First quarter 2009 net operating income was NOK35.5 billion, compared to NOK51.4 billion in the first quarter of 2008.

The quarterly result was negatively affected by a 41% drop in oil prices, partly offset by a 23% increase in the average price of natural gas and a 7% increase in lifted volumes of oil and gas.

In addition to low crude oil prices, the first quarter net income was influenced by currency effects and an unusually high effective tax rate.

A new functional currency in the parent company has introduced reduced currency effects on net financial income. While taxes payable are unaffected by this change, taxable income exceeded consolidated accounting income before tax by about NOK10 billion, thus contributing to a tax rate of 87.4%. Adjusted for this difference, the tax rate amounted to 66.4%.

Recession and uncertainty in the world economy is continuing to impact energy demand and energy prices. Facing the turmoil, we are continuing to pursue further cost reductions, increased efficiency and operational improvement, says StatoilHydro’s chief executive Helge Lund.

Noting that the first quarter result was strongly influenced by low crude oil prices, currency effects and unusual income tax effects due to the new functional currency, the chief executive emphasizes that operations and production have been satisfactory:

We delivered record production and reliable operations during the first months of the year. The start-up of new fields like the Tahiti field in the US Gulf of Mexico and Alve on the Norwegian continental shelf (NCS) is recent milestones underpinning our long term growth strategy.

Our long-term strategy remains firm. We have strengthened our portfolio of exploration acreage in Norway and the US Gulf of Mexico and we have maintained high exploration activity, with good results. We have also strengthened our position within renewable energy through the sanctioning of the Sheringham Shoal offshore wind farm in the United Kingdom, says Lund.

Total equity production of liquids and gas in the first quarter of 2009 was 2.074 million barrels of oil equivalent per day, up 1% from the first quarter of 2008.

Adjusted for certain items that may not be specifically related to StatoilHydro’s underlying operational performance in the individual reporting period, adjusted earnings in the first quarter of 2009 were NOK36 billion, compared to NOK51.5 billion in the first quarter of 2008. The decrease in adjusted earnings was mainly due to lower liquids prices, only partly offset by higher income from natural gas sales.

Performance update

In the first quarter of 2009, StatoilHydro delivered total liquids and gas entitlement production of 1,935 mboe per day, which is a 2 % increase compared to the 1,889 mboe per day in the first quarter of 2008. Total liftings of liquids and gas were 1,964 mboe per day in the first quarter of 2009, a 7% increase from 1,836 mboe in the first quarter of 2008. Total equity production increased from 2,048 mboe per day the first quarter of 2008 to 2,074 mboe per day in the first quarter of 2009.

Adjusted earnings for the first quarter of 2009 decreased to NOK36 billion, down 30% from NOK51.5 billion in the first quarter of 2008. Lower liquids prices and lower liquids volumes were partly offset by the positive effects from higher volumes and prices for natural gas.

StatoilHydro delivered an extensive exploration programme in the first quarter of 2009. Of a total of 21 exploration wells completed before 31 March 2009, nine were drilled outside the NCS. Twelve wells have been announced as discoveries, of which two are located outside the NCS. An additional seven wells have been completed since 31 March 2009.

In the first quarter of 2009, production started from the Yttergryta field (January 6, 2009) and the Alve field (March 19, 2009), both on the NCS.

Return on average capital employed after tax (ROACE) for the 12 months ended March 31, 2009 was 20.5%, compared to 22.5% for the 12 months ended March 31, 2008. The decrease was due to a lower income and higher average capital employed. ROACE is defined as a non-GAAP financial measure.

In the first quarter of 2009, earnings per share based on net income were NOK1.15 compared to NOK5.01 in the first quarter of 2008.

Change in legal structure and consequential change in functional currency

Effective 1 January 2009, the legal structure was changed to optimize the legal structure of group companies to the operating activities after the merger. Notably, all exploration, production and midstream activities related to the NCS have been moved to a subsidiary company and its subsidiaries, leaving primarily financing and downstream activities in the parent company. Consequently, the functional currency for the parent company and certain other subsidiary companies has been changed to USD, while the fiscal currency, the currency in which the tax base is computed, remains unchanged. The group will also maintain NOKas the presentation currency.

This change in functional currency impacts our financial statements in several ways:

The new functional currency being USD means that USD denominated monetary assets and liabilities that in the past gave rise to material currency gains and losses recognized in the income statement will no longer be remeasured with effects recognized in the income statement. Conversely, and in contrast to prior periods, there will now be currency exchange effects related to NOK denominated monetary assets and liabilities that will be recognized in the income statement.

The difference between functional currency and presentation currency will cause certain translation differences in that assets and liabilities denominated in other currencies than NOK will trigger translation differences that will be recorded directly to Equity.

The difference between fiscal currency and functional currency will in turn cause taxable income or loss on monetary assets and liabilities denominated in the functional currency that will not correspond to income or cost in the income statement. The taxable income may therefore be significantly higher or lower than the accounting income before tax. However, the change in functional currency will not affect the amount of taxes payable.

It is not allowed to restate prior period financial statements due to the change in functional currency. Direct comparison between periods should therefore be done with caution, bearing in mind the general differences described above.

In the first quarter of 2009, the net operating income was NOK35.5 billion, compared to NOK51.4 billion in the first quarter of 2008.

Net operating income includes certain items that management considers not to be reflective of StatoilHydro’s underlying operational performance. Management adjusts for these items to arrive at adjusted earnings. Adjusted earnings is a supplemental non-GAAP measure to StatoilHydro’s IFRS measure of net operating income which management believes provides an indication of StatoilHydro’s underlying operational performance in the period and facilitates a better evaluation of operational trends between periods.

In the first quarter of 2009, lower fair value of derivatives (NOK0.1 billion) and impairment charges net of reversals (NOK2.4 billion) negatively impacted net operating income, while overlift (NOK0.6 billion), higher values of products in operational storage (NOK0.5 billion), gain on sale of assets (NOK0.3 billion) and reversal of other accruals (NOK1.5 billion) had a positive impact on net operating income for the first quarter of 2009.

Adjusted for these items and effects of inter-company eliminations (NOK0.9 billion), adjusted earnings were NOK36 billion in the first quarter of 2009.