Annual Report 2016 and Form 20-F Annual Report and Form 20-F 2016 FINANCIAL STATEMENTS INTRODUCTION AND SUPPLEMENTS Message from Chair of the board 05 4.1 Consolidated financial statements Statoil 119 Chief executive letter 07 4.2 Parent company financial statements 191 Statoil at a glance 08 About this report 10 STRATEGIC REPORT ADDITIONAL INFORMATION 2.1 Strategy and market overview 13 5.1 Shareholder information 233 2.2 Business overview 17 5.2 Accounting standards (IFRS) and non-GAAP 2.3 Development and Production Norway (DPN) 21 measures 244 2.4 Development and Production International (DPI) 26 5.3 Legal proceedings 248 2.5 Marketing, Midstream and Processing (MMP) 32 5.4 Payments to governments 248 2.6 Other group 34 5.5 Statements on this report 264 2.7 Corporate 37 5.6 Terms and definitions 267 2.8 Operating and financial performance 41 5.7 Forward-looking statements 269 2.9 Liquidity and capital resources 60 5.8 Signature page 270 2.10 Risk review 65 5.9 Exhibits 271 2.11 Safety, security and sustainability 74 5.10 Cross reference of Form 20-F 272 2.12 Our people 78 GOVERNANCE 3.1 Implementation and reporting 84 3.2 Business 86 3.3 Equity and dividends 86 3.4 Equal treatment of shareholders and transactions with close associates 87 3.5 Freely negotiable shares 88 3.6 General meeting of shareholders 88 3.7 Nomination committee 89 3.8 Corporate assembly, board of directors and management 90 3.9 The work of the board of directors 100 3.10 Risk management and internal control 102 3.11 Remuneration to the board of directors and corporate assembly 104 3.12 Remuneration to the corporate executive committee 106 3.13 Information and communications 114 3.14 Take-overs 114 3.15 External auditor 115 Statoil, Annual Report and Form 20-F 2016 1 Introduction Message from chair 5 CEO letter 7 Statoil at a glance 8 Key figures 9 About the report 10 Statoil, Annual Report and Form 20-F 2016 3 Dear shareholder, 2016 was a challenging year for the oil and gas industry. Across the Norwegian continental shelf, deepen in core areas and develop new industry, the financial results were impacted by the continued low growth options internationally, and grow value creation in its price environment and Statoil ended up with a negative net income of marketing and midstream business. The company is making progress USD 2.9 billion. In this situation, it is encouraging to see how well the in creating a material industrial position in new energy solutions, company has delivered on its improvement programme and that the primarily focused on offshore wind. operational performance has continued to be strong. Statoil is now well positioned to for the future. Responding to the climate challenge and preparing Statoil for a low carbon future is an integrated part of our strategy. Concrete actions The board of directors has in its work focused both on short term to reduce greenhouse gas emissions in the operations have been measurements to secure the company’s position in a challenging implemented, and steps have been taken to build a more resilient environment, and more long term through the work of sharpening our portfolio. The updated climate roadmap captures the new set of strategy. Protecting and enhancing shareholder value guides the board measurements to be implemented. of directors in its work and priorities – short and long term. Statoil remains committed to shareholder value creation and Strong safety performance is essential for the company’s operations. maintained the dividend during the year. A resolution is proposed to Last year we experienced the worst imaginable, with a fatality on a the annual general meeting to maintain the dividend at USD 0.2201 yard in South Korea and a helicopter crash outside Bergen that took per share in the fourth quarter, and to continue the scrip dividend 13 lives. programme through to the third quarter of 2017. Further, the serious incident frequency, measured as incidents per The board of directors believes the company is well prepared to deal million hours worked for both Statoil employees and contractors, with the current market situation and has the competence, capacity increased from 0.6 in 2015 to 0.8 in 2016. Together with the and leadership necessary to create new opportunities and long-term administration, the board of directors has focused on new steps to value for our shareholders. reinforce safety measures and get back to a positive trend to improve our safety performance. I would like to thank our shareholders for their continued investment, as well as the many employees of Statoil for all the dedication and The response to the market challenge through our improvement commitment they show every day. programme delivered annualised efficiency gains of USD 3.2 billion measured against a 2013 baseline, USD 700 million above the USD 2.5 billion target. As the company moves from an improvement programme to an improvement culture, new targets are set. Øystein Løseth The board of directors have during the year worked closely with the Chair of the board administration to review and confirm Statoil’s sharpened strategy. Statoil has set clear principles for the development of a distinct and competitive portfolio. Statoil will develop long-term value on the Statoil, Annual Report and Form 20-F 2016 5 DEAR FELLOW SHAREHOLDER, Safety and security is our top priority in Statoil. And while 2016 was Statoil is pursuing a distinct and value-driven strategy: a year of many achievements, we also experienced the worst On the Norwegian continental shelf (NCS) we have a unique thinkable. We had a contractor fatality during construction work in position which we will leverage further to build our future South Korea, and on 29 April we lost 13 colleagues when a business and maximise value helicopter crashed on its way from Gullfaks B to Bergen. In our international upstream business, we will focus, deepen and explore further. Brazil is a core area for us, together with For the year as a whole, our serious incident frequency came in at our position in the highly flexible US onshore business 0.8, an increase from the two previous years. We are not satisfied For the Marketing, Midstream and Processing (MMP) business with this development and have taken several steps to reinforce area, the job is to secure flow assurance by accessing premium safety measures throughout the company. markets and strengthening asset-backed trading, based on a ‘capex light’ approach In 2016, we saw oil prices below USD 30 per barrel and while prices In the New Energy Solutions (NES) business area, we are increased towards the end of the year, our average realised liquids building a profitable business with the long-term potential to price was still below USD 40 per barrel for the year as a whole. account for 15-20% of our capex in 2030, provided that we can access and mature attractive opportunities We delivered our cost improvement programme above target. The next step will be to go from project mode to a culture of continuous Our commitment to long-term sustainable value creation, is in line improvement, and we have set a target of achieving USD 1 billion in with the principles of the UN Global Compact. additional cost improvements in 2017. We believe a low carbon footprint will make us more competitive in By reworking solutions from reservoir to market, we have the future. We also believe there are attractive business transformed our opportunity set. The break-even price for our “Next opportunities in the transition to a low-carbon economy. Statoil generation” portfolio of projects (those sanctioned since 2015 or intends to be part of this transformation in order to fulfil our purpose planned for sanction with start up by 2022), is now at USD 27 per of turning natural resources into energy for people and progress for barrel of oil equivalent (boe). society. Our Climate roadmap explains how we plan to achieve this and how we will develop our business, supporting the ambitions of Organic capex for 2016 was USD 10.1 billion, a USD 3 billion the Paris climate agreement. reduction from the original guiding. Production for the full year was 1,978 mboe per day, a slight increase from 2015 due to continued I look forward to further strengthening Statoil in 2017, pursuing the high production efficiency and despite high turnaround activity. Our priorities set out at our Capital markets update: resetting our cost reserve-replacement ratio (RRR) was 93%. base, transforming our opportunity set and continuing to chase improvements. We have sharpened our strategy as an energy “High value, low carbon” is at the core of our sharpened strategy. We company towards 2030, and are ready to capitalise on high-value believe the winners in the energy transition will be the producers opportunities. which can deliver at low cost and with low carbon emissions. Eldar Sætre President and Chief Executive Officer Statoil ASA Statoil, Annual Report and Form 20-F 2016 7 STATOIL AT A GLANCE OUR HISTORY OUR STRATEGY The company was founded as The Norwegian State Oil company Statoil is an energy company committed to long-term value creation (Statoil) in 1972, and became listed on the Oslo Børs (Norway) and in a low carbon future. Statoil will develop and maximise the value New York Stock Exchange (US) in June 2001. Statoil merged with of its unique Norwegian continental shelf position, its international Hydro`s oil and gas division in October 2007. oil and gas business and its growing new energy business; focusing on safety, cost and carbon efficiency.