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". The following discussion excludes those activities.
Operating income for the first quarter of 2005 amounted to NOK 11,754 million compared to NOK 9,276 million in the first quarter of the previous year.
"Our operating results for the first quarter of 2005 represent a new record result for Hydro. High oil and gas prices and increased aluminium prices combined with good production performance underlie the very strong financial results. The quarter contributes to a continued improvement of our financial strength," says Hydro’s president and CEO Eivind Reiten.
"A major milestone in the quarter was achieved 20 March at the offshore Troll field, where accumulated oil production from the thin oil zones passed one billion barrels. Originally Troll was regarded as a gas field with non-commercial oil. As operator for Troll oil, we are proud that Troll continues to be one of the largest crude oil producer in the North Sea in the coming years," says Reiten.
Oil & Energy
Operating income for Oil & Energy reached a record level of NOK 9,842 million for the quarter.
Hydro realized average oil prices of US dollar 46.4 per barrel in the first quarter of 2005, an increase of 11 percent compared to the fourth quarter of 2004 and 47 percent higher than the first quarter of the previous year.
Oil and gas production averaged 584,000 barrels of oil equivalents (boe) per day during the first quarter, about the same level as the final quarter of the previous year. However, average production for the quarter declined by 5 percent from the record high level of 615,000 boe per day achieved in the first quarter of 2004. The decline resulted primarily from production losses related to the unscheduled shutdowns of the partner-operated Snorre and Vigdis fields as well as unscheduled shutdowns and planned maintenance stops of other fields.
Operating income for Energy and Oil Marketing amounted to NOK 1,046 million for the quarter which was NOK 313 million higher than the first quarter of the previous year. The increase was strongly influenced by unrealized gains relating to the valuation of a gas purchase contract of roughly NOK 250 million.
Aluminium’s operating income amounted to NOK 1,341 million for the quarter, declining by NOK 288 million from the first quarter of 2004.
Results relating to Hydro’s upstream operations improved as a result of increased volumes and strong aluminium prices. Primary metal production increased by 7 percent compared to the first quarter of 2004 to 444,000 tonnes. The increase resulted primarily from the Sunndal expansion.
Compared to the first quarter of 2004, Hydro’s realized aluminium price in US dollars increased about 17 percent to US dollar 1,793 per tonne. Realized prices in Norwegian kroner improved by 8 percent. The developments in operating income also reflected unrealized losses on London Metal Exchange (LME) contracts of NOK 86 million for the quarter compared to unrealized gains of NOK 349 million in the first quarter of the previous year. Reduced volumes and margins in the company’s downstream operations also had a negative impact for the quarter.
The Aluimprover de-manning and cost reduction program was completed at the end of the first quarter, on schedule, and at a total cost substantially lower than originally estimated and with expected future annual savings on target. Ongoing negotiations relating to the potential aluminium plant in Qatar are proceeding as planned.
Outlook for the coming months
Oil prices are expected to remain high. Continued high volatility in the gas and power markets can be expected to impact the valuation of contracts resulting in unrealized gains and losses in future quarters. Planned maintenance shutdowns are expected to impact production levels for oil and gas in the next two quarters. Exploration drilling activity is expected to remain high throughout 2005.
Towards the middle of April, aluminium trading on the LME ranged between US dollar 1,850–1,950 per tonne. Upstream market fundamentals appear relatively sound. Economic growth is expected to continue in 2005 at a lower rate than the previous year. Chinese exports of primary aluminium could reach levels similar to 2004 as a result of high prices despite the imposition of export taxes effective 1 January 2005. Downstream European market developments are expected to remain weak. Indicators for the US market are positive but with lower expected growth rates. The Chinese downstream market is estimated to show continued strong growth.
Other results and developments for the Group
Income tax expense for the first quarter amounted to NOK 7,283 million compared to NOK 5,786 million for the corresponding period of the previous year. Income tax expense represented approximately 66 percent and 65 percent of pretax income in the respective quarters.
Cash flow from operations for the first quarter amounted to NOK 8.5 billion, an equivalent amount compared to the corresponding period of 2004.
Investments amounted to NOK 3.5 billion for the quarter. Roughly 80 percent of the amount invested related to oil and gas operations.