For the first half of 2005, Hydro's income from continuing operations amounted to NOK 7,270 million (NOK 29.00 per share) compared with NOK 5,359 million (NOK 21.00 per share) in the first half of 2004.

Operating income in the second quarter of 2005 amounted to NOK 11,255 million compared with NOK 11,754 million in the first quarter of 2005 and NOK 8,290 million in the second quarter of the previous year. The strong operating results reflected the continued high oil and gas prices in the period. Operating income for the first half of the year amounted to NOK 23,009 million compared with NOK 17,566 million in the first half of 2004.

On 24 March 2004, Hydro's agri business was transferred to Yara International ASA in a demerger transaction. Results of the transferred operations relating to periods prior to the demerger are reported under "Income from discontinued operations" in the financial report.

"Hydro's strong second quarter was characterized first and foremost by record-high oil prices, extensive business development and promising oil exploration, as well as continued efforts to strengthen the profitability in our aluminium business. We are taking important steps to intensify restructuring measures in Aluminium," says Eivind Reiten, President and CEO.

"The operating income for Oil & Energy remains impressive. Production in the period was somewhat lower than in the first quarter due mainly to maintenance and seasonably lower gas off-take, but we maintain our production target for the year of 575,000 barrels per day. Due to high oil prices, combined with Hydro's existing portfolio, competence and technological skills, Hydro sees increased commercial opportunities on the Norwegian Continental Shelf after a thorough review of the prospects," he says.
 
"I am challenging our best people to actively pursue the opportunities to increase our resource base in the near and medium term."

Oil & Energy

Operating income for Oil & Energy continued at record levels, amounting to NOK 9,447 million for the quarter. Hydro realized an average oil price of US dollar 49.8 per barrel in the second quarter of 2005, an increase of 7 percent compared with the first quarter of 2005 and 44 percent higher than in the second quarter of 2004. Oil and gas production averaged 539,000 barrels of oil equivalents (boe) per day during the second quarter, about 8 percent lower than the level achieved in the first quarter of 2005.

For the first half of the year, average oil and gas production declined about 5 percent, compared with the same period last year, to 561,000 boe per day. Production from the partner-operated Snorre field, which experienced an unplanned shutdown toward the end of 2004, still remains below normal production levels. In addition, increased maintenance activity on other fields negatively impacted production for the first half of the year.

Operating income for Energy and Oil Marketing amounted to NOK 660 million for the quarter which was NOK 87 million higher than the second quarter of the previous year. The increase mainly reflected higher electric power production and positive oil trading activities. The Ormen Lange project is proceeding according to schedule and on budget and was 38 percent completed by the end of June. Substantial exploration and business development activities, internationally and in Norway, delivered promising results. During the quarter, a discovery was made on the Anaran field in Iran. Currently several zones are being tested with positive flow rates of oil and commercial evaluation of the field is ongoing. Hydro has for a period an exclusive first right to negotiate an agreement with NIOC (National Iranian Oil Company) for the field development based on the "buy-back" contract format used in Iran.

Aluminium

Aluminium's operating income amounted to NOK 1,337 million for the quarter, increasing by NOK 68 million from the second quarter of 2004. Primary metal production increased by 9 percent to 457,000 tonnes, compared with production in the second quarter of 2004. The increase resulted primarily from the Sunndal expansion in Norway and the Alouette expansion in Canada. Compared with the second quarter of 2004, Hydro's realized aluminium price in US dollars increased about 12 percent to US dollar 1,856 per tonne. Realized prices in Norwegian kroner, however, improved only 2 percent.

Developments for the quarter were also influenced by unrealized gains on London Metal Exchange (LME) contracts amounting to NOK 294 million compared with NOK 18 million for the second quarter of the previous year.

As a result of increasing power prices, Hydro has decided to close two primary aluminium plants located in Germany. This comes in addition to the earlier decision to close the Søderberg production lines at the Høyanger smelter late in 2005 or early in 2006. Hydro is also preparing to close the Søderberg production lines at the Årdal smelter. Total costs relating to all of the closures are expected to reach NOK 1 billion. The closures will increase the competitiveness of the Company's upstream operations.

Preparations continue relating to the planned development of a 570,000 tonne capacity primary aluminium plant in Qatar. As a result of strong domestic and international demand for gas from Qatar, production start-up of the plant has been rescheduled and is now expected in the fourth quarter of 2009. Final decisions relating to the project are expected to be taken in 2006.

Outlook

Oil prices are expected to remain high for the remainder of 2005. Volatility in the gas and power markets is expected to continue and could result in substantial unrealized gains and losses in future quarters. Production from Snorre will continue to be lower than normal. In addition, planned maintenance shutdowns combined with seasonal declines in gas production will impact production levels in the next quarter.

Following a thorough review of its asset portfolio as well as identified exploration targets, Hydro sees significant potential for further value creation on the Norwegian Continental Shelf (NCS). Hydro will continue to exploit these opportunities decisively. The Company is confident that its proven track record of successful deployment of new and cost efficient technologies, will lead to field life extensions as well as new field developments adding to its resource base. The present strong oil market fundamentals and positive long-term market outlook provides the necessary incentives to pursue opportunities which were previously deemed not commercial. Hydro will also continue to pursue international business opportunities to further enhance its resource base.
 
In July, aluminium trading on the LME ranged between US dollar 1,750 - 1,850 per tonne after a period of higher price volatility in June. Upstream market fundamentals are expected to remain sound for the remainder of 2005. Realized effects of the Sunndal hedge program, which had a positive influence on results for the first half of 2005 of NOK 258 million, are expected to be marginal during the second half of the year due to anticipated losses on the related LME contracts and limited positive contribution on the related US dollar forward contracts.

Global economic growth is expected to continue in 2005 at a lower rate than the previous year. However, developments in Western Europe are expected to be flat. Downstream European market developments are expected to remain relatively weak. Indicators for the US downstream market are positive but with lower expected growth rates. Results for Hydro's Rolled Products sub-segment are expected to be affected during the second half of 2005 from seasonal declines as well as neutral or negative metal price effects compared to positive effects in the first half of the year amounting to NOK 74 million.

Other issues

Earnings from non-consolidated investees amounted to NOK 246 million in the second quarter, compared with NOK 121 million in the same period of the previous year. The increase is mainly due to continued strong operating results from Alunorte, the Brazilian alumina refinery, and improved operating results from the partly owned Søral smelter in Norway. In addition, the current quarter included unrealized currency gains relating to Alunorte amounting to NOK 116 million compared with unrealized currency losses of NOK 65 million in the second quarter of the previous year. Charges relating to the planned closure of Hamburger Aluminium Werk GmbH in Germany had a negative impact for the quarter amounting to NOK 149 million.

Net financial expenses for the second quarter amounted to NOK 558 million compared with NOK 447 milion for the second quarter of 2004. The current quarter included a net foreign currency loss of NOK 561 million, mainly as a result of the strengthening of the US dollar during the quarter.

Other income was NOK 233 million for the second quarter of 2005. In January 2004, Hydro divested 80.1 percent of its shares in Pronova Biocare, resulting in a gain of NOK 110 million. On 15 April 2005, Hydro agreed to sell its remaining interest in Pronova Biocare for NOK 275 million, recognizing an additional gain on the sale amounting to NOK 233 million. The sale was completed in the second quarter of 2005.

Income tax expense for the first half of 2005 amounted to NOK 14,713 million compared with NOK 11,391 million for the corresponding period of the previous year, representing 66 percent and 68 percent of income from continuing operations before tax, respectively.

Cash flow from operations for the first half year amounted to NOK 11.8 billion, compared with NOK 12.2 billion in the corresponding period of 2004.

Investments amounted to NOK 4.6 billion for the quarter. Roughly 80 percent of the amount invested related to oil and gas operations.