Twelve months ended 31 December
Consolidated statements of income  (in NOK billion)	2008	2007	08 -07 Change	2006	07-06 Change
Revenues and other income
Revenues	652.0	521.7	25%	519.0	1%
Net income (loss) from equity accounted investments	1.3	0.6	111%	0.7	(10%)
Other income	2.8	0.5	428%	1.8	(72%)
Total revenues and other income	656.0	522.8	25%	521.5	0%
Operating expenses
Purchase, net of inventory variation	329.2	260.4	26%	249.6	4%
Operating expenses	59.3	60.3	(2%)	44.8	35%
Selling, general and administrative expenses	11.0	14.2	(23%)	10.8	31%
Depreciation, amortisation and impairment	43.0	39.4	9%	39.5	(0%)
Exploration expenses	14.7	11.3	30%	10.7	6%
Total operating expenses	457.2	385.6	19%	355.3	9%
Net operating income	198.8	137.2	45%	166.2	(17%)
Net financial items	(18.4)	9.6	(291%)	5.1	89%
Income tax	(137.2)	(102.2)	(34%)	(119.4)	14%
Net income	43.3	44.6	(3%)	51.8	(14%)
Earnings per share for income attributable to equity holders of company basic and diluted	13,6	13,8	100%	15,8	(13%)

 

	Twelve months ended 31 December
Operational data	2008	2007	08 -07 Change	2,006	07-06 Change
Average liquids price (USD/bbl)	91.0	70.5	29 %	63.2	12 %
USDNOK average daily exchange rate	5.63	5.86	(4 %)	6.42	(9 %)
Average liquids price (NOK/bbl) [3]	513	413	24 %	406	2 %
Gas prices (NOK/scm)	2.40	1.66	45 %	1.94	(15 %)
Refining margin, FCC (USD/boe) [4]	8.2	7.5	9 %	7.1	6 %
Total entitlement liquids production (mboe per day)[5]	1055	1070	(1 %)	1057	1 %
Total entitlement gas production (mboe per day)	696	654	6 %	651	0 %
Total entitlement liquids and gas production (mboe per day) [6]	1751	1724	2 %	1708	1 %
Total equity liquids production (mboe per day)	1200	1165	3 %	1118	4 %
Total equity gas prodcution (mboe per day)	725	674	8 %	661	2 %
Total equity liquids and gas production (mboe per day)	1925	1839	5 %	1780	3 %
Total liquids liftings (mboe per day)	1019	1081	(6 %)	1048	3 %
Total gas liftings (mboe per day)	696	654	6 %	651	0 %
Total liquids and gas liftings (mboe per day) [7]	1714	1735	(1 %)	1699	2 %
Production cost entitlement volumes (NOK/boe, last 12 months) [8]	38.1	44.1	(14 %)	28.4	55 %
Equity production cost excluding restructuring and gas injection cost (NOK/boe, last 12 months) [10]	33,3	31.2	7 %	28,1	11 %

Revenues and other income totalled NOK 656.0 billion in 2008. This was NOK 133.2 billion more than in 2007 and NOK 134.5 billion more than in 2006. Most of the revenues stem from the sale of lifted crude oil, natural gas and refined products produced and marketed by StatoilHydro. We also market and sell the Norwegian State's share of oil from the NCS. All purchases and sales of the Norwegian State's production are recorded as purchases net of inventory variations and sales, respectively.

Realised prices of liquids measured in NOK increased by 29% from 2007 to 2008. The increased prices of liquids contributed NOK 37.0 billion to the revenues, whereas the overall gas sales contributed NOK 6.1 billion and the increase in prices of natural gas contributed NOK 29.2 billion to the change. This was partly offset by a decrease in liftings of liquids of NOK 9.0 billion.

Realised oil prices measured in NOK increased by 2% from 2006 to 2007. The increased oil prices contributed NOK 3.1 billion to the revenues, whereas the contribution from increased oil liftings was NOK 5.0 billion. Overall gas sales contributed NOK 3.6 billion to the change. This was partly offset by a decrease in gas prices with a negative impact of NOK 10.4 billion.

Over time, the volumes of liquids lifted should correlate with the volumes produced. However, the volumes may be higher or lower than production in any period due to operational factors affecting when we lift the liquids from the fields. Total liquids liftings decreased from 1.081 mmboe per day in 2007 to 1.019 mmboe per day in 2008. From 2006 to 2007, total liquids liftings increased from 1.048 mmboe per day in 2006 to 1.081 mmboe per day in 2007.

 

Entitlement volumes lifted is the basis for the revenue recognition, while equity production volumes affect operating costs more directly. See report section Financial performance-Strong operational performance-Reported volumes for more details on the PSA effects that cause differences between equity and entitlement volumes. See below for more details on the difference between lifted and produced volumes.

Total natural gas sales were 45.2 bcm (1,60 tcf) in 2008, 42.0 bcm (1.48 tcf) in 2007 and 40.2 bcm (1.42 tcf) in 2006. The 8% increase from 2007 to 2008 was mainly due to increased entitlement gas sales, but was partly offset by a net decrease in StatoilHydro third party sales volumes. The increase in entitlement sales volumes mainly relates to higher production from NCS in addition to the first full year of production from Shah Deniz in Azerbaijan. From 2006 to 2007, the increase of 1.8 bcm was mainly due to higher third party gas sales, and was partly offset by a net decrease in StatoilHydro entitlement sales volumes.

Net income (loss) from equity accounted investments. Our share of equity in net income of affiliates was NOK 1.3 billion in 2008, NOK 0.6 billion in 2007 and NOK 0.7 billion in 2006.

Other income was NOK 2.8 billion in 2008 compared with NOK 0.5 billion in 2007 and NOK 1.8 billion in 2006. The income in 2008 and 2007 was mainly related to gain from sale of assets whereas the income in 2006 was mainly related to a change in the write-down of inventory to production cost and gains from sales of assets.

Purchase, net of inventory variation includes the cost of the oil and NGL production that we purchase from the Norwegian State pursuant to the Marketing Instruction. The purchase, net of inventory variation amounted to NOK 329.2 billion in 2008 compared with NOK 260.4 billion in 2007 and NOK 249.6 billion in 2006. The increase from 2006 through 2008 was mainly caused by higher prices of liquids measured in NOK.

Operating expenses include field production costs and transport systems related to the company's share of oil and natural gas production. Operating expenses were NOK 59.3 billion in 2008 compared to NOK 60.3 billion in 2007 and NOK 44.8 billion in 2006. The 2% decrease from 2007 to 2008 was primarily due to restructuring costs related to the merger in 2007 and was only partly offset by increased costs related to start-up of new fields, higher activity and industry cost inflation in 2008. The 35% increase from 2006 to 2007 was primarily due to restructuring costs and other costs related to the merger, as well as higher operation and maintenance costs, increased transportation costs and new fields coming on stream.

Total liquids and gas production increased from 1.724 mmboe per day in 2007 to 1.751 mmboe per day in 2008. In 2006, total liquids and gas production was 1.708 mmboe per day. Equity production of oil and gas increased from 1.839 mmboe per day in 2007 to 1.925 mmboe per day in 2008. In 2006, equity production of liquids and gas was 1.780 mmboe per day.

The production cost per boe was NOK 38.1 for the 12 months ended 31 December 2008, compared with NOK 44.1 for the 12 months ending 31 December 2007. [8] In 2006, the production cost per boe was NOK 28.4 (USD 4.44).

Based on equity volumes, [10] the production cost per boe for the two periods was NOK 33.5 and NOK 41.4, respectively. Normalised at a USD/NOK exchange rate of 6.00, the production cost for the 12 months ending 31 December 2008 was NOK 38.6 per boe, compared with NOK 44.3 per boe for the 12 months ending 31 December 2007 and NOK 28.1 per boe for the 12 months ending 31 December 2006 [9]. Normalised production cost is defined as a non-GAAP financial measure. [2]

The production cost per boe, both actual and normalised, has decreased significantly from 2007 to 2008, mainly due to a NOK 3,6 billion change in non-recurring restructuring costs relating to the merger in 2007, but the positive effect was partly offset by start-up of new fields, increased maintenance cost and general industry cost pressure.

Adjusted for restructuring costs and other costs arising from the merger recorded in the fourth quarter of 2007 and gas injection costs, the production cost per boe of equity production for the 12 months ending 31 December 2008 and 2007, was NOK 33.3 and NOK 31.2 respectively. 

These figures have not been normalised for currency effects. Adjustments are made for certain costs related to the purchase of gas used for injection into oil-producing reservoirs. The adjustment facilitates comparison of field production costs with other fields which do not pay for their own gas used for injection into oil producing reservoirs.

Selling, general and administrative expenses include expenses related to the sale and marketing of our products, such as business development costs, payroll and employee benefits. These amount to NOK 11.0 billion in 2008, compared with NOK 14.2 billion in 2007 and NOK 10.8 billion in 2006. The 23% decrease from 2007 to 2008 was mainly due to restructuring costs related to the merger in 2007 and was only partly offset by increased costs related to higher activity and industry cost inflation in 2008. The 32% increase from 2006 to 2007 was also mainly due to restructuring costs and other costs arising from the merger in 2007, and was only partly offset by a pre-tax gain in 2006 of NOK 0.6 billion from the sale of Statoil Ireland.

Depreciation, amortisation and impairment includes depreciation of production installations and transport systems, depletion of fields in production, amortisation of intangible assets and depreciation of capitalised exploration expenditure. It also includes write-downs of impaired long-lived assets. These expenses amounted to NOK 43.0 billion in 2008, compared to NOK 39.4 billion in 2007 and NOK 39.5 in 2006.

The 9% increase in depreciation, amortisation and impairment expenses in 2008 compared to 2007 was due to impairment charges net of reversals of NOK 2.3 billion, mostly related to the Gulf of Mexico (GoM), and an increase in production. 

Depreciation, amortisation and impairment expenses in 2007 showed a decrease of NOK 3.3 billion compared to 2006. The decrease was offset by higher asset retirement costs of NOK 2.1 billion and the start-up of new fields in 2007. The impairments of Gulf of Mexico shelf fields and Front Runner amounted to NOK 4.9 billion in 2006, compared to impairments in 2007 of Lufeng, Front Runner, Thunder Hawk and GoM shelf fields amounting to NOK 1.2 billion.

Exploration expenditures are capitalised to the extent that exploration efforts are considered successful, or pending such assessment. Otherwise, such expenditures are expensed. The exploration expense consists of the expensed portion of our exploration expenditure in 2008 and write-offs of exploration expenditure capitalised in previous years. The exploration expense was NOK 14.7 billion in 2008, NOK 11.3 billion in 2007 and NOK 10.7 billion in 2006.

	For the year ended 31 December
Exploration (in NOK billion)	2008	2007	08-07 change	2006	07-06 change
Exploration expenditure (activity)	17.8	14.2	25%	13.4	6%
Expensed, previously capitalised exploration expenditure	3.7	1.7	118%	1.5	13%
Capitalised share of current periods exploration activity	(6.8)	(4.6)	48%	(4.2)	10%
Exploration expense	14.7	11.3	30%	10.7	6%

The 30% increase in exploration expenses from 2007 to 2008 was mainly due to a higher number of wells drilled, generally more expensive wells, higher field evaluation costs and delineation of the oil sands project in Canada. The 6% increase in exploration expenses from 2006 to 2007 was mainly due to higher exploration activity, generally more expensive wells and an increase in the expensing of previously capitalised licences and well expenditures.

In 2008, a total of 79 exploration and appraisal wells and nine exploration extension wells were completed, 48 on the NCS and 40 internationally. Thirty-five exploration and appraisal wells and six exploration extension wells have been declared as discoveries. In 2007, a total of 71 exploration and appraisal wells and two exploration extension wells were completed, 26 on the NCS and 47 internationally. Thirty-four exploration and appraisal wells and two exploration extension wells were declared as discoveries.

In 2007, a total of 71 exploration and appraisal wells were completed, 24 on the NCS and 47 internationally. In addition, two exploration extension wells were completed in the same period. Thirty-four of the exploration and appraisal wells were confirmed discoveries, 16 on the NCS and 18 internationally. Both exploration extension wells were discoveries.

In 2006, a total of 73 exploration and appraisal wells were completed, 18 on the NCS and 55 internationally. Five exploration extension wells were completed during the same period. Thirty-two of the exploration and appraisal wells were confirmed discoveries, eight on the NCS and 24 internationally. Two exploration extension wells were discoveries.

Net operating income was NOK 198.8 billion in 2008, compared with NOK 137.2 billion in 2007 and NOK 166.2 billion in 2006. The 45% increase from 2007 to 2008 was mainly due to higher realised prices for both liquids and natural gas, measured in NOK, and it was only partly offset by increased operating expenses caused by a higher activity level and new, more expensive fields coming on stream.

The 18% decrease in net operating income from 2006 to 2007 was mainly due to an increase in operating, selling and administrative expenses stemming in part from restructuring and other costs arising from the merger, a negative change in derivatives, new fields coming on stream and increased activity levels. The restructuring costs and other costs arising from the merger were recorded primarily under operating and general and administrative expenses, and they were allocated to the business areas where possible. Restructuring costs and other costs arising from the merger were primarily related to pensions and early retirement costs and impairment of assets in Sweden.

In 2008, net operating income was affected by the following items: impairment charges net of reversals (NOK 4.8 billion), lower values of products in operational storage (NOK 2.8 billion), underlift (NOK 2.4 billion) and other accruals (NOK 2.3 billion) all affected net operating income in 2008 negatively, while increased fair value of derivatives (NOK 1.8 billion), gains on derivatives to hedge the value of inventories (NOK 0.8 billion), gains on sales of assets (NOK 1.4 billion) and reversal of restructuring cost accrual (NOK 1.6 billion) positively affected net operating income in 2008.

In 2007, net operating income was impacted of the following items: impairment charges net of reversals (NOK 2.8 billion), loss on derivatives to hedge the value of inventories (NOK 1.1 billion), other accruals (NOK 1.2 billion), restructuring cost accrual (NOK 6.7 billion) and other costs related to the merger (NOK 3.2 billion) all impacted net operating income in 2007 negatively, while increased fair value of derivatives (NOK 0.5 billion), overlift (NOK 1.6 billion), higher values of products in operational storage (NOK 1.5 billion) positively impacted net operating income in 2008.

In 2008, Net financial items amounted to a loss of NOK 18.4 billion, compared with a gain of NOK 9.6 billion in 2007.

The NOK 28.0 billion negative change from 2007 to 2008 was mostly attributable to NOK 32.6 billion in currency losses caused by a 29% weakening of NOK against USD in 2008 compared to a NOK 10.0 billion gain from a 14% strengthening of the NOK against the USD in 2007. The negative impact of currency exchange losses was partly offset by a NOK 9.9 billion increase in interest income and other financial items and a NOK 4.7 billion decrease in interest and other financial expenses.

Interest income and other financial items amounted to NOK 12.2 billion in 2008, compared to NOK 2.3 billion in 2007. The increase of NOK 9.9 billion mainly related to an increase in interest income of NOK 4.4 billion and an increase in income from securities of NOK 5.5 billion, mainly related to currency gains on USD denominated investments.

Interest and other financial expenses amounted to a net gain of NOK 2.0 billion in 2008, compared to a net loss of NOK 2.7 billion in 2007. The decrease of NOK 4.7 billion mainly related to a NOK 5.1 billion change in fair value adjustment of interest rate swap positions used to manage the interest rate risk on the external loan portfolio, due to a decrease in USD rates of 2.2% during 2008.

In 2007 net financial items amounted to an income of NOK 9.6 billion, compared to an income of NOK 5.1 billion in 2006. The 88% increase was principally the result of changes in currency gains and losses on the USD portions of our non-current financial liabilities outstanding and currency gains and losses on NOK hedging transactions. In both cases, currency gains and losses relate to changes in the USD/NOK exchange rate, due to the weakening of the USD against the NOK.

Currency swaps are used for risk management purposes to hedge our long-term interest-bearing loans recorded in USD. As a result, the company's long-term debt portfolio is exposed to changes in the USD/NOK exchange rate. The USD weakened by NOK 0.85 in relation to NOK in 2007, compared to a weakening of NOK 0.51 in 2006.

Interest and other financial income amounted to NOK 2.3 billion in 2007, compared to NOK 3.7 billion in 2006. Interest and other financial expenses amounted to NOK 2.7 billion in 2007, compared to NOK 3.1 billion in 2006. The decrease in interest and other expenses was mainly due to a decrease in interest expenses on our long term loan portfolio, caused by currency effects and gains on interest rate swaps related to former Hydro long-term interest-bearing loan contracts. This portfolio was swapped from fixed to floating interest rate in the second half of 2007. These effects were partly offset by increased accretion expenses related to asset retirement obligations and a decrease in interest being capitalised. This was mainly due to the fact that fields such as Snøhvit and Ormen Lange came on stream in 2007.

Management of the portfolio of security investments, mainly related to equity securities, is held by our insurance captive, Statoil Forsikring AS, commercial papers is held by Statholding AS and liquidity funds is held by StatoilHydro ASA.

The Norwegian central bank's closing rate for USDNOK was 7.00 on 31 December 2008, 5.41 on 31 December 2007 and 6.26 on 31 December 2006. These exchange rates have been applied in StatoilHydro's financial statements.

In 2008 income taxes were NOK 137.2 billion, equivalent to a tax rate of 76.0%, compared to NOK 102.2 billion equivalent to a tax rate of 69.6% in 2007.

The increase in the tax rate in 2008 was mainly related to the net loss on financial items which is tax deductible at a lower tax rate than the average rate. In addition, the tax rate was increased by the deferred tax expense caused by currency effects in certain group companies which are taxable in a different currency than the functional currency. This was partly offset by the tax effect of a proportionally higher operating income being subject to a lower than average tax rate.

The effective tax rate is calculated as income taxes divided by income before taxes. Fluctuations in the effective tax rates from year to year are principally the result of non-taxable items (permanent differences), changes in the components of income between Norwegian oil and gas production, taxed at a marginal rate of 78%; other Norwegian income, including the onshore portion of net financial items taxed at 28%, and income in other countries taxed at the applicable income tax rates.

Adjusted for the non-recurring NOK 2.0 billion reduction in deferred tax liabilities relating to allocation of financial items with respect to the NCS and temporary differences in inter-company transactions, income taxes in 2006 were NOK 119.4 billion, equivalent to a tax rate of 69.7%. The tax rate in 2007 was lower than the adjusted tax rate in 2006, mainly due to higher net financial income and the increased effect of uplift deduction on the NCS. The lower tax rate was partly offset by relatively less income from outside the NCS being subject to lower taxation than the average tax rate.

In 2008, the Minority interest in net profit was NOK 0.005 billion, compared to NOK 0.5 billion in 2007. The minority interest is primarily related to the Mongstad crude oil refinery. In 2006, the minority interest in net profit was NOK 0.7 billion.

Net income was NOK 43.3 billion in 2008, compared to NOK 44.6 billion in 2007. The decrease was mainly due to a loss on financial items, high income taxes and increased operating expenses, and was only partly offset by higher prices on both liquids and natural gas, measured in NOK. In 2006, net income was NOK 51.9 billion and the decrease in 2007 was mainly due to lower operating income primarily because of restructuring costs and other costs arising from the merger, negative changes in derivatives and a higher tax rate, partly offset by higher net financial income.

The Board of Directors proposes an ordinary dividend of NOK 4.40 per share for 2008 to the Annual General Meeting, as well as NOK 2.85 per share in special dividend, making an aggregate total of NOK 23.1 billion. Ordinary dividend for 2007 was NOK 4.20 per share, as well as NOK 4.30 per share in special dividend, making an aggregate total of NOK 27.1 billion in 2007. In 2006, ordinary and special dividend was NOK 4.00 per share and NOK 5.12 per share, respectively, making an aggregate total of NOK 19.7 billion.