UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC FORM 20 - F

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1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC FORM 20 - F (Mark One) [ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition period from to Commission file number NORSK HYDRO ASA (Exact name of Registrant as specified in its charter) Kingdom of Norway (Jurisdiction of incorporation or organization) Bygdøy allè 2 N-0240 OSLO 2 Norway (Address of principal executive offices) Securities registered or to be registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered American Depositary Shares New York Stock Exchange Ordinary Shares of NOK 20 per share (par value) New York Stock Exchange * * Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission. Securities registered or to be registered pursuant to Section 12(g) of the Act: None Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: Ordinary Shares of NOK 20 per share (par value) Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report. 229,072,674 Ordinary Shares of NOK 20 per share (par value) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ] Indicate by check mark which financial statement item the registrant has elected to follow. Item 17 [ ] Item 18 [x]

2 TABLE OF CONTENTS Page Exchange Rates 3 PART I. Item 1. - Description of Business 4 Business Segments and Geographical Areas 5 Exploration and Production 6 Reserve Information 6 Exploration 9 Development 10 Production 11 Marketing of Production 13 Transportation of Oil and Gas 14 Government Regulations 16 Refining and Marketing 18 Energy 19 Hydro Agri Europe 21 Hydro Agri International 24 Industrial Chemicals 25 KFK 26 Hydro Aluminium Metal Products 27 Hydro Aluminium Extrusion 28 Petrochemicals 29 Other Activities 31 Research and Development 33 Employees 33 Environmental Protection 34 Additional Factors Which May Affect Business 35 Item 2. - Description of Property 36 Item 3. - Legal Proceedings 37 Item 4. - Control of Registrant 37 Item 5. - Nature of Trading Market 38 Item 6. - Exchange Controls and Other Limitations Affecting Security Holders 38 Item 7. - Taxation 39 Item 8. - Selected Consolidated Financial Data 40 Item 9. - Management's Discussion and Analysis of Financial Condition and Results of Operations 43 Item 9A. Quantitative and Qualitative Disclosures About Market Risk 64 Item 10. Directors and Officers of the Registrant 67 Item 11. Compensation of Directors and Officers 68 Item 12. Options to Purchase Securities from Registrant or Subsidiaries 68 Item 13. Interest of Management in Certain Transactions 68 PART III. Item 15. Defaults Upon Senior Securities 68 Item 16. Changes in Securities and Changes in Security for Registered Securities and Use of Proceeds 69 PART IV. Item 18. Financial Statements 75 Item 19. Financial Statements and Exhibits F-1 Glossary Note: Omitted items are inapplicable. 2

3 In this Annual Report on Form 20-F, references to the "Company" are to Norsk Hydro ASA; references to "Hydro" or the "Group" are to the Company and its consolidated subsidiaries. References to the "Kingdom" are to the Kingdom of Norway. The Company publishes its consolidated financial statements in Norwegian kroner ("NOK"). In this Annual Report, references to "US dollar," "USD," or "$" are to United States dollars. See Glossary at the end of this Annual Report. EXCHANGE RATES The following table sets forth, for the periods and dates indicated, certain information concerning the exchange rate of Norwegian kroner for United States dollars based on the noon buying rate in The City of New York for cable transfers in foreign currencies as announced by the Federal Reserve Bank of New York for customs purposes (the "Noon Buying Rate"). Calendar Period At 31 December Average Rate (1) High Low (NOK per $1) (2) (through 23 March, 1999) (3) (1) The average of the Noon Buying Rates on the last business day of each month during the period. (2) All figures have been taken directly from figures released through the Federal Reserve System in Washington D.C. or the Federal Reserve Bank of New York. (3) The Noon Buying Rate on 23 March, 1999, was NOK = $1.00. Fluctuations in the exchange rate between the Norwegian krone and the US dollar will affect the US dollar equivalent of the Norwegian krone price of the Ordinary Shares on the Oslo Stock Exchange and, as a result, are likely to affect the market price of the American Depositary Shares ("ADSs") in the United States. Such fluctations would also affect the US dollar amounts received by holders of ADSs on conversion by the Depositary of cash dividends paid in Norwegian kroner on the Ordinary Shares underlying the ADSs. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Currency Fluctuation" and "Selected Consolidated Financial Data - Dividends." 3

4 PART I ITEM 1. - DESCRIPTION OF BUSINESS. NORSK HYDRO ASA Hydro is the largest publicly owned industrial group in Norway in terms of assets and operating revenues. Norsk Hydro ASA was organized as a corporation in 1905 to utilize Norway's large hydro-electric energy resources for the world's first industrial production of nitrogen fertilizers. Since that time, Hydro has further developed Norwegian energy and natural resources. Energy, in the form of hydroelectric power, natural gas and petroleum, has been the basis for Hydro's growth and is the common link between its core business activities. In 1951, Hydro commenced magnesium production and in 1967 expanded further in the light metal sector by establishing aluminum production. Production of these metals is energy intensive and originally much of the energy was sourced from Hydro's own production. As the search for oil and gas began in the North Sea, Hydro became involved in the first concessions awarded on Norway's continental shelf in 1965, partly motivated by a desire to secure access to hydrocarbon feedstock for use in the production of ammonia - a key raw material for fertilizer production. Hydro and its partners discovered oil and gas in the Ekofisk field in 1969 and the Frigg field in 1971, discoveries which made Hydro a producer of oil and gas. Hydro is operator for major offshore projects like the Oseberg field and has developed into a significant oil and gas company. North Sea oil production also gave Hydro long-term supplies of natural gas liquids (NGL) providing a basis for the Company's entry into the petrochemical business. In 1975, Hydro commenced oil refinery operations which were later integrated with a retail oil product marketing organization in Norway, Sweden and Denmark. Today, Hydro's core areas are Oil and Energy, Agriculture, Light Metals and Petrochemicals. Other activities include fish farming operations and Industrial Insurance (including the Group's wholly owned captive insurance company) and Pronova a.s, a wholly owned Norwegian pharmaceutical company. For financial reporting Hydro Aluminium Rolled Products, Hydro Raufoss Automotive and Hydro Magnesium are reported as part of Other activities. Also classified as "Other activities" is Hydro Technology and Projects, the company's main engineering unit. Corporate includes, among other things, Hydro Data, provider of information technology services to the operating units; Hydro Finance, the Group's central financing and treasury unit; and the corporate research centers. The operating segments for financial reporting purposes are discussed below. Norway is the main production base for the Group with large facilities in different parts of the country. In 1998, substantially all of Hydro's oil and gas production came from the Norwegian continental shelf. Following a period of international acquisitions and expansion in the Agriculture, Petrochemical and Light Metals core areas during the 1980's and early 1990's, Hydro focused on consolidation, increased efficiency, and cost reduction in response to market conditions over the past several years. This positioned Hydro to take advantage of the economic upturn that began in 1994 and lasted through much of The most important markets for Hydro's products are outside Norway. Approximately 65 percent of Hydro's total sales are to customers located in the European Union (EU) with an additional 5 percent of sales to customers in other European countries (outside Norway). 4

5 BUSINESS SEGMENTS AND GEOGRAPHICAL AREAS General Hydro has divided its business areas into ten operating segments. Exploration and Production is responsible for Hydro's oil and gas exploration, field development and operation of production and transportation facilities. Refining and Marketing trades crude oil, NGLs and refined oil products and is engaged in refining, marketing and distribution of gasoline and other oil products. Hydro Energy produces and sells electricity generated at hydroelectric power stations in Norway, primarily for use in Hydro's own production facilities. Hydro Energy also handles trading activities in the Swedish and UK markets. Hydro Agri Europe's main activities are the production and sale of ammonia and fertilizer products, including nitrate fertilizer, complex fertilizer and urea. Hydro Agri International trades fertilizer and ammonia outside Europe with some production. Industrial Chemicals markets numerous products which mainly have their origin in Hydro's ammonia and fertilizer production. KFK is primarily engaged in the production and sale of animal and fish feed, as well as the trading of grain, feedstuffs, fertilizers and other agricultural related products. Hydro Aluminium Metal Products' activities include the production of primary aluminum in Norway, remelting of metal, and the international trading of alumina, aluminum and aluminum products. Hydro Aluminium Extrusion is involved in the manufacture and sale of extruded aluminum products. Petrochemicals is a producer of the plastic raw material polyvinyl chloride (PVC) in Scandinavia and the UK. Other Activities consists of the following: Hydro Aluminium Rolled Products, Hydro Raufoss Automotive, Hydro Magnesium, Hydro Seafood, Pronova, Industrial Insurance, and Hydro Technology and Projects. In the ordinary course of conducting its businesses, Hydro engages in bulk trading of bauxite, alumina and aluminum, ammonia and fertilizer, and oil and gas products. For a table showing the Group's operating revenues, sales to unaffiliated customers and operating income (after eliminating intersegment sales) by operating segment for each of the three fiscal years in the period ended 31 December, 1998, see "Selected Consolidated Financial Data." See "Management's Discussion and Analysis" for additional financial information regarding each segment. See Note 4 of "Notes to Consolidated Financial Statements" for a table showing the Group's operating revenues by geographical areas (after eliminating intersegment transactions) for each of the three fiscal years in the period ended 31 December, For definitions of certain terms used herein, see "Glossary" at the end of this Annual Report. 5

6 EXPLORATION AND PRODUCTION Exploration and Production is responsible for Hydro's oil and gas exploration, field development and operation of production and transportation facilities. Most of this activity presently takes place on the Norwegian continental shelf. The activity abroad has increased over the past few years, and is expected to increase further in the coming years. Hydro has an interest in approximately 45 percent of the total of 166 licenses on the Norwegian continental shelf and is operator for 29 of these licenses as of 31 December, In addition Hydro is involved in upstream activities abroad, mainly in Canada, Angola and Russia. Information about Hydro's interest, the field operator, production start up, production and reserves for the most important fields is presented in the tables on page 8. Hydro's oil production increased by about one percent in 1998 compared with the previous year. Gas production increased by four percent. In total, production showed an increase of about 1.5 percent. The increase was mainly due to increased oil production from the new fields Njord, Norne, Vigdis and Hibernia and increased gas production from Troll. The increase more than offset the decrease in production from the major oil fields, Oseberg, Gullfaks, Brage, and Ekofisk. The first three of these fields have reached the decline phase in their production phase. The start up of Oseberg East, Visund, Åsgard and Troll C are scheduled in The estimated total production in 1999 is uncertain, due to production limitations to be set by Norwegian authorities and many new fields to be put in operation. Reserve Information At the end of 1998, Hydro's share of proved developed oil and gas reserves was estimated to be 733 million barrels oil equivalent (boe), of which gas reserves accounted for approximately 49 percent. These reserves consist of million boe of oil (including NGL and condensate) and 2,015 billions of standard cubic feet (scf) of gas. Hydro's share of proved undeveloped reserves accounted for an additional 675 million boe, of which gas reserves accounted for approximately 61 percent. Proved undeveloped reserves include 263 million boe of oil and 2,297 billions scf of gas. See "Glossary" at the end of this Annual Report. The following tables set forth Hydro's net quantities of proved oil and gas reserves as at 31 December, 1998, 1997, and 1996, and Hydro's net production of oil (including oil and gas condensate and NGL) and of gas for each of the three years in the period ended 31 December, Hydro's accounting records and operating data state quantities of oil in terms of millions of boe and gas in terms of billions of scf. Reserve quantities reflect estimated quantities of crude oil, natural gas and natural gas liquids that are demonstrated with reasonable certainty to be recoverable from known reservoirs under existing economic and operating conditions. The figures will be revised as oil and gas are produced and additional data becomes available. Hydro's proportion of oil production compared with total oil and gas production was 79 percent in 1998 compared with 79 percent in 1997 and 81 percent in Gas production began to increase in 1996 when Troll A and Sleipner West started production. The gas proportion is expected to remain at the same level in the next years. 6

7 Oil reserves and production (in millions of boe) Proved reserves, developed and undeveloped: (1) (2) At beginning of year Revision of previous estimates (3) 33 (18) 67 Purchase, (sale) or exchange of reserves (4) 9 (7) Extensions and new discoveries (5) Production (78) (77) (79) At end of year (6) Of which developed: At beginning of year At end of year Gas reserves and production (in billions of cubic feet) Proved reserves, developed and undeveloped: (1) At beginning of year 4,481 5,033 5,044 Revision of previous estimates (3) (55) (518) 42 Purchase (sale) or exchange of reserves (7) 44 (7) Extensions and new discoveries (8) Production (116) (111) (104) At end of year 4,312 4,481 5,033 Of which developed: At beginning of year 2,143 2, At end of year 2,015 2,143 2,255 (1) For the definitions of proved, developed and undeveloped reserves, see "Glossary" at the end of this Annual Report. For additional information on government rights and production restrictions, see "Government Regulation." (2) Reserve estimates are made before payment-in-kind royalty of approximately 11.0, 15.9 and 17.5 million boe for oil for 1998, 1997, and 1996, respectively. (3) The revision of previous estimates relate to new information from current year drilling operations and additional data which now is available. In 1998, Hydro increased its interest in Snorre from percent to percent, due to redetermination. The decrease in reserves in 1997 is due to a more stringent criteria of 90 percent probability of recovery for proved reserves in accordance with new guidelines from Society of Petroleum Engineers and World Petroleum Congress. Hydro previously classified reserves as proved with an 80 percent probability of recovery. (4) In 1998, oil reserves were neither purchased nor sold. The 1997 increase in oil reserves was due to an increase in Hydro's interest in the Visund field from 12.6 to 16.1 percent. The 1996 reduction in oil reserves was mainly due to the exchange of interests with Petro-Canada. Hydro gave up its total 9 percent interest in the Veslefrikk field and reduced its interest from 30.0 to 22.5 percent in the Njord field. The decrease in reserves was partially offset by the 5 percent interest in the Hibernia field received as part of the exchange. Hydro also increased its interest in the Rimfaks field. In addition, Hydro reduced its interests in the Norne field from 9.0 to 8.1 percent. (5) In 1998, extensions and new discoveries were related to Sygna and Brage Sognefjord. In 1997, extensions and new discoveries for oil were primarily related to the Girassol field (Angola) and the Terra Nova field (Canada). The extensions and new discoveries for oil in 1996 were primarily related to the Troll and Oseberg South fields. (6) In 1998, reserve estimates include 92 million barrels of oil equivalents from outside the Norwegian continental shelf, in Canada and Angola. In 1997, reserve estimates included 92 million barrels of oil equivalents from outside the Norwegian continental shelf, in Canada and Angola. Similarily, 21 million boe relates to Canada in The reserves in Angola, block 17, are subject to a production sharing agreement (PSA) with the Angolan state, whereby all future production will be shared between the state and the licensees in accordance with predetermined agreed ratios. The reserves from block 17 has been adjusted accordingly. (7) In 1998, gas reserves were neither purchased or sold. The purchase of gas reserves in 1997 related to an increase in Hydro's interest in the Visund field from 12.6 to 16.1 percent. In 1996, the purchase of gas reserves related to an increase in Hydro's interest in the Rimfaks field. The reduction of gas reserves relates to the exchanges of Hydro's interests in the Huldra and Veslefrikk fields. (8) In 1998, extensions and new discoveries for gas were related to Brage Sognefjord. In 1997, the increase in gas reserves was due to a commercial solution for the gas in the Norne field. In 1996, extensions and new discoveries for gas was primarily related to the Oseberg Sør fields. 7

8 Proved reserves as of 31 December, 1998 Hydro's share TOTAL OIL/NGL in GAS in Hydro's mill. millions billions of Prod. Field Block Operator interest boe of boe cubic feet start Oseberg 30/6, 30/9 Norsk Hydro % Oseberg South 30/9 Norsk Hydro 21.88% Troll 31/2, 31/3, Statoil , /5, 31/6 Norsk Hydro 7.69% 1995 Snorre fields 34/4, 34/7 Saga Petroleum % Gullfaks fields 34/10, 33/12 Statoil 9.00% Ekofisk fields 2/4, 2/7, 2/5, 1/6, 7/11 Phillips Petroleum % Sleipner fields 15/6, 15/9 Statoil % Brage 31/4, 30/6, 31/7 Norsk Hydro 22.50% Norne 6608/10,11 Statoil 8.10% Njord 6407/7,10 Norsk Hydro 22.50% Visund 34/8, 34/7 Norsk Hydro 16.10% Åsgard 6407/2, 6506/11,12, 6507/11 Statoil 2.60% Other fields Total Norway 1, ,312 Hibernia Grand Banks Canada HMDC * 5.00% Terra Nova Grand Banks Canada Petro-Canada 15.00% Girassol Angola Block 17 Elf Exploration Angola 10.00% Total 1, , production of oil and gas Hydro's share OIL/NGL in GAS in Hydro's TOTAL millions of billions of Field Operator interest mill. boe bbls cubic feet Oseberg fields Norsk Hydro 13.68% Troll Norsk Hydro/Statoil 7.69% Snorre fields Saga Petroleum % Gullfaks fields Statoil 9.00% Ekofisk fields Phillips Petroleum % Sleipner fields Statoil % Brage Norsk Hydro 22.46% Norne Statoil 8.10% 3 3 Njord Norsk Hydro 22.50% 2 2 Frigg fields Elf Aquitaine % 2 9 Heimdal Norsk Hydro 6.23% 1 3 Total Norway Hibernia (Canada) HMDC * 5.00% 1 1 Total ** * HMDC: Hibernia Management Development Company. ** Total daily production in 1998 is 270,000 boe. 8

9 Exploration Hydro's total expenditures for exploration of oil and gas and appraisal of discoveries amounted to NOK 1,368 million in 1998 compared with 1,114 million in In 1998, NOK 1,221 million was expensed compared with NOK 786 million in In 1996, total exploration expenditure amounted to NOK 948 million and NOK 729 million was expensed. The higher expenditures for exploration activities in 1998 compared to 1997 was mainly due to increased activity and higher costs of drilling operations on the Norwegian continental shelf. Hydro participated in 15 exploration and appraisal wells on the Norwegian continental shelf which were completed in Hydro was operator for 7 of these wells. Five discoveries were made and all are expected to have a commercial potential pending further appraisal. Two wells were drilled in connection to the Ormen Lange gas discovery made by Hydro outside mid Norway in One appraisal well was drilled in the neighbouring license, where Hydro does not participate, to prove the southward extension of the discovery and one dry exploration well was drilled within the Hydro operated license. Successful wells were drilled in the Oseberg and Heimdal area. At the end of 1998, the North Sea licencing round was announced by the Norwegian authorities. Award of licenses is expected in mid Hydro was involved in international exploration activities in eight countries in 1998 (Angola, Canada, Russia, Yemen, Venezuela, Namibia, Malaysia and the Faroes). Hydro participated in the drilling of eight appraisal and exploration wells which were completed during 1998, one of these as operator. Five discoveries were made and two of these are expected to have a commercial potential pending further appraisal. One successful appraisal well was drilled on Block 17 in Angola. Since 1993 Hydro has been active as operator and drilled three wells offshore Namibia, where the last well was drilled during summer of As a result of the negative drilling results, Hydro closed down its Windhoek office and wound up its activities by the end of In Angola, Hydro has a ten percent interest in Block 17, where the Girassol oil discovery was made in early Substantial discoveries were made in the Dalia 1, Dalia 2, Rosa and Lirio structures in 1997 and Further exploration and appraisal activities will continue in the coming years. A Production Sharing Agreement (PSA) was signed in 1998 for Block 9 between the Angolan authorities and Hydro, with Hydro having a share of 10 percent. A PSA was negotiated, but not yet signed for, Block 5 with Hydro having a share of 27.5 percent. Hydro is also involved in the announced Block 34 where a PSA is currently being negotiated. In 1998 Hydro entered into a strategic alliance with Sonangol in Angola, creating a joint operating company, SONAP, with integrated capabilities in exploration, development and production. SONAP is jointly established as an operating company owned 50 percent by Sonangol and 50 percent by Hydro. SONAP's primary purpose is to carry out all the responsibilities of the operator in those licenses in Angola where both parties have ownership and either Sonangol or Hydro are initially assigned as operator. In Yemen, Hydro has a 25 percent working interest in Block 32, where a small oil discovery was made late An appraisal program will be carried out in Hydro is involved in the early phases of three exploration projects in Russia. To date, no significant future financial commitments have been entered into for these projects pending various negotiations with the local authorities and the evaluation of the projects' risk. Hydro is participating in a project which aims to develop oil and gas reserves in the Timan Pechora area of northern Russia. Hydro is also part of a group that is evaluating the development of the major Shtokmanovskoye gas field in the Barents Sea. In 1998 Hydro made an agreement with Gasprom to participate in exploration and possible future field development on the Dolginsgaya exploration license in the Pechora Sea. One well was drilled in 1998 and hydrocarbons were discovered, but this is not considered to be commercial on a stand-alone basis. In Canada, Hydro entered into a strategic alliance agreement with Petro-Canada in late 1996 covering the Grand Banks area off the coast of Newfoundland. As part of the this agreement, see Development - Other fields, Hydro received 30 percent of Petro-Canada's interests in all significant discovery areas in the Jeanne d'arc Basin. In 1998 four new exploration licenses on Grand Banks were awarded with Hydro having a 25 percent participation share. A farm-in agreement for four licenses with Pan Canadian on the Scotian Shelf was signed in One exploration well was completed on the West Bonne Bay license in 1997 and classified as a significant discovery, but the discovery is probably not commercial as a stand alone development. One well was spudded late December 1998 on the Hebron/Ben Nevis license and several other exploration and appraisal wells are planned for in

10 Development *) In 1998, Hydro invested NOK 6,167 million in the development of new and existing fields and transportation systems compared with NOK 4,862 million in 1997, and NOK 3,988 million in In addition, exploration costs of NOK 333 million, NOK 235 million and NOK 287 million were transferred to fields being developed in 1998, 1997 and 1996, respectively. Terra Nova, Åsgard and Visund were the three most important development projects in A summary of the fields under development, the operator and Hydro's share of reserves is set forth in the preceding tables. For information about the developments of Ekofisk II, Heimdal and Snorre Phase 2, see Production. Oseberg Field. A plan for development and operation (PDO) for the gas development, including the construction of the Oseberg D platform, was approved by the authorities in December Gas sales are expected to start in October The total investment is estimated to be approximately NOK 3.5 billion. Hydro's share of the investment is expected to be NOK 0.5 billion. Oseberg East Field. A PDO for Oseberg East was approved by the authorities in October Production is expected to start late April The oil will be transported through a new pipeline to the Oseberg Field Centre for further processing and transport to shore through Oseberg Transportation System. The total investment is estimated to be NOK 4.7 billion. Hydro's investment is expected to be NOK 0.7 billion. Oseberg South Field. A PDO for Oseberg South was approved by the authorities in June Production is expected to start in February 2000 through wells drilled from the Oseberg Field Center and in August 2000 from the Oseberg South Platform. The oil will be transported through a new pipeline to the Oseberg A platform for further processing and transport to shore through Oseberg Transportation System. The total investment is estimated to be NOK 9.6 billion. Hydro's investment is expected to be NOK 2.4 billion. Troll Field. The first phase of oil production began in 1995, see "Production - Troll Field." PDOs for further oil development of the Troll West Gas Province, including the construction of the Troll C platform, were approved by the authorities in June The Troll C floating production unit with an oil production capacity of 125,000 barrels per day is expected to start production towards the end of The total investment for this phase is estimated to be NOK 25.2 billion. Hydro's share is expected to amount to approximately NOK 2.0 billion. The oil produced from Troll C will be transported to shore at Mongstad through the new Troll Oil Pipeline 2. Associated gas will be routed to Troll A for further transport to Kollsnes in Norway. Snorre Field. The PDO for the Phase 2 of the Snorre Field was approved by the authorities in June The total investment is estimated at NOK 12.9 billion, of which Hydro's share is NOK 1.2 billion. Production is planned to start in August Visund Field. A PDO for Visund, for which Hydro is operator, was approved by the authorities in April Visund contains both oil and gas reserves. In the first phase of production, expected to begin in April 1999, oil will be produced from a floating production unit with a design capacity of 100,000 barrels of oil per day. The total investment related to the phase of oil production is estimated at NOK 11.6 billion, and Hydro's share of the investment is expected to be NOK 2.0 billion. The gas production and export is not scheduled to begin before Åsgard Field. The PDO for the Åsgard field was approved by the authorities in June The Åsgard field includes the development of Midgard, Smørbukk and Smørbukk South. The total investment is estimated to be approximately NOK 45 billion. Hydro's share is expected to be NOK 1.3 billion. Oil production from Åsgard is expected to start spring 1999, while gas production is planned for October Terra Nova Field. The field is located offshore, south east of St. John's, Newfoundland. A plan for development was approved by Canadian authorities in January Production is expected to start late The total investment is estimated at NOK 14.4 billion. Hydro's share of the investment, exclusive of its carry obligation to Petro-Canada, is expected to be NOK 2.2 billion. Girassol Field. The Girassol field on Block 17 in Angola was declared commercial in November A plan for development was sanctioned by the Angolian authorities in Production of oil is planned to start from a floating production unit in The total investment is estimated at NOK 21.4 billion. Hydro's share of the investment is expected to be NOK 2.5 billion. *) Hydro's share of expected investments includes an estimate for capitalized interest. 10

11 Other Fields. Hydro is partner in the development of several fields where other companies are operators. A PDO for the Phase 2 development of the Gullfaks Satellites, covering production of gas with start-up in October 2001, was approved by the authorities in July Total investment is estimated to be approximately NOK 8.3 billion of which Hydro's share is NOK 0.8 billion. A PDO for the Sygna oil field was submitted to the authorities in November The total investment is estimated at NOK 1.5 billion, of which Hydro's share is approximately NOK 70 million. Sygna's production from the Statfjord C platform, is planned to start in August In Venezuela, Hydro previously had a 15 percent share in a consortium (Sincor project) that was considering a development program for the production of extra heavy oil in the Orinoco area. Hydro withdrew from this project in In Russia a plan for development of phase I for Kharyaga field was approved by Russian authorities in A Production Sharing Agreement was signed for Kharyaga field by the Russian authorities in 1999 with Hydro share of 40 percent. The agreement was approved by Russian authorites in The total investment of phase I is estimated at NOK 0.5 billion. Hydro's share of the investment is estimated to be NOK 0.2 billion. Test production is planned to start mid A strategic alliance agreement with Petro-Canada was signed in Under terms of the agreement, Hydro and Petro- Canada exchanged working interests in the North Sea and Newfoundland effective December Petro-Canada received Hydro's nine percent share in Veslefrikk and a 7.5 interest in Njord. Hydro will also carry part of Petro- Canada's costs for Hibernia and Terra Nova. Hydro paid approximately NOK 220 million in 1996, which fulfilled its carry obligation related to Hibernia. Hydro also guaranteed that total recoverable reserves attributable to Petro-Canada's working interest in the Veslefrikk field will not be less than a certain amount of crude oil. If less, Hydro has an obligation to deliver indemnity volumes to Petro-Canada. The guarantee does not apply in case of force majeure, the failure of the operator to comply with good oil field practices, etc. At 31 December, 1998, the remaining guaranteed volume was 2.1 million standard cubic meters of crude oil, equivalent to approximately NOK 1,084 million. In return, Hydro received working interests of five percent in Hibernia, 15 percent in Terra Nova (see above) and 30 percent of Petro-Canada's interests in all significant discovery areas in the Jeanne d'arc Basin. See "Exploration." Hibernia started production in See "Production." 11 Production A summary of the largest producing fields, the field operator, Hydro's interest and Hydro's share of the 1998 production is set forth in the preceding tables. Oseberg Fields. The Oseberg fields are the largest contributors to the Group's oil production. The average daily production from the Oseberg fields in 1998 was about 417,000 barrels per day, of which Hydro's share was approximately 57,000 barrels per day. Production from Oseberg began to decline in 1997 from its plateau level and is expected to further decline. The gas produced is reinjected to improve oil recovery. The oil is brought ashore by pipeline from Oseberg to the Sture terminal in Norway. See "Development - Oseberg Field" for further information. Troll Field. Oil production from Troll West Oil Province started from the Troll B platform in September Today also some of the oil in Troll West Gas Province is exploited by the Troll B platform. The total average oil production in 1998 was approximately 220,000 barrels per day. Hydro's share being 17,000 barrels per day. Gas production from the Troll A platform commenced in October The gas is piped to treatment facilities at the Kollsnes gas terminal in Norway, where condensate is separated from the gas. The dry gas is exported to the European Continent through the Zeepipe / Statpipe / Norpipe / Norfra pipelines. The average gas production and export including gas associated with the oil production in 1998 was approximately 1,935 million standard cubic feet per day in 1998, of which Hydro's share was approximately 149 million standard cubic feet on average per day. For more information see "Marketing of Production" and "Transportation of Oil and Gas." The Troll-Oseberg subsea gas producing unit in the Troll field (TOGI), for which Hydro is operator, had a 100 percent regularity throughout Snorre Area. Production of oil and associated gas from the Snorre field commenced in August The oil and gas is piped to the Statfjord field for further processing and transportation. During 1998 a redetermination of Snorre Unit reserves between licenses 057 and 089 was performed, increasing Hydro's share from percent to percent. The production from the Snorre field averaged at about 173,000 barrels per day in The production decreased due to limited production potential, mainly caused by delayed completion of new wells. Hydro's share of the production amounted to 17,000 barrels per day, and was higher than in 1997 due to the redetermination of reserves. Production from the Vigdis Field commenced in January The oil is

12 processed on the Snorre Platform and piped to Gullfaks A for storage and transportation. The average production from the field was about 81,000 barrels per day, and which Hydro's share was 7,000 barrels. The production has been limited by Snorre and Gullfaks A maintenance stops in addition to subsidence of one of the templates of the field. Production from Tordis field commenced in June The oil is processed on Gullfaks C. The production has been stable at an average of about 60,000 barrels per day in 1998, of which Hydro's share was about 5,000 barrels per day. Statfjord East commenced production in the autumn The oil is processed on Statfjord C. The production averaged at about 73,000 barrels per day, of which Hydro's share was about 3,000 barrels per day. Production from Tordis East commenced in December 1998, from one well. The oil is produced through the Tordis field facilities and processed on Gullfaks C. Cumulative production in 1998 was 516,000 barrels. Gullfaks Fields. The second largest contributor to Hydro's oil production is the Gullfaks field. Average daily oil production in 1998 was about 342,000 barrels per day, of which Hydro's share was about 31,000 barrels. The Tordis field, which began production in mid-1994, utilizes the Gullfaks C platform. This has contributed to increased capacity utilization of the platform facilities. In addition, agreements have been entered into providing for the utilization of existing infrastructure at the Gullfaks A platform to store and load oil on to ships for the Vigdis and Visund fields. The production from Vigdis started in January 1997, while Visund start-up is planned in April In October 1998 oil production from Gullfaks Satellites Phase I started and cumulative oil production in 1998 was 437,000 barrels. Ekofisk Fields. In 1998 the production of oil and gas from the Ekofisk area was around 305,000 barrels of oil and 500 million cubic feet of gas on average per day. The production suffered from start up problems of Ekofisk II from August on throughout the year. Hydro's share of the production was approximately 20,000 barrels of oil and 33 million cubic feet of gas, respectively. From 1984 subsidence of the seabed around the Ekofisk complex was observed as a result of gradually decreasing reservoir pressure. To prevent the subsidence from affecting production, several measures have been undertaken: water injection to maintain pressures, jacking up platform decks (1987), protection wall around the tank (1989). During 1998 most of the old platforms were shut down and new facilities named Ekofisk II started production in August Total investments in Ekofisk II are approximately NOK 28.1 billion, of which Hydro's share is NOK 1.9 billion. 12 The gas output from Ekofisk up to 2011 has been contracted to be sold through long-term contracts to a group of gas distributors in Germany, the Netherlands, Belgium and France. Negotiations are ongoing regarding terms and conditions for gas export from 2011 and until the end of license period in Sleipner Fields. The Sleipner East field began gas and condensate production in October The production from Gungne began in April Production from Loke Trias is planned to start in third quarter The condensate and gas production from Sleipner West started in August The average production per day in 1998 from the Sleipner Fields was 150,000 barrels of condensate and 826 million cubic feet of gas. Hydro's share of the production was around 78 million of cubic feet of gas and 14,000 barrels of condensate, respectively. The operator is working to resolve problems to remove CO 2 from the gas. However, the gas exports are not affected by the problem as the gas is mixed with gas from Sleipner East. All Sleipner East reserves and most of Sleipner West reserves will be sold under the Troll gas contracts. Transportation rights have been secured through existing transportation systems. Brage Field. Production from the Brage field started in September In 1998 the average production was 97,000 barrels of oil per day. Hydro's share of production was approximately 22,000 barrels per day. The production from the main reservoir is in the decline phase of production. Production from a new reservoir, Brage Sognefjord, started in November It is expected that the production from Brage, including Sognefjord, in 1999 will be approximately 72,000 barrels per day. Norne Field. Production of oil started in November During 1998 the average daily production was 109,000 barrels, of which Hydro's share amounts to 9,000 barrels per day. Norne has experienced problems in production build up due to a delay in the preparation of production capacity (drilling and completion of wells). During second half of 1998, production was also hindered due to inadequate gas injection capacity, and the formation did not have the expected quality. Peak production is expected in autumn 1999 at a level of 180,000 barrels per day.

13 Njord Field. Production commenced in October The field installation consists of a floating production unit and a tanker for storage and loading of oil. Gas produced is injected to maintain reservoir pressure. Daily production in 1998 was approximately 29,000 barrels of oil per day, of which Hydro's share amounts to approximately 6,600 barrels per day. The design capacity for the field installation is 69,000 barrels per day. This level of capacity will be utilized upon completion of the drilling of additional oil wells and gas injector wells. The production build up has been slower than expected, both because of slower drilling and because of technical problems related to gas injection. Frigg Fields. The Frigg field straddles the border line between the Norwegian and the United Kingdom sectors of the North Sea. Gas production from Frigg Field has been in the decline phase of production for several years. East Frigg gas production stopped in December Lille-Frigg production stopped late March It is currently anticipated that the reserves for Frigg and the satellite, Frøy, will be fully depleted between 1999 and Future production will be insignificant. After reductions in the reserve estimates for Frøy and Lille-Frigg in 1995 and 1996, Hydro recorded a provision for impairment of NOK 1,775 millions in those years. The full carrying value of Hydro's investment in the Frigg fields has been written down due to low remaining production and high operating costs. In 1998 the Frigg fields produced approximately 14,000 barrels of oil/condensate and 126 million cubic feet of gas. Hydro's share of the production was approximately 1,100 barrels of oil/condensate and 25 million cubic feet of gas. Heimdal Field. Hydro took over as operator from Elf as of 1 January, From the same date, Hydro increased its share in the Heimdal platform from 6.2 to 15.8 percent and in the area around Heimdal field, production license 036, from 6.9 to 21.9 percent. The production from the Heimdal reservoir is expected to end in Hydro has established plans to use the Heimdal platform to deliver third party processing services and act as a contact point for the dry gas transportation system. The Heimdal platform is thus under reconstruction to serve as a gas process and distribution center. The reconstruction consists of modifications to existing platform and construction of a bridge connected riser platform. A PDO was submitted to the authorities in June 1998 and was approved in February Six new users have entered into agreement for tie-in and use of the Heimdal platform. Total development cost is estimated at NOK 1.8 billion. Hydro's share amounts to NOK 250 million. 13 Hibernia. The Hibernia field is located in the Grand Banks area offshore the east coast of Newfoundland in Canada. Oil production came on stream in November The production in 1998 reached on average a level of 65,000 barrels per day, of which Hydro's share amounts to 3,000 barrels per day. The planned production level in 1999 is 148,000 barrels per day and a further increase to 176,000 barrels per day is expected in The platform has handled peak thoughput of 180,000 barrels per day. Marketing of Production Natural gas produced from fields in which Hydro has an interest is mainly sold under long-term contracts. Pricing under such contracts is generally based on a market principle whereby the natural gas price is indexed to oil product prices in the end user market, mainly gas oil and low sulphur fuel oil. Norwegian natural gas export contracts are generally negotiated jointly by the three Norwegian companies (Statoil, Hydro and Saga) in the Gas Negotiating Committee (GFU) on a nonfield-specific basis. Hence, Hydro's options in selling natural gas on a company basis are limited. In 1993, a Gas Supply Committee (FU) consisting of both Norwegian and international companies was established to propose fields to be allocated deliveries for new gas sales contracts negotiated by the GFU. The allocation of fields to contracts is decided by the Norwegian authorities. Gas consumption in Western Europe, the most important market for Norwegian gas, increased by approximately 4 percent from 1997 to Part of the increase was due to the increase in demand for heating oil. Gas consumption in segments other than domestic heating continued to grow with the same rate as in the two last decades, steadily increasing the market share of natural gas in relation to other fuels. This trend is anticipated to continue into the next decade, with an annual demand growth of between three and four percent. In the mid-1980's, contracts were entered into between the licensees of the Troll field and a group of continental European gas distributors for the sale of substantial volumes of the Troll gas. The contracts provide considerable flexibility which allow for the supply of gas from other fields on the Norwegian continental shelf.

14 Deliveries from the Sleipner East field started in 1993 and deliveries from the Troll and Sleipner West commenced in 1996 for delivery under contracts terminating in In 1995, the remaining purchase options were exercised by existing customers. Substantially all gas production from the first development phase of the Troll and Sleipner East fields will be sold through these contracts. Natural gas deliveries from the Norwegian continental shelf amounted to 42.6 billion standard cubic meters in Hydro's share of these deliveries was approximately 7.5 percent. During 1998, no new major long term gas sales agreements were entered into. Furthermore, the buyers have decided not to exercise options for delivery of three billion standard cubic meters per year. Based upon all present contractual commitments, the total committed gas sales from the Norwegian continental shelf will be 72 to 73 billion cubic meters annually in the years 2005 to Since not all of the contract volumes have been allocated to fields, Hydro's share of the future deliveries is uncertain. However, Hydro's share is expected to be between 7 and 8 percent of total deliveries. In 1996, the Norwegian authorities decided that the gas sales contract with the German company, Verbundsnetzgas (VNG), should be allocated to the Oseberg Field, and that Hydro should become operator of the contract administration. The gas deliveries started in October The Troll and Sleipner fields will deliver gas on behalf of Oseberg until year 2000, when gas export from Oseberg is planned to commence. However, the operator tasks are already undertaken by Hydro. The responsibility for contract administration for the gas contracts for Heimdal was transferred to Hydro from Elf as part of the transfer of the operatorship of the field, which was effective as of 1 January, Hydro markets its own crude oil. A portion of the production is channeled to Hydro's affiliated refinery. The remainder is sold on a spot or short-term basis, generally at current world market prices, through its trading operations. See "Management's Discussion and Analysis - Risk Management - Commodity price risk - Oil." Transportation of Oil and Gas Hydro has an interest in all major pipelines for the transportation of oil and gas on the Norwegian continental shelf and in the corresponding land terminals, as set forth in the table below. Hydro's Length interest Pipeline End points (km) (%) Norsea Gas A/S (gas) (1) Ekofisk - Emden (Germany) Norpipe Oil A/S (oil) (1) Ekofisk - Teesside (UK) Frigg Norwegian pipeline (gas) (1) Frigg - St. Fergus (UK) Statpipe (gas) Statfjord - Ekofisk - Kårstø (Norway) Oseberg Transport System (OTS) (oil) (2) Oseberg - Sture (Norway) Zeepipe phases 1 & 2 (gas) (1) Troll - Sleipner - Zeebrügge (Belgium) 1, Europipe (gas) Troll - Sleipner - Emden (Germany) Frostpipe (oil) Frigg - Oseberg (Norway) Sleipner East NGL pipeline (oil) Sleipner - Kårstø (Norway) Troll Oil Troll - Mongstad (Norway) NorFra (gas) (1) Draupner (16/11 S/E) - Dunkerque (France) Netra (gas) Etzel (Germany) - Salzwedel (Germany) Åsgard Transport (gas) (3) Åsgard - Kårstø (Norway) Europipe 2 (gas) (3) Kårstø (Norway) - Dornum (Germany) Oseberg Gas Transport (OGT) (2) (3) Oseberg - Heimdal (Norway) (1) Hydro has a 4.43 percent interest in the terminals at Emden, 5.3 percent interest in the Teesside oil and condensate terminal, a percent interest in the St. Fergus gas terminal, a 3.9 percent interest in the gas terminal at Zeebrügge and a 4.2 percent interest in the Dunkerque gas terminal. (2) Hydro is operator for the OTS and the OGT. (3) Pipeline is under construction. 14