The financial results of operations largely depend on a number of factors, most significantly those that affect the price we receive in NOK for our sold
products. Specifically, such factors include the level of crude oil and natural gas prices; trends in the exchange rate between the USD and NOK; equity
production and entitlement sales volumes of liquids and natural gas; available petroleum reserves, and Statoil's, as well as its partners' expertise and cooperation in recovering oil and natural gas from those reserves; and changes in the portfolio of assets due to acquisitions and disposals.
The results will also be affected by trends in the international oil industry, including possible actions by governments and other regulatory authorities in the jurisdictions in which the group operates. Also possible or continued actions by members of the Organization of Petroleum Exporting Countries (Opec) that affect price levels and volumes, refining margins, increasing cost of oilfield services, supplies and equipment, increasing competition for exploration opportunities and operatorships, and deregulation of the natural gas markets may cause substantial changes to the existing market structures and to the overall level and volatility of prices.
The following table shows the yearly averages for quoted Brent Blend crude oil prices, natural gas contract prices, Statoil's benchmark refining margins (FCC
margin) and the USDNOK exchange rates for 2009, 2008 and 2007.
| Yearly average |
2009 |
2008 |
2007 |
2006 |
| |
|
|
|
|
| Crude oil (USD/bbl brent blend) |
58.0 |
91.0 |
70.5 |
63.2 |
| Natural gas (NOK per scm)(1) |
1.9 |
2.4 |
1.7 |
1.9 |
| FCC margins (USD/bbl)(2) |
4.3 |
8.3 |
7.5 |
7.1 |
| USDNOK average daily exchange rate |
6.3 |
5.6 |
5.9 |
6.4 |
(1) From the Norwegian Continental Shelf.
(2) Refining margin. |
The illustration shows how certain changes in the crude oil price, natural gas contract prices and the USDNOK exchange rate, if sustained for a full year, could impact the financial results in 2010.
The estimated sensitivity of our financial results to each of the factors has been estimated based on the assumption that all other factors would remain unchanged. The estimated effects on the financial results would differ from those that would actually appear in our consolidated financial statements
because our consolidated financial statements would also reflect the effect on depreciation, trading margins, exploration expenses, inflation, potential tax system changes and the effect of any hedging programmes in place.
Our oil and gas price hedging policy is designed to assist our long-term strategic development and our attainment of targets by protecting financial flexibility and cash inflows.
Fluctuating foreign exchange rates can have a significant impact on our operating results. Our revenues and cash flows are mainly denominated in, or driven by US dollars, while our operating expenses and income taxes payable largely accrue in NOK. The group seek to manage this currency
mismatch by issuing or swapping long-term debt in USD. This debt policy is an integrated part of our total risk management programme. The group also
engage in foreign currency hedging in order to cover our non-USD needs, which are primarily in NOK. We manage the risk arising from our interest rate
exposure through the use of interest rate derivatives, primarily interest rate swaps, based on a benchmark for the interest reset profile of our long-term
debt portfolio. In general, an increase in the value of USD in relation to NOK can be expected to increase our reported earnings.
