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Statoil ASA (NYSE:STO)
Q4 2017 Earnings Conference Call
Feb. 7, 2018, 6:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Peter Hutton -- Senior Vice President of Investor Relations

Ladies and gentlemen, we're delighted to welcome you to our Capital Markets Day for Statoil 2018. Before I ask our CEO Eldar Sætre to start the proceedings, I'd like to make a short announcement on safety, which -- as you know -- is very important to us at Statoil. If an emergency situation should occur while we're here, the evacuation signal is a voice system announcement. Please note that we only evacuate the building should the voice announcement say to do so. Then, please use the signposted fire exits within the venue. Follow the signs and messages from the guards. Exiting is at ground level and the assembly point is situated on Bartholomew Close, which is just outside.

Also, I'd like to note that after the presentations -- we've got four presentations, each lasting around 20 minutes, from members of the executive team -- after those presentations, we'll be having questions and answers for around 45 minutes from both the floor and from the phones. Members of the executive team will be available for discussions in the area outside after the formal session. So, with that, I'm delighted to pass the word through to Eldar to lead us off. Thank you very much.

Eldar Sætre -- President and Chief Executive Officer

So, thank you, Peter, and good morning, everyone. I can assure you we have really been looking forward to seeing you all again here in London. Today, we will show you that we have delivered on our promises to become stronger, more resilient, and more competitive. Even more importantly, we will show you that we are now set to increase returns and grow our cash flow in the years to come.

We are delivering on our strategy, investing in high-return, high-quality opportunities, strengthening our balance sheet, and increasing capital distribution. Last year, we presented our strategy, "Always safe, high value, and low carbon." We also set clear ambitions for 2017, and we have done what we said. In fact, we have delivered above and beyond quite ambitious targets. This is also reflected in our fourth-quarter and full-year 2017 results. Hans Jakob will cover that in his presentation.

Let me start with safety. Over the past decade, we have significantly improved our safety performance as a result of systematic and consistent efforts. Following some negative developments in 2016, we reinforced our efforts, and last year, we again saw a positive development. For us, this is inspiration to work even harder, including the launch of the "I Am Safety" program across the company. Now, this starts with me and all our leaders. It requires a personal commitment from everyone in Statoil recognizing that the safety of our people and the integrity of our operations remain our top priority.

In 2013, the project portfolio in front of us had a break-even oil price of around $70.00 per barrel. Last year, we showed you what we call our next-generation portfolio, then with an average break-even price of $27.00 per barrel. And now, we have improved this portfolio even further, taking down the break-even price more than 20% during last year to $21.00 per barrel. All these projects will be in production by 2022 and deliver 3.2 billion barrels to Statoil. Now, you will, of course, be the judge -- that's the way it works -- but I believe this is the best opportunity set in our industry.

We have also realized efficiency improvements of another $1.3 billion -- 30% more than we promised -- and this means that since 2013, we have realized $4.5 billion in annual cost improvements. Last year, we also said that we would be cash flow-positive at $50.00 per barrel in 2017. We did even better, and we're cash flow-positive well below $50.00. At an average oil price of $54.00 last year, we generated $3.1 billion in free cash flow. In addition, we have reached our targets to become even more low-carbon competitive. CO2 emissions from our oil and gas production are reduced with an additional 10% per barrel, and last fall, we also started production from Dudgeon and the floating wind farm hybrid. Today, we operate three offshore wind projects, all here in the U.K., delivering good cash flows and competitive returns.

So, let me share some reflections on the energy markets. We have seen oil markets gradually recovering, rebalancing. However, as we have seen over the last few days, you should always be prepared for volatility. Geopolitical developments, OPEC policies, and the response from U.S. shale are key factors in this equation. Still, we expect the physical rebalancing of oil markets to continue during the first half of this year, taking down global inventories to more normal levels. In Europe, gas demand is now growing again, prices are recovering, and we also see strong demand growth in Asia. Jens will present our view on the gas markets at a separate seminar here in London later this month.

We are in a long-term industry, and looking toward 2050, there are, of course, uncertainties, as we have outlined in our Energy Perspectives report. But, what is certain is that natural decline will require significant new production capacity of both oil and gas, and we believe that the winners will be the producers who can deliver competitive barrels with low cost and low emissions, and that is what we aim to do. We further believe that new renewable energy will be the fastest-growing new power generation, mainly driven by technology, by innovation, and also increasingly, industrial scale. So, we are therefore utilizing our key strengths to build an industrial position and create value also within renewable energy.

We started our improvement work when prices were still high, and we have used the downturn to reset the company. We are now well-positioned for increased value creation and strong cash generation. In the period 2018 to 2020, we have the capacity to remain free cash flow-positive below $50.00 per barrel. At $70.00 per barrel, we can deliver around $12 billion in free cash flow after dividends and investments, and also including proceeds or considerations and other impacts from announced transactions that you've heard about.

This free cash flow enables us to reduce our net debt ratio to below 15% and deliver around 12% return on average capital employed in 2020. Such a return is, by the way, on par with what we delivered in 2013, but remember, then, we needed an oil price of more than $100.00. Now, we can do the same at $70.00.

Let me assure you that after 37 years in this amazing, fantastic, great, but also cyclical industry, I'll manage to keep my feet on the ground, even with strong cash flow outlooks. We will continue to sanction projects only when they are ready and as good as they can get. We will also stick to a value-driven and disciplined approach when looking for opportunities to optimize our portfolio. We expect organic CapEx of $11 billion this year and on average for the period 2018 to 2020.

In accordance with our dividend policy, we propose to increase our cash dividend for the fourth quarter 2017 by 4.5% to $0.23 per share, reflecting expected growth and long-term underlying earnings gained from sustainable improvements. In addition, we have ended the scrip program as planned. We also see an emerging scope for share buybacks, which would depend on macro outlooks and portfolio developments. Near term, however, we will prioritize to strengthen our balance sheet before considering buybacks.

Here, you can see our key industrial value drivers. Many companies have strong positions at their home base, but I'm not aware of any company having a home turf position like Statoil while at the same time being exposed to global competition. This gives us a competitive edge that we are now leveraging even more forcefully, also outside of Norway. The Norwegian continental is the backbone of our business and the lab where we develop new ideas and technologies and can scale them industrially to create even more values.

Operational excellence, world-class recovery, leading project deliveries, premium market access, and digital leadership are key value drivers for Statoil. On the Norwegian continental shelf, these value drivers have enabled us to improve production by 125,000 barrels per day, and to achieve 50% average recovery rates, to significantly improve our project portfolio, and to save 10% already at our first attempt at automated drilling in last years Barents Sea campaign, and more than 10% from our first unmanned platform, which is called Oseberg Vestflanken. And, as Arne Sigve and Margareth will demonstrate, the potential is even bigger.

Our international growth is increasingly based on the same value drivers, enhanced by an even stronger Statoil-operated footprint. As Lars Christian will show you, Brazil fits our strengths perfectly. We will create significant values from Peregrino Phase 1 and Phase 2, Carcará, Roncador, Pau de Azucar, and other opportunities in the future. Perhaps less obvious for some, it is the same value drivers that are supporting our investments and our value creating in conventional resources, as Torgrim will refer to and discuss with you later, and in fact, it is also the oil and gas engineers that have found the solutions to create competitive returns within renewable energy and offshore wind.

Let me turn, then, to our project portfolio, and start with Johan Sverdrup, a truly world-class project that just keeps getting better. Even after sanctioning, we have reduced CapEx by 35 billion kroner -- almost 30% -- to 88 billion, and while CapEx is down, resources are up, now estimated to be between 2.1 to 3.1 billion barrels. So, this means that we have reduced break-even prices even further to below $15.00 per barrel for Phase 1 and below $20.00 for the full-field development.

We also continue to improve the entire next-generation portfolio with an average break-even price of $21.00 per barrel. The internal rate of return is now above 30%, assuming an oil price of $70.00. To me, this is quite impressive, makes me proud, and I can assure you we will continue to chase further improvements.

We have not only improved our projects, we have also renewed and strengthened our reserves and resource base. Our reserve replacement ratio was at an all-time high at 150%, reflecting improvements from existing fields and also new project sanctions. We also added more than 2 billion new and high-value barrels to our resource base. These barrels come from countercyclical value-creating transactions like Carcará, Roncador, and Martin Linge, from 14 commercial discoveries last year, valuable license extensions, and new growth opportunities in countries like Argentina and Turkey. It is still early days, and we are cautious in our resource estimates, but these growth opportunities look promising and exciting to us.

We expect to drill around 40 exploration wells this year, which is up from 28 last year, at a spend of around $1.5 billion, and we continue to work on our non-sanctioned portfolio, including attractive projects like Troll Phase 3, Carcará, Vitus, and Bay du Nord. Since 2016, we have doubled the resources in this portfolio to around 6 billion barrels, and at present value, is around $10 billion higher at $70.00 per barrel.

I believe we have used the downturn well, but the real test is taking place now, as prices are recovering. As a former CFO, I have seen how easy it is for an organization to start relaxing when prices are recovering. We are determined and will not allow that to happen again. On the contrary -- and as Hans Jakob will show you -- our mantra is to continuously improve through the cycles. We intend to sustain the 2017 unit of production cost in 2020, to reduce drilling costs further, and to deliver double-digit return on average capital employed already this year, two years earlier than we have indicated previously, and we are convinced that even with the achievements we have made, the improvement potential is still significant, from further technology developments and digitalization.

Technology and innovation is truly embedded into this company's DNA, and we are now investing to secure a global leadership position within digital technologies because it is a key enabler for improved safety, lower cost, higher volumes, and lower emissions. Some of this potential is illustrated on this slide. We are now developing a fully integrated operations center on the Norwegian continental shelf to support all our offshore operations, and I believe we can increase value creation from already-producing Statoil-operated fields by more than $2 billion by 2025. By implementing and further enhancing automated drilling across our portfolio, we can also further reduce drilling costs, and in addition, there is also potential to add revenues and speed up developments for more precisely targeting our reservoirs.

The fields of the future will increasingly be subsea, combined with lighter installations -- unmanned, robotized, remotely operated, and standardized. Compared to conventional concepts, we can halve operating costs and reduce facility CapEx by approximately one-third, so we believe digitalization will transform our industry. We're just at the beginning, and Statoil will certainly be at the forefront of this development.

Statoil has a competitive advantage as we are heading toward a low-carbon future. CO2 emissions per operated barrel are close to half of the industry average. We have embedded climate risks into our strategies and into our business decisions and we stress-test our portfolio, demonstrating that we are also resilient in a low-carbon future, but this is not enough. We are also developing Statoil as a broader energy company to be even more competitive and carbon-resilient. It starts with developing a carbon-efficient oil and gas portfolio, and we have clear targets for further emission reductions.

This is followed by ongoing projects within renewable energy with an attractive risk/reward profile and competitive real returns of 9% to 11%, and as we outlined to you last year, we expect that 15% to 20% of our CapEx will go into a new energy portfolio in 2030. So, expectations toward our industry are increasing also from investors, and we will invite you all to our Sustainable Investment Day in May.

Let me summarize. First of all, Statoil will deliver strong cash flows and growing returns, and we are increasing dividends by 4.5%. Secondly, we are investing in our next-generation portfolio at an average break-even price of $21.00 per barrel, including Johan Sverdrup, with a break-even price of below $15.00 per barrel for Phase 1. Finally, we are leveraging our industrial strength to create even more value, both on the Norwegian continental shelf as well as internationally. All in all, a strong value proposition that we're proud to present to you here today. Thank you very much for your attention, and now, I give the floor to Margareth and Arne Sigve.

Arne Sigve Nylund -- Executive Vice President of Development & Production, Norway

Thank you very much, Eldar, and good morning to you all. I've also looked forward to coming here today together with Margareth to share some perspectives on our journey on the NCS, and our NCS history is about a small-scale player growing to be the leading operator. Today, we are one of the world's largest exporters of oil and gas, providing security and supply through 8,000 kilometers of pipelines.

Our key message from this session is that Statoil will continue to generate value from a solid foundation. Firstly, 50 years of renewal and innovation: We operate in a basin that we know and that we master, and our NCS operatorship provides unique opportunities to pilot broadly and implement new technologies and solutions. This also includes digitalization. Secondly, we have resources in place, operate assets and scale, and we have access to flexible infrastructure and premium markets. Thirdly, our future project portfolio on the NCS is very robust, utilizing a full range of competencies and technologies, and Margareth will come back to this in more detail.

When I last addressed you from this stage, I made a promise, and that was to step up even further when it came to operational excellence, and I'm proud to say that we have delivered since 2013, we have improved production level by 10%, the capital expenditure is down by 50%, and the production cost per barrel is down by 25%.

When it comes to our operations, we never compromise on safety, having significantly reduced maintenance backlog and improved plant integrity in this period. We have also reduced maintenance and modification costs by 40% and 45% respectively, and at the same time, improved production efficiency by 7.6 percentage points, giving a record high up time. So, our safety resolves clearly show that efficiency and safety go hand in hand.

Another focus is reducing our carbon footprint. Our CO2 emissions per barrel on the NCS is half the global average, and we have run 245 energy efficiency projects, reducing CO2 emissions with more than 1.4 million tons, equaling emissions from 700,000 cars. Not only is this good for climate, but it has resulted in a 700 million-Norwegian-kroner reduction in operating costs as we pay less CO2 tax and CO2 quotas. Why stop there? We have raised the ambition further, aiming at reducing an additional 2 million tons of CO2 by 2030.

The improvement journey has been challenging for the industry and for Statoil, but it has been quite necessary, and it has resulted in significant cash flow contribution. We need to continue to improve on safety, value, and low carbon, and to capture further value from the NCS.

So, let me give you some more examples on improved production efficiency and well delivery. As mentioned, these improvements add around 125,000 barrels per day Statoil share through optimized timing and planning, more efficient turnarounds, and developing new methods for executing modifications. We have reduced both planned and unplanned losses by around 50%. We also increased our well delivery by 45%, well cost is down by 40%, and that results in additional profitable well targets. These improvements, together with others such as profitable well interventions, are offsetting the natural production decline from our existing NCS portfolio.

We have a strong track record of creating value from our assets, and we have increased recovery in our existing fields from an estimated 30% at sanctioning at today's expected average rate of 50%, and this represents 9 billion barrels of oil. Going forward, we have an ambition of 60% recovery. Increased recovery has enabled considerable field lifetime extension activities. Currently, we're working on 23 extension projects, and examples include Gullfaks, Oseberg, Troll, Snorre, and Urd, all expected to be in production until 2030 and beyond.

So, our infrastructure allows for constantly maturing high-value drilling targets on the NCS for 2018 and 2019. We have matured 170 new wells. This represents resources similar to a Johan Castberg field. And, our ambition is to drill around 100 wells in our producing fields annually. This will add around 100 million to 120 million barrels for Statoil at low break-evens every year, and I think that's not bad for fields that are way beyond their life expectancy.

In addition to production wells shown on the slide, our teams are working on more than 30 new tieback projects to existing infrastructure. We also will drill around 15 exploration wells close to the infrastructure annually, adding 40 million to 80 million barrels of new resources per year with robust break-evens, but we cannot rest. Adding to our existing infrastructure, we have a very strong future project portfolio, so please, Margareth, my good colleague, tell us how we shall deliver.

Margareth Øvrum -- Executive Vice President of Technology, Projects & Drilling

Okay, and thank you, Arne Sigve. The development on the Norwegian continental shelf is really inspiring, and a key to success is a close collaboration between our business areas, and sometimes I talk more to Arne Sigve than to my own husband. I believe we have the best project portfolio in the world, and one number sums it all up: 21. As Eldar mentioned, our next-generation portfolio is even better this year, with an average break-even of $21.00 U.S. dollars per barrel, and a value increase of above $1.5 billion U.S. dollars, and with an internal rate of return more than 30% -- a robust and highly profitable portfolio.

We deliver over $55 billion U.S. dollars execution portfolio in 100% numbers, 10% lower than at sanction. A large part can be credited to our drilling performance. Due to our dynamic perfect well approach, we continue to push the targets and outperform our best drill sections. Since 2013, we have increased meters drilled per day more than 80%, and reduced cost per well almost 40%, and this year, we tested automated drilling control during our Barents Sea campaign, which enabled early detection of anomalies, prevented two sidetracks, and saved 10% of the campaign cost.

External benchmarks confirm our performance. According to Rushmore, we are leading the way among our peers when it comes to reducing cost per meter. IPA states that we performed way better than the industry average. The CEO of IPA calls our performance amazing, and I quote him: "I have never seen such improvement during a three-year period." But, we are not done improving. Like Churchill said, never, never, never give up.

The recipe of a good project is to maximize value through optimizing resources while keeping CapEx and OpEx low and ensuring an efficient project execution. It is about finding lasting improvements. Instead of just capitalizing on the market, we have redefined what we build and how we build, designing to high value and low cost. One example is Oseberg Vestflanken, an unmanned wellhead platform with a break-even of $16.00. Based on what I call "subsea on slim legs," this is an innovative and very cost-efficient alternative mitigating rising subsea cost, installed only 16 months after contract award. Trestakk, another collection of strategic moves, integrated marina subsea contract, simplified design, and utilization of existing infrastructure at Åsgard.

Resulting in shorter execution time, we halved our reinvestment, and we have reduced break-even from $53.00 to $14.00. For Njord, we are using and refurbishing the existing platform and floating storage unit to extend the lifetime and include tie-in projects like Bauge to add 250 million barrels. This is our Extreme Makeover: Offshore Edition, and we have many subsea heavy projects in our pipeline, and we have used this to our advantage.

We started off by setting direction and implemented tough targets internally -- as well as toward our suppliers -- as a part of our perfect project approach. Then, we worked closely with the suppliers to remove complexity in design, in weight, and in size. We bundled several projects together -- Snorre, Johan Castberg, Oseberg, and Troll -- to capture synergies, and of course, to increase our bargaining power. The combined volume added up to one-third of the total global demand for subsea equipment in 2017.

We also included the aftermarket segment, where we expect cost savings of $500 to $600 million U.S. dollars on the NCS during a five-year contract period. All in all, this resulted in significantly lower subsea prices. We are now back to year-2000 cost levels, a cost reduction of 50%. With increased reserves, improved drilling efficiency, and optimized FSO design, this gives a break-even below $35.00 for the Johan Castberg in the middle of the Barents Sea, and this is not bad. You see the volume-rated break-even for these four fields is now $16.00 U.S. dollars per barrel.

There are many examples like this where we have challenged ourselves to rethink and redesign in our hunt for lasting changes, and I love to see the energy it has created in the organization. We have built a culture which sets the scene for how we will embark on new projects, both on NCS and internationally. Lars Christian's upcoming three to four FSOs in Brazil and Canada will benefit over simplified and standardized solutions.

Johan Sverdrup is designed to create value today and tomorrow, and it is probably our best project performance ever. Once again, we increased our volumes due to further maturation of the reservoir, adding another 100 million barrels. We reduced our Phase 1 CapEx estimate to $88 billion NOK, a total reduction of almost 30% since PDO, and this year, we have also reduced our OpEx estimates by 30% compared to the PDO estimates. Johan Sverdrup has a CO2 intensity full field of 0.5 kilos per barrel compared to the world average, which is 17.

Thanks to our very successful drilling campaign, we delivered more wealth more than a year ahead of plan. Combined with excellent project execution, we have added robustness to our schedule. The break-even is below $15.00 in Phase 1 and below $20.00 in full field, and with a serious incident frequency of 0.3, I can truly say this project is a prime example of our core strategy, which is "Always safe, high value, low carbon."

And, we have another giant -- a Troll -- with resources comparable to Sverdrup planned to be produced. A subsidy development with a tieback to Troll A will unlock a large gas cap expecting to prolong gas plateau with seven years. With a lean mindset and a marginal field approach, we can deliver the project with remarkable numbers -- 2,200 million barrels of oil equivalent, a break-even below $10.00 U.S. dollars per barrel, and a CO2 intensity of only 0.1.

Statoil has a proud history of innovation and technology to make the impossible possible. We created the world's first subsea gas compressor, the world's first floating wind farm, and now, our unmanned wellhead platform. We aim to be the digital leader to increase revenue, improve safety, reduce cost and carbon emissions, and through years of experience, we have the capabilities to make the right choices, create the right building blocks, and develop cutting-edge technology for the future step by step toward an unmanned, remotely operated factory.

Last year, the stand-alone unmanned production platform -- the UPP -- was a future scenario. This is now our preferred solution for Krafja/Asla and taken even further to Peon. With other hosts building on the Hywind floating spar technology, the unmanned Peon will include power from shore, gas routed directly to the U.K. market, and it's packed with value-creating technology and digital solutions such as a digital twin for project development and operation, smart data algorithms for automated production optimization, and predictive maintenance.

And of course, we have robots and drones. Maybe it's a bit nerdy, but you see on the top, there is some drone flying in 3-ethylene glycol for dehydrating the gas, and it is going to land on the D Deck, which is a drone deck. Drone is not "H" for helideck anymore. So, we use drones and robots.

Both Krafja/Asla and Peon are examples where innovation and technology and digitalization will take us. They showcase how we can develop marginal and frontier fields with or without infrastructure, unmanned, and remotely operated. By creating these new concepts based on existing building blocks and new technology, we can develop profitable projects that seemed impossible only a few years back.

The ultimate blue-sky concept is an ultradeep water UPP: A disruptive concept, cost-efficient, and suitable for frontier developments and remote operation. The ambition for the field of the future is very clear: 30% reduction in CapEx, 50% reduction in OpEx compared to traditional concept and an additional 15% in automated drilling. A game-changing business case and digital technologies are being developed and implemented as we speak.

Johan Sverdrup is going to lead the way by becoming our digital flagship on the Norwegian continental shelf, and instead of telling you what we want to achieve, Arne Sigve and I have decided to show you.

Video voiceover

For more than 40 years, we have pushed the boundaries for what's possible by being curious and seeing every challenge as a new opportunity. Digital technologies are changing the world around us, and we aim to be a driver for change in our industry, set the ambitious targets, and shape the future of energy. We are building a virtual real-time copy of the asset to create values in ways that have not been possible before. We aim to predict and resolve issues before they even occur, reduce the risk of incidents, and collaborate with machines instead of telling them what to do.

We intend to eliminate human exposure in high-risk areas, drill safer, even more efficiently, and with no risk of human error. To make even better decisions, we will enable advanced analytics of all data and visualize it. We are determined to optimize production and energy use at all times automatically and have the possibility to do so from our offices onshore. We will never stop challenging ourselves and the industry to create the safest, most value, and carbon-efficient solutions for our future generations, so even if no one knows what the future holds, we will continue to build on our history and create value to make sure Johan Sverdrup and Statoil is part of it.

Arne Sigve Nylund -- Executive Vice President of Development & Production, Norway

Johan Sverdrup is truly a great project and a great example illustrating the potential of digitalization. At this point in time, it is difficult to predict the full effect of digitalization, but what we do believe is that the value potential is substantial, and we are well under way. There is no doubt that we have an exciting future ahead of us, and the production outlook toward 2025 is robust with a production growth of around 10%. We have an ambitious recovery target, and in 2020, we expect production costs per barrel in real terms to be as stable as 2017 levels, and we expect absolute OPEC's level to increase as we bring new fields onstream. We see significant cash flow generation of around $13 billion after tax over the next three years, and you heard Margareth -- we will continue to improve projects and wells, reducing costs and developing the fields for the future.

And, we are uniquely positioned for capturing value from the NCS, and what we do in Norway generates value internationally and vice versa. Our NCS experience on increased oil recovery and subsea operations is used in the U.S., U.K., Brazil, and Canada, and we are bringing back U.S. onshore experience on integrated operation centers as well as deep water experiences from Brazil, and that gives me a good opportunity to introduce another two good colleagues of mine. Torgrim and Lars Christian will now tell you about our exciting international journey. Thank you.

Torgrim Reitan -- Executive Vice President of Development & Production, USA

Good afternoon, everyone. It's a pleasure to be here, and it's good to see you again and to be back in London. So, Lars Christian and I are excited to discuss our international business with you, and we will improve and deepen within our core areas, applying the global knowledge and skillsets of Statoil, and we have defined Brazil and U.S. onshore as our two international core areas, and we will discuss these shortly in more detail.

Over the last decade, international production has more than doubled to 740,000 barrels per day, and that represents 36% of Statoil. Our resources internationally are more than half of the total. As you know, the cash margin after tax is on par with the Norwegian continental shelf. So, Lars Christian, how are we going to leverage our experience internationally?

Lars Christian Bacher -- Executive Vice President of Development & Production, International

Thank you, Torgrim, and good afternoon. Statoil has world-class assets in Norway and internationally. We systematically leverage our global experience to benefit all assets regardless of geography, and by applying the value drivers addressed by Eldar, we have reset our cost base internationally. OpEx SG&A per barrel is down 34% in the last four years.

Focusing on recovery has enhanced our profitability, and this is illustrated by a 35% improvement in ultimate recovery in our U.S. onshore business. And, successfully extending licenses in countries like Azerbaijan and Algeria, we have added around $1 billion U.S. dollars of NPV to Statoil. As Margareth outlined, product delivery is a Statoil strength, and for our international non-sanctioned projects, the average break-even is down 40%.

Torgrim Reitan -- Executive Vice President of Development & Production, USA

So, maximizing the value of our oil and gas is very important, and as an example, we capitalize on 30 years of experience of gas marketing in Europe, and we sell our Marcellus gas into premium markets like Toronto and southern Manhattan. As you heard Margareth say, we aim to be a digital leader. We have recently opened our remote operating centers for our onshore activities, where we stream live data from all our producing wells, and we are now able to predict when wells will have issues, and we can direct or feed personnel ahead of time to these wells. So, this will increase production, reduce cost, and improve safety, and the value is estimated at $500 million. We will reduce our driving by at least 25%, which equals 20 trips around the equator. So, Lars Christian, we have taken some significant steps in Brazil, and now, over to you.

Lars Christian Bacher -- Executive Vice President of Development & Production, International

Thank you, Torgrim. As you are aware, we have an extensive portfolio with a presence in more than 30 countries, and the four biggest unsanctioned projects in the Statoil portfolio are all operated by Statoil and are all international. When we work the international portfolio, applying the same thinking as for our NCS projects, we see that improvements are not primarily base-independent. They are largely a company-specific competency.

Today, we have chosen Brazil as a deep dive, and when Statoil presented the sharpened strategy, we defined Brazil as a core area for the company. 2017 has been about delivering on this promise, and the material portfolio we have built in Brazil is the result of collaboration, perseverance, and being countercyclical. We have high-graded the portfolio and landed opportunities where we can apply the best of our expertise within operations, recovery, and project deliveries.

The journey started with the Peregrino field, and during 17 years in Brazil, we have learned to operate the asset as well as operate in the country. This operational and organizational capability has given us the confidence to develop Brazil into a core area. We became the operator of BM-C-33, which included the Pau discovery in 2016. This is a high-quality asset with an estimated 1 billion barrels of oil equivalents in recoverable resources. In addition, we have Carcará and Roncador, and with these four assets, we are well-positioned to deliver high value, operate in accordance with the corporate CO2 targets, access promising gas markets, and strengthen our strategic partnerships.

We continue to pursue organic growth in Brazil through exploration, where we will drill and participate in five exploration wells during the next two years, and we have secured rig options for more. In 2030, Statoil has the potential of producing between 300,000 and 500,000 of oil equivalents per day depending on phasing of projects and exploration success, and by delivering such production, Statoil will continue to be the leading operator in Brazil after Petrobras.

The value of being the operator lies in our ability to apply competencies and technologies, deliver cost-efficient projects, and maintain financial discipline and financial flexibility, and high-grading our portfolio in Brazil means that we are committed to lowering our carbon footprint, fully aligned with our corporate commitment. Let me also add that we're unlocking the potential from new energy businesses through the solar project Apodi in the northeast of the country.

The Peregrino apprenticeship has been Statoil's apprenticeship in Brazil, so let's have a closer look. We have delivered strong safety results with a 2017 serious incident frequency below 0.5 per million working hours. The field has produced over 160 million barrels since the first oil, and Peregrino Phase 2 -- coming onstream in 2020 -- will ensure that the production will continue for the next decades. The recovery rate of the field at the time of acquisition was 10%, and we have increased this to 16% today. Continuous improvements have resulted in a 22% reduction in total cost per barrel since 2013, and we delivered roughly $18.00 U.S. dollars per barrel cash margin last year.

We have brought down the total cost for Peregrino Phase 2 by 32%, or around $1.3 billion U.S. dollars, and the break-even is reduced from $70.00 to $42.00 U.S. dollars per barrel. While reducing our cost base, our production efficiency is up 10% over the last year, and the backlog for safety-critical maintenance has been reduced by more than 50%. All this has been achieved by making use of improved production analytics, good course identification, and streamlined execution or modification projects.

Increased profitability on Peregrino combined with operational and organizational track record has given us the confidence to embark on our next generation of Brazilian projects, so let's move to Carcará discovery, a truly world-class asset. With about 2 billion barrels of oil equivalents, Carcará can become our international Johan Sverdrup in terms of volume. Remember, there is an additional exploration offsite. We have consolidated our position in the asset after a phased acquisition and a farm-down process.

We started acquiring equity in BM-S-8 from Petrobras in 2016 and from QGEP in 2017, and winning Carcará in open acres bid round in 2017 was followed by a farm-down to ExxonMobil and Gulf. Ensuring an aligned position across the total asset allows us to appraise early and efficiently explore, achieve unitization by 2020, and benefit from experienced partners. We believe first oil by 2024 is achievable because of the efficiency of having an aligned partnership.

Our current break-even price is around $40.00 U.S. dollars with a potential for improvement, and you heard Margareth speak about project deliveries, and Statoil's country manager in Brazil -- Anders Opedal, a former project director -- has promised me to leave no stone unturned. He will pursue improvements together with Margareth's project development team, and this is about simplifying concepts, maximizing synergies, and delivering an optimal project execution model.

The latest addition in building a core area in Brazil was the acquisition of 25% of the producing Roncador field. Roncador provides immediate boost to our cash flow from operations at attractive break-evens, and we assume closing of the transaction by second quarter this year. With Roncador, our Brazilian production will almost triple with limited additional CapEx commitment.

Statoil will apply its IOR expertise in one of the largest assets in the Campos Basin, and by increasing its recovery rate by 5%, we expect to produce an additional 500 million barrels of oil equivalents from the field. To put this number into context, a 5% increase in recovery rate in Roncador is like finding a new Johan Castberg field on the Norwegian continental shelf.

Finally, it's worth highlighting our strategic partnership at Petrobras. This partnership was a key enabler of forming agreement in Roncador, and it is exciting to work with Petrobras to increase recovery and develop solutions that benefit both companies. The partnership will also help to monetize our future gas production by accessing the Brazilian gas value chain.

So, let me sum up. In a short period of time, we have moved from a one-asset to a multi-asset portfolio in Brazil with an upside potential. I'm confident that we will deliver high value to our shareholders, and now, I will hand over to Torgrim, who will give you a deep dive into our U.S. business.

Torgrim Reitan -- Executive Vice President of Development & Production, USA

Thank you, Lars Christian. Today, I will update you on our promises to transform the U.S. business, and I will focus on the onshore activities. As you know, we have invested heavily in the U.S. in high-price environments. We have had negative earnings since the collapse in oil price and we have made large impairments, but we are reaching a turning point. From now on, this business will have positive earnings, it will generate surplus cash, and grow, all of that at $50.00 oil. In the fourth quarter, the U.S. business was back, generating positive results.

So, first, let me discuss our transformation. Two years ago, we promised a lot. We were going to transform the business to generate positive earnings at lower prices. In 2014, we needed more than $90.00 per barrel. In 2017, we were at $53.00, ahead of our $60.00, well under way to make money below $50.00 this year. This $40.00-per-barrel reduction can be split into $10.00 per barrel that is related to impairments, $20.00 per barrel from more efficient drilling and completion, UR, or increased recovery and midstream, and $10.00 per barrel from operational cost efficiencies such as increased up time, improved maintenance, and cost reductions. As you see from the slide, we are ahead of plan to deliver on improvements and increase the cash margin. Finally, our production is flexible, and we expect to grow by more than 20% this year in the U.S.

So, let's look ahead. We have invested more money each year in the U.S. that we have made, so this will not change. We will have positive cash flow at $50.00 going forward. Based on $70.00 oil, we expect to contribute $5 billion from now up to 2020. So, our offshore business will grow by 50% by 2020, reaching over 110,000 barrels per day, and these barrels have a cash margin of more than $45.00 after tax at $70.00 oil, and offshore will generate positive earnings below $50.00.

Our onshore activities are the largest contributor to the $90.00 to $50.00 journey. For them, it is from $96.00 to below $50.00, and I am satisfied with the performance of Bakken and Appalachian, which cover the Marcellus and Utica formations, and they need below $50.00 to have positive earnings. However, I'm not satisfied with the recent developments in Eagle Ford and the disappointing results from the lower well spacing leading to the impairments. We have taken action to restore value, and the early results are encouraging. The $1.3 billion impairment reversal related to Bakken was triggered by the tax change in the U.S., but around $1 billion of that reversal is related to underlying improvements in the assets. So, for 2017 as a whole, we have a net reversal of $450 million in the U.S.

So, let's talk about how we will use the rest of Statoil to build competitive edge onshore. The onshore industry has rapidly evolved from land grabbing to a period focused on efficiency, and the competition is fierce, and we have to become better. The next chapter will be about technology, and it will be about improving recovery, and this plays to Statoil's strengths as we build competitive advantage.

So, let me talk about it first on this slide. Operational excellence: The five rigs that we are currently running deliver today as many wells as ten rigs did in 2013. So, just in the last year, we have drilled 34% more wells per rig than last year. Recovery is a core competence for Statoil, and Margareth has a great team in Austin testing and implementing new solutions together with the onshore group using our global knowledge. We have seen a 35% increase in recovery rates over the last years. Based on what we work on now, we see the potential for a further 15% improvement this year.

As you heard from Arne Sigve and Margareth, Statoil knows how to deliver projects. Our development cost has come down by 32% since 2015, improving the economics of our future onshore wells, and half of them have a break-even less than $50.00 per barrel. Last year, the corresponding number was 40%. So, our onshore business benefits from the best of two worlds. In Austin, we run our business with the agility of an independent, but we combine it with the long-term approach and the technology of an IOC, and we do believe that that is a winning combination.

We have been concerned with the lack of earnings and cash generation from the onshore business, and our goal has been to be a flexible business that works fully at prices below $50.00, and we are getting there. From now on, we will see to it that we have positive earnings at $50.00 oil. We will also ensure a positive cash flow for this year also by dropping one rig if oil prices fall during the year, and we can grow production by 50% up to 2020 based on this program.

But remember, we are chasing earnings and cash where production is only a vehicle, not a target. This year, new onshore wells will have an average break-even of $42.00 per barrel. Even then, we assume an increase in our supply cost. So, if oil prices come in above $50.00, our onshore business will generate a meaningful earning and cash flow, and a $10.00 increase will lead to around $300 million per year after tax from our onshore business.

So, let me summarize. Our transformation is not complete, but the three-year plan is on track, and the U.S. will add $5 billion in surplus cash to Statoil by 2020. And, we are building a sustainable and competitive business onshore that will have positive earnings, generate surplus cash, and can grow all of this in a $50.00 environment. So, thank you very much. Back to you, Lars Christian, to summarize and close the joint session.

Lars Christian Bacher -- Executive Vice President of Development & Production, International

Thank you, Torgrim. As you heard, Statoil's international portfolio has world-class assets and delivers on our strategic ambition, and we will continue to improve and drive value creation. In the years 2016 to 2018, $7 billion out of $10 billion U.S. dollars of Statoil's NBP improvements came from our non-sanctioned international portfolio. Over the same period, our cash margin will be solid at above $30.00 per barrel of oil equivalent, and growth internationally will supply more than 40% of Statoil's cash flow to 2020. Torgrim and I have enjoyed this joint session, and we welcome our CFO Hans Jakob to the stage. Thank you for your attention.

Hans Jakob Hegge -- Chief Financial Officer

So, thank you, Torgrim and Lars Christian. Ladies and gentlemen, good afternoon. It's good to see you all. 2017 was a strong year for Statoil. We have continued to take down costs and improve efficiency, further reduce the break-evens of our projects, and strengthened our balance sheet. Going forward, we are building on our industrial strengths to create value both on the NCS and international. We will do this based on strict cost and capital discipline.

Let me take you through the 2017 results. Our improvement work is reflected in solid adjusted earnings of $12.6 billion in 2017, more than three times the $4.1 billion it delivered a year before. Net operating income was $13.8 billion, close to zero in '16. Negative net income last year of $2.9 billion has turned into a positive result of $4.6 billion in 2017. The result is, of course, supported by an average brand of $54.00 per barrel, but clearly also demonstrates the improvements -- the strong operational deliveries -- from our organization. This is visible in our positive free cash flow of $3.1 billion in 2017, which made us free cash flow-positive well below $50.00 per barrel.

We see an increase in reserves with a triple-R of 150%, driven mainly by positive reserve revisions on our existing fields and sanctioning of new projects.

We have delivered as promised and more. We have taken down the organic CapEx to $9.4 billion through continued efficiency improvements and solid project execution, and we have delivered record high fourth-quarter and full-year production, capturing increasing prices. Furthermore, despite drilling more wells, we have reduced our expression expenditure and delivered an additional $1.3 billion in annual savings in 2017.

We have more than doubled our fourth-quarter adjusted earnings to $4 billion, improving across all segments. Brand increased by 24% and invoiced gas prices in Europe by 18% while the invoiced gas prices remained flat in the U.S. The tax rate was 67%. Exploration and production in Norway is up from $2 billion to $3 billion in adjusted earnings compared to the fourth quarter last year, driven by good operational performance with high production at higher prices and lower depreciation rates due to positive reserve revisions.

You may recall that our costs in the fourth quarter last year were the lowest in a decade, impacted by positive one-offs. This quarter, underlying OpEx and SG&A have increased by 13% per barrel compared to the same quarter last year. This is mainly related to preparations and start-up of new fields, such as Gina Krog and Ivar Aasen, with higher costs per barrel before reaching full capacity, as well as some issues at Goliat. On an annual basis, the OpEx and SG&A is down by 6% compared to 2016.

Exploration and production international has adjusted earnings of $438 million, an improvement of $1.1 billion. Increased production and strong cash flow per barrel are around $25.00 after tax contributed positively. We have made several positive reserve revisions, reducing our DD&A, and have reduced underlying OpEx and SG&A by 21% per barrel. Lower exploration expenses also contributed positively.

Our mid- and downstream business delivered another strong quarter of $533 million, driven by high European gas sales, good LNG margins, liquids trading, and higher regularity of refineries. With an all-time high production -- both fourth-quarter and full-year -- we are strengthening our cash flow. Solid operational performance, increased production from our flexible gas fields, ramp-up of new fields, as well as higher U.S. onshore production contributed in the quarter. Underlying annual equity production grew by around 125,000 barrels per day, more than 6%. The organic free cash flow in the quarter was positive, including two NCS tax installments and one dividend payment.

We have reduced the net debt ratio by almost 7% in 2017 to 29%, including our inorganic investments. At the year end, combined with higher prices, we had more volume in transit to capture higher margins, leading to increased working capital in the quarter. This impacted the net debt ratio by more than 2 percentage points.

And now, let me share some reflections on our competitive position. We use benchmarking actively to learn and continuously improve. Our strong cost performance is reflected in the No. 1 position on unit production costs and we have reduced it even further during 2017. We continue to improve our drilling and well performance, as you heard from Margareth.

Costs per well are 25% lower than the industry average through better planning and execution. On facility costs, we are 20% better according to IPA, and the internal rate of return of our projects under development is 20% higher than the industry average. For upstream return on average capital employed, we are top quartile and continue to work hard on improvements, further strengthening our ability to deliver attractive shareholder return.

Let me highlight four elements which are important for high value going forward. First, we aim to sustain unit production costs in real terms of around $5.00 per barrel in 2020, and we indicate an average organic CapEx level from '18 to '20 of around $11 billion, always being financially disciplined. Second, we expect to deliver high-value growth toward 2020. Our cash flow from operations is growing more than 6% at $70.00, and production, 3% to 4%.

Third, we can be cash flow-positive below $50.00 per barrel in the period '18 to '20, including the increased cash dividend, and at $70.00, we can deliver around $12 billion in free cash flow after dividend and investments, including considerations and other impacts from announced transactions. Our net debt ratio can -- based on the same assumptions -- be reduced to below 15% in 2020, and as a result, we can increase return on capital employed to around 10% in 2018 and around 12% in 2020, also at $70.00 per barrel.

Over a four-year period, we have fundamentally transformed our cost base. OpEx and SG&A have been reduced by more than 30% since 2014. Under strict capital discipline and efficiency improvements, we have reduced organic CapEx by more than 50% in the same period. We are earning the company $4.5 billion more efficiently every year. This is structural, this is cultural, and as you heard in the previous presentations, it's about changing the way we work with leaner and simpler solutions. Of the $4.5 billion, more than 80% is considered to be sustainable. We're also getting benefits from locking in costs at lower rates and improving incentives for strong supplier performance as discussed by Margareth.

Over the next couple years, we have several fields coming into production and ramping up increasing our cost base. When these fields are running at full capacity, we expect to deliver a 2020 unit production cost at the same level as for 2017 in real terms. As you heard from my colleagues, we are getting benefits from the digital transformation, with a roadmap of more than 30 high-impact initiatives, spanning from reservoir management, integrated operations, automated drilling, to scaling up on automated processes. And, I expect there is more to come because we continue to improve projects, only sanctioning them when they are optimized at the best and when the timing is right.

Our next-generation portfolio will deliver an internal rate of return of about 20% at $50.00 and about 30% at $70.00. To me as the CFO, the combination of world-class next-generation portfolio projects and strong project deliveries from our organization really creates a unique proposition, and there is also a powerful learning effect across the portfolio. Targeted efforts have significantly improved on non-sanctioned projects, as you can see through the chart on the right. Break-even is now below $40.00, a reduction of 33% since 2016, and the resources are significantly up by around 3 billion barrels. It is still early days on these projects, and we continue to work hard on improving them further. In short, Statoil is positioned for highly attractive returns.

Value remains the priority when we increase our production. The compound annual growth rate from 2017 to '20 is expected to be 3% to 4%. This is a material increase in our active production. Remember, our 2017 production level is the highest ever, and our 2020 production is expected to be well above last year's guidance. The growth until 2020 is coming from both Norway and internationally with lower tax costs. From 2018 to 2022, we have several major start-ups. This year, Aasta Hansteen, Oseberg Vestflanken, and Mariner will start producing. In addition, when the Roncador transaction is closed, there will be good contribution from this asset.

Our production is expected to grow by 1% to 2% from '17 to '18, and next year, Johan Sverdrup, Martin Linge will come onstream, and we will see further increase from unconventionals. Towards 2022, Troll Phase 3, Johan Castberg, Vitus, and Johan Sverdrup Phase 2 will be onstream.

We have strengthened our robustness and improved the quality of the portfolio. At $70.00, our average cash flow from operations can be above $18 billion for '18 and '19, growing to about $20 billion in 2020 to '21. At $50.00 in '18 and '19, we can generate around $14 billion in cash flow from operations. Our flexibility is maintained with the option to phase our non-sanctioned projects and scale our onshore positions both ways. We will continue to invest in our next-generation portfolio with a break-even of $21.00.

Over the last year, we have strengthened the balance sheet and reduced the net debt ratio by almost 7 percentage points to 29%. Our long-term ambition of a single-A credit rating on a stand-alone basis and a net debt ratio of 15% to 30% is unchanged. We will continue on our value-driven approach to inorganic portfolio optimization that has been paying off as we have divested at higher prices and made several countercyclical acquisitions, such as Martin Linge, Roncador, and Carcará, and we increased the dividend reflecting earnings growth for more sustained improvements. We ended the scrip program as planned, and as already pointed to, we see an emerging scope for share buybacks, which will depend on macro outlook and portfolio developments. Near-term, however, we will prioritize to strengthen our balance sheet before considering buybacks.

Moving to guidance, in 2018, we plan for around $11 billion in organic CapEx, and operation spend of around $1.5 billion, and production growth of 1% to 2% from '17 to '18 and 3% to 4% from '17 to '20. Let me summarize on behalf of us all. First, we will deliver even stronger cash flow and growing returns, and we are increasing the dividend by 4.5%. Second, we are investing in world-class project portfolio with a break-even of $21.00 per barrel with an internal rate of return above 30% while maintaining strict cost and capital discipline. Finally, we are building on our strong industrial position to create value both on the NCS and internationally, as my colleagues have demonstrated earlier today. Thank you for the attention.

Questions and Answers:

Peter Hutton -- Senior Vice President of Investor Relations

Thank you, Hans Jakob. What we'd like to do now is just open it up for questions for about 40 or 45 minutes, both from the floor -- there'll be microphones going around -- and also, we'll do a series of questions from the phone as well. Hans Jakob talked about maintaining strict capital discipline. I'm afraid we'll be maintaining strict questioning discipline as well, so I'd like to keep us down to a rule of one question per person. If you're clever, you can get one question in two parts. I've noticed there's some discipline creeping in and some people asking three questions on some of our calls. I'm afraid that won't be allowed. So, if I start off first, I saw Oswald's hand first, and then we'll be moving through. Okay.

Oswald Clint -- Sanford C. Bernstein -- Analyst

Thank you very much, Peter. Thank you, everyone. A two-part question. Firstly, Eldar, you spoke about the buyback and you mentioned macro volatility plus some key developments that have to complete or not. So, maybe macro is understandable, but on those developments that you said need to happen or not in order to allow that buyback to potentially happen, could you be a bit more specific on those, please, if possible?

The second part was a bit more longer-term. There's a lot of information in here on recovery factors -- 50% to 60%, Roncador going up 5%. I just want to get some sense of the timing that you expect to deliver some of those numbers. Are these five-year plans where these recovery factors could be achieved, 10-years, or longer? Maybe just link that to the extra 100 million barrels in Johan Sverdrup. Margareth mentioned maturation. I wonder if I could just get a bit more understanding of what exactly is happening there to give us that extra 100 million on that field. Thank you.

Eldar Sætre -- President and Chief Executive Officer

Thank you very much. On the share buyback, it's a very conscious way of expressing it from our side. We have illustrated the cash generation potential at $70.00 U.S. dollars. It might not be $70.00 -- it might be something else -- but it's an illustration and reference point for you. Anyway, we do see the potential to generate quite significant cash. When it comes to dividend, that is something that we will look into annually, look at the underlying prospectivity of long-term earnings, and then we have these statements about the balance sheet macro environment. So, obviously, macro environment -- not only how it looks today, but also the outlooks for the macro environment would be important for us.

Portfolio developments -- it's really any other thing that could happen. We might see opportunities for value-enhancing transactions. As highlighted from both me and Hans Jakob here, that would not be something that we would do easily. We would definitely look at those kinds of opportunities with a very strict, disciplined, value-driven approach, but we might see those kinds of opportunities and might not know them today, even, so we have to give those considerations when we give a statement like that on the buybacks. So basically, with all other components, we are clear that in the short term, we think it is wise for us to strengthen the balance sheet, and from the 29% debt ratio that we have for the time being. So, many factors going into this, and I tried to point out some of them. On the recovery factors, Margareth, maybe you will touch upon that specific question of when.

Margareth Øvrum -- Executive Vice President of Technology, Projects & Drilling

First of all, the reasons behind the increase on Sverdrup is that we have drilled 17 wells now, and all these wells, we do not have any negative information on that. We have matured, we have run our reservoir models, and for Sverdrup in particular, we try to include the whole comprehensive toolbox or IOR tools from the very beginning. As an example, we have just awarded the contract for a permanent reservoir monitoring system. There's a lot of cables around Sverdrup. Remember, we have an ambition for Sverdrup with a 70% recovery rate. So, actually, the reason is we have drilled 17 wells now, we see the results from the wells, and that is the reason behind the increase, but we are not there yet. We will pursue it even further. We have an ambition of 70% as a recovery rate.

Eldar Sætre -- President and Chief Executive Officer

Margareth, maybe -- you also alluded to 50% to 60% overall on the innovation cut. Maybe a comment on that.

Margareth Øvrum -- Executive Vice President of Technology, Projects & Drilling

Maybe Arne Sigve could...

Eldar Sætre -- President and Chief Executive Officer

Yes, Arne Sigve.

Arne Sigve Nylund -- Executive Vice President of Development & Production, Norway

Yes, I'm happy to do that. So, as I said, we increased from 30% to 50%, and 50% has included all the sanctioned initiatives to increase recovery rate. That is an average for the whole portfolio, extending to the end of the lifetime of each individual asset, and that is why we're now working -- as I mentioned in my presentation -- on 23 life extension projects to make that happen. So, it is within the lifespan of each individual asset.

Peter Hutton -- Senior Vice President of Investor Relations

I think Oz got some first-move advantage on that one. I'm going to say we've got a lot of hands showing here, so can we keep it to one question? The next question is from Jeff, just behind you. Thank you very much.

Jeffrey Taylor -- Invesco -- Head of European Equities

Jeff Taylor from Invesco. If I heard you correctly, you said free cash flow cumulative 2018 to 2020 would be $12 billion after dividend, so what's the dividend assumption of that period? Is it flat, or are you assuming a degree of growth every year to get to your $12 billion?

Hans Jakob Hegge -- Chief Financial Officer

We have assumed the current step-up, and that it will be a cash component going forward. We also assumed -- and, I won't give you that, I'll give you a precise answer, but we have assumed a reasonable increase in dividend in that period.

Peter Hutton -- Senior Vice President of Investor Relations

Theepan?

Theepan Jothilingam -- Exane BNP Paribas -- Managing Director

Theepan Jothilingam, Exane BNP. Just a couple of questions on CapEx. Firstly, could you talk, perhaps, about where the underlying moves on 2018 CapEx are vis-à-vis the CMD last year? I assume there's CapEx for the acquisitions made -- Martin Linge and Roncador. And then, secondly, I think historically, we've looked at sanctioned CapEx versus unsanctioned CapEx flexibility for the market. The track record recently from Statoil has actually been to go underneath that quite substantially by deflating projects that have already been sanctioned. So, I'm just trying to understand the flex around this $11 billion because I think it's a nice problem to have, but your track record at the moment has been to substantially be lower than guidance over the last two or three years.

Hans Jakob Hegge -- Chief Financial Officer

I'm happy to answer that question since I look carefully after this money. On the first one, for '18, the around $11 billion, in the fourth quarter, we sanctioned Johan Castberg against extension, so that's part of the assumption. We also have high activity -- as Margareth described -- on Sverdrup. We have Martin Linge and Aasta Hansteen. We have also the Mariner that's going to be brought onstream this year. We have CapEx related to Martin Linge and some on Roncador. That's why we say around $11 billion for this year. It's really reflecting a quite high activity level -- still, very constant on capital discipline. One the improvements, we delivered $9.4 billion in '17. That was somewhat lower than the $10 billion that we offered on the last occasion, and the improvements are really the main reason for the lowering of CapEx. The improvement work is also visible in the CapEx.

Peter Hutton -- Senior Vice President of Investor Relations

Jon?

Jonathon Rigby -- UBS Investment Bank -- Managing Director

Jon Rigby from UBS. Given it's a strategy event, can we talk about something that's been a major component of your strategy, which is M&A? Because you don't really talk about that within the frame, so on the assumption that you're going to continue to do some M&A -- given your track record -- can you talk a little bit about how you think about it? I think you've acknowledged you might do some more. I noticed you talked about two core areas when you wanted to talk. You talked about the United States and Brazil. I think you've talked about more in the past. Is there still an ambition to do that?

And then, probably, one would acknowledge that you stepped up acquisitions as the oil price fell through the last two to three years, so would it be reasonable, actually, to expect that you start to rebalance toward disposals and a restructuring of the portfolio if oil prices stay at current levels? Thank you.

Eldar Sætre -- President and Chief Executive Officer

Thank you very much, John. First of all, we have a strong resource base. We have 19 billion barrels of resources, and as I said, we have added some quite interesting prospects also during this year that we will mature further. That gives us the potential to produce at current levels for quite a long time, and we have 5.4 billion of reserves strengthened during this year. So, we are confident, we are patient, there is no urgency for us to rush for anything.

So, this is to get it right -- carve it out, shape the transactions -- and John can talk about how he's doing this, but really work them patiently and get to opportunities, whether it's on the divestment side or the investment side. That is really as good as they can get, same as with the organic opportunities, and it fits our strategy, and where there is remaining value creation potential that we consider to be a meaningful value creation proposition for our shareholders. Otherwise, we could distribute the spend. So, that strategy is very disciplined.

So, we have done both divestments and investments in this organic space. We did more divestments when oil prices were high, and we have done more investments when we have been through this downturn. That might not be accidental, but we do see that there is an active market on both sides, in any part of the cycle, so this is really the opportunity set that is present wherever we are in the cycle. Generally speaking, there might be more acquisition opportunities in the low end of the cycle. I think at this point of the cycle, we are pretty balanced. There are all kinds of opportunities, and we'll continue to look for them.

In terms of location, we have highlighted three areas that are core to us -- obviously, the Norwegian continental shelf. Brazil is playing perfectly to our industrial strengths, and we will now look also through exploration for opportunities in Brazil. The U.S. is also a very core, important area for us, but that doesn't limit what we will look for. I think also, on the exploration side, we have done a lot of build over the last few years -- building opportunities and replenishing the exploration potential. So, it's really something that I feel as a responsibility that I have to look for these kinds of opportunities and have a good, strong team that is really doing that job, and I think they have a really strong track record on what they're doing, and they've added a lot of value to our company and to our shareholders. John, you have the chance to say something now if you would like to, please.

John Knight -- Executive Vice President of Global Strategy & Business Development

I think the distinctive aspect of the Statoil proposition that my colleagues have set out is that we don't need to announce divestment programs in order to meet the incredible cash flow going forward, and equally, the resource base -- as Eldar just said -- means that we don't need to add by way of acquisition, so this is putting us in a very strong position to be opportunistic if value is available, but it's not a necessary activity in order to meet the targets -- both with regard to growth and cash flow -- that we've set out today. Not everybody's in that position.

Peter Hutton -- Senior Vice President of Investor Relations

I've got a cluster around here, so we're going to do four from here, then we'll be moving to that side of the room. Don't worry, everyone's going to get plenty of chance. So, the next one is coming from Rob.

Robert West -- Redburn Partners -- Partner

Hi. It's Rob West from Redburn. I've really enjoyed the holding pattern we've been in as analysts where every year, we come here, and you lift the veil on the latest interesting technology in your portfolio, and we see the efficiency target for cost savings going up. That happened again last year, and well done for meeting the target.

I've noticed that in the guidance for this year, the ambition is a bit more muted. It's more to sustain the cost level in real terms out to 2020, and it seems like there's still really interesting, new technologies coming through to the business to help boost the efficiency, so my question is why is the target a little bit more muted this year and just sustaining rather than deepening the cost savings? Is there anything behind that in the sense that it's getting a lot more digital? I appreciate that could mean that it's just really hard to have transparency on how that's going to feed through to cost. Is that part of it as well? That's my question. Thank you.

Eldar Sætre -- President and Chief Executive Officer

Yeah, it's a good question. This year, we haven't presented you with $1 billion or $2 billion -- that kind of target -- because it is getting tougher to do the same type of improvements that we have done, and in many ways, picked things that were...I won't say easy to pick, but that really had a big, huge impact. Now, it's really to continuously improve all the small steps throughout the organization, bottom up, engaging the organization. It's about preserving because if you lose what we have done now, that would really be significant. So, to preserve it, maintain it, sustain it -- I think that is really a focus area for us.

When we say "unit of production cost," sustain that, that is actually quite ambitious -- you might want to comment on that, Arne Sigve, I'll give you the chance -- because we have a maturing portfolio and after a while, there are costs that might put pressure on us. So, that is really -- we'll take significant effort just to maintain the unit of production cost that we have until 2020. But, you are right. You pointed to a key point, that some of these things that we are looking at now -- we are also mentioning specifically the drilling costs, which are a big cost component for us, setting a target on that.

But, on the digital side, it's really tough to define a target that is so transparent that in a meaningful way, we can put it together into a number. So, what we simply tried to do is break it up a little bit, give you some examples, illustrations of what we have done, some conferences that there's more to be done, and some illustrations of the potential, and we believe it's huge. It's all the way from the producing assets that Arne Sigve talked about -- how we want to control and operate these -- to the new assets where we can do much more.

I think the conventional part of our industry is maybe where the potential is the biggest because there, we come from quite capital-intensive constructions and facilities, and that gives us an enormous potential to take down costs and drain costs out of the system, so I think there is a pretty big potential within the commercial part on the steel and on the facilities. When it comes to the unconventional, I think there is more -- actually, as already mentioned, maybe more potential now on technology and on the subsurface. So, that's why we've taken a little bit of... I'd like Margareth to comment, and then, Arne Sigve, onto you for the production costs.

Margareth Øvrum -- Executive Vice President of Technology, Projects & Drilling

I just wanted to comment a bit on what we have been doing because I tried to illustrate that what we have been doing is lasting, it is sustainable, because we have done structural improvements. We have designed at cost, we have standardized, we have simplified, and we have new types of contracts with more performance base as an example. And, we are not resting. We are still pursuing more to go. But, there are also some more marginal fields we see with new technology, new innovative solutions, redesign -- we think we can make it profitable.

Also, fields that were impossible to develop years ago, and I was trying to illustrate with the technology -- with the remote operated roadmap toward some unmanned platform, remotely operated factory. For these fields of the future, there is still more to go. So, we said 30% reduction in CapEx, 50% in OpEx, and also 50% on the automated drilling control, so we have lots to do, more to go.

Arne Sigve Nylund -- Executive Vice President of Development & Production, Norway

It is mostly covered, but just a few additional reflections, maybe. I just mentioned the recovery rate, and to maintain the production from the existing fields, and to increase the recovery rate -- that is one cost element that we will master to the best of our ability. I think the digitalization -- we just scraped the surface. Eldar mentioned the integrator operation center. I think that will open opportunities going forward, both on production and cost containment. That's one. And, not to be forgotten, we're adding new fields onstream that will add value, but of course, that will add cost. Having said that, the ambition to maintain a UPC at 2017 level in 2020 is quite challenging, but I can promise you one thing -- I should be very careful on promising -- we will continue our hunt for cost improvements going forward, working within this frame.

Peter Hutton -- Senior Vice President of Investor Relations

Thank you, Arne Sigve. Biraj?

Biraj Borkhataria -- RBC Capital Markets -- Analyst

Hi, it's Biraj Borkhataria of RBC. Just sticking to the same theme of cyclical versus structural, I had a question for Torgrim in the U.S. When you put together the $90.00 to $50.00 plan originally, there was an embedded assumption of service cost change. Could you just talk a little bit about what you experienced in 2017, what you're seeing currently, and what's embedded in the plan for 2018? Thanks.

Torgrim Reitan -- Executive Vice President of Development & Production, USA

Thank you. We assumed a 20% cost increase from 2015 to 2018, and what we have seen so far is a development in line with that. We see differences between segments, and we also see geographical differences. The areas that are most impacted by cost increase are around drilling and completion, and in particular, stimulation, casing, sand, and those things, while operational costs are very stable. We see geographical differences that Permian is more heated than Balkan and Eagle Ford, but suppliers try to convince us that we have to pay up or else they will go to Permian, but they tend to revert to Statoil anyways. So, so far, so good. In our plans, we expect a 25% cost increase from this year to 2020, so that is embedded in the plans and targets.

Peter Hutton -- Senior Vice President of Investor Relations

Okay. I've got another couple on this side. If you think you're being ignored on that side, it's not the case. We're going to do another couple from here, then we're going to work our way through, and then we're going to go on the phones. Iain?

Iain Reid -- Macquarie Capital Partners -- Analyst

Hi. Iain Reid from Macquarie. Just a question about exploration, which you didn't actually talk about very much. You normally do because your background is obviously a very successful explorer, particularly with Sverdrup, but you haven't had very much success -- particularly in Norway -- over the last few years, and internationally, the hopper seems to be filled by acquisitions rather than anything else. So, is exploration slipping a little bit in terms of your expectations for delivery? I see you're going back to some of the areas that weren't successful in the last year. Does the portfolio need shaking up a little bit in order to deliver the next wave of Norwegian growth?

Eldar Sætre -- President and Chief Executive Officer

I'll ask for some assistance from Jez here on exploration. Tim is not here today. But, exploration is -- and, I've been around -- it's really about being patient, building confidence, and adding acreage. A few years back, we had a couple of years with major successes, and in the last few years, it hasn't been the same, but we have made discoveries here. We have created value. As an illustration, the Kayak discovery in the Barents Sea financed the whole campaign in the Barents Sea. But, in terms of scale and impact discoveries, we haven't seen that over the last couple of years, but we are still confident in the exploration, that we have built a quality opportunity set, and we will pursue that. We are stepping up this year to 40 wells. That is a step up from 28 last year. So, Jez, if you have anything you now want to comment on here, I'll give you a chance.

Jez Averty -- Senior Vice President of Exploration in Norway & U.K.

Thank you, Eldar. My name is Jez Averty. I'm representing Tim today. He apologizes, he couldn't make it. What I'd like to do is illustrate how we are targeting our 2018 campaign toward the successes we have had. So, we're looking to drill about 40 wells, of which 25 to 30 of those will be on the Norwegian continental shelf or in the U.K. Last year, we made three play opening discoveries in Norway and the U.K. -- Verbier, Cape Vulture, and Kayak -- and we will appraise two of those.

We also had a very successful near-infrastructure-led inspiration campaign, which created significant value. Some of those wells are already onstream. Again, we will be drilling about 15 of those types of wells. Internationally, there will be about ten wells, and they will be focused on the access successes we have had had in Brazil, access success in Argentina, and the emerging success that we are starting to get some indications of in Turkey. So, you actually see us investing our capital toward the prolific basins, where there are significant hydrocarbons and where we already have positions, at the same time as creating value through near-field infrastructure-led exploration in Norway.

Peter Hutton -- Senior Vice President of Investor Relations

Thanks, Jez. Marc?

Marc Kofler -- Jefferies -- Analyst

Great. Hi there, it's Marc Kofler from Jefferies. I just wanted to come back to the capital spending guidance for 2018 and '19, and again, just try and figure out if the risk is to the downside, and by how much, potentially, to the upside, but it feels like you have a pretty good feel for the upside risks. What are the considerations which are excluded? And then, maybe if you can just talk about how any currency impacts would affect your forward plans. Thanks.

Hans Jakob Hegge -- Chief Financial Officer

Thank you for the questions. On the CapEx guiding, around $11 billion this year, and around $11 for '18 to '20 as an average. On the FX, you have seen USD/NOK development from $8.60 in '16 to $8.20 in '17, and a stronger NOK, of course, as opposed to effect on equity and negative on costs on the NCS. The movement from the third to the fourth quarter is a weakening NOK from $8.00 to $8.20, so that's positive for the NOK. So, the fluctuations on the FX haven't been substantial, but still. On '19, we don't provide a specific figure for the year, but the average for the period.

Eldar Sætre -- President and Chief Executive Officer

On considerations, that is not included. This is an organic forecast. So, basically, the Martin Linge hasn't been closed, and the Roncador hasn't been closed, and there are also additional payments on the Carcará, so I think that's the main. But, in terms of the guidance, until 2020 on cash flow, and on return on capital employed, and on debt ratio, all these transactions -- including considerations -- are included.

Peter Hutton -- Senior Vice President of Investor Relations

Thank you. We're going to sweep over. We're going to do Brendan, then I've got Christyan, then I've got Thomas, then I've got...

Brendan Warn -- BMO Capital Markets -- Analyst

Right, thank you. It's Brendan Warn from BMO Capital Markets. Eldar, can you talk about your thinking around LNG? Obviously, we know that you've looked very smart avoiding big investments in LNG, but can you talk about it going forward? Where does Tanzania now fit within your portfolio?

Eldar Sætre -- President and Chief Executive Officer

LNG is a space that we have been looking for -- it goes a long way back, really, and we haven't really found a good entry point except for what we have done organically, which goes back to the Snøhvit discoveries and the Tanzania discoveries, and I'll let Lars Christian comment on Tanzania in a minute, but that's really -- what we have seen has been, in a way, too expensive to enter that space inorganically in the opportunities that we have seen. Anyway, we are comfortable with what we have done. We have a very strong pipe gas position. So, we do have Tanzania, and we are working on Tanzania, and Lars Christian, maybe you would like to comment on the status of how that looks for now.

Lars Christian Bacher -- Executive Vice President of Development & Production, International

On Tanzania, we are currently drilling the last commitment well, according to the program. There is a joint industry effort together with the government to reach what you call the house government agreement that will determine the terms for producing LNG, and when that agreement has been reached, we will do the calculus regarding the development of our huge gas discovery.

Peter Hutton -- Senior Vice President of Investor Relations

Thank you. Christyan?

Christyan Malek -- JP Morgan -- Analyst

Thank you. Christyan Malek from JP Morgan. Two parts to the question, if I may. First, around CapEx, I'm struggling to get my head around F&D costs. As the portfolio mix changes and you talk about digitization technology, can you quantify the impact on F&D costs over the medium term and how that feeds into your CapEx outlook? I guess to underline that point, I'm trying to get my head around how you sustain $11 billion over the medium term. It all feels intuitively low. The second part is how the new cash flow targets that you set out -- if I go back and look at your scenario analysis on CFFO at $70.00, and then think about what you provide incrementally in terms of lower operating costs and better production, I'm trying to understand why that doesn't feed through into more aggressive cash flow targets because it feels like on a like-for-like basis, it's about the same at the higher oil price.

Eldar Sætre -- President and Chief Executive Officer

So, basically, when we come up with the cash target, it's basically an indication of what we see looking at the portfolio on the numbers that we have, and what we have secured in terms of improvements and efficiencies, and what we expect to sustain of that, and the plan three years down the road -- 2020, basically -- this is very much about the portfolio that we are working on, and there's pretty high-level transparency in that. So, I'm not saying we are -- I mean, we are pursuing further opportunities to increase efficiency, so this is an indication given the status of efficiencies that we have at the moment and the visibility that we have at the moment.

In terms of the CapEx guiding and sustaining, we discussed that it's very difficult to build in and separate impacts from what we do into these numbers. This is the portfolio taking us to $11 billion as an average for this period, and it includes -- as I said -- all the improvements, but it's based on the current view on Johan Sverdrup, for instance. If you are able to prove that, it will have a positive impact, but this is what we put into our ambitions. Also, a reasonable growth on the unconventional, as indicated by Torgrim, but that is also a very flexible part of our portfolio, so it's basically based on the current plans as we see it now. Anything you would like to add, Hans Jakob?

Hans Jakob Hegge -- Chief Financial Officer

No, it's the best estimate and I think it provides fairly good visibility. Remember, in the improvements, there was also a substantial amount of CapEx, so I think this is all best estimate.

Peter Hutton -- Senior Vice President of Investor Relations

Thank you. Thomas and then Hamish.

Thomas Yoichi Adolff -- Credit Suisse -- Director

Thomas Adolff from Credit Suisse. Two questions, I'm afraid, one on digitalization, and perhaps you can talk about the challenges with digitalization, be it with the regulators. Having unmanned platforms is quite scary, and also, there's an increase in unemployment, or whether it's getting the engineers to work with the tech guys or getting the engineers to be retrained. What are the key challenges or hurdles of perfectly implemented digitalization? The second question is on the timeline from discovery to first oil. It still takes quite a bit of time, and some of your competitors discover, 18 months later, the FID, and two years later, they have the first phase onstream. So, is there something you're doing to improve on the timeline from discovery to first oil? Thank you.

Eldar Sætre -- President and Chief Executive Officer

Yeah, digitalization is not without challenges as well, but the starting point for us is the potential in terms of safety, cost, more barrels, better drainage, and covering issues. But, there are definitely also challenges, so maybe Jannicke would like to comment on that. Jannicke is our Chief Operating Officer, so she's also in charge of what we call the digital center of excellence and the digital roadmap in the company, coordinating and prioritizing all the activities. That was an invitation.

Jannicke Nilsson -- Chief Operating Officer

Okay. First of all, there are a lot of opportunities. We have established the digital center of excellence and the roadmap to help us accelerate this transformation. But, as you were saying, there are also some challenges, and one of the things we have done is to establish a digital academy in Statoil because did also bring our people on board on this journey and make sure that we are ready, and that's really something we need to continue to work on, and there's a great enthusiasm in the organization, and right now, it's about having enough capacity to make sure that we can also train our people. I think going forward, there will be a lot of discussion of how to work in the total value chain, how we should share data, but right now, I think we are very well prepared in Statoil and we are also ready to have this kind of discussion with our suppliers, but that will be a discussion going forward.

Eldar Sætre -- President and Chief Executive Officer

Thank you. It's a big theme. So, on speed, I think it has served us well to take the time it took to create the kind of projects and portfolio that we have. I think what we have seen is if you really start running fast because you want to get in there as soon as possible, the temptation to not get the best solutions is really coming at you, but we do see areas where we can standardize, and we know what is the solution. We can really fast-track, and we have many examples of that -- one year from actual discovery into production tying back, and so on. Where we actually need the more innovative approach, getting it right and doing it at the right time is more important than actually doing it as fast as possible. But, Margareth, you want to reflect on this.

Margareth Øvrum -- Executive Vice President of Technology, Projects & Drilling

Yeah, maybe a few more reflections. You asked about how we work with the authorities, and of course, we work very closely with the authorities. For the Oseberg Vestflanken unmanned wellhead platform, this is under installation at the moment. This is on the field. We start drilling in a few weeks. We do not have any living quarters, we do not have fire pumps, we do not have a lot of the utility equipment, but we have a service vessel, so we have a telescopic bridge which is launched to the unmanned wellhead platform, so the people are living on the ship, and they walk to work. But, going forward, of course, we need to work very thoroughly with the authorities. Also, for the roadmap I tried to show, it will probably be impossible to lift these projects if they are not unmanned projects, so that is all. So, an opportunity set without unmanned -- maybe that will not be realized.

Peter Hutton -- Senior Vice President of Investor Relations

Thanks, Margareth. Hamish?

Hamish Clegg -- Bank of America Merrill Lynch -- Analyst

Thanks very much. It's Hamish Clegg from Bank of America Merrill Lynch. A two-parter, if I might. Will the $11 billion of CapEx that you're spending between now and 2020 sustain a 7.7 or thereabouts reserve life or will you need to dip into that $12 billion of free cash flow after dividend that you've guided us to? Following on from that, how will you split and prioritize that free cash flow between reinvesting, debt reduction, and return in capital to shareholders?

Eldar Sætre -- President and Chief Executive Officer

We are comfortable with our reserve life. We live comfortably with that life. It doesn't give us any urgency. We know we will be able through conscious work on both the transaction market and the exploration side -- that will support our resources when needed in the most value-enhancing way, so there's no distress, no urgency, and definitely no panic in addressing that. I also indicated -- and, that was one thing I raised when we talked about looking into the future -- that the $12 billion is based on the organic developments, and over the next three years, which is the guiding period, we will continuously look for inorganic opportunities, and that is not included in the guidance on the CapEx now.

So, a disciplined approach to that is for sure, and no urgency, but cautious and carving out good opportunities to optimize the portfolio. So, I can't give you any split of that. That is impossible. There are so many variables that go into that, as I just talked about. It's also indicated that we would like to strengthen our debt ratio more comfortably into 15% to 30%, and we have all the macro outlook developments that we also need to take into considerations, not only the oil and gas price at the moment, but how the outlook looks into the future. Maybe you want to add...

Hans Jakob Hegge -- Chief Financial Officer

Just a small -- look where we're coming from. The triple-R is the highest ever, at 150%. It comes from sanctioning, like Castberg. We have a fantastic portfolio of sanctionings coming up, but we also have the positive revisions -- like Marcellus, for instance -- adding to this. So, moving resource classes, systematic work, day by day, week by week for the organization. Give the triple-R on a three-year average on 100%, or 150% for 2017, so that also takes away some of the potential pressure to this topic.

Hamish Clegg -- Bank of America Merrill Lynch -- Analyst

So, you feel comfortable that $11 billion will sustain a 100% triple-R for the next three years?

Eldar Sætre -- President and Chief Executive Officer

In terms of the reserve replacement over the next three years, we believe that the organic developments with the project portfolio at hand -- that will be able to support at least 100% on average. I can't guarantee on an individual year, but on average over the next two years.

Peter Hutton -- Senior Vice President of Investor Relations

Can I just thank everybody's patience on the phones? We're going to move over to the phones now and answer the bank of questions that we've got there. As I said before, we'll do that one. Can I just thank their patience for holding on? We've had a lot of questions from the auditorium today. So, can we go through to the operator, please?

Operator

Thank you. We will take our first question from Anders Holte of Danske Bank. Please go ahead.

Anders Torgrim Holte -- Danske Bank -- Analyst

Good afternoon, guys, and congrats on a strong ending to a solid year. My question has two parts. The first one is on the CapEx guidance for this year and for the long-term outlook. You have now some timing thing you were saying should give you the same amount of activity for less, and that was the main driving force behind your CapEx production guidance in Q3. I'm also assuming that's the reason why you're not able to reduce costs further in '17 as a whole. The question is what sort of assumptions do you make on activity and potential cost inflation in the long-term perspective where you keep your CapEx level at $11 billion?

Eldar Sætre -- President and Chief Executive Officer

On the cost inflation part, Torgrim has commented on how he looks upon the unconventional part of the industry. When it comes to the conventional part of the industry, we don't see the same pressure. It's a diverse set of supplies with different setups, and different capacities, and constraints, and opportunities, but overall, we see a more moderate increase in the cost of supplies in the conventional part. There are still areas with quite material overcapacities, other areas are slightly more constrained, but we are working consciously on that, and I think that's reasonable inflation, but not really cost inflation that's reflecting that activity level in the industry. It might be increasing. On the $11 billion, do you want to comment more on that?

Hans Jakob Hegge -- Chief Financial Officer

Just that I think we provide some visibility in the slide deck where the fields being brought onstream where we plan to sanction or the partners where the operator plans to bring it onstream. So, the visibility around this should be fairly OK, I think, and as Eldar said, we will stay disciplined when it comes to these investment decisions, so we have a significant amount of flexibility still.

Eldar Sætre -- President and Chief Executive Officer

We have made quite significant improvements, and Margareth delivers an oversight of her whole portfolio twice a year, and we see costs coming down and really consistent improvements across the board. You get to a point where there is a limit to how much you can do. I don't think we should expect the same type of over-delivery on project deliveries into the future portfolio as you have seen lately, and that's why we -- basically, when we talk about this year compared to last year, it is mainly driven by activity, more fields. There's stuff going out of the portfolio, so mostly, it will be there, and there are some new projects that are coming in, and also, Martin Linge will come in with a 50% increased share. So, it's the best estimate we can give at the moment given the portfolio at hand.

Peter Hutton -- Senior Vice President of Investor Relations

Thank you. Next question.

Operator

We will take our next question from Anne Gjøen of Handelsbanken. Please go ahead.

Anne Gjøen -- Handelsbanken Capital Markets -- Analyst

Yeah, thank you. I have a question related to renewables. Last year, you entered into solar in Brazil, and my understanding is that that was a particular interest and a core area for you, and further growth is assumed organically. But, is it rather premature to talk about possible interests outside Brazil, and also, could you potentially be -- do you find prospects with competitive return in that area now as long as you've had such significant cost reduction elsewhere?

Eldar Sætre -- President and Chief Executive Officer

I'll give Irene the opportunity to comment on that.

Irene Rummelhoff -- Executive Vice President of New Energy Solutions

Thank you so much for taking an interest in this part of the business as well. We made our first entry into solar in Brazil, and it was not coincidental that we happened to do it in Brazil. We've said that we're pursuing a careful solar entry strategy where we go with experienced partners and build on our international oil and gas footprint. So, we're currently pursuing or looking for opportunities in other Statoil oil and gas areas. You mentioned U.S. That's one area that is emerging as a merchant risk market, meaning that you have to take market risk. I think that's actually an opportunity for Statoil with a strong balance sheet, where we see a lot of competitors moving away or shying away because they struggle to finance these kinds of projects. So, interesting opportunities in emerging markets with fixed-term PPAs, but also in more merchant risk markets.

Peter Hutton -- Senior Vice President of Investor Relations

Next question.

Operator

We will take our next question from Gudman Hartveit of Fearnley Securities. Please go ahead.

Gudman Hartveit -- Fearnley Securities -- Analyst

Yes, hello. Thanks for taking my question. It's related to new projects and currently unsanctioned projects. Now, you highlight $21.00 break-even for the next-generation portfolio, which is very impressive, but most of those projects are currently in the development phase. I think you also said you want to sanction new projects when they're good enough, which makes sense, but can you elaborate a little bit more on what you see as good enough? I think you previously talked about an ambition to have break-even below $40.00. Is that kind of level also a requirement for making new decisions on new projects?

Eldar Sætre -- President and Chief Executive Officer

There is no requirement or hurdle. Margareth is definitely pushing targets on every part of her business, every project, so we do run this through targets and putting pressure on the project, but I don't have this sort of number that tells us this is good enough and this is not because the industry is so dynamic. Sometimes, we see big projects that we embark on -- big projects typically get better over their lifetime. There's so much optionality in long projects and big projects, and I think it's really important to understand that optionality and the value of that optionality as well. So, there's no hurdle.

We have come down -- Hans Jakob, you indicated below $40.00 now, and this portfolio is growing, and we will continue to work it because they haven't been worked to the same extent. We have focused our resources on the more near-term projects, but gradually, they will be pushed even harder, and Margareth will get her hands around them and push them, so I think there is really significant potential to improve from where we are at the moment to below $40.00, but I can't give you a number, and definitely not a number on individual projects. But, we promise we'll work them harder. Margareth is so keen to --

Margareth Øvrum -- Executive Vice President of Technology, Projects & Drilling

I can give them a number. No, but as Arne Sigve alluded to, we have a 30 tie-in projects in our portfolio which we are working on, which is pretty good. We have an early phase project portfolio between -- we have gates from DG1 to DG3, where DG3 is sanctioning, and they're pretty good. Maybe next year, I will reveal this figure, but it's pretty good from DG1 to DG3. So, we have a lot to work on.

Peter Hutton -- Senior Vice President of Investor Relations

Thanks, Margareth. Next question.

Operator

We will take our next question from Halvor Nygård of SEB Investments. Please go ahead.

Halvor Strand Nygård -- SEB Investments -- Analyst

Hi, guys. Thank you. So, Sverdrup -- can you say something why the reserve range is still quite wide, and secondly, what kinds of recovery rates you have applied in the current estimates? On dividend, I know the dividend policy is to grow the dividend in line with underlying earnings, but is 4.5% growth -- as we saw in Q4 -- something that reflects in this year or next, in your view?

Eldar Sætre -- President and Chief Executive Officer

I'm not sure I captured the first question.

Hans Jakob Hegge -- Chief Financial Officer

The first one was on Sverdrup, the reserve range. We have increased the reserve range and we have narrowed it down due to the successful drilling. Why is it so wide? Maybe Arne Sigve wants to elaborate on that, but the history is that it was wider -- it was 1.7 to 3.0, and now it's 2.1 to 3-plus, so we actually have increased it. But still, there is a range, and the recovery factor, Arne Sigve -- very high and ambitious on a world-class level.

Arne Sigve Nylund -- Executive Vice President of Development & Production, Norway

Maybe both me Margareth could elaborate about the 2.1. 3.1 is an uncertainty span, but we are narrowing based on exactly what Margareth said on the 17 wells, that we now see that it's a more secure estimate within that, but we will follow it closely. As I said, going forward, there is an ambition of 70% recovery rate on Sverdrup, and as discussed -- or, as Margareth touched upon -- there are numerous initiatives to make that happen and to work on that going forward.

Hans Jakob Hegge -- Chief Financial Officer

Could you comment on the recovery rate?

Margareth Øvrum -- Executive Vice President of Technology, Projects & Drilling

The ambition is 70% in a good way, on a good roadmap for that. We will include one -- give it alternating gas and water injection. We have the permanent reservoir monitor. So, we are planning for increased oil recovery from Day 1 on Johan Sverdrup. The reason, also, for -- we will, of course, reduce the span when we get some more production experience from Johan Sverdrup, and we are going to start late next year. It's not that many years since we decided to sanction Sverdrup, but now it's...

Hans Jakob Hegge -- Chief Financial Officer

Next year.

Eldar Sætre -- President and Chief Executive Officer

So, on the dividend, may I reference and underline the earnings? That's our dividend policy. Our intention is to grow dividend with reference to how we look upon the prospectivity of long-term underlying earnings. So, that means we need to look at something that is there to stay. That should be the driver behind growing it, and this time, we feel that we have been through a pretty extensive improvement effort and increased efficiency, and as you said, we believe a large extent of that can be sustained -- 80% to 85%.

So, this gives us a basis at this time to indicate 4.5%. Next year, we will have to make another call, look at all the components, and is there a reason for growth or standstill -- I don't know. We will simply have to take that discussion. Let me also say there's no formula taking us to 4.5%, so it's basically a judgment call based on what we see and the confidence in our ability to sustain improvement. There's no formula defining our dividend as such.

Peter Hutton -- Senior Vice President of Investor Relations

Thanks, Eldar. I think we've got a last couple of questions on the phone, and then we will be wrapping up.

Operator

We will take our next question from Oddvar Bjørgan of Carnegie. Please go ahead.

Oddvar Bjørgan -- Carnegie Investment Bank -- Analyst

Yes, hello. If I can go back to the free cash flow guidance, or $12 billion over the next three years, I understand it's after dividends, but is it also after subtracting some $4 billion in net acquisitions? So, if we assume some $9 billion in dividends in the period with a good estimate of organic free cash flow before dividends and before net acquisitions, it would be approximately $12 billion, plus $9 billion, plus $4 billion, close to $25 billion over that three-year period. Is that correct?

Eldar Sætre -- President and Chief Executive Officer

I think we should stick to the number we have given you -- the $12 billion -- and that's referenced at the corporate level. As you say, it's after the dividend, and I commented on that -- what type of assumptions -- and it's after the transactions that we have made. I haven't got exactly the number that is put into that, but it's after all the transactions -- the Martin Linge, the Roncador, the Carcará, and all implications of those transactions that are included. Also, what happens after the considerations in terms of revenue and cash generation.

Oddvar Bjørgan -- Carnegie Investment Bank -- Analyst

A quick follow-up on that piece. Even though you don't have exact numbers there, it's nevertheless quite impressive free cash flow guidance, I would say. But, those acquisitions you are mentioning are some $3 billion or $4 billion U.S. dollars, but talking about the free cash flow there -- at least $23 billion, maybe as much as $25 billion or that figure. If you look at consensus out there by analysts, it's not $25 billion, it's closer to $14 billion over a three-year period. For a difference in oil price assumptions, you're using $70.00 while consensus is at $64.00.

If I used the cash flow sensitivities that you provide on Page 27 in your presentation material, you can see that a $6.00 difference is some $1 billion per year or $3 billion over three years. So, if you make consensus -- come up with the same oil price that you're using, it will be $17 billion, significantly below what you are guiding. So, the question -- finally -- is what do you think analysts are missing here? Is it in a particular area of your business where cash flow could be underestimated by analysts, do you think?

Hans Jakob Hegge -- Chief Financial Officer

Thank you for the compliments on our cash flow. Given a $70.00 world -- it is impressive, I agree. On the slide in my presentation on the strong cash flow generation, I illustrate two points: The cash flow from the operations, but also the flexibility in the CapEx non-sanctioned U.S. onshore, and this creates headroom for maneuvering, and that's what we are aiming at. The strong cash flow from operations has a clear indication, but not a hard, solid line, for very good -- and I might say obvious -- reasons, given the volatility that we're coming from. I like the fact that you see the strength in our cash flow.

Peter Hutton -- Senior Vice President of Investor Relations

Thanks very much. Nice question. We'll go through that as long as you like. Next question and final question, please, for the session.

Operator

We will take our next question from Jason Kenney of Santander. Please go ahead.

Jason Kenney -- Banco Santander -- Analyst

Hi there. Good afternoon. I'm just going back to the divestments, if I can. I think at the end of last year, on the offsite, you mentioned that the Campos Basin license might be peripheral given the lower state. Also, you were thinking about potential new supports in Carcará on that call, so I'm wondering if there is some potential for some asset position angle offloading the stake in Brazil.

Eldar Sætre -- President and Chief Executive Officer

We've taken some big bites in Brazil now of the Carcará and we're starting to work on the utilization of the Roncador. We have a broad strategic cooperation with Petrobras where we also will address opportunities within the gas monetization, for instance, and also exploration opportunities. So, we will obviously look for all kinds of opportunities in this basin and through the cooperation that we have, but I think now, what we're also working on is the exploration opportunities in Brazil, so there are regular rounds coming up -- one is coming up pretty soon -- so exploration is also an area that has some pretty high attention from our side in Brazil.

But, it's definitely an area that we find attractive. We feel that the framework is improving, it's stabilizing, it is an area that you could say is 10 or 15 years behind the Norwegian continental shelf, so all the lessons that we have learned in the Norwegian continental shelf are applicable to build and create value in the Brazilian context. That will be a starting point for how we look upon the opportunity sets further in Brazil.

Peter Hutton -- Senior Vice President of Investor Relations

With that, thanks very much to everybody here and on the phones. We've done slightly more than the 45 -- about 50 minutes of questions -- but I wanted to give everybody opportunities to ask those questions, and there will be other opportunities. We've got people from the executive team here today, so please feel free to talk to them as we move through next door. Can I just thank everybody for coming, and can I pass this through to Eldar for some closing words?

Eldar Sætre -- President and Chief Executive Officer

Yes. So, I would just like to thank you all again for coming. I know you have a busy schedule, but we truly appreciate seeing so many of you gathered here and spending time listening to our story, which we think is really a great story, good results, and the value proposition we are presenting -- I think that is something that really makes us proud, and we are a company that is addressing not only the short term, but also the longer term, and has some strong ideas about how to shape the future of energy, both within oil and gas and in the renewable arena. Exciting opportunities for the industry, definitely also for this company.

So, just to repeat -- you've heard it before -- the three components and main messages: First of all, we see a really strong capacity to grow returns and grow cash flow forward, and we are left the dividend this time by 4.5%. We are investing in a remarkable portfolio with a break-even price of $21.00 U.S. dollars. And, industrially, what we have tried today is to highlight to you what is really the fundamental industry value drivers in this company, coming from the Norwegian continental shelf and how we tried to leverage that to get much more out of what we had, the opportunities on the Norwegian shelf, but increasingly leveraging that consciously into our industrial portfolio. So, that is what we have talked about today, and I hope you see that. Again, I thank you all for coming and spending the time with us, and we wish you all a very safe journey home. Thank you very much.

Duration: 155 minutes

Call participants:

Eldar Sætre -- President and Chief Executive Officer

Hans Jakob Hegge -- Chief Financial Officer

Arne Sigve Nylund -- Executive Vice President of Development & Production, Norway

Margareth Øvrum -- Executive Vice President of Technology, Projects & Drilling

Lars Christian Bacher -- Executive Vice President of Development & Production, International

Torgrim Reitan -- Executive Vice President of Development & Production, USA

John Knight -- Executive Vice President of Global Strategy & Business Development

Jez Averty -- Senior Vice President of Exploration in Norway & U.K.

Jannicke Nilsson -- Chief Operating Officer

Irene Rummelhoff -- Executive Vice President of New Energy Solutions

Peter Hutton -- Senior Vice President of Investor Relations

Oswald Clint -- Sanford C. Bernstein -- Analyst

Jeffrey Taylor -- Invesco -- Head of European Equities

Theepan Jothilingam -- Exane BNP Paribas -- Managing Director

Jonathon Rigby -- UBS Investment Bank -- Managing Director

Robert West -- Redburn Partners -- Partner

Biraj Borkhataria -- RBC Capital Markets -- Analyst

Iain Reid -- Macquarie Capital Partners -- Analyst

Marc Kofler -- Jefferies -- Analyst

Brendan Warn -- BMO Capital Markets -- Analyst

Christyan Malek -- JP Morgan -- Analyst

Thomas Yoichi Adolff -- Credit Suisse -- Director

Hamish Clegg -- Bank of America Merrill Lynch -- Analyst

Anders Torgrim Holte -- Danske Bank -- Analyst

Anne Gjøen -- Handelsbanken Capital Markets -- Analyst

Gudman Hartveit -- Fearnley Securities -- Analyst

Halvor Strand Nygård -- SEB Investments -- Analyst

Oddvar Bjørgan -- Carnegie Investment Bank -- Analyst

Jason Kenney -- Banco Santander -- Analyst

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