1 Introduction

1.1 About the report

Statoil's Annual Report on Form 20-F for the year ended 31 December 2014 ("Annual Report on Form
20-F") is available online at www.statoil.com. 

Statoil is subject to the information requirements of the US Securities Exchange Act of 1934 applicable to foreign private issuers. In accordance with these

requirements, Statoil files its Annual Report on Form 20-F and other related documents with the Securities and Exchange Commission (the SEC). It is also

possible to read and copy documents that have been filed with the SEC at the SEC's public reference room located at 100 F Street, N.E., Washington, D.C.

20549, USA. You can also call the SEC at 1-800-SEC-0330 for further information about the public reference rooms and their copy charges, or you can

log on to www.sec.gov. The report can also be downloaded from the SEC website at  www.sec.gov.

Statoil discloses on its website at www.statoil.com/en/about/corporategovernance/statementofcorporategovernance/pages/default.aspx, and in its

Annual Report on Form 20-F (Item 16G) significant ways (if any) in which its corporate governance practices differ from those mandated for US companies

under the New York Stock Exchange (the "NYSE") listing standards.

1.2 Key figures and highlights

Statoil publishes financial data in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and as adopted by the European Union (EU).

STATOIL AT A GLANCE

Our history

The company was founded as The Norwegian State Oil company (Statoil) in 1972, and became listed on the Oslo Børs (Norway) and New York Stock Exchange (US) in June 2001. Statoil merged with Hydro`s oil and gas division in October 2007.

Statoil is an international energy company with operations in over 30 countries. We are headquartered in Stavanger, Norway with approximately 20,500 employees worldwide. We create value through safe and efficient operations, innovative solutions and technology. Statoil’s competitiveness is founded on our values-based performance culture, with a strong commitment to transparency, cooperation and continuous operational improvement.

Our shareholders

The Norwegian State is the largest shareholder in Statoil, with a direct ownership interest of 67%. Its ownership interest is managed by the Norwegian Ministry of Petroleum and Energy. US investors hold 9.6%, Norwegian Private owners hold 8.9%, other European investors hold 7.1%, UK investors hold 5.1% and others hold 1.5%.

Our business areas

We have eight business areas:

·Development and Production Norway

·Development and Production International

·Development and Production USA

·Marketing, Midstream and Processing

·Technology, Projects and Drilling

·Exploration 

·Global Strategy and Business Development

·New Energy Solutions

Our strategy

Statoil is an energy company committed to long-term value creation in a low carbon future. Statoil will develop and maximise the value of its unique Norwegian continental shelf position, its international oil and gas business and its growing new energy business; focusing on safety, cost and carbon efficiency. Statoil is a values based company where empowered people collaborate to shape the future of energy.

Our values

Open, Collaborative, Courageous and Caring.

Our dividend policy

It is Statoil's ambition to grow the annual cash dividend, measured in USD per share, in line with long term underlying earnings. Statoil announces dividends on a quarterly basis. In May 2016, the annual general meeting approved the introduction of a two-year scrip dividend programme commencing from the fourth quarter of 2015.

Key figures and highlights

2About the report

This document constitutes the Annual report on Form 20-F in accordance with the US Securities and Exchange Act of 1934 applicable to foreign private issuers. A cross reference to the Form 20-F requirements are set out in section 5.10 in this report. The Annual report on Form 20-F and other related documents are filed with the US Securities and Exchange Commission (the SEC).

Financial reporting terms used in this report are in accordance with International Financial Reporting Standards (IFRS) as adopted by the European union (EU) and also comply with IFRS as issued by the International Accounting Standards Board (IASB), effective at 31 December 2016. This document should be read in conjunction with the cautionary statement in section 5.7 Forward-looking statement.

The Statoil Annual report and Form 20-F may be downloaded from Statoil’s website at [Statoil.com/annualreport2016]. No other material on Statoil’s website forms any part of such document. References to this document or other documents on Statoil’s website are included as an aid to their location and are not incorporated by reference into this document. All of the SEC filings made available electronically by Statoil may be obtained from the SEC at 100 F Street, N.E., Washington D.CC. 20549, United States or on the SEC’s website at www.sec.gov. 

2.1 Strategy and market overview

Our strategy for value creation and long-term growth remains firm. However, the profitability of the oil and gas industry continues to be challenged and Statoil’s financial results in 2014 were influenced by the fall in oil prices. Stricter project prioritisation and a comprehensive efficiency programme are showing progress and will improve cash flow and profitability. Our strong financial position provides a firm basis on which to balance capital investment and dividends to shareholders, which we expect to grow in line with our long term earnings.

Last year we outlined the plan to strengthen Statoil’s competitiveness, and we now reinforce our efforts and commitment to deliver on our priorities of high value growth, increased efficiency and competitive shareholder returns. Through our significant flexibility in our investment programme we believe we are well prepared for potential sustained market volatility and uncertainty.

Statoil’s ambition to reduce costs and improve efficiency was presented at the capital markets update (CMU) on 7 February 2014, targeting annual savings of USD 1.3 billion from 2016. At the CMU on 6 February 2015, Statoil announced that it will step up its efficiency programme by 30% with a

goal to realise USD 1.7 billion in annual savings from 2016.

Improvement programmes are Statoil’s response to the industrial challenges characterised by escalating cost and declining returns. More specifically, the ambition is to realise positive production effects and cost savings to improve Statoil’s financial results and cash-flows.

These forward-looking statements reflect current views about future events and are, by their nature, subject to significant risks and uncertainties because they relate to events and depend on circumstances that will occur in the future. See the section Forward-Looking Statements for more information. 

2.1 OurStatoil’s business environment

2.1.1 Market overview

Global2016 was another year of sub-par growth, with global economic GDP growth picked up only marginallyeasing from 2.6% to 2.3%. This was largely driven by the slowdown in 2014, to 2.7%OECD economies, with non-OECD economies gaining momentum over the year. In the United States, consumer spending remained healthy, but investment contracted and resulted in GDP growth decelerating from 2.6% in 2013. Growth2015 to 1.6%. Economic expansion continued at a moderate pace in OECD has been gaining momentum, driventhe Euro-zone at 1.7%, supported by the United States. Non-OECD activity slowed in 2014, but remains decentprivate consumption and supportive of overall economic growth and energy demand.

While growthhigher employment. The economy in the United States andKingdom held up well despite the United Kingdom has strengthened as laborEU Leave vote, while in contrast Japan logged relatively modest growth. Emerging markets heal and monetary policy remains very expansive,maintained their growth rate from 2015, partly due to Russia heading towards economic recovery during the recovery has been hesitant inyear. 2016 saw China's growth stabilise due to intensified stimulus efforts amidst the Eurozone and Japan. Growth in emerging countries slippedcontinued slowdown since 2012, caused by economic rebalancing. India’s GDP growth rate eased to 4.2% in 2014, reflecting both weak external demand and domestic challenges. China is still growing at a healthy pace, but continues6.6% on an intended paththe sudden demonetarisation of gradual deceleration.

large currency notes that hampered consumption. Several major forces are at play in the global economy and will continue to affect demand: softdemand, including relatively low commodity prices; persistentlyprices, low interest rates, alongside increasingly divergent monetary policies across major economies,increased policy uncertainty and weak world trade. In particular, the sharp decline in oil prices since mid-2014 has supported global economic activity and will continue to do so in 2015.

Continued recovery in the United States, a gradual acceleration of activity in the Eurozone, and receding headwinds to growth among slower-growing emerging economies are expected to lift global growth in 2015 to 3%, according to Statoil’s own research. This rate, which is in line with historic trend growth, is likely to be sustained over the next 10 years, comprising 2% annual growth in the OECD economies and 5% annual growth in non-OECD economies. This means that the globally weighted, geographical point of economic gravity continues to move gradually eastwards and southwards relative to the OECD economies in Europe and North America.

The growing populations in emerging economies represent a strong long-term driver of economic development and energy demand. Global oil demand grew by 0.7a healthy 1.5 mmbbl per day in 2014. A slowdown2016. Production from non-Opec countries reacted to lower prices and declined by 0.9 mmbbl, with most of the decline taking place in Chinese oil demand growthNorth America and weaker fundamentals in Europe and Japan were the main reasons behind the five-year low result. Statoil's research suggests that the annual growth in oil demand will averageChina. However, Opec added 1.1 mmbbl per day over the medium-term. Positive growthto production. This resulted in non-OPEC supply, in particular from North America, tight oil and other liquids, will continue to putan oversupplied market throughout 2016, with storage levels moderately increasing.

The first half of 2016 saw a downward pressure ontrend in gas prices, while OPEC maintains its production of 30 mmbbl per day. The weakening of the fundamentals in global oil marketswhich reflected both market balance and the slow recovery of the OECD economies and emerging markets are expected to continue to affect markets in 2015.surrounding competitive fuels. However, prices below USD 50/bbl are expected to lead to a significant reduction in shale oil production growth and the building of global commercial oil stocks will turn to stock draws in the second half of 2015.

Due2016, markets have strengthened due to a general increase in energyrebounding commodity market and demand and the competitiveness ofresponding to weak gas in terms of cost and environmental effects, global gas demand is expected to grow. However, the increase in demand will be impacted by energy and climate policies in key regions and countries. Statoil's research suggests that gas demand will increase by 1% and 2% in Europe and in North America, respectively, during the rest of the current decade, whereas Asia will see a growth of 5%prices in the same period. Both Europe and Asia will have to depend on importsfirst half of LNG, which will help sustain a robust price level. In North America, where

a revolution in the shale industry has led to increase in proved reserves and production rates have led to historically low prices, prices are expected to gradually increase as the market situation normalises, though the level will remain below that of European and Asian gas prices.

overflow of diesel imports from Russia and the US Gulf. On the other hand, naphthaagain. This caused refinery margins were quite strong on export opportunities into Asia. In the third quarter, margins improved significantly, mainly driven by gasoline. This wasto improve again in particular caused by a lack of octane components, some of which had been exported separately to China. Also, the physical Brent market started to weaken, and price differentials for other crudes came off vs. Brent. These factors continued into the fourth quarter, resultingquarter. The average margin for an upgraded refinery in margins above normalNorth West Europe was solid and in November. A major reason for this strength was that China ran its vast refining capacity at low utilization rates. They seemed to run only to cover domestic diesel demand, which was stalling. That allowed for exports from Europe for lighter products like gasoline, naphtha and LPG, for which there was demand growth. Europe saw two new refinery closures, one in Italy and one in the UK. European diesel demand was strong, partly due to an upcoming shift from heavy fuel oil to diesel as shipping fuel in the North Sea and Baltics from
1 January 2015. Stationary fuels like heating oil and heavy fuel oil experienced further declines.line with 2014, but well below 2015 margins.

2.1.3 Natural gas prices

Natural gas prices declined throughout 2015 but stabilised in Europe have fallen in 2014 asthe second quarter of 2016. The fourth quarter of 2016 experienced a result of weak demand and a healthy supply picture boosted by increased LNG availability,robust price recovery due to consumption growth in Asia and Europe. Henry Hub experienced its lowest annual price in over a weakened Asian Spot LNG market. In North America prices in 2014 averaged 17% higher than in 2013.decade through 2016.

Gas prices -– Europe

The European natural gas price level was 20% lowerNBP prices fell from an average of USD 7.5/MMBtu in 2014 as prices averaged USD 8.2/mmbtu comparedfirst quarter 2015 to USD 10.3/mmbtu5.4/MMBtu in 2013. Gas consumptionfourth quarter 2015. The decline continued in EU28 declined by 12%. Domestic European production excluding Norway fell from 152 bcmfirst quarter 2016, averaging USD 4.3/MMBtu, before falling to 137 bcm.a decade low of USD 3/MMBtu in August 2016. Since August’s low point, average monthly prices have strengthened, closing 2016 at USD 6.2/MMBtu and resulting in an annual 2016 average of USD 5/MMBtu.

Norwegian pipeline exportsEU gas consumption continued to grow in 2016 as power generation responded to higher priced coal and outages of nuclear reactors in France. Furthermore, heating demand has responded to a more normal European weather pattern. EU indigenous gas production held at a record low of 125 bcm as the Dutch government revised the production limit at the Groningen field down to 24 bcm. European imports from Russia were at 102a record high of 179 bcm roughly the same as last year. Total European LNGand imports (Turkey and Israel excluded)from Norway were with 53 bcm at the same record level as last year's imports. The levelin 2015, 108 bcm. Record levels of re-exports increasedpipeline imports have been encouraged by 63%. Total liquefaction was at 329 bcma small downturn in line the production seen in the past 3 previous years. The demand growth in Asian countries, which only resulted in a marginal increase in import of LNG is no longer strong enoughdeliveries to offset the declining consumption trend in Europe. A possible restart of some Japanese nuclear power plants this year could further weaken Asian demand growth.LNG supplies into North Western Europe have diminished, whilst imports into Southern Europe remain constant.

Further increase in renewable power generation capacity impacted the power markets and gas-to-power demand fell. However, the gas-to-power segment is now close to a floor minimum level.

Gas prices - North America

Supply growth has been a regular feature of the natural gas market in recent years, but in 2014 demand was able to absorb that supply, keeping storage below normal levels. Average cashGas prices were boosted to overvolatile in 2016, falling below USD 4/mmbtu for the first time since 2010.

The race between demand and supply growth favored demand2/MMBtu early in 2014, but shifted toward supply for the remainderyear, before rising above USD 3/MMBtu at the end of the year. Production growthThe Henry Hub average of USD 2.4/MMBtu was the fastestlowest annual price in years,over a decade, down from USD 2.6/MMBtu in 2015 largely as 34 bcm was added ata result of oversupply. US gas producers responded to the wellhead. South Marcellus became the fastest growing supply basin. Cold weather in the first quarter started the year on a bullish note, driving Henry Hubfalling prices above USD 5/mmbtu and lowering inventoriesby withdrawing rigs to the lowest level in decades. Gas production fell throughout the year as a decade. Once the winterresult. Demand for gas was over, supply growth and rebuilding stocks were the main story for 2014.

The trends of 2014 continued into 2015,strong in 2016, with a weak start, with strong supply and inventories close to normal at the start of the year. By 2016 and later this decade a number of factors are expected to be more bullish: LNG export projects are expected to start up,natural gas should make gains at coal's expensereplacing coal in the power sector industrial demand is expectedand LNG exports starting from the Gulf Coast.

Global LNG prices

LNG prices fell throughout 2015 from an average of USD 7.3/MMBtu in first quarter 2015 to riseUSD 4.5/MMBtu in first quarter 2016, but stabilised in second quarter of 2016 at an average of USD 4.9/MMBtu.  The second half of 2016 experienced robust price recovery to average USD 8/MMBtu in fourth quarter 2016, largely due to consumption growth in Asia and the supply side will need to turn to incrementally higher cost reserves. North American gas prices are expected to appreciateMiddle East, further intensified by lower-than-expected ramp-up of new LNG facilities as a result, though remaining below Asian and European levels.well as unplanned outages.

2.2 OurStatoil’s corporate strategy

Statoil aimsis an energy company committed to growlong-term value creation in a low carbon future. Statoil creates value by turning natural resources into energy for people and enhanceprogress for society. Statoil will develop and maximise the value throughof its technology-focused upstream strategy, supplemented by selective positions inunique NCS position, its international oil and gas business and its growing new energy business, focusing on safety, cost and carbon efficiency. Statoil is a values-based company where empowered people collaborate to shape the midstream and in low-carbon technologies.future of energy.

Statoil's top priorities remain to conduct safe and reliable operations with zero harm to people and the environment, and to deliver profitable production growth through disciplined investments and prudent financial management with competitive redistribution of capital to shareholders. To succeed going forward we continue to focus strategically on the following:in turning Statoil’s vision into reality, Statoil pursues a strategy to:

·          Sustaining leading exploration company performanceDeepen and prolong the NCS position

·          Taking out the full value potential of the Norwegian continental shelf (NCS)

·Strengthening our global offshoreGrow material and profitable international positions

·          Maximising the value of our onshore positionsProvide energy for a low-carbon future through growth in New Energy Solutions (NES)

·          Creating enhanced value from midstream solutions

·Continuing portfolio management to enhance value creation

·Utilising oilFocused and gas expertisevalue-adding mid- and technology to open up new renewable energy opportunities

Our priorities·Exploration: Statoil continues to be a committed NCS explorer across mature, growth and frontier areas. In 2016, Statoil participated in 14 exploration wells on the unconventional resources space include:NCS, resulting in 11 discoveries. Statoil was awarded 29 licenses in mature areas in Norway’s Awards for Predefined Areas (APA) 2016 round (result announced January 2017), 16 as operator and 13 as non-operating partner, and five licenses in frontier areas in Norway’s 23rd concession round, four as operator and one as partner

·          Delivering a safeDevelopment: The Johan Sverdrup Phase 1 project is progressing in line with schedule. Production drilling started in the first quarter of 2016. Pre-sanction for Johan Sverdrup Phase 2 is scheduled for the first quarter of 2017. Statoil increased its equity interest in the UK part of the Utgard license and profitable production ramp-upsubmitted the Utgard Plan for Development and Operation (PDO) in the second quarter of 2016. The PDOs for Byrding and Trestakk were delivered and the PDO for Oseberg Vestflanken 2 was approved during 2016

·          Taking careProduction: Gullfaks Rimfaksdalen came on-stream. Production started at Fram C, tied into existing infrastructure in the Fram and Troll area

Statoil has completed two share transactions resulting in a 20.1 per cent equity ownership in Lundin Petroleum AB. Lundin is our partner in several fields, including a 22.6% interest in the unitised Johan Sverdrup field development. Statoil also acquired 25% of Byrding.

By the communities we are entrustedend of 2016, Statoil had achieved CO₂ emission reductions in excess of 1 million tonnes per year compared to a 2008 baseline on the NCS, primarily through better energy management and improved energy efficiency. Our 2020 target is to deliver 1.2 million tonnes of CO₂ emission reductions compared to 2008. In August 2016, the Norwegian petroleum industry announced its ambition to implement CO₂ reduction measures corresponding to 2.5 million tonnes on the NCS by 2030 compared to 2020. Statoil’s commitment is to deliver 2.0 million tonnes of this CO₂ reduction target.

Grow material and profitable international positions

International oil and gas production represented approximately one third of Statoil’s equity production at 744 mboe per day in 2016. Statoil will continue to explore, develop, and produce oil and gas opportunities outside Norway to enhance Statoil’s upstream portfolio.

·Exploration: Statoil continues to explore internationally for oil and gas. Statoil participated in nine exploration wells internationally, of which three were discoveries, including the Baccalieu discovery in Canada. Statoil added exploration acreage in Brazil, Canada, New Zealand, Russia, the UK and the US Gulf of Mexico, accessed exploration acreage in Ireland and Turkey and entered two new countries, Mexico and Uruguay. A joint venture comprising Statoil, BP and Total was awarded Blocks 1 and 3 in the Saline Basin in Mexico, with Statoil as the operator.

·Development: Statoil strengthened its strategic partnership with Petrobras in Brazil. Construction progress continued as planned on Peregrino Phase II

·          Leveraging rapid applicationProduction: Heidelberg and Julia production came on-stream in the US Gulf of Mexico and, along with operator BP and other partners, significant advances have been made towards the award of a licence extension for Azeri-Chirag Guneshli (ACG) in Azerbaijan. The In Salah southern fields in Algeria and the Corrib field in Ireland both had major ramp-ups in 2016

In Brazil, Statoil acquired a 66% interest in and became the operator license of BM-S-8, which contains a substantial part of the Carcará field. Operatorship was assumed and appraisal activities began on BM-C-33. In the US, Statoil increased its stake in the Eagle Ford field and assumed full operatorship. Statoil continued to focus its portfolio with a partial divestment of non-core Marcellus acreage and agreeing the sale of its oil sands business in Canada.

Provide energy for a low-carbon future
Statoil recognises that opportunities are increasingly available in producing low carbon energy.

In 2016 Statoil launched Statoil Energy Ventures, a USD 200 million venture capital fund dedicated to investing in attractive and ambitious growth companies in renewable energy. This fund made its first investments in United Wind Inc. and later in ChargePoint Inc., Convergent Energy and Power Inc. and Oxford Photovoltaics Ltd., and is continuing to evaluate market opportunities. Statoil has also continued to explore new technologybusiness opportunities in carbon capture and storage as well as other potential new energy markets.

·Development: The 402 MW Dudgeon Offshore Wind Park development started installation in the first quarter of 2016 and is expected to maximisebe fully commissioned by the fourth quarter of 2017

·Production: In 2016, Statoil signed a letter of intent to become operator of the Sheringham Shoal Offshore Wind Farm in January 2017; it currently produces from an installed capacity of 317 MW. Statoil has a 40% ownership stake of the Scira consortium which produces electricity from the Sheringham Shoal wind park

Statoil partnered with E.ON to develop the 385 MW Arkona wind farm offshore Germany, with start-up planned for 2019. In the US, Statoil was declared the provisional winner of the US government’s wind lease sale offshore New York, with a potential generation capacity of more than 1.8 GW.

Statoil will also start production from the world's first floating windfarm, Hywind Scotland, in the fourth quarter of 2017. Statoil's partner in the 30 MW project is Masdar, which acquired 25% of the project in January 2017. The project will also include an innovative battery storage solution, Batwind, which represents the company's first wind development with integrated energy storage. 

Statoil has delivered a feasibility study to the Norwegian government for part of a Norwegian carbon capture and storage (CCS) value chain. The scope has been to find commercial methods to inject CO₂ volumes arriving via ship into an underground reservoir on the NCS. Statoil’s long experience with CO₂ storage from Sleipner and Snøhvit has been valuable, finding commercial and technical means to store large volumes of third party CO₂ in order to accommodate the world’s need for CCS solutions. 

Focused and value-adding mid- and downstream

The prime objective for Statoil’s mid- and downstream activities is to process and transport its oil and gas production (including the Norwegian State’s petroleum) competitively to premium markets, securing maximum value realisation. The main focus is on:

·Safe and efficient operations

·Continuous improvement in operational regularity, HSE and costs

·Flow assurance and marketing of Statoil’s equity production (crude oil, natural gas, related products) and the State’s Direct Financial Interest (SDFI) volumes for maximum value creation

·          High grading acreage holdingsUtilisation of the Asset Backed Trading model across commodities to strengthen current upstream positionscapture margin opportunities

·          Demonstrating operational excellence and world class stakeholder managementMaintaining Statoil’s position as a leading European gas supplier

·          Striving for seamless value chain integration and superior price realisationA capital lean asset structure

Creating enhanced value from midstream solutions

The dynamics of the gas markets in Europe are changing. There is a development towards a more liberalised market with new players and increased competition. Our European gas reserves are located close to the European markets, we have flexible production capabilities and transportation systems, and our commercial experience in gas sales and trading has a proved track record. This puts us in a unique position to take advantage of the evolving European gas markets.

·In the short-term, we are making considerable efforts to maximiseStrategic focus is directed at optimising the value of ourStatoil’s flexible Norwegian gas in this market.

·In the medium to long-term, we will continue to promote gas as an important part of meeting European objectives for energy securityproduction assets that supply Europe and emission reductions. We strongly believe that natural gas is the most cost-effective bridge to a low-carbon economy.

Beyond Europe, our plannedat Statoil’s midstream gas and liquids activities in North America, are progressing in step with the building of our upstream unconventional resources business. These activities encompass a mix of capacity commitments, ownership and/or operation of gathering, transportation and storage facilities,where Statoil’s onshore portfolio is developing. Statoil achieved strong marketing alliances and trading operations. They are considered important to meet our goals for flow assurance and margin capture.

Continuing portfolio management to enhance value creation

By being proactive, we intend to further enhance our portfolio in the years ahead, so that it will ultimately be more valuable, more robust and more sustainable towards 2050. The strategic focus in these endeavours will be to provide financial flexibility, access exploration acreage and unconventional resources, secure operatorships, build cluster positions, manage asset maturity, de-risk positions and demonstrate the intrinsic value of the portfolio.

Announced transactions in 2014 include the sale of interests in licences on the NCS to Wintershall, farming down a portion of our non-operated US southern Marcellus acreage to Southwestern, sale of a 10% interest in the Shah Deniz project and the South Caucasus Pipeline to BP and SOCAR and sale of the remaining interests in the Shah Deniz field and South Caucasus Pipeline to PETRONAS. These transactions further underpin our ability to release capital for profitable redeployment.

Utilising oil and gas expertise and technology to open new renewable energy opportunities

Growing demand for clean energy is creating new renewable and low-carbon technology business opportunities. Our core capabilities and expertise put us in a position to seize these opportunities in two specific areas: offshore wind and carbon value chains.

In 2014, we sanctioned the Dudgeon Offshore Windfarm off the coast of Norfolk, UK. In addition, we continued developing the proprietary Hywind floating offshore wind concept. Our ambition is to play an active role in reducing costs and making offshore wind profitable, ultimately without government subsidies or support.results across all commodities.

Developing competences within carbonResearch, development, and deployment of technology to unlock opportunities and enhance value chains represents a key opportunity for reducing carbon emissions and building new business models in the transition to a low carbon world. Statoil continues to build competence and experience in carbon capture, transportation, storage and utilisation by our engagements in the world-class Technology Centre Mongstad CO₂ test site.

2.3 Our technology

We continuously develop and deploy innovative technologies to ensure safe and efficient operations and to deliver on our strategic objectives.

We believeStatoil believes that technology is a critical success factor in the business environment where we operate. In addition to requiring capital efficiency, this environment is characterised by a broad and complex opportunity set, stricter demands on our licence to operate and tougher competition. In this context, technology is increasingly important for resource access and value creation. OurStatoil’s technology development activities aim to increase access to new oil and gas resources at competitive cost, reduce field development, drilling and operating costs.

We utilise a range of tools forcosts, and CO₂ and other greenhouse gas emissions. Statoil’s technology efforts focus on the development of new technologies where choice of tool is dependent on strategic importance of technology for us and our position related to Intellectual property. Our toolbox includes:

·In-house research and development (R&D)following priority areas:

·          Collaborative development projects with our major suppliers

·Project related development as part of our field development activities

·Direct investment in technology start-up companies through our Statoil technology invest venture activities

·Invitation to open innovation challenges as part of Statoil Innovate

1.Cash generation capacity

Generating positive cash flows from operations, even at low oil and gas prices, in order to maintain our licencesustain dividend and investment capacity through the cycle. 

2.Capex flexibility

Having sufficient flexibility in organic capital expenditure to operate we continuously focus on technologies for safe, reliablebe able to respond to market downturns and efficient operations. As part of our focus on sustainability issues we are committed to developing and implementing energy-efficient and environmentally sustainable solutions.avoid value destructive decisions.

3.Capture value from cycles

Expanding our capabilities - success in a highly competitive environment requiresEnsuring the ability and capacity to build on ouract counter-cyclically to capture value through the cycles.

4.Low-carbon advantage

Maintaining competitive advantages, stimulate innovationadvantage as a leading company in carbon efficient oil and takegas production, while building a long-term view on selected potentially high-impact technology ventures. Of particular importance is our collaborative way of working with partners and suppliers on a global basis.low carbon business to capture new opportunities in the energy transition.

In 2014 we qualified a record number of new technologies for internal use and implementation on our operating assets. In addition we met our target for implementation of proved technologies with high value creation impact across multiple assets.

2.4 Group outlook

OurStatoil’s plans address the current environment while continuing to invest in high-quality projects. We reinforce ourStatoil continues to reiterate its efforts and commitment to deliver on ourits priorities of high value growth,creation, increased efficiency and competitive shareholder return.

·          Organic capital expenditures for 20152017 (i.e. excluding acquisitions, capital leases and other investments with significant different cash flow pattern), are estimated at around USD 1811 billion compared to USD 19.6 billion in 2014.

·          Statoil willintends to continue to mature theits large portfolio of exploration assets and estimates a total exploration activity level atof around USD 3.21.5 billion for 2015,2017, excluding signature bonuses.bonuses

·          Statoil expects to deliver achieve an additional USD 1 billion in efficiency improvements with pre-tax cash flow effects in 2017 for a total of around USD 1.74.2 billion from 2016.

·          OurStatoil’s ambition is to maintain ROACE (Return on Average Capital Employed) at 2013 level adjusted for price and currency level, and to keep our the unit of production cost in the top quartile of ourits peer group.group

·          For the period 2014 - 2016 – 2020, organic production growth is expected to come from new projects resulting in around 2%3% CAGR (Compound Annual Growth Rate) from a 2014 level rebased for divestments.

·          The equity production development for 20152017 is estimated to be around 2% CAGR from a 20144-5% above the 2016 level rebased for divestments.

·          Scheduled maintenanceactivity is estimated to reduce quarterly production by approximately 10 mboe per day in the first quarter of 2017. In total, maintenance is estimated to reduce equity production by around 4530 mboe per day for the full fiscal year 2015, of2017, which is lower than the majority is liquids.2016 impact

·          Indicative PSA (Production Sharing Agreement) effecteffects from Production sharing agreements (PSA-effect) and US royalties are estimated to be around 160150 mboe per day in 20152017 based on an oil price of USD 6040 per barrel and 190165 mboe per day based on an oil price of USD 10070 per barrel.barrel

·          Deferral of gas production to create future value, gas off-take, timing of new capacity coming on stream and operational regularity represent the most significant risks related to the foregoing production guidance.guidance

These forward-looking statements reflect current views about future events and are, by their nature, subject to significant risks and uncertainties because they relate to events and depend on circumstances that will occur in the future. See theFor further information, see section 5.7 Forward-Looking Statements for more information. Statements.

3Business overview2.2 BUSINESS OVERVIEW

3.1 Our historyHistory

O

n 18 September 1972, Statoil was formed in 1972 by a decision of the Norwegian parliament and listed on the stock exchanges in Oslo and New York in 2001.

Statoil was incorporated as a limited liability company under the name Den norske stats oljeselskap AS on 18 September 1972. AsAS. Being a company wholly owned 100% by the Norwegian State, Statoil's initial role was to be the government's commercial instrument in the development of the oil and gas industry in Norway.

In 2001, the company became a public limited company listed on the Oslo and New York stock exchanges, and it changed its name to Statoil ASA.

Statoil has grown Growing in parallel with the Norwegian oil and gas industry, which dates back to the late 1960s. Initially, ourStatoil’s operations werehave primarily been focused on exploration, development and production of oil and gas on the Norwegian continental shelf (NCS), as a partner..

InDuring the 1970s,1980s, Statoil commenced its own operations, made important discoveries and began oil refining operations, which have been of great importance togrew substantially through the further development of the NCS.

Statoil grew substantially in the 1980s through the development of large fields on the NCS (Statfjord, Gullfaks, Oseberg, Troll and others). Statoil also became a major player in the European gas market by securingentering into large sales contracts for the development and operation of gas transport systems and terminals. During the same decade, we wereStatoil was involved in manufacturing and marketing in Scandinavia and established a comprehensive network of service stations. This line of business was fully divested in 2012.

In 2001, Statoil was listed on the Oslo and New York stock exchanges and became a public limited company under the name Statoil ASA, 67% majority owned by the Norwegian State. Since 2000, our business has grown as a result ofthen, substantial investments both on the NCS and internationally. Our ability to fully realise the potential of the

NCS was strengthened through theinternationally, have grown our business. The merger with Hydro's oil and gas division on 1 October 2007.

In recent years, we have utilised our2007 further strengthened Statoil’s ability to fully realise the potential of the NCS. Enhanced utilisation of expertise to design and manage operations in various environments in order to growhave expanded our upstream activities outside our traditional area of offshore production. This includes the development of heavy oil and shale gas projects.

In 2010, we carried out an initial public offering of Statoil Fuel & Retail ASA on the Oslo stock exchange (Oslo Børs), partially divesting projects and reducing our interest in the business relating to service stations. In 2012, all of the remaining shares in Statoil Fuel & Retail ASA were divested.

Statoil is also participating in projects that focus on other forms of energy, such as offshore wind and carbon capture and storage, in anticipation of the need to expand energy production, strengthen energy security and combat adverse climate change.storage.

3.2 Our businessActivities

Statoil is a technology-drivenan international energy company primarily engaged in oil and gas exploration and production activities.

Statoil ASA is a public limited liability companyactivities, organised under the laws of Norway and subject to the provisions of the Norwegian Public Limited Liability Companies Act. The Norwegian State is the largest shareholder in Statoil ASA, with a direct ownership interest of 67%.

Statoil's head office is located in Stavanger, Norway. We have business operations in more than 30 countries and have more than 22,500 employees worldwide.

Statoil isIn addition to being the leading operator on the Norwegian continental shelf (NCS), Statoil has also substantial international activities and is also expanding its international activities. Statoil is present in several of the most important oil and gas provinces in the world. In 2014, 39% of Statoil's equity production came from internationalOur activities span operations in more than 30 countries and the company also holds operatorships internationally.employs approximately 20,500 employees worldwide.

Our access to crude oil in the form of equity, governmental and third party volumes makes Statoil a large netseller of crude oil, seller, and Statoil is the second-largest supplier of natural gas to the European market. Processing and refining are also part of our operations. Statoil is also participating in projects that focus on other forms of energy, such as offshore wind and carbon capture and storage, in anticipation of the need to expand energy production, strengthen energy security and combat adverse climate change.

Statoil's business addressStatoil’s registered office is at Forusbeen 50, N-403535, 4035 Stavanger, Norway. ItsNorway and the telephone number of its registered office is +47 51 99 00 00.

CORPORATE STRUCTURE

Business areas

Statoil's operations are managed through the following business areas:

Development and Production Norway (DPN)

DPN comprises ourmanages Statoil’s upstream activities on the Norwegian continental shelf (NCS). DPN aims and explores for and extracts crude oil, natural gas and natural gas liquids. The business area’s ambition is to continue itsStatoil’s leading roleposition on the NCS and ensure maximum value creation on the NCS. Through excellentthrough continuously improved HSE and improved operational performance and cost, DPN strives to maintain and strengthen Statoil's position as a world- leading operator of producing offshore fields. DPN seeks to open new acreage and to mature improved oil recovery and exploration prospects. New and existing fields are primarily developed using an industrial approach, in which speed of delivery and cost improvements through standardisation and repeated use of proved solutions are key elements.performance.

Development and Production International (DPI)

DPI comprises ourmanages Statoil’s worldwide upstream activities that are not included in the DPN and Development and Production North America (DPNA)USA (DPUSA) business areas. It explores for and extracts crude oil, natural gas and natural gas liquids. DPI's ambition is to build a large and profitable international production portfolio comprising activities ranging from accessing new opportunities to delivering on existing projects and managing a production portfolio. DPI endeavours to ensure the delivery of profitable projects in a range of complex technical and stakeholder environments, and it manages a broad non-operated production portfolio that will be complemented with operated positions.environments.

Development and Production North America (DPNA)United States (DPUSA)

DPNA comprises ourDPUSA manages Statoil’s upstream activities in North America. DPNA'sthe USA and Mexico. DPUSA's ambition is to develop a material and profitable position in North America,the US and Mexico, including the deepwaterdeep water regions of the Gulf of Mexico unconventional oil and gas, and oil sands in the US and Canada. In this connection, we aim to further strengthen our capabilities in deepwater and unconventional oil and gas operations.in the US.

Marketing, Midstream and Processing and Renewable Energy (MPR)(MMP)

MPR comprises ourMMP manages Statoil’s marketing and trading ofactivities related to oil products and natural gas, transportation, processing and manufacturing, and the development of oil and gas value chains, and renewable energy. MPR's ambition isgas. MMP seeks to maximise value creation in Statoil's midstream marketing and renewable energymarketing business.

Technology, Projects and Drilling (TPD)

TPD's ambitionTPD is accountable for the global project portfolio, well deliveries, new technologies and sourcing across Statoil. TPD seeks to provide safe and secure, efficient and cost-competitive global well and project delivery, technological excellence, and research and development. Cost-competitive procurement is an important contributory factor although group-wide procurement services are also expected to help to drive down costs in the group. for maximising value for Statoil.

See note 3 Segments to the appraisal of new exploration resources, are presented as part of the various development and production reporting segments (Development and Production Norway, and Development and Production International).Consolidated financial statements for further details.

As required by the SEC, Statoil prepares its disclosures about oil and gas reserves and certain other supplementary oil and gas disclosures based on geographicalgeographic areas. TheStatoil’s geographical areas are defined by country and continent. Theycontinent and consist of Norway, Eurasia excluding Norway, Africa, and the Americas.

The following tables show total revenues by country.

RESEARCH AND DEVELOPMENT

Statoil is a technology-intensive company and research and development is an integral part of our strategy. Our technology strategy is about prioritising technology for value creation that enables us to achieve growth and access, and sets the direction for technology development and implementation for the future. Our focus is on low cost, low carbon solutions and re-using standardised technologies.

We continuously research, develop and deploy innovative technologies to create opportunities and enhance the value of Statoil’s current and future assets. Statoil’s technology development activities aim to reduce field development, drilling and operating costs, and CO₂ and other greenhouse gas emissions. We utilise a range of tools for the development of new technologies:

·In-house research and development (R&D)

·Cooperation with academia and research institutes

·Collaborative development projects with our major suppliers

·Project related development as part of our field development activities

·Direct investment in technology start-up companies through our Statoil Technology Invest venture activities

·Invitation to open innovation challenges as part of Statoil Innovate

Research and development expenditures were USD 298 million, USD 344 million and USD 476 million in 2016, 2015 and 2014, respectively.

2.3 DPN - DEVELOPMENT AND PRODUCTION NORWAY

OVERVIEW

The Development and Production Norway (DPN) reporting segment is responsible for field development and operations on the Norwegian continental shelf (NCS) which includes the North Sea, the Norwegian Sea and the Barents Sea. DPN aims to ensure safe and efficient operations and to maximise the value potential from the NCS. For proved reserves development see Development of reserves in Proved oil and gas reserves in section 2.8 Operating and financial performance.

Key events and portfolio developments in 2016:

·In January, Statoil announced the acquisition of 11.93% of the shares and votes in Lundin Petroleum AB (Lundin) for a total cash purchase price of SEK 4.6 billion (USD 0.5 billion), and in May, Statoil announced divestment of its entire 15% interest in Edvard Grieg for an increased shareholding in Lundin. The transaction also included divestment of a 9% interest in the Edvard Grieg oil pipeline and a 6% interest in the Utsira High gas pipeline, and in addition payment of cash consideration of USD 64 million to Lundin. Statoil now owns 20.1% of the shares in Lundin.

·On 1 March, the drilling of the first well of the Johan Sverdrup field development commenced.

·On 12 March, the Goliat field came on stream with Eni Norge as operator.

·In June, the plan for development and operation for Oseberg Vestflanken 2 was approved by the Ministry of Petroleum and Energy.

·In June, the Njord Future project was established to secure long-term production for both the Njord and Hyme fields. The Njord field was temporarily shut in, and both the Njord A and Njord B platforms were towed to shore.

·On 9 August, Statoil and its partners submitted the plan for development and operation for the Utgard gas and condensate discovery to the Norwegian and UK authorities. The plan for development and operation was approved on 17 January 2017.

·On 19 August, Statoil and its partners submitted the plan for development and operation of the Byrding oil and gas discovery. On 30 December, Statoil completed the acquisition of Wintershall’s 25% interest in Byrding, increasing Statoil’s interest to 70%. The plan for development and operation of the Byrding discovery was approved on 17 January 2017.

·Gullfaks Rimfaksdalen started production ahead of schedule on 24 August.

·Volve ceased production on 17 September.

·The plan for development and operation of the Trestakk discovery was submitted on 1 November.

·On 24 December, the Ivar Aasen field came on stream with Aker BP as operator.

Fields in production on the NCS

The following table shows DPN's average daily entitlement for the years ending 31 December 2016, 2015 and 2014.

Production level maintained by new fields and new wells from existing fields. See chapter "Fields under development on the NCS" for future production replacement.

The following tables show the NCS production by fields in which Statoil was participating during the year ended 31 December 2016.