Capital expenditure

Our capital expenditure in our four principal business segments in 2006 through 2008 is described below, including the allocation per segment as a percentage of gross investments. Capital expenditure is expected to amount to approximately USD 13.5 billion in 2009.

Exploration expenditure

We experienced a step-up in exploration activities during the period from 2006 to 2008. Exploration expenditure in 2008 amounted to NOK 17.8 billion, compared with NOK 14.2 billion in 2007 and NOK 13.4 billion in 2006. Exploration expenditure is expected to further increase to approximately NOK 18 billion in 2009. The group expects to participate in the drilling of approximately 70 wells in 2008. However, no guarantees can be given with regard to the number of wells drilled, the cost per well and the results of drilling. Uncertainty related to the results of past and future drilling will influence the amount of exploration expenditure capitalised and expensed. See report section 4.2.5 Financial performance-Critical accounting judgements.

We use the "Successful efforts" method of accounting for oil and natural gas-producing activities. Expenditure on drilling and equipping exploratory wells is capitalised until it is clarified whether there are proved reserves. Expenditure on drilling exploratory wells that do not find proved reserves and geological, geophysical and other exploration expenditure is expensed. Unproved oil and gas properties are assessed quarterly; unsuccessful wells are expensed. Exploratory wells that have found reserves, but where classification of those reserves as proved depends on whether major capital expenditure can be justified, may remain capitalised for more than one year. The main conditions are either that firm plans exist for future drilling in the licence or that a development decision is planned in the near future.

The production cost per barrel is expected to increase as a result of tail-end production on mature fields on the NCS, PSA effects on production in international areas and continued pressure on costs in the industry.

This section describes our estimated capital expenditure for 2009 with respect to potential capital expenditure requirements for the principal investment opportunities available to us and other capital projects currently under consideration. The figure is based on StatoilHydro developing organically and it excludes possible expenditures related to acquisitions. Therefore, the expenditure estimates and descriptions with respect to investments in the segment descriptions below could differ materially from the actual expenditure. For more information on the various projects in each of the segments, see the respective report sub-sections described under 4 Financial performance.

E&P Norway. A substantial proportion of our 2009 capital expenditure has been allocated to the ongoing development projects on Skarv, Ormen Lange, Gjøa, Vega, Morvin and Statfjord late life.

International E&P. We currently estimate that a substantial proportion of our 2009 capital expenditure will be allocated to the following ongoing and planned development projects: Peregrino in Brazil, Pazflor and PSVM in Angola, Marcellus Shale Gas and Tahiti in the USA , Leismer in Canada and Corrib in Ireland.

Natural Gas. We currently estimate that most of the 2009 capital expenditures will be spent on projects related to upgrading of the Kårstø processing plant in addition to the new Gjøa gas pipeline. The Gjøa gas pipeline ties the Gjøa field into the UK's existing Far North Liquids and Associated Gas System (Flags), which runs to St. Fergus in Scotland.

Manufacturing & Marketing. We are focusing our capital expenditure on upgrading our refineries to increase robustness and flexibility, as well as developing extra heavy oil value chains based on E&P assets. In 2006, we received the final permit to build a combined heat and power plant (CHP plant) at Mongstad. It will be built and operated by the Danish company Dong under a long-term lease agreement, in which StatoilHydro has an option to take over ownership after 20 years, free of charge. We and our partners at Mongstad and on Troll will invest NOK 3.3 billion in refinery modifications and a gas pipeline from Kollsnes to Mongstad in connection with the CHP plant. In addition to the CHP project, the main focus at Mongstad in the next three years will be a coke safety unit, automation upgrade and improvements to infrastructure. At Kalundborg the main focus is on infrastructure improvements.

As illustrated in section 4.2.1 Principal contractual obligations, we have committed to certain investments in the future. The proportion of estimated investments that we have also committed to as of year end 2008 will decline with time. The farther into the future, the more flexibility we have in committing to the expenditure. This flexibility is partly dependent on what our partners in joint ventures agree to commit to.

Finally, we may alter the amount, timing or segmental or project allocation of our capital expenditure in anticipation or as a result of a number of factors outside our control including, but not limited to:

• exploration and appraisal results, such as favourable or disappointing seismic data or appraisal wells;
• cost escalation, such as higher exploration, production, plant, pipeline or vessel construction costs;
• government approval of projects;
• government awards of new production licences;
• partner approvals;
• the development and availability of satisfactory transport infrastructure;
• the development of markets for our petroleum products and other products, including price trends;
• political, regulatory or tax regime risks;
• accidents such as rig blowouts or fires, and natural hazards;
• adverse weather conditions;
• environmental problems which could lead, for instance, to development restrictions, costs relating to regulatory compliance or the effects of petroleum discharges or spills; and
• acts of war, terrorism and sabotage.