Statoil

1
PRESENTATION BY PHIL H. LATIMIER ENERGIZING
CHANGE SEMINAR
2
Agenda

• About Statoil
• Shareholding
• Entry Barriers
• Remaining Multinational
• Risks
• Emerging Markets Investment Research
• Venezuela
• Russia
• Financing Investment Activities
• W.A.C.C and W.M.C.C Calculations

3
About Statoil

• Statoil, an integrated oil and gas company.
• One of the major suppliers of natural gas to the
  European market
• One of the world's biggest sellers of crude oil.

4
About Statoil

• Founded 1972
• Listed 2001
• Total Turnover 2003 listed NOK 249 billion
• 24000 Employees

5
About Statoil

• 50 of employees work outside Norway
• Operator of 20 oil and gas fields
• Represented in 28 countries
• 2003 imp. Int. operations
• Gas fields Algeria
• New producing Angola

Source www.statoil.com/statoils_world
6
Shareholding

• Listed June 2001 Oslo and New York stock
  exchanges
• One-third of the companys value was permitted to
  to be sold
• Main objective - to strengthen the companys
  competitive position and the group with a broader
  ownership base

Share price Oslo Stock Exchange 2001-2004
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Shareholding


Rank Percent Name
1 76.33 The Norwegian State
2 2.28 State Street Bank and Trust Co.
3 1.44 JP Morgan Chase Bank
4 1.07 Bank of New York
5 0.86 Mellon Bank AS Agent
6 0.71 The Northern Trust Co.
7 0.49 JP Morgan Chase Bank
8 0.47 Folketrygtfondet
9 0.43 Investors Bank and Trust
10 0.42 Deutsche Bank AG
Top 10 Shareholders Sept. 2004

• Government holds 76,3 of the shares
• State ownership in Statoil still important -
  ensuring that company retains a Norwegian base.
• State guidelines from the Norwegian Ministry of
  Petroleum and Energy.
• Statoils Board of directors responsible for
  development

8
Entry Barriers -Oil Gas Market

• Government restrictions on entry.
• Major development projects or issues of
  principle must be considered and approved by the
  Storting. The oil and gas market is highly
  regulated. Statoil has competitive advantage as a
  state owned company.
• Economies of scale.
• Benefit from producing on a large scale, which
  means that the average cost of one barrel is
  lower. Statoil is actively involved in the direct
  trade sector, delivering large quantities.

9
Entry Barriers -Oil Gas Market

• Research and Development Expenditure
• Heavy spending on research and development can
  act as a strong deterrent to potential entrants
  to the industry.
• Statoils research expenditure were NOK 1,004
  million 2003, NOK 736 million 2002 and NOK 633
  million in 2001.

10
International Strategy

• Health, safety and the environment
• Zero harm
• Cut its share of greenhouse gas by 1.5 million
  tonnes of carbon dioxide
• Close cooperation between government, industry,
  and a select few environmental NGOs
• Zero accept in corrupt activities in any country
• Statoil belongs to the anti-corruption
  sub-committee
• Staff training.

11
Corporate Risk Management

• Top-down approach
• Corporate Risk Committee responsible for
  reviewing, defining and developing the companys
  strategic market risk policies.
• The main goals ensure Statoils long term
  strategic development and to reach targets
  through protecting financial flexibility, i.e.
  avoiding different categories of financial
  distress, down-rating and protecting cash flows.

12
Foreign Exchange Interest Rate Risks

• Forward foreign exchange
• Receivables and payables
• Borrowing in foreign currencies

13
Emerging Markets Investment Research
Venezuela
Russia
14
Statoil in Venezuela

• Largest oil reserves in the western hemisphere
• 21,000 barrels of oil per day from the LL 652 and
  Sincor fields,2003.
• Committed 2004 to drill three exploration wells
  in the Plataforma Deltana area

15
Economic Fundamentals Country Investment Risk
Venezuela
May 26th 2004 May 26th 2004 May 26th 2004 May 26th 2004 May 26th 2004
From the Economist Intelligence Unit From the Economist Intelligence Unit From the Economist Intelligence Unit From the Economist Intelligence Unit From the Economist Intelligence Unit
Source Country data Source Country data Source Country data Source Country data Source Country data

   2000  2001  2002  2003 
GDP ( real change pa) 3.24 2.79 -8.88 -9.20
Government consumption ( of GDP) 7.23 8.59 8.06 8.90
Budget balance ( of GDP) -1.65 -4.41 -4.80 -5.80
Public debt ( of GDP) 27.01 30.41 38.35 38.60
Labour costs per hour (USD) 3.22 3.44 2.45 2.11
Recorded unemployment () 13.90 13.30 15.90 21.00
Foreign-exchange reserves (mUS) 13,09 9,239 8,49 16
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Economic Fundamentals Country Investment Risk
Venezuela

• Geopolitical, political and social risks are
  expected to remain reasonably low until early
  2005.
• Increasing risk factors
• Bushs re-election
• Regional impact of the war on terrorism
• Regional and Venezuela-specific US government
  policy goals
• Hugo Chavezs government
• Displaced from its position as the OPECs third
  largest oil producer, due United Arab Emirates

17
Economic Fundamentals Country Investment Risk
Venezuela

• Oil sector 25 of GDP, 80 of Venezuela's total
  exports and 50 of the government income.
• Production decline GDP fell 8.9 in 2002 and
  9.2 in 2003
• Unemployment 21 and inflation 27.1 in 2003

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Economic Fundamentals Country Investment Risk
Venezuela

• Economic growth, fiscal and balance of payments
  risks remain reasonably low through 2005
• GDP slightly above average, though distribution
  very uneven
• Exportation of commodities oil, gas and
  aluminium
• Rapid increases in public revenues

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Economic Fundamentals Country Investment Risk
Venezuela

• So, Investment risk is expected to remain
  reasonably low through early 2005.
• Low investment risk
• has been discounted in equities, leaped almost
  250 higher in 2003
• cheap international bonds // Latin America //
  other other oil producing emerging markets.

20
Financial Sector

• Chavez survived the referendum with 58 of the
  votes
• fiscal profligacy will keep the public finances
  in deficit, despite firm oil prices
• continue attract FDI with the aim of boosting
  fiscal oil revenue
• non-oil FDI put off by uncertain legal and
  regulatory regime
• domestic investment and profitability will remain
  crippled by price and exchange controls.

21
Policy Issues

• Petroleum,mainstay of the economy since the 1920s
  
• 80 of export revenue
• 25 of GDP
• largely uncompetitive manufacturing industries

22
Legal System

• Republic and a federal state
• The President of the Republic, same as Head of
  State and Head of issues for example regulations
  for the execution of laws
• Legal rulesnational, state and municipal.

23
Regulatory Framework

• System to prevent and prosecute corruption
• Fines and/or prison sentences
• Technical Judicial Police - open cases
• private bankers for the 1994-95
• financial crisis

24
Banking System

• Commercial banks
• Government-owned banks
• Foreign-owned banks
• Commercial banks comprise the largest group
• accept demand deposits (checking accounts)
  without paying interest
• Savings accounts and time deposits are freely
  negotiated on a minimum 30 days term
• Lending is almost all short term, not exceed
  three years.

25
Banking System

• Central bank is legally an independent entity
• Operates under the control of the Ministry of
  Finance
• Responsible government monetary, tax and foreign
  exchange policies

26
Capital Credit Markets

• Foreign debt credit rating raised from Caa1 to B2
  (2004, Moodys)
• Fitch Ratings upped the country's credit rating
  to "BB-" from "B" with a stable outlook 2004.
• keep up payments of foreign debt after oil prices
  rose to record highs
• CSE (Bolsa de Valores de Caracas)is the only
  Stock Exchange
• common/ ordinary shares and preferred shares
• owned by brokers the National Securities
  Commission (CNV)

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Capital Credit Markets

• Second highest growth in the world in 2003
• 2004, the Caracas bourse is leading the ranking
• To obtain dollars buy shares in CANTV exchange
  them for US deposit receipts listed on the New
  York Stock Exchange
• The telephone company, 40 of trading volume, the
  only stock in demand by foreign investors

28
Statoil in Russia

• Representation office in Moscow since August
  1991.
• Cooperation with Lukoil, Gazprom and Rosneft
• Cooperated in 1995-2000 with Russias OAO Gazprom
  Five service stations in the Murmansk region of
  north-western Russia.

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Economic Fundamentals Country Investment Risk
Russia
May 26th 2004 May 26th 2004 May 26th 2004 May 26th 2004 May 26th 2004
From the Economist Intelligence Unit From the Economist Intelligence Unit From the Economist Intelligence Unit From the Economist Intelligence Unit From the Economist Intelligence Unit
Source www.eonomist.com Source www.eonomist.com Source www.eonomist.com Source www.eonomist.com Source www.eonomist.com
   2000  2001  2002  2003 
GDP ( real change pa) 10.05 5.09 4.66 7.33
Government consumption ( of GDP) 15.09 16.44 17.69 16.89
Budget balance ( of GDP) 2.37 3.08 1.65 1.63
Public debt ( of GDP) 62.15 49.35 42.01 34.80
Labour costs per hour (USD) 0.44 0.63 0.78 1.00
Recorded unemployment () 10.49 9.03 8.00 8.47
Foreign-exchange reserves (mUS) 24,3 32,54 44,1 73,174
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Economic Fundamentals Country Investment Risk
Russia

• Oil and gas 20 percent of Russia's economy, 55
  percent of export earnings, 40 percent of total
  tax revenues.
• The world's second largest oil exporter
• Its subsoil contains 33 percent of the world's
  gas reserves
• Supplies 30 percent of Europe's gas needs.

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Economic Fundamentals Country Investment Risk
Russia

• High oil prices and strong global demand for oil
  - acceleration of growth in the country from the
  beginning of 2004.
• Forecast GDP should grow by close to 7 per cent
  in 2004, slowdown to 5.7 per cent expected for
  2005.
• Oil generates export revenues and taxes for the
  state, but it creates few jobs.
• Financial crash 1998

32
Economic Fundamentals Country Investment Risk
Russia

• Trend towards real exchange rate appreciation.
• Investment risk expected to remain low over the
  short and medium-terms.
• In the long-term, investment risk is expected to
  increase.
• Political risk is expected to remain low over all
  investment horizons.

33
Financial Sector

• 1) Policy, legal and regulatory framework
• 2) Bank Restructuring
• 3) Tax Reform in the oil-sector of Russia

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1) Policy, legal and regulatory framework

• 2000-2004, important structural reforms
• Package of laws to reduce bureaucratic
  interference in businesses activities
• Adoption of new codes of procedure for the
  various courts
• Weakness, inefficiency and, in many cases,
  corruption of the state administration, the
  judiciary and the lawenforcement agencies
• Arbitrary exercise of state power

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2) Bank Restructuring

• Financial crisis of 1998 lead to reform of the
  system of banking regulation.
• Since 2002 deposit insurance legislation, reform
  of the framework for prudential supervision,
  steps to increase transparency in the sector,
  measures to facilitate the development of
  specific banking activities.
• Emphasis on transparency will facilitate better
  monitoring of banks by private-sector agents.
• Russias largest banks continue to be controlled
  by the state.

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3)Tax reform in the oil-sector of Russia

• Russian tax reform implemented in 2002.
• Changes in all three principle group of taxes
  imposed on oil producers
• Export duty scale became steeper and export
  duties, increased more rapidly.
• Three resource payments royalty, the tax for
  mineral resources reproduction and the excise tax
  on oil were replaced by a single extraction tax
  (ET).
• Oil extracting enterprises enjoyed profit tax
  rate reduction (from 35 to 24)

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W.A.C.C W.M.C.C Calculations
38
Statoil Capital Cost

• Kd Weighted Average Interest Rate 4.06
• Ki Kd x (1 - T) 3.87 x (1 - 0.4) 2.44
• Ks D1/P0 g 2.95/ 96 0.017 4.80
• Kn D1/Nn g 2.95/ 77 0.017 5.60

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Statoil TCSTARGET CAPITAL STRUCTURE

• Long Term Debt 64
• Common Stock Equity 36

40
Statoil Breaking Points

• Assumtion of Ki up to 70 of total balance sheet
  gives an Afi of 130 184 250 NOK
• BPLTD 130 184 250 / 0.64 203 412 891 NOK
• BPCSE 46 758 000 / 0.36 129 883 333 NOK

41
Statoil W.A.C.C Calculations
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IOS Schedule
12
10
8
6
4
2
100 120 140
160 180 200
220 240 260
280 300 320
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Thank you for your
attention !
QUESTIONS?