carbon management Statoil OGP* will be included in the emission trading system from 2008, and quantitative risk evaluation are prioritised tasks within Emissions of CO2 per produced and that Norway joins the EU trading system at the same environmental technology in the period 2006-15. volumes oil/gas (scm o e) time. Statoil’s overall investment in research activities came from Statoil-operated activities on the NCS, compared with In 2006 Statoil was the first company in Norway to to NOK 1,225 million in 2006, compared with NOK 1,066 world industry average. introduce a carbon-neutral scheme through which the million in 2005. *International Association of Oil & Gas Producers (OGP)2005 company could buy quotas for carbon emissions that offset the emissions generated by business travel and Zero harm to the environment heating/cooling of all Statoil offices, in accordance with the Due to increased discharges of produced water, drill Kyoto protocol. cuttings and water-based mud from petroleum activities on the NCS, Norwegian authorities set a target of zero Products and biofuel harmful discharges by the end of 2005. www.statoil.com/hse Statoil produces and sells a wide range of products Statoil works continuously on reducing discharges of developed from fossil and renewable sources. Our ambition potential environmentally harmful chemicals to the sea is to develop efficient products that satisfy customer from the operations on the NCS. Discharges of harmful needs and which consume a minimum amount of resources chemicals have been reduced by 96% in the period 2003- and have a minimal impact on the environment. 06. The authorities consider that the 2006 target for All manufacture of products requires energy and entails reducing harmful added chemicals has to a great extent emissions to the air and discharges to water. Statoil been achieved. requires life-cycle analyses for all new products and blend Expected and planned reductions in discharges of oil Clean water back to sea Sea water that accompanies oil from the Statfjord C wells is thoroughly treated before being returned to the sea. The technique involves injecting condensed gas into the produced water. The gas- injected water is then cleaned again, with oil traces and chemicals captured and separated from the clean water. 36 STATOIL ANNUAL REPORT AND ACCOUNTS 2006


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    Our b us iness and natural substances in produced water have been spill response was efficient, and 31 cubic metres escaped delayed on some Statoil installations on the NCS. On the into the sea. According to the Swedish coastguard, a Statfjord field in the North Sea the new CTour cleaning maximum of 65 litres got past the booms. technology has been installed. This is a technology that has proven to be very effective in cleaning large volumes of Freshwater management polluted reservoir water. We have experienced challenges Clean water is a scarce commodity in many parts of the in the start-up on two installations. In 2008 the Norwegian world. Due to our increasing international operations, Pollution Control Authority (SFT) will be notified whether Statoil developed corporate principles in 2006 to deal with the zero discharge targets have been reached. this challenge. Our ambition is to manage water resources in a sustainable manner and continuously search for ways in Development of new environmental management tool which we can reduce the consumption of freshwater. We Statoil has headed the development of the environmental will also protect the water quality through the design and impact factor (EIF) management tool. This tool, which was operation of our facilities, through recycling and by actively originally developed for discharges of produced water, is preventing water pollution. used to select the measures that provide the greatest cost-effective environmental gain. The oil companies on Environmental monitoring the NCS have, with the knowledge of the authorities, used Statoil wants to strengthen its own expertise in marine EIF as the standard tool for the past five-six years. ecosystems and develop new methods for environmental EIF for discharges to the sea from drilling operations and monitoring, which previously has been mainly organised for emissions to the air from all our facilities in 2006 have through the Norwegian Oil Industry Association (OLF). The been tested for several of our operations; EIF for drilling in group’s research activities have increased in 2006, mainly 2007 will be implemented in connection with our through two projects: international exploration activities. The coral risk assessment modelling and monitoring EIF for acute discharges of oil to the sea, discharges (Coramm) project is an international research collaboration from our land-based facilities to the sea, and discharges to that investigates how deepwater coral withstands the the soil and freshwater from our land-based operations are effect of particles of drill cuttings and water-based mud or under development. particles that are stirred up in connection with the oil activities, such as pipelaying and anchoring. Oil spill response in the far north The scientific and environmental ROV partnership using In 2006 Statoil had several activities for strengthening the existing industrial technology (Serpent) involves oil spill response in Arctic climes and icy waters. For researchers borrowing remotely-operated-vehicle (ROV) instance, Statoil and ENI signed a three-year Memorandum capacity linked to Statoil’s mobile drilling rigs in order to of Understanding in order to make the oil spill response in take samples, observe and film life on the seabed. Through the far north more robust. Research projects for increasing this collaboration Statoil gains an insight into how drilling knowledge about oil pollution in cold climates and a project operations affect the seabed and its megafauna. The for developing response methods using chemicals in studies show that drilling activities only have a limited nearshore and shoreline zones have been initiated. effect, and that the organisms return to the area after the Statoil’s lube oil plant in Nynäshamn in Sweden had an drilling operation is completed. oil spill of 104 cubic metres in September 2006. The oil Biological diversity Looking after biological diversity is a key element in sustainable development and central to Statoil’s environmental work. In the group’s revised 2006 environmen- tal policy, the principle of maintaining biological diversity and important ecosystem functions is set out. Where possible, we will contribute to maintaining such diversity. Work is underway to secure a more structured integration of environmental, social and health-related aspects, and ensure that challenges regarding biological diversity are addressed in project development. STATOIL ANNUAL REPORT AND ACCOUNTS 2006 37


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    Our results The oil sales, trading and supply business cluster has created significant value for Statoil in 2006. The picture on the left shows the first arrival of an LNG tanker at the Hammerfest LNG plant. The vessel was carrying gas to be used in the testing of the facility. 38 STATOIL ANNUAL REPORT AND ACCOUNTS 2006


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    Our board of directors is satisfied with the aggressive attitude we are showing on business develop- ment. This emerges from the directors’ report, which begins on the following page. Particular mention is made of our commitment in the Gulf of Mexico, and the board notes that a strong financial position provides the basis for freedom of action and growth. The planned merger with Hydro’s oil and gas business fits in with our growth strategy, and will strengthen our international competitiveness. This is necessary because competition over access to new resources is tough, and our board expects it to get even harder in the years to come. In the board’s view, a positive image based on serious sustainability work will help us to secure access to new resources and opportunities. The proposal to the general meeting for an overall ordinary and extraordinary dividend of NOK 9.12 per share will represent the largest payout since we received a stock market listing in 2001. STATOIL ANNUAL REPORT AND ACCOUNTS 2006 39


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    Directors’ report 2006 The Statoil group recorded its best ever net income in 2006. A strong financial position lays the foundation for freedom of action and growth. The board of directors has recommended a merger between Statoil and Hydro’s oil and gas division. The proposed merger is ideally suited to Statoil’s strategy for growth. The merged company will have more and better opportunities for growth, which will help to ensure long-term value creation for the shareholders. Jannik Lindbæk (68) Chair of the board Appointed to the board of directors in November 2003 and re-elected in June 2006. Education and professional background: President and CEO of Storebrand, chief executive of the Nordic Invest- ment Bank, executive vice president of the International Finance Corporation. Other elective posts: Chair of the board of the Bergen International Festival, Transparency International Norway, Plan International Norway and Gearbulk. Former chair of Den norske Bank. Director of Kristian Gerhard Jebsen Skipsrederi. Number of shares in Statoil: 0 40 STATOIL ANNUAL REPORT AND ACCOUNTS 2006


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    Our results Best-ever annual profit were made in two out of four exploration extensions. The Statoil group’s net income of NOK 40.6 billion is Twenty wells were completed in 2005. NOK 9.9 billion higher than in 2005. Income before The company has further strengthened its position financial items, tax and minority interest was NOK 116.9 in the Gulf of Mexico through the acquisition of owner billion compared with NOK 95.0 billion in 2005. The interests in discoveries and exploration acreage from increase is largely due to higher oil and gas prices. The Plains Exploration & Production and Anadarko Petroleum return on capital employed was 27.1% in 2006, Corporation. The deepwater portfolio is ideally suited to compared with 27.6% the year before. The return is the company’s core expertise, building on the technol- very competitive compared with other oil companies. ogy and experience developed over several decades Statoil’s oil and gas production in 2006 was through operations on the Norwegian continental shelf 1,135,000 barrels of oil equivalent (boe) per day, (NCS). which is 34,000 boe lower than in 2005. This is The company has sold Statoil Ireland to Topaz Energy largely the result of lower oil production from mature Group. The sale is expected to result in a pre-tax gain of fields and a temporary reduction in production from NOK 0.6 billion. fields in operation. Production costs per boe rose The board closely monitors the work relating to from NOK 22.3 in 2005 to NOK 26.6 in 2006. A high health, safety and the environment (HSE). Our ambition activity level, increased pressure on costs in the is zero harm to people and the environment. In 2006, industry and lower production are the main reasons Statoil has shown improvements in most areas in which for the increase. we measure the results achieved in HSE. In 2006, the company replaced 73% of production In 2006, Statoil reached a settlement with the US with new, proven oil and gas reserves. The reserve Securities and Exchange Commission (SEC), the US replacement rate in 2005 was 102%. At year-end Department of Justice (DOJ) and the United States 2006, proven remaining reserves amounted to 4.2 Attorney’s Office for the Southern District of New York billion boe. (USAO). The settlement concluded the investigation The board is proposing to the annual general meeting carried out by the SEC, DOJ and USAO under US law a combined ordinary and special dividend of NOK 9.12 concerning Statoil’s contract from 2002 with Horton per share for 2006, compared with NOK 8.20 per share Investments Ltd for business development in Iran. in 2005. The repurchase of own shares became part of In the settlement with the DOJ and USAO, Statoil the company’s dividend policy in 2006. Repurchase accepted a fine of USD 10.5 million for violation of the represents NOK 1.55 per share in 2006. The total US Foreign Corrupt Practices Act (FCPA). Statoil also payment to Statoil’s shareholders corresponds to NOK accepted responsibility for bribes paid to an Iranian civil 10.67 per share. This amounts to 57% of the net servant in 2002 and 2003, for accounting for those income for 2006. payments improperly in its books and records, and for Exploration activity has increased considerably. A having insufficient internal controls in place to prevent total of 37 exploration and appraisal wells were the payments being made. In the settlement with the completed in 2006, 19 of which resulted in finds. The SEC, Statoil accepted the confiscation of USD 10.5 final evaluation of six wells remained at year-end. Finds million. Kaci Kullmann Five (56) Deputy chair On the board of directors since August 2002. Acting chair from September to November 2003. Deputy chair from November 2003. Profession: Self-employed. Education and professional background: MSc in political science from the University of Oslo. Member of the Norwegian Parliament 1981-1997. Minister for trade and shipping 1989- 1990. Leader of the Norwegian Conservative Party 1991- 1994. Executive vice president in Aker RGI 1998-2002. Other elective posts: Director of NMD Grossisthandel AS, Vitus Apotek AS, Asker og Bærum Budstikke ASA and Bluewater Insur- ance ASA. Member of the Norwegian Nobel Committee. Number of shares in Statoil: 1,000 STATOIL ANNUAL REPORT AND ACCOUNTS 2006 41


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    Markets and surroundings High level of exploration and project activity on the Continued growth in the global economy contributed to Norwegian continental shelf a further increase in the demand for energy in 2006. A The income before financial items, tax and minority persistent shortage of production and refining capacity interest was NOK 89.4 billion in 2006, compared with – reinforced by political uncertainty in important NOK 74.1 billion in 2005. The main reason for the producer countries – resulted in record high oil and gas improvement was the increase in oil and gas prices. prices. The average price of oil in 2006 was USD 64.4 Statoil’s production from the NCS averaged 958,000 per barrel, compared with USD 53.6 per barrel the year boe per day in 2006, which is 27,000 boe lower than before. Measured in NOK the average price increased by the year before. The decline is largely due to falling NOK 68 per barrel to NOK 413 in 2006. production from mature fields and temporary reduc- Security of supply for gas has been the subject of tions related to measures aimed at improving recovery. increasing political attention in important energy Part of the drop in production was offset by the start- markets such as Europe and the USA. Statoil adopts an up of new fields, measures to improve recovery and aggressive strategy with a view to developing long- increased gas production. term sources for stable gas supplies to these markets. In 2006, the company took part in the completion of Gas prices in Europe and the USA continued to rise in 17 exploration and appraisal wells on the NCS, eight of 2006. The average realised gas price in 2006 was NOK which resulted in discoveries. Finds were also made in 1.91 per cubic metre compared with NOK 1.45 per two of four exploration extensions. This is a substantial cubic metre in 2005. increase in activity compared with 2005, when nine Normalised refining margins (fluid catalytic cracker exploration and appraisal wells were completed. Statoil margin - FCC) fell from USD 7.9 per barrel in 2005 to was awarded four new shares in licences and one USD 7.1 per barrel in 2006. The average contract price additional acreage in 2006, including three operator- for methanol rose from EUR 225 per tonne in 2005 to ships in the Norwegian and Barents Seas. In the awards EUR 300 per tonne in 2006. in predefined areas (APA) in 2006, we were awarded The increase in activity in the industry in recent years eight production licences, six of them as operator. has resulted in considerable pressure on capacity and prices Access to new exploration acreage is decisive if the in several supplier markets, including the markets for steel, company is to maintain a high activity level on the NCS rigs, marine operations, engineering and fabrication. and it is a precondition for achieving Statoil’s long-term Competition is very keen for access to new resources production ambitions. and industrial opportunities. The board believes that Efficient and profitable further development of the competition will be further intensified in the years NCS is important to the company’s financial results and ahead. Statoil is in a good position for creating value and Statoil’s reputation as a development operator. In 2006, growth, and the company’s robust financial position the company approved development plans for the Gjøa improves its long-term opportunities. The proposed field in the North Sea and the Alve field in the Norwegian merger with Hydro’s petroleum division will further Sea. strengthen the company’s competitive position in the Gjøa will be the next big development on the NCS. international arena. The plan for development and operation (PDO) also calls Knut Åm (63) On the board of directors since April 1999. Profession: Independent consultant. Education and professional background: Degree in geological and geophysical engineering from the Norwegian Institute of Technol- ogy. Former senior vice president in Phillips Petroleum, with respon- sibility for exploration and production; previously held positions in the Geological Survey of Norway, the Norwegian Petroleum Directorate and Statoil. Other elective posts: Chair of the Industrial Council of the Norwegian Academy of Technological Sciences, chair of IOR- Chemco AS, EnVision AS and EnVision StreamLine AS. Director of Badger Explorer AS, Petrostream ZA and the Physics of Geological Processes Centre of Excellence at the University of Oslo. Number of shares in Statoil: 14,594 42 STATOIL ANNUAL REPORT AND ACCOUNTS 2006


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    Our results for the Hydro-operated condensate and gas fields Vega in Algeria, drilling its first onshore exploration well in the and Vega South to be tied back to the new platform. The Hassi-Mouina block in the Sahara desert. In 2006, coordination benefits of this solution will be substantial. Statoil opened new offices in Libya and Egypt. Efficient project implementation is important to Statoil has strengthened its position in the Gulf of maximise the recovery of area reserves within the Mexico through the purchase of two deepwater lifetime of existing production facilities. The Alve project portfolios from Anadarko Petroleum Corporation and is an example of this. The field will be phased into the Plains Exploration & Production, respectively. Together Statoil-operated Norne field. The development will with the acquisition of EnCana’s portfolio and the ensure good, continuous utilisation of spare capacity in exploration collaboration with Exxon Mobil, Statoil has existing production facilities. established a new international growth area. By exploiting its high level of expertise in exploration, Building new, strong foundations for international reservoir management and development technology, growth the company will create a new, strong foundation for Statoil’s international operations will create positions growth. that will form the basis for long-term growth in The board considers that a continuing aggressive production. approach in the international exploration activity and The income before financial items, tax and minority business development will contribute to long-term interest was NOK 10.9 billion in 2006, compared with value creation and growth. NOK 8.4 billion in 2005. The main reason for the improvement was the increase in oil and gas prices. Record gas sales at high prices International oil and gas production fell from a daily In 2006 the gas business achieved record results. The average of 184,000 boe in 2005 to just under 178,000 income before financial items, tax and minority interest boe in 2006. Oil output increased by 5%, while average was NOK 10.0 billion, up 70% on 2005. The increase gas production fell from 43,000 boe in 2005 to 29,000 was mainly due to the higher price of natural gas, boe. This reduction was largely due to the effects of the increased sale volumes and the contribution from production sharing agreement (PSA) for the In Salah trading in the short-term gas market. field in Algeria. In 2006 Statoil sold more gas than in any previous Four new fields came on stream in 2006, namely In year. Total gas sales from the NCS increased to 28.5 Amenas in Algeria, Dalia in Angola, Shah Deniz and the billion cubic metres in 2006 compared with 27.3 billion second of two developments in phase 2 (East Azeri) in cubic metres in 2005. Of the total gas sales in 2006, the Azeri-Chirag-Gunashli field in Azerbaijan. 25.3 billion cubic metres were equity gas. In the international arena, Statoil took part in 20 The start-up of the southern leg of the Langeled gas completed exploration and appraisal wells in 2006. In 11 pipeline between Sleipner and the receiving terminal in of these, new finds were proven or previous finds Easington, south-east England, in October 2006 confirmed, while the evaluation of six wells was still increased the company’s capacity for processing and ongoing at the turn of the year. Eleven wells were transporting gas to the UK market. completed in 2005. Statoil secured 10 new exploration The board is satisfied with the US Federal Energy licences in 2006. The group has increased its activities Regulatory Commission’s (FERC) approval and the Finn A Hvistendahl (65) On the board of directors since April 1999, chair of the board’s audit committee. Profession: Business development consultant. Education and professional background: Degree in industrial chemistry from the Norwegian Institute of Technology. Has been chief financial officer and chief executive of Norsk Hydro and group CEO of Den norske Bank. Other elective posts: Chair of the board of the Financial Supervisory Authority of Norway (Kredittilsynet). Number of shares in Statoil: 2,947 STATOIL ANNUAL REPORT AND ACCOUNTS 2006 43


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    operator’s start-up of work on expanding regasification ment of a carbon value chain for improved oil recovery capacity for liquefied natural gas (LNG) at the Dominion (IOR) from Draugen and later from Heidrun. The project Cove Point receiving terminal. The expansion increases is technologically and financially challenging, and is a Statoil’s annual supply capacity from 2.4 billion to more response to the environmental challenge facing energy than 10 billion cubic metres. The capacity agreement production. with the energy company Dominion for the delivery of Both projects represent a major commitment to liquefied natural gas (LNG) from Snøhvit is an important energy and the environment. Good framework contribution to the implementation of Statoil’s strategy conditions and close industrial collaboration are decisive for making Norwegian gas a global commodity. if we are to succeed. Good results in Manufacturing & Marketing Making use of first-class technology and expertise The Manufacturing & Marketing business area aims to The activity level was high within technology, modifica- generate as much value as possible from the group’s tion and project work in 2006. Important, advanced overall supplies of crude oil, natural gas liquids (NGL) subsea projects such as Tyrihans and subsea separation and refined products. Integration and active exploitation on the Tordis field are being developed. of profitable opportunities for synergies and growth will The Technology & Projects business area is responsi- help increase value creation. ble for, among other things, completing the demanding The income before financial items, tax and minority Snøhvit project. Progress was good in 2006, and an interest was NOK 7.0 billion in 2006, compared with important milestone was reached when LNG for cooling NOK 7.6 billion in 2005. The reduction is mainly due to the storage tanks arrived at Melkøya in December. the recognition in the accounts of Statoil’s sale of its The southern leg of the Langeled gas pipeline and the share in Borealis in 2005. The sale of the service station Easington receiving terminal were delivered on schedule chain in Ireland gave a book gain of NOK 0.6 billion and below the cost estimate when the project was before tax. Good contributions from oil trading, the high approved. At 1,200 kilometres, Langeled will be the regularity of plant in operation and high methanol prices world’s longest marine gas pipeline, with a transport also helped to create a good result. capacity of around 20 billion cubic metres of gas In 2006, Statoil was granted permission by the annually. authorities to build a combined heat and power (CHP) Statoil purchased goods and services for NOK 67.7 station at Mongstad. At the same time, the company billion in 2006. Companies in Norway accounted for entered into an agreement with the Ministry of 78% of the deliveries. Norwegian companies’ high share Petroleum and Energy for the development of solutions of the deliveries shows that Norwegian industry has for future capture of carbon dioxide. Construction work maintained its competitiveness. Statoil collaborates well on the CHP station commenced on 16 January 2007. with important suppliers and is actively engaged in At the beginning of 2006, the Norwegian Water recruitment and skills development. In the board’s view, Resources and Energy Directorate (NVE) granted Statoil the company makes good efforts to secure sufficient a licence to build a gas-fired power plant at Tjeldber- capacity to implement Statoil’s ambitious plans, both on godden. Statoil entered into an agreement with Shell the NCS and internationally. with a view to developing a project for the establish- Exploration for and the development of new finds Grace Reksten Skaugen (53) On the board of directors since June 2002. Profession: Self-employed Education and professional background: PhD in laser physics from the Imperial College of Science and Technology, London University, and an MBA from the Norwegian School of Management. Director of corporate finance at Enskilda Securities, Oslo. Adviser for Aircontactgruppen, Oslo and Fearnley Finance Ltd, London. Postdoctoral research in the field of microelectronics at Columbia University, New York. Other elective posts: Board chair at Entra Eiendom, deputy chair at Opera Software. Director of Investor AB and Atlas Copco AB. Number of shares in Statoil: 0 44 STATOIL ANNUAL REPORT AND ACCOUNTS 2006


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    Our results make increasing demands on technology and expertise, exchange rates and commodity prices. Since Statoil while at the same time the general pressure on costs in operates in the international oil and gas markets and has the industry is increasing. As part of the efforts to substantial financing needs, the company is exposed to strengthen the company’s expertise in project imple- these risks, which can influence operating, investment mentation, a collaboration agreement was signed with and financing costs. the University of California, Berkeley in 2006 for the The company has used, and will continue to use, education of managers for big, complex development financial instruments and commodity-based derivative projects. The board stresses the importance of making contracts to reduce the risk relating to the overall purposeful efforts to develop and apply knowledge and earnings and cash flow. Derivatives, which largely offset new solutions that can contribute to further developing such market exposure, are used to manage certain risks Statoil into a globally competitive company. of this type. The company also uses derivatives to establish positions based on market expectations, but The group’s financial development this has no significant effect on the group accounts. Statoil had total revenues of NOK 425.2 billion in 2006, Interest and exchange rate risks are substantial compared with NOK 387.4 billion in 2005. financial risks for the Statoil group. The total exposure is The Statoil group recorded an income before financial managed at portfolio level in accordance with the items, tax and minority interest of NOK 116.9 billion in strategies and authorisations set out in the group-wide 2006, compared with NOK 95.0 billion the year before. risk management programme, and it is monitored by the Net income amounted to NOK 40.6 billion, which was company’s risk committee. The company’s interest NOK 9.9 billion up on the year before. The earnings per exposure is mainly related to the group’s debt commit- share in 2006 came to NOK 18.79 compared with NOK ments and to management of the assets in Statoil 14.19 in 2005. Forsikring AS and Statholding AS. The group mainly uses The cash flow from operations was NOK 60.9 billion interest and exchange rate swap agreements to manage in 2006, up from NOK 56.3 billion in 2005. The main interest and exchange rate exposure. reason for the increase was higher prices. The cash flow The group’s financial reporting is in accordance with used for investments in 2006 was NOK 40.1 billion, the US generally accepted accounting principles compared with NOK 37.7 billion the year before. (USGAAP) as well as the Norwegian generally accepted The group’s gross interest-bearing debt amounted to accounting principles (NGAAP). Note 26 in the NGAAP NOK 35.8 billion at the end of 2006, compared with accounts explains the difference between the two sets NOK 34.1 billion the year before. The group’s debt to of accounts. equity ratio, defined as net interest-bearing debt in rela- As required by section 3-3 a) of the Norwegian tion to capital employed, was 16.8% as of 31 December Accounting Act, the board confirms that the going 2006, compared with 15.1% on the same date in 2005. concern assumption has been fulfilled. The accounts for Total bank deposits and other liquid securities 2006 have been prepared on that basis. Net income for amounted to NOK 8.4 billion at the end of 2006, the Statoil ASA parent company according to NGAAP compared with NOK 13.9 billion in 2005. was NOK 39.1 billion in 2006. The accounts give an Statoil uses financial derivatives to manage risk as a accurate picture of the company’s assets, liabilities, result of fluctuations in underlying interest rates, financial position and financial performance. No events Ingrid Wiik (62) On the board of directors since June 2005. Education and professional background: MSc in pharmacy from the University of Oslo, MSc in biopharmacy from the University of London, Master of Business Administration (MBA) from the Norwegian School of Management (BI). President and CEO of Alpharma Inc, New York. Various managerial posts in Alpharma, Apothekernes Laborato- rium and Nygaard & Co (now GE/Nycomed). Other elective posts: Director of Alpharma, Coloplast and Norske Skog. Number of shares in Statoil: 500 STATOIL ANNUAL REPORT AND ACCOUNTS 2006 45


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    have taken place after the end of the financial year that ment, this forms the basis for the good relationship of have a bearing on the evaluation of the company and trust between the board, the management and the that are not included in the annual accounts and notes. employees. The year 2006 was characterised by particularly In Statoil, corporate governance is based on favourable market conditions and good financial results. openness and equal treatment of the company’s The board concludes that this allows for a special one- shareholders, and is exercised through the board of off dividend of NOK 5.12 per share. With an ordinary directors, corporate assembly and annual general dividend of NOK 4.00 per share, the board proposes meeting. The board has also set up a separate audit that the annual general meeting allocates a total committee and a remuneration committee. dividend of NOK 9.12 per share. Repurchase represents There were two changes among board members in NOK 1.55 per share in 2006. The total payment to 2006. Marit Arnstad took office as a new shareholder- Statoil’s shareholders corresponds to NOK 10.67 per elected director from 14 June 2006. Stein Bredal share. stepped down in May 2006. Claus Clausen took office The board proposes the following allocation of net as a new representative of the employees on 14 June income in the parent company Statoil ASA (in NOK 2006. million): The board held 17 meetings in 2006. The board notes the following matters to which particular Provisions for dividend 19,690 attention was devoted: Retained earnings 15,783 - Work on health, safety and the environment Reserve for valuation variances 3,592 - Sanction of the Mongstad energy project with CHP Total allocated 39,065 station - Continuous follow-up of the group’s operations and The company’s distributable equity after allocations financial development amounts to NOK 77.1 billion. - Strategies and plans for business development on the NCS and internationally Corporate governance - Progress and cost developments in important Good corporate governance is the board’s most development projects important tool for ensuring that Statoil’s resources are - Changes in the company’s remuneration policy managed in an optimal manner and contribute to - Settlement with SEC, DOJ and USAO in the Horton maximum value creation for the company’s owners. case The board must ensure that Statoil has good systems - Consideration of the merger with Hydro’s oil and gas for internal control and risk management at all times. In division 2006, Statoil’s most important management and control principles were gathered together in one The board has followed up the company’s work on document based on the company’s corporate values and bringing the internal control systems into line with the ethical guidelines. Together with a clearly defined regulations in section 404 of the Sarbanes-Oxley Act division of responsibility and roles between the (SOX404). This work helps to ensure and document the shareholders, the board and the company’s manage- quality of the company’s internal controls in connection Marit Arnstad (44) On the board of directors since June 2006. Profession: Adviser in Schjødt law firm. Education and professional background: Law degree from the University of Oslo. Petroleum and energy minister 1997-2000. Member of Parliament from 1993-97 and 2001-05. Parliamentary leader of the Norwegian Centre Party, 2003-05. Senior executive officer, Ministry of the Environment. Assistent lawyer in Wiersholm, Mellbye and Bech law firm. Other elective posts: Chair of the board of the Norwegian University of Science and Technology (NTNU). Director of Aker Seafood ASA, COWI AS and NTE Nett AS. Number of shares in Statoil: 0 46 STATOIL ANNUAL REPORT AND ACCOUNTS 2006

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