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Investor Presentation – October 2006 www.hydro.com Table of contents Q3 results 2006 – a brief review Investor presentation - Executive summary - Oil & Energy - Aluminium 5 – 25 26 – 41 42 – 73 74 – 93 Additional information - Introduction - Finance - Oil & Energy - Aluminium 94 - 99 100 – 113 114 – 135 136 – 149 Investor Relations in Hydro - Contact information 151 2 Cautionary note in relation to certain forward-looking statements Certain statements contained in this announcement constitute “forward-looking information” within the meaning of Section 27A of the US Securities Act of 1933, as amended, and Section 21E of the US Securities Exchange Act of 1934, as amended. In order to utilize the “safe harbors” within these provisions, Hydro is providing the following cautionary statement. Certain statements included within this announcement contain (and oral communications made by or on behalf of Hydro may contain) forward-looking information, including, without limitation, those relating to (a) forecasts, projections and estimates, (b) statements of management’s plans, objectives and strategies for Hydro, such as planned expansions, investments, drilling activity or other projects, (c) targeted production volumes and costs, capacities or rates, start-up costs, cost reductions and profit objectives, (d) various expectations about future developments in Hydro’s markets, particularly prices, supply and demand and competition, (e) results of operations, (f) margins, (g) growth rates, (h) risk management, as well as (i) statements preceded by “expected”, “scheduled”, “targeted”, “planned”, “proposed”, “intended” or similar statements. Although Hydro believes that the expectations reflected in such forward-looking statements are reasonable, these forward-looking statements are based on a number of assumptions and forecasts that, by their nature, involve risk and uncertainty. Various factors could cause Hydro’s actual results to differ materially from those projected in a forwardlooking statement or affect the extent to which a particular projection is realized. Factors that could cause these differences include, but are not limited to, world economic growth and other economic indicators, including rates of inflation and industrial production, trends in Hydro’s key markets, and global oil and gas and aluminium supply and demand conditions. For a detailed description of factors that could cause Hydro’s results to differ materially from those expressed or implied by such statements, please refer to the risk factors specified under “Risk, Regulation and Other Information – Risk Factors” on page 92 of Hydro’s Annual Report and Form 20-F 2005 and subsequent filings on Form 6-K with the US Securities and Exchange Commission. No assurance can be given that such expectations will prove to have been correct. Hydro disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 3 Use of non-GAAP financial measures/ Cautionary note in relation to oil and gas reserves With respect to each non-GAAP financial measure Hydro uses in connection with its financial reporting and other public communications, Hydro provides a presentation of what Hydro believes to be the most directly comparable GAAP financial measure and a reconciliation between the non-GAAP and GAAP measures. This information can be found in Hydro's earnings press releases, quarterly reports and other written communications, all of which have been posted to Hydro's website (www.hydro.com). The United States Securities and Exchange Commission permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. We use certain terms in this presentation material, such as expected recoverable resources, that the SEC’s guidelines strictly prohibit us from including in filings with the SEC. Investors are urged to consider closely the disclosure in our Form 20-F, SEC File No. 1-9159, available from us at our Corporate Headquarter: Norsk Hydro, N-0240 Oslo, Norway. You can also obtain this form from the SEC by calling 1-800-SEC-0330. 4 Third quarter results 2006 – a brief review www.hydro.com 5 Highlights – third quarter Solid earnings Strong market conditions Langeled South completed – gas export began 1 October as planned Robust financial position 6 Consolidated income statements NOK million Operating revenues Operating income Non-consolidated investees Financial income (expense), net Income before tax and minority interest Income tax expense Minority interest Net income Earnings per share – NOK Q3 2006 50 961 15 288 228 (740) 14 776 (9 787) (185) 4 804 3.90 Q2 2006 51 435 14 640 372 919 15 931 (10 454) (83) 5 394 4.30 Q3 2005 44 612 12 973 236 157 13 367 (9 182) (2) 4 183 3.30 For calculation of EPS, 3rd quarter 2006: 1 236 376 070 shares, 2nd quarter 2006 : 1 247 199 793 shares, 3rd quarter 2005: 1 254 524 429 shares. Previously reported earnings per share and total number of outstanding shares have been adjusted to reflect the 5-for-1 stock split effective 10 May 2006. 7 Oil & Energy – key figures Operational data Oil and gas production (1 000 boe/day) Realized oil price, USD/bbl Realized oil price, NOK/bbl Realized gas price, NOK/Sm³ Exploration expense, NOK million Q3 2006 548 66.60 420.60 1.73 868 Q2 2006 537 67.90 422.20 1.79 618 Q3 2005 541 60.40 390.60 1.36 199 Operating income, NOK million Exploration and Production Energy and Oil Marketing Eliminations Oil & Energy Q3 2006 12 078 851 382 13 311 Q2 2006 11 654 1 170 344 13 168 Q3 2005 11 799 466 360 12 624 8 Aluminium activities – key figures Operational data Realized aluminium price, USD/ton Realized NOK/USD Realized aluminium price, NOK/ton Primary aluminium production, 1 000 tons Q3 2006 2 462 6.36 15 662 449 Q2 2006 2 368 6.47 15 331 451 Q3 2005 1 770 6.47 11 453 461 Operating income, NOK million Aluminium Metal * Aluminium Products Eliminations Aluminium * Infrequent and special items Aluminium adjusted * Q3 2006 1 854 (192) (5) 1 657 168 1 825 Q2 2006 1 620 301 (49) 1 871 262 2 133 Q3 2005 447 371 24 842 271 1 113 * Includes operating income from Sourcing & Trading operations: Q3 2006: NOK 91 million loss, Q2 2006: NOK 149 million loss and Q3 2005: NOK 188 million gain. 9 Oil & Energy – highlights Realized oil price – USD 66.6 per boe Oil and gas production – 548 000 boed 5 new discoveries Acquisition of 50 percent share of Peregrino field in Brazil completed Ormen Lange/Langeled on track – 87 percent complete end Q3 10 Reduced 2006 production estimate – 570 000 boed 1 000 boe/day Historical performance Revised 2006 estimate 572 530 480 421 563 570 Production shortfall: 45 000 boed Norway: 24 000 boed - Visund and Snorre – extraordinary events Kristin and Tampen – delayed build-up Kvitebjørn and Troll – lower gas production US GoM: 10 000 boed - Shelf – still affected by post-hurricane repairs Deepwater – Lower than Hydro estimated Canada: 8 000 boed - Terra Nova – FPSO maintenance Angola: 3 000 boed - Dalia – delayed production startup 2001 2002 2003 2004 2005 Revised 2006E 11 Oil & Energy – operating income NOK million Eliminations Energy and Oil Marketing Exploration and Production 9 842 8 621 7 818 7 184 6 175 5 322 3 652 5 994 7 521 14 126 12 624 13 168 13 311 11 537 9 447 2003 2004 2005 2006 Accumulated 21 143 31 144 43 451 40 606 12 Production costs per barrel NOK/boe Gas injection cost Production cost excluding gas injection 25.3 20.7 0.7 20.0 20.7 2.8 24.1 17.9 19.9 5.4 32.0 7.9 2003 2004 2005 Jan-Sep 2006 Production in million boe 194 209 206 154 13 High exploration activity 60 wells planned in 2006 38 wells completed first nine months 2006 - 2 wells under evaluation and 8 wells drilling by end of Q3 19 discoveries first nine months 2006 Activity of NOK 4.2 billion first nine months 14 Oil & Energy – prospects High oil and gas prices Production estimate: 570 000 boed - Increased unit costs High exploration activity Cost control and project execution 15 Aluminium Metal – highlights Strong financial performance continues Realized aluminium price USD 2 462 per metric ton Primary production well maintained Strong results from Alunorte 16 Aluminium price USD per metric ton LME (3 month avg.) 3 000 2 800 2 600 2 400 2 200 2 000 1 800 1 600 LME forward Primary aluminium London Metal Exchange Q3 2006 average Q3 2006 end USD per metric ton 2 528 2 566 Q2 2006 average Q2 2006 end 2 682 2 630 Q1 2006 average Q1 2006 end Average 2005 2 444 2 471 1 900 1 400 1 200 2000 2002 2004 2006 2008 2010 Per 20 October 2006, weekly average 17 Aluminium Metal – operating income NOK million 2 040 Sourcing & Trading (S&T) Unrealized LME effects Alu Metal (excl. unrealized LME effects and S&T) 203 480 Primary production 449 000 mt 1 854 1 620 181 1,588 224 1,721 High aluminium prices Increased raw material and energy costs Positive unrealized effect on LME contracts of NOK 224 million 1 068 174 1,061 1 166 458 12 447 341 791 1,357 835 188 634 (167) -127 (375) -149 -91 Rationalization charges related to plant closures - (1 120) NOK 14 million in Q3 NOK 309 million in Q2 NOK 200 million in Q1 Accumulated 2005 2006 2 694 5 513 18 Aluminium Metal – prospects Continued high aluminum prices 80% of expected fourth quarter production sold at 2 360 USD/mt - Including full effect of strategic hedges Smelter closures on track, costs lower than original estimate Increased alumina production capacity in China - Sharp drop in spot alumina prices China continues to be a net exporter of aluminium 19 Aluminium Products – highlights Strong performance in Extrusion Rolled Products – good demand but weak margins Weak market for Automotive Impairment loss Meridian NOK 239 million 20 Aluminium Products – operating income NOK million Rolled Products Automotive Extrusion Other and eliminations 452 279 210 371 301 Rolled Products NOK 60 million - Volumes stable Metal effect NOK (70 million) in Q3 (NOK 149 million in Q2 2006) Extrusion NOK 169 million - Seasonal volume decrease Somewhat increased margins Rationalization costs in UK Automotive NOK (136 million) (192) - Seasonal volume decrease Reduced margins Impairment losses NOK 47 million Unrealized LME effects NOK (286 million) 2005 (1 035) * 2006 Focus on cash generation - First nine months - Accumulated (175) * Impairment of assets of NOK 1 084 million EBITDA NOK 2 113 million Investments NOK 700 million 560 21 Aluminium Products – prospects Restructuring and portfolio adjustments continue European extrusion markets expected to soften Stable market outlook for Rolled Products Automotive markets remain challenging Seasonal volume reductions expected in fourth quarter 22 Adjusted income Third quarter 2006 NOK million Exploration and Production Energy and Oil Marketing Eliminations Oil & Energy Aluminium Metal Aluminium Products Other activities Corporate and eliminations Total operating income Non-consolidated investees Financial income (expense), net Income before tax and minority interest Income tax expense Minority interest Income before cumulative effect acc changes Reported income 12 078 851 382 13 311 1 854 (192) 235 80 15 288 228 (740) 14 776 (9 787) (185) 4 804 Adjustments (630) 127 (382) (885) (269) 437 (444) (1 161) 179 999 17 (11) 6 Adjusted income 11 448 978 12 426 1 585 245 235 (364) 14 127 407 259 14 793 (9 798) (185) 4 810 * Estimated tax effect on income statement adjustments using Hydro’s marginal tax rate of 66.2 % applicable for the quarter 23 Infrequent and other special items Third quarter 2006 Unrealized (gains)/losses oil and gas derivatives, Spinnaker Unrealized (gains)/losses on gas contracts Unrealized (gains)/losses on gas contracts Unrealized (gains)/losses on gas and power contracts Demanning costs Unrealized (gains)/losses on LME contracts Unrealized (gains)/losses on power contracts Inventory (gains)/losses Restructuring UK Closure costs Magnesium operations Porsgrunn Impairment losses Unrealized (gains)/losses on LME contracts Unrealized (gains)/losses on power and NGL contracts Net impact on operating income Non-cons. investees – unrealized currency (gains)/losses Alunorte Non-cons. investees – unrealized (gains)/losses power contracts Non-cons. investees – impairment loss Meridian Technologies Inc Net foreign exchange (gains)/losses Net impact on income before tax and minority interest Marginal tax rate Calculated tax Total effect net income Exploration and Production Exploration and Production Energy and Oil marketing Oil & Energy eliminations Aluminium Metal Aluminium Metal Aluminium Metal Rolled Products Extrusion Automotive Automotive Aluminium Products eliminations Corporate and eliminations Hydro Aluminium Metal Aluminium Metal Automotive Hydro Hydro Hydro Hydro Hydro NOK million (517) (113) 127 (382) 14 (224) (59) 73 22 9 47 286 (444) (1 161) (8) (52) 239 999 17 66.2% *(11) 6 * Estimated tax effect on income statement adjustments using Hydro’s marginal tax rate of 66.2% applicable for the quarter 24 Hydro – priorities Capture value from strengthened international portfolio Further strengthening of oil and gas resource base Reposition Aluminium Metal Restructuring and portfolio adjustments in Aluminium Products Firm cost control and first-class project execution in a resource constrained market with increasing cost pressure 25 Executive summary 26 Consistently delivering profitable growth Oil and gas production 1 000 boe/day 800 2 000 Aluminium production 1 000 tonnes 600 1 500 400 1 000 200 500 0 2001 2005 2010E 0 2001 2005 2010E 27 Key messages High earnings and strong financial position Strong growth in O&E 2005-2010, 6% average annual growth - - Production estimate for 2006 reduced to 570 000 boed Exploration: 19 discoveries 2006 YTD*, 50% success rate - 2006 activity: 60 exploration wells planned - 20-25 Norway, 15-20 US GoM, 10-15 Libya and 5-10 other - 38 exploration wells completed first nine months 8 drilling and 2 under evaluation* Development: Ormen Lange on track, 87% percent complete* - Langeled South gas export began 1 October 2006 – as planned Strategy shift in Aluminium - Reduce investments Prioritize upstream investments Reduce downstream exposure – focus on cash generation * 30 Sept 2006 28 Financial overview 2005 Operating revenues – NOK 175 billion Other 5% Aluminium Products 26 % Earnings after tax – NOK 16 billion Other 13 % Oil & Energy 49 % Aluminium Metal 12 % Oil & Energy 75 % Aluminium Metal 20 % Adjusted EBITDA – NOK 65 billion Aluminium Products 5% Aluminium Metal 7% Other 5% Capital employed – NOK 109 billion Other 5% Aluminium Products 18 % Oil & Energy 83 % Aluminium Metal 25% Oil & Energy 52 % 29 Income from continuing operations* By quarter NOK million Gains from divestments 5 869 5 394 4 804 4 183 4 186 3 638 2 991 3 135 2 481 1 851 1 809 2 005 2 224 3 693 3 577 2003 2004 2005 2006 Accumulated 8 656 11 477 15 638 16 068 * Changes in accounting principles for 4th quarter 2005 resulted in a negative amount of NOK 78 million, while the effect in 1st quarter 2003 was a positive amount of NOK 281 million 30 Adjusted EBITDA NOK million 22 769 20 515 19 337 17 109 17 000 15 852 15 533 13 546 12 266 12 094 11 045 9 935 8 197 9 451 13 210 2003 2004 2005 2006 Accumulated 38 628 51 116 65 493 62 621 31 RoaCE significantly improved 2002 - 2005 Adjustment for special events * Actual 19.9% 16.8% 13.6% 13.0% 8.4% 7.2% 2002 2003 2004 2005 * Special events include, 2004: write-downs in Aluminium and changes in tax regulation, 2005: write-downs in Aluminium and Spinnaker acquisition 32 RoaCE by business area 2002 - 2005 Oil & Energy 32.7% Adjustment for Spinnaker Actual 23.4% 26.2% Aluminium Adjustment for write-downs Actual 16.2% 11.6% 7.0% 4.7% 2.7% 3.5% 2002 2003 2004 2005 6.0% * 3.4% 2005 2002 2003 2004 * Includes unrealized losses on LME derivatives of NOK 1 020 million before tax and NOK 663 million after tax 33 RoaCE competitive with peers 2002 - 2006 40% 35 % 30 % RoaCE 12% 35% 30% Peer range * Hydro Oil & Energy 10% Peer range ** Hydro Aluminium 25 % 25% 20 % 8% 20% 15 % 6% 15% 10 % 4% 10% 5% 5% 2% 0% 0% 2000 2002 2001 2003 20022004 2003 2005 2004 2005 2006 0% 2002 2003 2004 2005 2006 * BG Group, BP, Chevron, ExxonMobil, RepsolYPF, Shell, Statoil and Total ** Alcoa and Alcan Source: Bloomberg return on capital methodology. 12 month rolling Q1 2002 – Q2 2006. Hydro figures are approximations to Bloomberg methodology. Peer range * Hydro Oil & Energy 34 Strong financial position Adjusted net debt/equity ratio * 0.67 0.60 0.44 0.38 0.34 0.31 0.50 0.11 0.11 1999 2000 2001 2002 2003 2004 2005 30 Sept 2006 * Interest-bearing debt + net pension liability (tax adjusted) + operating lease commitments (discounted) – cash and cash equivalents – short-term investments divided by shareholders’ equity + minority interest 35 Capital allocation – upstream focus NOK billion 41 * 30 24 NOK 25-30 billion annually 2005 Spinnaker transaction Other investments lower than planned 2006 - 2010 Oil & Energy - Projects on track - Increased exploration activity Aluminium 2005 plan Oil & Energy 2005 Exploration 2006 plan Aluminium Other Spinnaker acquisition - Scale down overall investment level - Priority upstream * Including acquisition of Spinnaker NOK 21.9 billion, including non-cash element of NOK 5.5 billion. 36 40 Capital allocation 2006 - 2010 E&P: Committed investments E&P: Uncommitted investments Aluminium investments 30 30 Annual investments NOK 25–30 billion 25 NOK 55-80 bn: Unncommitted/ non-sanctioned E&P investments and Exploration expenditure* 20 10 NOK 25 bn: Aluminium NOK 45 bn: Committed E&P 0 2006 2007 2008 2009 2010 * Annual exploration expenditure: NOK 5-6 billion, total exploration expenditure 2006-2010: NOK 20-25 billion 37 Sanctioned projects 2005 – robust profitability Oil price gives 10% real rate of return post tax* Troll West Delta Oseberg Sør Tune Phase 3 Fram Øst Libya, H-field GoM, Lorien Tordis IOR Tyrihans Volve Norne K Templ. Ringhorne Øst 0 * Based on NOK/USD exchange rate 6.50 Operator IOR NCS Operator NCS International Partner-operated NCS 10 Brent USD/bbl 20 30 38 Dividends 2000 - 2005 NOK/share 4.00 4.40 1.90 2.00 2.10 2.20 2000 2001 2002 2003 2004 2005 Recalculated to reflect 5 for 1 share split effective 10 May 2006 39 Dividend policy 30% payout ratio over time 61 % Dividend policy maintained 46 % 44 % 35 % 31 % 26 % 18 % Planned payout per share in 2005 is in line with policy Continued high commodity prices support current payout per share level Challenging to maintain a stable increase in dividend with volatile commodity prices 33 % 26 % 33 % 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 1 Year 5 year Target 40 Competitive shareholder returns Total shareholder return (TSR) 1 Jan 2000 to 2 Dec 2005 Hydro ENI BG Group Total ExxonMobil Chevron Shell BP Alcan Alcoa -50% 0% 50% 100% 150% 200% 250% -10% Share price development 1 Jan 2006 to 20 Oct 2006 BG Group ExxonMobil Chevron Hydro RepsolYPF Statoil ENI Total Alcan Shell BP ConocoPhillips Alcoa -7% 0% 10% 20% 30% 15% 14% 12% 10% 10% 7% 6% 6% 6% 5% 24% 33% Source: Datastream, NYSE, USD Source: Yahoo Finance, NYSE, USD 41 Oil & Energy 42 The Oil & Energy portfolio 2005 Oil Gas Power Production Oil & gas 563 000 boed 398 000 boed 165 000 boed ~ 9.4 bcm 10.7 TWh* * Normal range of annual production: 7-11 TWh 43 Oil & Energy outlook and strategy Profitable production growth Realize potential of strong portfolio Strengthen resource base Technological and operational leadership 44 Oil & Energy Adjusted EBITDA NOK million 15 191 14 766 17 398 16 325 16 702 Eliminations Energy and Oil Marketing Exploration and Production 10 503 8 668 7 745 6 274 9 139 9 764 9 928 12 416 11 583 11 967 2003 2004 2005 2006 Accumulated 31 826 41 777 54 339 50 424 45 Profitable production growth 1 000 boe/day 1 000 Historical performance Target Expected 2006 target: 570 000 boed 8% CAGR* 6% CAGR** 2010 expected: 750 000 boed 750 750 Compound annual growth rate 563 570 - 500 2001-2008E: 8% 2005-2010E: 6% Increased production outside Norway 250 0 2006E 2010E 2001 2002 2003 2004 2005 * 8% Compound Annual Growth Rate 2001-2008, 2001 baseline ** 6% Compound Annual Growth Rate 2005-2010, 2005 baseline 46 New fields on stream 2006 - 2009 Field Hydro peak production (boe/day) 4 000 24 000 13 000 11 500 11 000 12 500 2 000 12 500 10 000 5 500 8 000 70 000 4 000 13 000 2 500 3 000 6 000 14 000 Peak year 2006 2007 2008 2008 2010 2007 2009 2008 2008 2008 2008 2010 2009 2009 2007 2011 2008 2016 Oil/Gas Oil Oil Oil Gas Oil Oil/Gas Oil/Gas Oil Oil Oil Gas Gas/Cond. Gas/Cond. Oil/Gas Oil Oil/Gas Oil Oil/Gas 2009 2004 2005 2006 2007 2008 International Lorien Dalia Rosa Eastern Gulf development* Thunder Hawk Oseberg Vestflanken 2009 Operator NCS Non-op. NCS Oseberg South J Sentral Fram East Vilje Oseberg East Drilling solution Njord gas phase Ormen Lange Tune South Oseberg Delta Ringhorne East Rimfaks/Skinfaks IOR Volve Tyrihans *Consists of the Spiderman, Q, and San Jacinto gas fields Development PDO submittal Start production 47 Strong production growth based on attractive project portfolio Oil price giving 10% real rate of return post tax* Oseberg S Njord Oseberg Oseberg E Troll Ormen Lange Tune Phase 2 Oseberg S J C Vilje Oseberg S J Njord Gas Export Libya - B-field Libya - Mabruk Angola - Rosa Norne Satellites Åsgard Q-project Skinfaks/Rimfaks Operator IOR NCS Operator Development Phase Operator NCS International Partner operated NCS 0 10 * Calculations based on NOK/USD exchange rate 8.0 20 Brent USD/bbl 48 First-class project execution Offshore projects last five years* Average project size** NOK billion Total cost change % Hydro: NOK 15 billion/project Hydro: 0% Hydro operator Other operators 0 5 10 15 20 -10 % 0% 10 % 20 % 30 % 40 % * 1998-2005: Hydro operated projects totalling USD 15bn delivered on time and cost. Grane delivered 1.5bn below budget and two months before time ** Offshore projects with budgets exceeding NOK 1bn. Source: MPE; St. prop. 1 2000- 2005 49 Ormen Lange / Langeled 87 percent complete Norway’s largest industrial project. Largest gas development in Europe Total investments: NOK 66 billion (2003 NOK) Hydro 18 percent equity Supply 20 percent of UK gas demand Langeled South gas export began 1 October 2006 as planned Start Ormen Lange production 1 October 2007 50 International portfolio Norway Russia Canada Denmark Iran Libya US Gulf of Mexico Brazil Current E&P activity Frontier E&P activity Angola 51 Capturing US Gulf of Mexico potential Production Q3: 22 500 boed - Lorien on stream late April – 4 000 boed*, a deepwater field First nine months: 10 exploration wells completed, 7 discoveries – 70% success rate 15-20 exploration wells in 2006 420 leases – 60% deepwater Seismic data – covering most of US Gulf of Mexico Additional deepwater rig capacity secured 2007-2013 Thunder Hawk development sanctioned September 2006 – production start 2009 Deepwater field developments - Eastern Gulf and Thunder Hawk * Annualized average for 2006 52 Field development in US Gulf of Mexico Shelf - Several gas fields Short lead times Deepwater Lorien - oil - 30% interest Started production April 2006 Annual peak production - 4 000 boed in 2006 Spiderman 18.33% San Jacinto 26.67% Q 50% Start production 2007 Annual peak production -11 500 boed in 2008 Field development sanctioned - Sept 2006 Lorien Eastern Gulf - gas - Eastern Gulf Louisiana San Jacinto Spiderman Thunder Hawk - oil - Q Merganser Jubilee Ch Vortex ey Atlas en ne 53 Petroleum production per quarter 1 000 boe/day 596 552 484 156 396 Oil Gas 615 569 591 514 584 539 541 589 610 537 548 489 166 173 442 147 422 112 372 116 373 430 123 391 176 415 178 406 154 385 142 399 184 405 208 402 169 368 168 381 2003 2004 2005 2006 Average 530 572 563 565 54 Production costs per barrel NOK/boe Gas injection cost Production cost excluding gas injection 32.0 25.3 20.7 0.7 20.0 20.7 2.8 5.4 7.9 24.1 17.9 19.9 2003 2004 2005 Jan-Sep 2006 Production in million boe 194 209 206 154 55 Strong exploration performance 14 discoveries in 2005* – 7 in Norway 19 discoveries YTD - 50% success rate Norway Denmark Iran Libya US Gulf of Mexico Angola 7 Spinnaker Exploration discoveries in 2005 * Excluding Spinnaker Exploration discoveries 56 Exploration competence developed on NCS Discoveries on NCS 1985-2005 – Hydro has discovered 9 billion boe as operator Hydro discovered Ormen Lange in 1997 Million boe Hydro operator Other NCS operators Troll Oil Saga Petroleum 0 2 000 4 000 6 000 8 000 10 000 Reserves including 49 producing fields, 13 closed, 5 under development and 19 planned and discoveries in 1997-2005 Source: NPD – Latest recoverable reserves estimates, IHS Energy 57 Increased exploration activity Exploration spending in NOK billion 5.0 NOK 4-5 billion Following up on strategic moves About 60 wells planned in 2006 Attractive exploration portfolio 2.1 - Balanced risk Balanced geographical exposure 1.4 2004 2005 2006 Activity: 21 wells 60 wells 58 Discoveries 2006 Exploration Exploration wells completed Discoveries Success rate – percent Discoveries by area Norway 1) US Gulf of Mexico 2) Libya 3) Canada 4) Angola 5) Q3 2006 13 5 42% Q2 2006 14 8 57% Q1 2006 11 6 55% 2006 YTD 38 19 50% 0 2 1 1 1 3 2 3 0 0 0 3 3 0 0 3 7 7 1 1 8 wells drilling and 2 wells under evaluation by end of third quarter 1) Norway: 3 discoveries Apollo, Morvin, Valemon 2) US GoM: 7 discoveries, 2 deepwater and 5 Shelf Deepwater Shelf 3) Libya: 7 discoveries 5) Angola: 1 discovery Thunder Hawk and Thunder Bird, High Island 165,, West Cameron 130 #3, West Cameron 72 #3, West Cameron 39, Vermillion 408 A-5 NC 186 Murzuq Block 17 Orchidea 2 – Appraisal well 4) Canada: 1 discovery Hibernia MM1 59 Rig coverage provides flexibility Norway - Exploration rig capacity secured to 2009 Additional production drilling rig capacity secured - 2008 to 2011 – 3 rig years - Bideford Dolphin semisubmersible US Gulf of Mexico - Deepwater exploration drilling rig capacity secured - Mid-2007 to 2013 – 6 rig years - Henry Goodrich semisubmersible and newbuild drillship of enhanced Enterprise class 60 Positive outlook for Norwegian shelf Strong production growth 2005-2010 - 20% higher production, increased share of gas High near-term activity level - 15 new fields under development About 40 exploration wells planned 2006-2007 Interesting opportunities in northern areas 61 Exploring for new resources in all regions Participating in 40 exploration wells in 2006-2007 Add profitable resources to producing fields Still growth prospects in mature areas Exciting frontier drilling in the Barents Sea and Norwegian Sea North Sea Barents Sea Norwegian Sea Exploration wells 2005 - 2007 62 Exploration effort paying off Awards for predefined areas 2006 - Extensive application submitted Norway – 7 in 2005 - Peon, Astero, Troll Brent - Oseberg Sør B and J - Stetind, Vigdis M5 Denmark – 1 in 2005 - Hejre Norway – 3 first half 2006 - PL 050 Apollo - PL 134 Morvin - PL 193 Valemon Norway - 19th License round - PL 393 - PL 394 Denmark - 6th License round - DK 01/06 - DK 04/06 - DK 05/06 - DK 06/06 Business development - PL 273 acquisition 30% stake - DK 4/98 incr. stake from 25% to 30% Discoveries Barents Sea - - Norwegian Sea Stetind - New acreage secured - Vigdis M5 Peon Astero Troll Brent Oseberg Sør B Oseberg Sør J - North Sea Hejre - Hydro operated Hydro partner 63 Technological and operational leadership Cost-efficient, safe and smart operations Driving innovation - Subsea technology Advanced drilling Increased oil recovery Environmental technology 64 Drilling excellence drives value creation Early mover in drilling technology 47 multilateral wells drilled with 76 branches 50% of the world’s advanced multilateral wells 88% of the world’s advanced offshore multilateral wells 65 Oil and gas reserves and resources* Million boe 4 000 Additional expected reserves and resources in existing portfolio Expected reserves in fields in production and fields under development 3 000 2 000 1 000 0 Additional expected 2005E Production reserves year-end 2004E * Includes only 1P and 2P reserves and resources (P90 and P50) ** Including Spinnaker Exploration Company *** Non-sanctioned projects, excluding Stetind, Peregrino and Anaran fields Proven reserves yearend 2004 (SEC) Added expected reserves 2005E** Additional expected resources in portfolio*** 66 Additional expected resources in portfolio Million boe Hydro share in fields and discoveries* 750 Under evaluation Likely but International: Murzuq NC190 – Block 17 Operated Norway: Peon – Astero – Troll Brent – Osberg/Troll/Grane IOR Partner-op Norway: Snorre IOR – Lavrans – Eldfisk – Ekofisk International: Hebron – Hejre – Block 17 Norway Operated: Oseberg South gas – Oseberg IOR – Fram Norway Partner-operated: Snorre IOR – Lavrans – Eldfisk – Ekofisk 500 not clarified 250 Planning phase International: Kharyaga – Murzuq NC186 – Block 17 Norway Operated : Vega – Ormen Lange – Oseberg South G-central Norway Partner-operated: Valemon – Gullfaks – Gullfaks south 0 * Non-exhaustive list from non-sanctioned projects, excluding Stetind, Peregrino (ex-Chinook) and Anaran fields 67 Commercializing a superior gas position 68 Strong short-term ramp-up in gas production Maximum lifting and secure best value Gas production 1 000 boe/day 300 12% CAGR* 250 12% annual growth rate (2000-2010) Increasing from 9.4 to 16 bcm (2005-2010) Market development facilitates further growth Large gas reserves in the middle of Europe High profitability going forward 2000 2005 2010 200 150 100 50 0 * 12% Compound Annual Growth Rate 2000-2010, 2000 baseline 69 Strong long-term demand for gas Bcm/year Europe* - Gas supply and demand 1000 Assumed prolongations from outside Europe Contracted from outside Europe Production Europe ex. Norway Production Norway Gas demand UK - Gas production and demand 140 Gas production - bcm annually Gas demand - bcm annually 120 800 100 600 Widening supply-demand gap 80 400 60 40 200 20 0 2002 2006 2010 2014 2018 2022 0 2002 2006 2010 2014 2018 2022 * Demand in 22 European countries. Excludes Turkey, FSU and Balkan Source: Global Insight Supply and Demand Report 2005 70 Gas – an increasingly valuable commodity Hydro well positioned to capture this value USD per Boe 100 Brent NBP (National Balancing Point) - UK 80 Significant increase in gas prices Infrastructure in place 60 40 High value “per barrel” for the long term 20 Ormen Lange break even 0 2002 2003 2004 2005 2006 2007 2008 71 Flexibility - increased value of gas portfolio Norwegian Continental Shelf Strong reserve base Excellent Operator Basin Master Access to Infrastructure St.Fergus NBP* Easington*** Bacton Emden TTF** Zeebrugge/Hub Dunkerque PEG**** Gas Market Presence Long-term sales Spot sales Downstream marketing Swap deals Abreviations: * NBP: National Balancing Point, ** TTF: Dutch Title Transfer Facility *** Langeled South Pipeline landfall **** PEG: Points d'Exchange de Gaz 72 Ormen Lange Securing gas to an undersupplied UK Langeled – Hydro a driving force to route Ormen Lange Gas to the UK - Ormen Lange Langeled Short lead times Hydro links up NCS to UK supply gap Increased flow from Hydro fields Increased profiling from Hydro fields Low cost – quick delivery Frigg Heimdal Vesterled St. Fergus Sleipner Langeled South – increased delivery to UK at the right time - Langeled first gas to UK 1 Oct 2006 Easington Bacton First large-scale project without longterm commitments 73 Aluminium 74 Aluminium outlook and strategy Growing demand for aluminium products Increased costs – an industry challenge Strategy shift for Hydro - Prioritize upstream investment and repositioning Reduce downstream exposure – focus on cash generation Roadmap to increased profitability 75 China is leading the demand growth Metal products consumption (primary and recycled based) Million tonnes 70 60 – 4 .0 4.5% R CAG 67 CAGR 2005-15 Rest of the World 4.6% CIS and E. Europe 6.4% Other Asia 3.3% 55 50 44 40 36 Western Europe 2.3% 30 North America 2.5% 20 China 7.6% 10 0 2000 Source: CRU 2005E 2010E 2015E 76 Aluminium price USD per metric ton LME (3 month avg.) 3 000 2 800 2 600 2 400 2 200 2 000 1 800 1 600 LME forward Primary aluminium London Metal Exchange Q3 2006 average Q3 2006 end USD per metric ton 2 528 2 566 Q2 2006 average Q2 2006 end 2 682 2 630 Q1 2006 average Q1 2006 end Average 2005 2 444 2 471 1 900 1 400 1 200 2000 2002 2004 2006 2008 2010 Per 20 October 2006, weekly average 77 Alumina spot price Percentage of aluminium LME 3 months price* $/tonne 800 Spot alumina price % of LME 3 months aluminium price Percent 30 600 20 400 10 200 0 1999 2000 2001 2002 2003 2004 2005 2006 * Oct 2006: Alumina spot approximately 240 USD/tonne Source: LME, Metal Bulletin, Macquarie Research, Hydro estimates, end Q3 2006 0 78 Alumina net balance 4.4 % average annual growth in demand Net Alumina balance (million tonnes) 10 Required utilization Capacity increase 2005-2010 Greenfield Major decided projects (million t) 100 % Committed Alumina projects Excess smelter capacity China (Alumina eqv.) Required utilization rate Required utilization China India 5.0 1.4 6.4 6.5 6 5.2 6.3 Brownfield Excess smelter capacity China 3.7 94 % Major decided increases (million t) Gove CAR Pinjarra Alunorte, 2 & 3 Alumar 1.9 1.3 0.7 3.7 2.0 0.6 3.9 14.3 2 1.2 2005 -2 -1.2 2006 2007 2008 2009 2010 88 % Nalco Chalco Source: HAL A&B and SBD, CRU, Antaike, Brook Hunt, 7 th Feb 2006 79 Aluminium portfolio 2005 1 000 tonnes Equity Medium/long term contracts Alumina * 744 1 082 Equity ** Electrolysis metal 1 826 3rd party Remelt Equity ** Metal products 1 826 Extrusion & Rolled Automotive 240 1 755 Downstream 953 694 * Aluminium equivalents (2 tonnes alumina per tonne aluminium) ** Slovalco 100% included 80 Capital allocation towards upstream Aluminium Capital employed 2005 Capital expenditure 2006-2010E Downstream 41 % Downstream 30% Upstream 59 % Upstream 70% 81 Aluminium Metal Adjusted EBITDA NOK million 3 000 2 775 2 706 2 301 Aluminium Products Adjusted EBITDA NOK million 3 000 Rolled Products Automotive Extrusion Other and eliminations 2 500 2 500 2 000 1 636 1 736 2 000 1 500 1 053 1 500 756 926 797 1 000 1 000 806 872 879 306 500 396 * 500 0 - 500 2005 2006 - 500 2005 2006 Accumulated Accumulated 4 821 7 781 3 231 2 113 * Q4 2005 includes unrealized losses on LME contracts of NOK 1 120 million 82 Increased costs – an industry challenge Significant shift in industry cost curve* Cash cost (USD/t) Energy - 2250 2000 1750 1500 1250 2003 ave. 1120 2005 2003 2005 ave. 1375 Oil and gas prices Coal prices CO2 emission trading Supply/demand for electricity Alumina Other raw materials Freight 1000 750 500 250 0 0% 25% 50% Cumulative production * Source: CRU (Corporate Operating Cost definition) September 2005 75% 100% 83 Improved relative smelter cost position World production 2005, 1 000 tonnes Cash cost 2005 (USD/t*) 2 250 2 000 1 750 Hydro 1 500 1 250 1 000 New capacity 2005-2010 2005* Average: 1 375 USD per tonne Closures 2005-2010: Hamburg closed end 2005 Stade to be closed end 2006 Høyanger Søderberg potlines closed february 2006 Årdal Søderberg potline to be closed 2007 Karmøy potline to be closed 2009 750 500 250 0 0 Alouette expansion 2005-2006 Qatalum greenfield expansion 2009 Smelter optimization 4 000 8 000 12 000 16 000 20 000 24 000 28 000 32 000 * Source: CRU (Corporate Operating Cost definition) September 2005 84 Aluminium power supply 2006 primary smelter power requirement 27 TWh - Long-term contracts: 23 TWh, Short-term supply: 4 TWh NOK 1.2 billion increase for upstream of which NOK 0.85 billion for Germany 2007-2010: only limited price changes expected on long-term contracts Power supply for Neuss smelter secured for 2006-2008 2006 estimated power cost increase of NOK 1.5 billion* - Price level on long-term contracts in line with global industry average * Including upstream and downstream 85 Hydro power costs on world average German prices not competitive Power prices World smelter production 2005 Million tonnes 6 World average 26 USD/MWh German electricity prices €/MWh 70 5 Spot prices Forward 31.12.05 60 4 50 40 30 3 2 20 1 10 0 0-5 6-10 11-15 16-20 21-25 26-30 USD/MWh 31-35 36-40 40+ 0 2000 2002 2004 2006 2008 2010 2012 Source: CRU 2005 Source: EEX. Price delivered site approx. 5-6 €/MWh higher (grid tariff & tax) 86 New projects strengthen primary production Qatalum smelter project in Qatar JV 50/50 signed - Hydro/Qatar Petroleum - 23 March 2006 Hydro to market all metal - 585 000 tonnes per year Expansion potential up to 1 200 000 tonnes per year Attractive profitability Expected start-up Q4 2009 Alunorte alumina refinery – Expansion 2 Completed Q1 2006 Expansion to 4.6 million tonnes Hydro stake 34% Alunorte alumina refinery – Expansion 3 Expansion of 1.9 million tonnes to 6.5 million tonnes Hydro stake 34% Among the most competitive conversion costs in the industry Expected project completion Q4 2008 87 Increased alumina equity coverage at lower cost Alumina equity coverage (bars) Percent 100 % Equity alumina production (line) 1 000 tonnes 3 000 75 % 72% 2 000 53% 50 % 43% 1 000 25 % 23% 0% Est. weighted avg. cash cost (05-USD/tonne) 0 1998 2002 2006E 2010E 165 145 145 130 88 More competitive smelter portfolio Primary production, 1 000 tonnes 290 1 826 180 (110) (190) 2 000 2005 Closures Germany 2006* Søderberg closures 2006 and 2009** Optimization 2006-2009 Qatalum 2009 2010E * German closures: Hamburg (HAW) 40 000mt Q4’05, Stade 70 000mt end of December 2006 ** Søderberg closures: Høyanger 20 000mt Q1’06, Årdal 50 000mt 2007 and Karmøy 100 000mt 2009 89 Repositioning enhances smelter portfolio Smelter geography Europe Outside Europe 2 000 1 820 17% 33% 29% 43% 1 820 Smelter size Below 300 ktpy Above 300 ktpy 2 000 780 780 100% 83% 67% 100% 71% 57% 2000 2005 2010E 2000 2005 2010E All figures in 1 000 tonnes per year 90 Downstream – focus on cash generation 2005: Capital employed per business area NOK 109 billion Other Significant capital employed in Aluminium Unsatisfactory returns Urgent measures downstream - 5% Aluminium Downstream 18 % Oil & Energy 52 % Aluminium Upstream 25 % - Reduce investments Focus on cash generation Cash contribution NOK 6-7 bn 2006-10 Turn around, close/sell, underperforming units 91 Aluminium downstream - revenues 2005 - NOK 46 billion Business split Geographical split Others 10% North America 16% Automotive 20% Rolled Products 43% Extrusion 37% Europe 74% 92 Roadmap to increased profitability Return on average capital employed – RoaCE 2010 target: 9% RoaCE* ~0.6% ~1.4% Approx. 7% ~1.7% 9% ~1.8% ~0.1% 2005E level Energy prices Other, net Downstream contribution Metals contribution Qatalum and Alunorte 3 2010 Roadmap excludes price, market and one-time effects. Aluminium price and currencies at 2005 levels (1 850 USD/t and 6.50 NOK/USD). As presented on Capital Markets Day. 93 Additional information Hydro 94 The Hydro share* 1 231 million shares Others 12.4 % UK 9.0 % The Norwegian State 43.8 % USA 17.9 % Norway 16.7 % 50 000 shareholders Listed in 5 countries Followed by 30 sell-side analysts Free float: 54.2% Market value: NOK 195 billion * 30 September 2006 95 Indicative price and currency sensitivities 2006 NOK million Oil price per barrel Aluminium price per tonne Income before tax 1 100 950 Net income 325 665 Change 1 USD 100 USD NOK million USD Oil & Energy USD Aluminium USD before financial items USD financial items USD Net income Income before tax 7 500 2 800 10 300 (3 000) 7 300 Net income 2 250 1 900 4 150 (1 950) 2 200 Change 1 NOK 1 NOK 1 NOK 1 NOK 1 NOK Based on approximate average 2005 prices and expected business volumes for 2006: Oil 50 USD/bbl Aluminium 1 900 USD/tonne NOK/USD 6.5 USD sensitivity for Oil & Energy and Aluminium includes both USD revenues and USD costs Total USD sensitivity of financial positions is NOK 4 000 million negative and consists of assets and liabilities in various financial instruments. Positive net working capital of USD 1 000 million reduces the total sensitivity to 3 000 million. 96 Building a stronger Hydro The Hydro Way is our platform Leadership and competence development International organization – diversity is key Encouraging innovation and sense of urgency Attracting new talents Skills and experiences shared across Hydro 97 A large international organization 33 000 professionals, 36 countries, 5 continents* Geography Business Area Other 26 % Brazil 1% China 1% Australia 2% Hungary 2% Other 15% Aluminium Metal 17% Norway 35 % Oil & Energy 10% Aluminium Products 58% France 6 % USA 11 % Germany 16 % 98 Safety Total reported injuries per million working hours (TRI) Rate 15 10 5 0 2000 2001 2002 2003 2004 2005 YTD 2006 99 Capital allocation and investment criteria Oil price – USD 30-35 per boe Aluminium – USD1 600-1 700 per mt NOK/USD 6.50 Investments focused upstream Reduced engagement downstream Aluminium - Minimum investment level Cash positive Business areas to demonstrate ability to fund capital projects with own cash flow 100 Investment criteria – Oil & Energy Maintaining capital discipline in volatile markets Oil price in USD 80 Brent Brent forward 70 Oil price - Long-term: USD 30-35 per barrel 60 Currency - NOK/USD 6.5 NOK/EUR 8.0 50 Hurdle rate 40 - 30 10% IRR real after tax IRR after tax above Hydro’s cost of capital when risk is accounted for in cash flows 20 10 2000 2002 2004 2006 2008 2010 Source: Ecowin Brent FOB Dated NWE, Spot, Close (Nominal) 101 Investment criteria – Aluminium Maintaining capital discipline in volatile markets Aluminium price in USD 2 900 2 700 2 500 LME (3 month) LME forward Aluminium price - USD 1 600 - 1 700 per tonne Currency 2 300 2 100 1 900 1 700 1 500 1 300 1 100 2000 2002 2004 2006 2008 2010 Source: Ecowin Aluminium, 3 Month Forward, LME, Close, (Nominal) - NOK/USD 6.5 NOK/EUR 8.0 Hurdle rate - 10% IRR real after tax IRR after tax above Hydro’s cost of capital when risk is accounted for in cash flows 102 Secured prices for Spinnaker production 80 70 60 50 40 6 30 20 10 2000 4 2 0 2000 Oil - WTI (USD/bbl quarterly) 16 14 12 Gas - Henry Hub (USD/mmbtu monthly) Secured price 45.00 - 71.45 10 8 Secured minimum price 7.5 2002 2004 2006 2008 2002 2004 2006 2008 Source: Ecowin Oil, WTI Crude Oil, Spot, USD, (Nominal) Source: Ecowin Natural Gas, Henry Hub, Spot, Close, USD, (Nominal) Prices secured for 2006-2008 for 35.9 million boe - Oil: 15.4 million boe (zero cost collar options) with quarterly settlement Gas: 121 million mmbtu ~ 20.5 million boe. Put option strike price 7.5 USD/mmbtu with monthly settlement. Deferred premium 0.78 USD/mmbtu Q3 2006 average prices: WTI 70.4 USD/boe and Henry Hub 6.2 USD/mmbtu Hedge structure preserves significant part of upside Hedging instruments marked-to-market with changes in fair value reported in earnings 103 Positive cash-flow generation 2003 - 2005 Oil & Energy 127.9 63.1 Aluminium 59.5 23.2 2.4 14.3 2.4 9.0 0.2 EBITDA Tax Investm. 1) Other 5.5 Net cash flow EBITDA Tax Investm. Other Net cash flow 1) of which acquisition of Spinnaker NOK 16.4 billion 104 Normalized RoaCE by business area 2003 - 2005 Oil & Energy Aluminium Normalized Adjustment for Spinnaker 12.3% Normalized Adjustment for write-downs 12.6% 11.3% 10.0% 4.2% 4.8% 4.2% 1.3% 1.7% 2005 2003 2004 2005 2003 2004 105 Increasing payout to shareholders 1996 - 2006 NOK million Dividend Buyback 1 589 1 684 5 500 5 021 1 599 763 2 470 2 094 1 604 1 718 1 718 1 155 555 2 576 2 711 2 811 3 165* 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Dividend allocated to the year for which the dividend was paid. The (actual) payment of the dividend is done the year after. Buyback allocated to the year when the buyback transactions were executed. * Includes redemption of Norwegian State’s shares in July 2006 of NOK 471 million. 106 Earnings per share NOK* 12.54 9.02 6.50 5.50 4.56 2001 2002 2003 2004 2005 * Continuing operations. Recalculated to reflect 5:1 share split 10 May 2006 107 Adjusted income – 2005 NOK million Exploration and Production Energy and Oil Marketing Eliminations Oil & Energy Aluminium Metal Aluminum Products Other activities Corporate and eliminations Total operating income Non-consolidated investees Financial income (expense), net Other income (loss), net Income from continuing operations before tax and minority interest Income tax expense Minority interest Income from continuing operations Reported income 40 594 3 575 (719) 43 451 2 694 (175) (2) 464 46 432 619 (1 890) 991 46 152 (30 317) (118) 15 717 Adjustments 627 41 719 1 387 1 210 1 033 242 (1 545) 2 326 8 2 159 (991) 3 502 * (1 122) 2 380 Adjusted income 41 221 3 616 44 837 3 904 858 240 (1 081) 48 758 627 269 49 654 (31 439) (118) 18 097 * Estimated tax effect on income statement adjustments using a tax rate of 33 percent on the taxable items 108 Infrequent and other special items 2005 Unrealized (gains)/losses on oil and gas derivatives, Spinnaker Unrealized (gains)/losses on gas contracts Unrealized (gains)/losses on gas contracts Unrealized (gains)/losses on gas and power contracts Rationalization and demanning costs Unrealized (gains)/losses on LME contracts Inventory (gains)/losses Reversal inventory provision Settlement Malaysia Write-down Spanish rolled products plant Rationalization and demanning Leeds Pension charge Leeds Rationalization cost Impairment loss magnesium operation Unrealized (gains)/losses on LME contracts Insurance loss provision Unrealized (gains)/losses on power contracts Elimination of pension charge Leeds Net impact operating income Non-cons. investees - unrealized currency (gains)/losses Alunorte Non-cons. investees - closure costs Net foreign exchange (gains)/losses Other income - gains on divestments Net impact on income before tax Marginal tax rate Calculated tax * Total effect net income Exploration and Production Exploration and Production Energy and Oil marketing Oil & Energy eliminations Aluminium Metal Aluminium Metal Rolled Products Rolled Products Rolled Products Rolled Products Automotive Automotive Extrusion Automotive Aluminium Products eliminations Other activities Corporate and eliminations Corporate and eliminations Hydro Aluminium Metal Aluminium Metal Hydro Hydro Hydro Hydro Hydro Hydro NOK million 440 187 41 719 6 1 204 (138) (116) (40) 154 68 154 50 1 084 (183) 242 (1 391) (154) 2 326 (141) 149 2 159 (991) 3 502 33.0% (1 122) 2 380 109 Variance analysis Hydro NOK million 2006 2005 Variance adjusted EBITDA - Prices and currency, Exploration and Production (E&P) - Margin incl. currency effects ¹) - Volume - Fixed costs - Depreciation - Production and exploration costs, E&P - Trading and unrealized LME effects, Aluminium - Restructuring costs - Infrequent items - New / disposed business - Other Variance operating income - Non-consolidated investees - Interest income and other - Other income - Depreciation and amortization Variance adjusted EBITDA Jan-Sep 2006 62 621 48 493 14 128 12 025 4 720 2 005 (735) (1 815) (3 330) (50) (700) (10) (295) 11 813 221 175 (233) 2 152 14 128 Q3 2006 20 515 17 109 3 406 2 450 2 250 65 (290) (720) (1 095) (400) (70) 125 2 315 (8) 111 988 3 406 1) Including positive variance for elimination of unrealized gain/loss on electricity contracts of MNOK 185 year to date and MNOK 441 for the quarter and variance for elimination of the gain/loss on gas contracts of MNOK 953 year to date and MNOK 20 for the quarter. 110 Investments1) 2004 and 2005 NOK million Exploration and Production 2) Energy and Oil Marketing Oil & Energy Metals Rolled Products Extrusion and Automotive Aluminium Other activities Corporate and eliminations Total 2005 33 846 2 333 36 179 1 792 545 1 425 3 762 1 097 72 41 110 2004 10 606 1 460 12 067 4 244 553 1 398 6 194 1 058 145 19 464 1) Additions to property, plant and equipment (capital expenditures) plus long-term securities, intangibles, long-term advances and investments in non-consolidated investees 2) Including acquisition of Spinnaker NOK 21.9 billion, including non-cash element of NOK 5.5 billion. 111 Statement of cash flows NOK million Operating activities: Net income Depreciation, depletion and amortization Other adjustments Net cash provided by operating activities Investing activities: Purchases of property, plant and equipment Purchases of other long-term investments Purchases of short-term investments Proceeds from sales of property, plant and equipment Proceeds from sales of other long-term investments Proceeds from sales of short-term investments Net cash used in investing activities Financing activities: Loan proceeds Principal repayments Ordinary shares purchased Ordinary shares issued Dividends paid Net cash used in financing activities Foreign currency effect on cash Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Nine months ended 30 September 2006 Nine months ended 30 September 2005 16 068 12 510 13 214 41 792 (13 659) (3 448) (10 700) 239 394 1 850 (25 324) 79 (2 116) (3 165) 45 (5 506) (10 663) 222 6 027 10 463 16 490 11 453 10 598 3 334 25 385 (11 819) (444) (15 162) 1 256 747 9 545 (15 877) 677 (1 663) (1 177) 56 (5 021) (7 128) (139) 2 241 14 366 16 607 112 Consolidated balance sheets NOK million Cash and cash equivalents Short-term investments Receivables and other current assets Inventories Non-current assets Total assets Short-term interest-bearing debt Current portion of long-term debt Other current liabilities Long-term interest-bearing debt Other long-term liabilities Deferred tax liabilities Minority interest Shareholders' equity Total liabilities and shareholders' equity 30 September 2006 16 490 12 699 46 490 16 310 160 840 252 830 3 103 243 68 452 20 653 22 607 33 853 754 103 165 252 830 30 June 2006 7 725 12 669 46 165 15 985 155 487 238 031 3 325 220 61 047 19 942 22 938 32 808 719 97 033 238 031 30 September 2005 16 607 16 760 38 852 14 225 131 771 218 214 4 324 397 51 406 20 456 19 461 29 207 1 357 91 606 218 214 113 Additional information - Oil & Energy 114 Operating costs per boe NOK/boe 94.9 83.8 82.1 123.6 104.2 2003 Exploration Net transportation Other cost/income Deprec.& aband. Gas for injection Production cost, excl gas inj 8.1 6.8 1.7 46.4 0.7 20.0 2004 6.0 8.3 0.7 46.4 2.8 17.9 2005 8.9 9.4 3.0 48.2 5.4 19.9 2006 YTD 18.8 12.1 2.8 58.0 7.9 24.1 2006 YTD excl. Hydro GoM 10.6 12.3 2.6 47.0 8.2 23.5 Production mboe 194 209 206 154 149 * Production cost is comprised of the cost of operating fields, including CO2 emission tax, insurance, and lease costs for production installations, but excluding transportation and processing tariffs, operation costs for transportation systems and depreciation. 115 Average realized gas prices NOK/Sm3 1.03 1.09 1.52 2.16 1.85 1.79 1.91 1.73 1.47 1.31 1.20 0.99 1.03 1.01 1.06 1.10 0.98 1.07 1.36 2003 2004 2005 2006 116 Average prices and exchange rates Oil USD/boe 2004 Q1 2005 Q2 2005 Q3 2005 Q4 2005 2005 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Jan-Sep 2006 37.3 46.4 49.8 60.4 55.6 53.1 60.6 67.9 66.6 Oil NOK/boe 251.3 291.7 317.9 390.6 368.8 342.2 403.5 422.2 420.6 NOK/USD 6.74 6.29 6.39 6.47 6.63 6.44 6.67 6.22 6.32 Gas NOK/Sm3 1.09 1.47 1.31 1.36 1.85 1.52 500 NOK/boe USD/boe 400 75 50 300 200 2.16 1.79 1.73 25 100 64.9 416.1 6.41 1.91 0 2000 2002 2004 2006 0 117 Exploration activity Expensed and capitalized costs NOK million 1 600 1 400 1 200 1 000 800 600 400 200 0 - 200 - 400 - 600 - 800 -1 000 Expensed Capitalized 2003 2004 2005 2006 Expensed Expensed old wells Refund insurance Iran Seismic Spinnaker 118 Oil production per field 1000 boe/day Oil and NGL/Condensate Grane Oseberg incl C Ekofisk Oseberg South Snorre Troll B&C Gullfaks inclu. Sat Åsgard US Gulf of Mexico 1) Kvitebjørn Hibernia Kristin 2) Norne Girassol/Jasmim 3) Vigdis Fram Sleipner Area Njord Tordis Urd 2) Brage Oseberg East Kharyaga 3) Terra Nova Visund Other fields Oil - boed Gas - boed Total - boed Share 38.00% 34.00% 6.65% 34.00% 17.65% 9.78% 9.00% 9.60% 100.00% 15.00% 5.00% 14.00% 8.10% 10.00% 13.28% 25.00% 9.42% 20.00% 13.28% 8.10% 20.00% 34.00% 40.00% 15.00% 20.30% Q3 '06 217 122 341 69 166 174 165 170 11 52 168 61 94 115 96 22 79 24 10 61 18 13 13 0 36 Q2 '06 222 129 361 68 108 184 189 177 10 60 180 64 111 70 45 24 53 25 30 49 20 12 10 20 15 Q3 '05 195 151 345 79 168 237 208 186 0 49 187 0 95 222 74 31 82 35 54 0 30 18 15 79 9 Hydro Q3 '06 82 41 23 23 29 17 15 16 11 8 8 8 8 12 13 6 7 5 1 5 4 4 5 0 7 22 381 168 548 Hydro Q2 '06 84 44 24 23 19 18 17 17 10 9 9 9 9 7 6 6 5 5 4 4 4 4 4 3 3 19 368 169 537 Hydro Q3 '05 74 51 23 27 30 23 19 18 0 7 9 0 8 22 10 8 8 7 7 0 6 6 6 12 2 17 399 142 541 1) US GoM production: Net of royalty, 2) In production Q4 2005, 3) Angolan and Russian production: Net of Government’s share of profit oil (PSA) 119 Gas production per field 1000 boe/day Gas Troll A Sleipner Area Tune Åsgard Kvitebjørn US Gulf of Mexico 1) Oseberg incl C Gullfaks incl. satellites Kristin 2) Ekofisk Oseberg South Mikkel Visund Sigyn Other Gas - boed Oil - boed Total - boed Share 9.78% 9.42% 40.00% 9.60% 15.00% 100.00% 34.00% 9.00% 14.00% 6.65% 34.00% 10.00% 20.30% 10.00% Q3 '06 411 247 40 153 83 12 43 67 36 64 13 24 24 15 Q2 '06 491 191 45 167 107 11 29 67 43 75 12 30 10 10 Q3 '05 336 248 54 173 87 0 20 73 0 63 14 33 1 15 Hydro Q3 '06 40 23 16 15 13 12 15 6 5 4 4 2 5 1 6 168 381 548 Hydro Q2 '06 48 18 18 16 16 11 10 6 6 5 4 3 2 1 5 169 368 537 Hydro Q3 '05 33 23 21 17 13 0 7 7 0 4 5 3 0 2 8 142 399 541 1) US GoM production: Net of royalty, 2) In production Q4 2005 120 Oil production per field – 2004 and 2005 Boe/day Oil and NGL/Condensate Grane Oseberg incl C Snorre Troll B&C Oseberg South Ekofisk Gullfaks inclu. Sat Girasol/Jasmin Åsgard Terra Nova Hibernia Vigdis Norne Fram Sleipner Area Tordis Kvitebjørn Kharyaga Njord Oseberg East Brage Visund Other fields Total oil Gas Total oil and gas Share 38.00% 34.00% 17.65% 9.78% 34.00% 6.65% 9.00% 10.00% 9.60% 15.00% 5.00% 13.28% 8.10% 25.00% 9.42% 13.28% 15.00% 40.00% 20.00% 34.00% 20.00% 20.30% 2004 118 170 201 312 80 363 254 218 223 110 204 66 124 50 81 66 5 16 29 31 28 32 Hydro 2004 45 58 36 30 27 24 23 22 21 17 10 9 10 12 8 9 1 6 6 11 6 6 2005 178 149 157 245 71 354 228 200 198 99 199 67 100 31 81 55 49 16 32 18 27 26 Hydro 2005 67 51 28 24 24 24 21 20 19 15 10 9 8 8 8 7 7 6 6 6 5 5 20 398 165 563 121 Gas production per field – 2004 and 2005 Boe/day Troll A Sleipner Area Tune Oseberg incl C Åsgard Kvitebjørn Gullfaks inclu. Sat Ekofisk Oseberg South Mikkel Visund Other Total gas Oil Total oil and gas Share 9.78% 9.42% 40.00% 34.00% 9.60% 15.00% 9.00% 6.65% 34.00% 10.00% 20.30% 5.00% 2004 444 225 68 44 173 10 62 67 17 29 0 200 Hydro 2004 43 21 27 15 17 2 6 4 6 3 0 10 2005 469 248 54 51 176 73 72 65 12 31 7 204 Hydro 2005 46 23 21 17 17 11 6 4 4 3 1 10 165 398 563 122 Proved reserves of oil and gas SEC definition Reserves 31.12.2004 – million boe Reserve revisions New reserves Sales, purchases and swaps Production 2005 Reserves 31.12.2005 – million boe 2 076 64 59 52 (206) 2 046 Reserve replacement ratio and reserve life Reserve replacement ratio 2005 Reserve replacement ratio 3-year average Reserve life Oil Gas 85% 70% 10 years 6 years 20 years 123 Extending production growth through 2010 Oil and gas production 1 000 boe/day 750 Top-quartile growth continues - 625 In gas In oil On NCS Internationally 500 375 Robust growth - 250 85% sanctioned projects Low break-even prices 125 Growing international share - Higher after-tax value per barrel in portfolio 0 2000 Oil Norway 2005 International 2010 Gas Norway 124 International E&P activities 125 Internationalization focus Hydro is capitalizing on deep water competence Reserves (mm boe) 50 000 40 000 30 000 20 000 10 000 0 US GoM Mexico Mauritania Nigeria Brazil Norway Indonesia Eq. Guinea Australia Canada India Malaysia Angola Egypt Congo Ivory Coast UK Mexico representation office opened 2005 Hydro presence Yet-to-find reserves Remaining reserves Source: WoodMackenzie 126 US GoM - Attractive portfolio for growth Proven reserves SEC Expected reserves/resources1) 52 mmboe 129 mmboe US GoM: Approx. 420 leases – 60% deepwater Seismic data (2D,3D, PSDM) covering most of US GoM Exploration: 2005: 7 discoveries 2006 first nine months: 7 discoveries 2006: 15-20 exploration wells planned Field developments: Eastern Gulf – Gas, startup 2007 Thunder Hawk – Oil, startup 2009 Lorien Eastern Gulf field development Shelf - 38 blocks Deepwater Front Runner Lorien Eastern Gulf - Spiderman - San Jacinto -Q Thunder Hawk Production2) Production & Dev. 25% Production 30% Production - Q2’06 Development 18.33% Development 26.67% Development 50% Development Development Louisiana San Jacinto Spiderman Q Merganser Jubilee Vortex Atlas 1) Discovered volumes – 50/50 oil and gas, excl. Thunder Hawk, 2) Mainly operated high equity gas production 127 US GoM – Hydro seismic data coverage 3D seismic - 25,000 Blocks 2D seismic - 164,000 line Km 128 New opportunities in the GoM Hydro blocks in yellow 2005 2006 2007 Lease Expiration by Year Thunder Hawk & Eastern Gulf areas Front Runner area Lorien area 129 Canada Mature area opportunities in highly profitable portfolio Existing portfolio - - Hibernia and Terra Nova - Terra Nova production shut down due to FPSO maintenance Hebron development solution Exploration - Near infrastructure led exploration Mature current licence portfolio Assess risk/volume in immature basins Acquiring resources - Increase technical resources in the Grand Banks area 130 Angola Diversified opportunities in profitable growth portfolio Production - Block 17 (10% interest) Existing portfolio - 17 4 - Block 17 - Dalia production startup Q4 2006 - Rosa production startup Q2 2007 - Girassol/Jasmim optimizations - 3rd production hub selection Block 4 - Moving ahead with Gimboa 18 Exploration - Block 17 - Orquidea field discovery Q3’06 - Close to Rosa, Lirio, Cravo and Violeta Block 4 - Commercialize discovery Block 34 - Alternative potential New opportunities with Sonangol P&P Significant mid-sized prospect potential Acquiring resources - Additional opportunities based on proven reserves 131 Russia Legacy asset opportunities through long-term commitment Existing portfolio - Further development of Kharyaga Business development - Pursuing business opportunities 132 Libya Existing exploration potential in long-term core area Existing portfolio - Mabruk developments Murzuq developments Secured operatorship: NC-146 Exploration - Exploration drilling Co-operation with Wintershall EPSA exploration round V Acquiring resources - Actively pursuing additional value creating growth opportunities 133 Iran Exploring for oil in key petroleum province Exisiting portfolio - Anaran exploration acreage Anaran Exploration - Positive well test results in 2005 on Anaran field – Azar 2 Drilling Changuleh West well Basis for long term development - Anaran field: Commerciality declared Q2 2006 134 Brazil Acquired 50% of Peregrino field* Peregrino field - Shallow water: +100m Heavy oil: 14 API 1.8 billion boe oil in place** Expected recovery factor +20% Peregrino Leverage Troll and Grane world-class competence - Horizontal wells Multilateral technology Project execution * Approval by Brazilian authorities Q3 2006 (ex-Chinook field) ** Stock tank oil initially in place - STOIIP 135 Additional information - Aluminium 136 Primary aluminium production per quarter 1 000 mt 1 472 1 720 446 444 1 826 457 461 464 449 1 349 451 449 441 415 381 343 360 388 418 2003 Slovalco consolidated from Q1 2004 2004 2005 2006 YTD 137 Aluminium – operational data Volumes and prices * Primary production (1 000 mt) LME realized (USD/mt) including hedges NOK/USD realized including hedges ** LME realized (NOK/mt) including hedges LME realized (USD/mt) excluding hedges NOK/USD realized excluding hedges ** LME realized (NOK/mt) excluding hedges Total metal products sales excluding trading (1 000 mt) Rolled Products external shipment (1 000 mt) Extrusion and Automotive external revenues (NOK million) Extrusion order intake (indexed, 1996=100) * ** Q3 2006 449 2 462 6.36 15 662 2 614 6.33 16 537 783 251 7 404 216 Q2 2006 451 2 368 6.47 15 331 2 476 6.32 15 638 856 252 7 862 256 Q1 2006 449 2 146 6.85 14 697 2 192 6.66 14 591 869 254 7 359 244 Q4 2005 464 1 851 6.56 12 145 1 883 6.51 12 257 736 227 6 470 203 Q3 2005 461 1 770 6.47 11 453 1 796 6.39 11 468 741 244 6 137 194 Q2 2005 457 1 842 6.51 11 992 1 886 6.29 11 865 835 243 6 870 223 Q1 2005 444 1 783 6.54 11 664 1 812 6.31 11 435 802 239 6 511 210 Certain historical figures have been adjusted to be consistent with the Q3 2006 figures Difference between realized exchange rate and spot rate at the transaction date is reported as currency gain/loss and not included in EBITDA (except currency hedges where hedge accounting is applied) 138 Aluminium Metal hedge programs 2006-2008 program – volume mt 2) 2006-2008 program – LME price USD/mt 1) 2006 130 000 2 140 2007 163 800 2 300 2008 167 100 2 200 2003-2007 program (Sunndal) – volume mt 3) 2003-2007 program (Sunndal) – LME price USD/mt 96 900 1 500 108 900 1 500 - 2003-2007 program (Sunndal) – currency hedge USD thousand 4) 2003-2007 program (Sunndal) – NOK/USD rate 149 789 9.40 162 789 9.50 - 1) All hedges are designated as cash flow hedges of forecasted sales of primary metal production. Realized gains and losses on the hedges are recognized in earnings when the actual sales are made. All unrealized gains and losses on the hedges are booked directly to shareholders’ equity. 2) Volumes are spread evenly throughout the year, except for 2006 when the volumes are spread from second to fourth quarter. The hedge program is aimed at mitigating the effects of higher power prices. 3) Volumes are spread evenly throughout the year. The Sunndal hedge program was implemented in connection with the Sunndal metal plant expansion which was completed in 2004. 4) 2006 amount is divided between 80 percent in first half and 20 percent in second half. 2007 amount is evenly spread throughout the year. 139 Germany 2006-2008 HAW closed - 40 000 mt, Stade to be closed end of 2006 - 60 000 mt Neuss represents 12% of Hydro primary production. Positive margin locked in Volumes and prices: USD 2 220/mt average price for 460 000 mt - 2006: 2007-2008: USD 2 140/mt – 130 000 mt USD 2 250/mt – 330 900 mt Power secured at market terms for 2006 - 2008 - Increase in power costs in 2006: NOK 850 million 140 Current Position – Power Market EEX Power market development. Baseload contract one year ahead. Avg. spot prices for the year Eur/Mwh 70 60 50 45.98 52.85 40 29.49 28.52 20 22.55 30 Current prices slightly lower due to mild weather and low consumption. Price are expected to increase significantly when the consumption picks up. Especially due to the relatively tight hydro situation in the Nordics. 10 0 Jan. 02 Mai. 02 Sep. 02 Jan. 03 Mai. 03 Sep. 03 Jan. 04 Mai. 04 Sep. 04 Jan. 05 Mai. 05 Sep. 05 Jan. 06 Mai. 06 Sep. 06 2003 2004 2005 2006 2007 Avg. spot price * Grid cost & taxes come in addition: Smelters +4-5 €/Mwh Rolling + 10-20€/Mwh 141 Industry increasingly exposed to market power prices Aluminium production* – power sourcing 1 000 tonnes 24 124 20 000 To be renewed Russia 15 000 10 000 Contract 5 000 Unknown contract expiry Captive 0 000 2005 * Excluding China Source: CRU / Hydro 2009 2013 2017 2021 2025 142 Inventories – primary aluminium IAI and LME 1 000 tonnes LME (London Metal Exchange) 5 000 IAI (Producers' inventories) 4 000 3 000 2 000 1 000 0 1992 Sources: IAI and LME 1997 2002 2006 143 Hydro primary aluminium production 2003 - 2005 1 000 metric tonnes Smelter site Sunndal Karmøy Årdal Neuss Slovalco* Kurri-Kurri Alouette** Høyanger Søral*** Tomago Stade HAW Country Norway Norway Norway Germany Slovakia Australia Canada Norway Norway Australia Germany Germany Interest 100.0% 100.0% 100.0% 100.0% 20.0% 100.0% 20.0% 100.0% 49.9% 12.4% 100.0% 33.3% 2005 362 277 233 225 159 152 96 78 81 63 60 40 2004 306 278 222 223 157 155 48 76 82 60 69 44 2003 210 271 215 221 27 156 49 74 79 59 69 43 Total 1 826 1 720 1 473 * Full consolidation of Slovalco from 2004, introduced 100% from 2004. Interest increased to 55% in Q3 2006 ** Alouette 20% ownership, operated by Alcan *** Operated by Alcan 144 Main smelter cost elements Alumina and power – approximately 60 - 70% World average cost structure* Other 13 % Casthouse 4% Carbon 10 % Hydro average cost structure* Other 13 % Alumina 33 % Alumina 40 % Casthouse 7% Carbon 9% Labor 7% Labor 10 % Power 26 % Power 28 % * CRU 2005, Site Operating Cost definition 145 Global smelter site operating cost position Weighted average, percent 7 13 10 28 9 33 Technology Contracts Regulatory & Tax frames Power Labor **) 100 Economy of scale Efficient work processes Local cost level Other ***) Cast-house costs Site operating cost Alumina Carbon *) Global market prices National/ regional markets Input factors depending on local/regional conditions, efficiency, etc. 42% 28% 30% Source: 2005 CRU industry cost model’s figures for Hydro * Raw materials and bake furnace fuel costs ** Includes carbon plant, potroom and maintenance labor costs *** Relining cost, capital replacement cost and administrative cost 146 Global alumina business operating cost position Weighted average, percent 4 11 12 30 9 30 Alumina * Business operating cost Sustaining Costs 100 4 Bauxite Caustic Soda Power Energy Labor Equipment Other * Alumina business operating cost USD 178/tonne in 2005 Source: 2005 CRU, Nominal US$. Note: By-products credits, other mats costs and net realizations are included in other costs 147 Global aluminium production 2005 32 million tonnes* Geography Company Other 18 % North America 17 % Alcoa 12 % Alcan 10 % Latin America 7% Middle East 6% Western Europe 15 % Other 56 % Rusal 9% Hydro 6% BHP Billiton 4 % Chalco 3 % China 24 % CIS 13 % Source: CRU, HAM 148 Global alumina production 2005 61 million tonnes* Geography Africa Eastern Europe 1 % 3% Other Asia 6% Western Europe 10 % CIS 10 % Australia 27 % Company Others 27 % Alcoa/WMC 23 % Hydro 2 % North America 11 % Brazil 20 % Chalco 11 % Alcan 9% Glencore 7% China 12 % CVG 3 % Sual 3 % Rusal 5 % Comalco 5 % BHP Billiton 5% * Only 5% of Alumina market traded spot – mainly to China Source: James King and Company data 149 Investor Relations in Hydro 150 Investor Relations in Hydro Ada Christiane Rieker Vice President ada.christiane.rieker@hydro.com m +47 951 82 718 Gudmund Isfeldt Investor Relations Officer gudmund.isfeldt@hydro.com t +47 22 53 24 55 m +47 480 01 180 Stefan Solberg Investor Relations Officer stefan.solberg@hydro.com t +47 22 53 35 39 m +47 917 27 528 Irene Raposo Investor Relations Secretary irene.raposo@hydro.com t +47 22 53 31 53 m +47 414 02 174 For more information: www.hydro.com/ir 151 152