SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 6-K

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the quarter ended 30 September 2006

NORSK HYDRO ASA

Drammensveien 264, Vækerø
N-0240 OSLO
Norway

001-09159
(Commission File Number)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F     þ     Form 40-F     o

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes     o     No     þ

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b) : 82-                    

This Report on Form 6-K shall be deemed to be incorporated by reference in the prospectus included in each of the Registration Statements on Form F-3 (No. 333-8110 and No. 333-10580) and to be a part thereof from the date on which this Report is filed, to the extent not superseded by documents or reports subsequently filed or furnished.

 

 

2 Third quarter report 2006

Financial review
Summary of results			3
Oil & Energy			6
Exploration and Production			7
Energy and Oil Marketing			8
Eliminations Oil & Energy			9
Aluminium activities			9
Aluminium Metal			10
Aluminium Products			12
Rolled Products			13
Extrusion			13
Automotive			13
Other activities			14
Polymers			14
Corporate activities and eliminations			14
Finance			15
Tax			15
Liquidity and capital resources			16
Market risk			16
Financial statements
Condensed consolidated statements of income			17
Condensed consolidated balance sheets			18
Condensed consolidated statements of cash flows			19
Notes to the condensed consolidated financial statements			20
Note 1: Accounting policies			20
Note 2: Changes in shareholders’ equity			22
Note 3: Operating segment information			22
Note 4: Net periodic pension cost			26
Note 5: Contingencies			26
Note 6: Specification of balance sheet items			27
Note 7: Financial income and expense			28
Note 8: Comprehensive income			28
Note 9: Repurchase of shares			28
Other information
Report of independent registered public accounting firm			29
Additional information Aluminium Products			30
Use of non-GAAP financial measures			31
About the reporting			35

Financial review 3

OPERATING REVENUES		OPERATING INCOME		EARNINGS PER SHARE 4) 5)

Consolidated results (US GAAP)

		Third quarter												01.01-30.09												Year
		2006				2006				2005				2006				2006				2005				2005
Million, except per share data		NOK				EUR1)				NOK				NOK				EUR1)				NOK				NOK
Operating revenues			50,961				6,189				44,612				157,813				19,166				128,883				174,201
Operating income			15,288				1,857				12,973				47,795				5,805				35,982				46,432
Non-consolidated investees			228				28				236				916				111				696				619
Financial income (expense), net			(740	)			(90	)			157				938				114				(1,311	)			(1,890	)
Other income (loss), net			—				—				—				—				—				233				990
Income before tax and minority interest			14,776				1,794				13,367				49,650				6,030				35,600				46,152
Income tax expense			(9,787	)			(1,189	)			(9,182	)			(33,358	)			(4,051	)			(23,895	)			(30,317	)
Minority interest			(185	)			(22	)			(2	)			(224	)			(27	)			(252	)			(118	)
Income before cumulative effect of change in accounting principles			4,804				583				4,183				16,068				1,951				11,453				15,716
Cumulative effect of change in accounting principles			—				—				—				—				—				—				(78	)
Net income			4,804				583				4,183				16,068				1,951				11,453				15,638
Basic and diluted earnings per share before change in accounting principles (in NOK and Euro) 2) 4)			3.90				0.47				3.30				12.90				1.57				9.10				12.50
Basic and diluted earnings per share (in NOK and Euro) 2) 4)			3.90				0.47				3.30				12.90				1.57				9.10				12.50
Financial data
Investments — million			7,955				966				4,185				17,200				2,089				12,208				41,110
Adjusted net interest-bearing debt/equity 3)			0.11				0.11				0.04				0.11				0.11				0.04				0.31
Debt/equity ratio			0.23				0.23				0.27				0.23				0.23				0.27				0.28

	1)		Presentation in Euro is a convenience translation based on the exchange rate at 30 September 2006, which was 8.2340.
	2)		Basic earnings per share were computed using the weighted average number of ordinary shares outstanding. There were no diluting elements.
	3)		Adjusted net interest-bearing debt divided by shareholders’ equity plus minority interest, adjusted for unfunded pension obligation (after tax) and present value of future obligations on operating leases. See table “Adjusted net interest-bearing debt to equity” later in this report.
	4)		Previously reported earnings per share and total number of outstanding shares have been adjusted to reflect the 5-for-1 stock split effective 10 May 2006.
			See note 1 accounting policies.
	5)		Earnings per share before change in accounting principles.

     All comparative figures are for the corresponding period in 2005 unless otherwise stated.

4 Third quarter report 2006

Summary of results

Hydro’s net income for the third quarter of 2006 was NOK 4,804 million (NOK 3.90 per share), up from NOK 4,183 million (NOK 3.30 per share) in the third quarter of 2005. Net income for the first nine months of 2006 amounted to NOK 16,068 million (NOK 12.90 per share), compared with NOK 11,453 million (NOK 9.10 per share) for the first nine months of 2005.

Operating income for the third quarter of 2006 amounted to NOK 15,288 million, compared with NOK 12,973 million in the third quarter of 2005. The improved earnings were mainly driven by continued high oil and gas prices together with higher aluminium prices. Operating income amounted to NOK 47,795 million for the first nine months of 2006, compared with NOK 35,982 million for the first nine months of 2005, an increase of 33 percent.

Net cash provided by operating activities was NOK 41.8 billion for the nine months ended 30 September 2006, compared with NOK 25.4 billion for the first nine months of 2005.

“We continue to benefit from strong market conditions, but high commodity prices are driving cost levels in both of our industries. Continued firm cost control is a top priority,” says President and Chief Executive Officer Eivind Reiten.

“The completion of the Langeled pipeline was an important milestone in the third quarter, not only because it allows for increased gas exports to the United Kingdom but also because Ormen Lange and Langeled demonstrate our world-class competence, technology and project execution abilities. Based on these capabilities, we will create new business opportunities in Norway as well as internationally,” Reiten said.

Operating income for Oil & Energy amounted to NOK 13,311 million for the quarter. Hydro realized an average oil price¹⁾ of US dollar 66.6 per barrel in the third quarter of 2006, an increase of 10 percent compared with the third quarter of 2005, and an increase of 12 percent compared with the first quarter of 2006. Measured in Norwegian kroner, Hydro’s realized oil price amounted to NOK 421 per barrel, an increase of 8 percent, compared with the third quarter of 2005 and a slight decrease compared with the second quarter of 2006. Realized gas prices increased 27 percent to NOK 1.73 per standard cubic meter (Sm³) in the third quarter of 2006, compared with the third quarter of 2005, but decreased 3 percent compared with the second quarter of 2006. Oil and gas production averaged 548,000 barrels of oil equivalents (boe) per day during the third quarter of 2006, an increase of 7,000 boe per day compared with the third quarter of 2005, and an increase of 11,000 boe per day compared with the second quarter of 2006. For the first nine months of the year, average oil and gas production increased to 565,000 boe per day, compared with 554,000 boe per day in the first nine months of 2005.

At the end of September, the Ormen Lange/Langeled project was 87 percent complete, in line with the schedule and within budget. Gas exports through the southern part of Langeled, which connects Sleipner on the Norwegian Continental Shelf (NCS) with Easington in England, began 1 October 2006 as planned. Extensive exploration activity continued during the third quarter of 2006. Hydro participated in a total of five new discoveries in the US Gulf of Mexico (GoM), Angola, Libya, and Canada.

Operating income for Hydro’s total aluminium activities amounted to NOK 1,657 million for the third quarter of 2006, compared with NOK 842 million in the third quarter of 2005. The improved result primarily reflected continued high aluminium prices.

Operating income for Aluminium Metal amounted to NOK 1,854 million for the quarter, a substantial increase from NOK 447 million in the third quarter of 2005. Increased aluminium prices continued to have a positive impact on operating results. Hydro’s realized aluminium price amounted to US dollar 2,462 per metric ton (mt) in the third quarter of 2006, an increase of 39 percent compared with the third quarter of 2005 and 4 percent higher than the second quarter of 2006. Measured in Norwegian kroner, the realized aluminium price increased by 37 percent, compared with the third quarter of 2005. Hydro’s primary aluminium production, including production from partly owned companies, amounted to 449,000 mt in the third quarter, de- clining about 3 percent compared with the third quarter of 2005. Reduced production due to the plant closures in Norway and Germany were partly offset by increased production from the Alouette expansion in Canada.

Aluminium Products incurred an operating loss amounting to NOK 192 million for the quarter, compared with operating income of NOK 371 million in the third quarter of 2005. Hydro’s European extrusion operations delivered a strong performance for the quarter with a substantial increase in volumes. Volumes developed positively for all other business sectors as well. However, significant unrealized losses on the ongoing LME operational hedge program amounting to NOK 286 million together with higher energy costs, negative metal effects of NOK 73 million and rationalization and impairment costs amounting to NOK 78 million, had a substantial negative impact on the overall results for the quarter. Overall margin developments were negative, despite positive developments in the Extrusion sector, reflecting continued challenging market conditions and strong competition, particularly within the automotive sector.

Outlook

Oil prices are expected to remain at a high level for the remainder of 2006. Hydro has further revised its production estimate for 2006 from 585,000 boe per day to 570,000 boe per day. About two-thirds of the reduction relates to production from Hydro’s Norwegian portfolio, mainly resulting from delayed production build-up from the Kristin field and lower than expected gas production from the Kvitebjørn and Troll fields. Lower than expected production from Hydro’s international portfolio, mainly related to the Terra Nova field in Canada and fields in the GoM, also contributed to the revised estimate. Exploration activity is expected to remain high throughout 2006.

The general economic outlook for the fourth quarter of 2006 remains positive, but there are signs of slowing growth in the United States. Global consumption and production of primary aluminium are each expected to increase in 2006 by approximately 5 and 6 percent, respectively. The market for primary metal is expected to remain fairly balanced with a slight shift toward surplus in 2007. The main uncertainties continue to relate to developments in China and in alumina and energy prices.

Market volume developments are expected to remain positive but with reduced growth within the rolled products and extrusion sectors, reflecting expected developments in overall industrial production.

During 2006 the global magnesium market has continued to weaken from an already poor level in 2005. Competition from Chinese magnesium producers has resulted in an oversupply of magnesium on the world market, driving prices down. Hydro sees limited potential for an improvement in this market and will take further measures to reduce its exposure in this area. Closure of the magnesium plant in Becancour, Canada is under consideration.

	1)		Average oil price realized by Oil & Energy’s Exploration and Production sub-segment.

Financial review 5

Third quarter 2006

						Non-cons, inv.,
						interest &								Depreciation
		Operating				selected				Other				and				Adjusted
NOK million		income (loss)				fin. items				income				amortization				EBITDA
Oil & Energy			13,311				77				—				3,314				16,702
Aluminium Metal			1,854				442				—				410				2,706
Aluminium Products			(192	)			(222	)			—				721				308
Other activities			235				76				—				113				423
Corporate and eliminations			80				295				—				2				376
Total			15,288				667				—				4,560				20,515

01.01-30.09.2006

						Non-cons. inv.,
						interest &								Depreciation
		Operating				selected				Other				and				Adjusted
NOK million		income (loss)				fin. items				income				amortization				EBITDA
Oil & Energy			40,606				284				—				9,535				50,424
Aluminium Metal			5,513				1,015				—				1,253				7,781
Aluminium Products			560				(171	)			—				1,724				2,113
Other activities			570				194				—				331				1,095
Corporate and eliminations			546				664				—				(3	)			1,207
Total			47,795				1,986				—				12,840				62,621

Quarterly results

						2006												2005
NOK million, except per share data		3rd qtr				2nd qtr				1st qtr				4th qtr				3rd qtr				2nd qtr				1st qtr
Operating revenues			50,961				51,435				55,416				45,318				44,612				42,119				42,152
Operating income			15,288				14,640				17,867				10,450				12,973				11,255				11,754
Income before cumulative effect of change in accounting principles			4,804				5,394				5,869				4,264				4,183				3,577				3,693
Earnings per share before cumulative effect of change in accounting principle (in NOK) 1)			3.90				4.30				4.70				3.40				3.30				2.90				2.90

	1)		Previously reported earnings per share and total number of outstanding shares have been adjusted to reflect the 5-for-1 stock split effective 10 May 2006.
			See note 1 accounting policies.

Earnings from non-consolidated investees amounted to NOK 228 million in the third quarter of 2006, compared with NOK 236 million in the third quarter of 2005. Strong operating results in Alunorte, the Brazilian alumina refinery, and Hydro’s Søral smelter had a positive impact on the results for the quarter. Earnings for non-consolidated investees for the third quarter of 2006 included a charge of NOK 239 million relating to a write down of Hydro’s interest in Meridian Technologies Inc.

Net financial expense for the third quarter of 2006 amounted to NOK 740 million, compared with net financial income of NOK 157 million for the third quarter of 2005. The third quarter of 2006 included a net currency loss of NOK 999 million, compared with a net currency loss of NOK 46 million in the third quarter of 2005. The currency loss was mainly due to a weakening of the Norwegian kroner during the quarter resulting in losses on Hydro’s US dollar denominated debt and foreign currency contracts.

Income tax expense for the first nine months of 2006 amounted to NOK 33,358 million, compared with NOK 23,895 million for the first nine months of 2005, representing 67 percent of income before tax for both periods.

Investments amounted to NOK 8.0 billion for the quarter. 89 percent of the amount invested was related to oil and gas operations.

Return on average Capital Employed (RoaCE²⁾) was 14.9 percent for the first nine months of 2006 based on actual earnings and capital employed for the period and has not been annualized.

	2)		RoaCE is defined as “Earnings after tax” divided by average “Capital Employed”. See also discussion pertaining to non-GAAP financial measures included later in this report.

6 Third quarter report 2006

Oil & Energy

Operating income (loss)

		Third quarter								01.01-30.09								Year
NOK million		2006				2005				2006				2005				2005
Exploration and Production			12,078				11,799				36,834				29,905				40,594
Energy and Oil Marketing			851				466				2,988				2,172				3,575
Eliminations			382				360				783				(163	)			(719	)
Total			13,311				12,624				40,606				31,914				43,451

Adjusted EBITDA

		Third quarter								01.01-30.09								Year
NOK million		2006				2005				2006				2005				2005
Exploration and Production			15,222				14,121				45,854				36,925				50,601
Energy and Oil Marketing			1,098				710				3,787				2,811				4,456
Eliminations			382				360				783				(163	)			(719	)
Total			16,702				15,191				50,424				39,573				54,339

Key operational data

		Third quarter								01.01-30.09								Year
		2006				2005				2006				2005				2005
Oil and gas production (thousands boe/d)			548				541				565				554				563
Oil price (USD/bbl)			66.60				60.40				64.90				52.20				53.10
Oil price (NOK/bbl)			420.60				390.60				416.10				333.40				342.20
Average exchange rate NOK/USD			6.32				6.47				6.41				6.38				6.44
Gas price (NOK/Sm3)			1.73				1.36				1.91				1.38				1.52
Exploration expense (NOK million)			868				199				2,893				747				1,839

Oil & Energy consists of the two sub-segments: ‘Exploration and Production’ and ‘Energy and Oil Marketing’.

Third quarter operating income in 2006 amounted to NOK 13,311 million, an increase of 5 percent compared with the third quarter of 2005, mainly driven by continued high oil and gas prices. Operating income for the first nine months of 2006 was NOK 40,606 million, an increase of 27 percent compared with the first nine months of 2005.

Market developments

The European crude oil benchmark Brent Dated averaged US dollar 69.6 per barrel in the third quarter of 2006, about US dollar 8 per barrel higher than in the third quarter of 2005, and unchanged from the second quarter of 2006. The US crude oil benchmark West Texas Intermediate (WTI) delivered spot at Cushing averaged US dollar 70.4 per barrel in the third quarter of 2006, compared with US dollar 63.2 per barrel in the third quarter of 2005 and US dollar 70.5 in the second quarter of 2006. In the beginning of August 2006, crude prices reached a new nominal price record as a result of geopolitical unrest and the temporary shut-down of a major oil field in Alaska. Oil prices fell considerably in the remainder of the third quarter as geopolitical concerns faded, the US oil inventory increased, and no hurricanes interrupted production in the GoM during the hurricane peak-season in September.

Hydro realized average crude oil prices³⁾ during the third quarter of 2006 of US dollar 66.6 per barrel, compared with US dollar 60.4 per barrel in the third quarter of 2005 and US dollar 67.9 per barrel in the second quarter of 2006. Hydro’s average realized crude oil price was US dollar 3 per barrel below the average Brent price, mainly as a result of a negative price differential on oil from the Grane field, which is heavier than Brent blend and therefore sold at lower average prices. Measured in Norwegian kroner, oil prices were NOK 421 per barrel, compared with NOK 391 per barrel in the third quarter of 2005 and NOK 422 per barrel in the second quarter of 2006. Hydro realized average liquids prices (oil, NGL and condensate) of US dollar 65 per boe in the third quarter of 2006, compared with US dollar 58.7 per boe in the third quarter of 2005 and US dollar 66 per boe in the second quarter of 2006.

Average spot prices for gas in Europe were significantly higher in the third quarter of 2006 compared with the third quarter of 2005. In the UK, the spot price for gas at NBP (National Balancing Point) averaged 32.4 pence per therm (approximately NOK 1.45 per Sm³) in the third quarter of 2006, an increase of about 15 percent compared with the third quarter of 2005. Compared with the second quarter of 2006, the spot price measured in pence per therm decreased by 3 percent. In the US, the Henry Hub spot price for gas averaged US dollar 6.2 per million British thermal units (mmbtu), a decrease of 36 percent compared with the third quarter of 2005, and a decrease of 7 percent compared with the second quarter of 2006.

Hydro’s realized gas prices⁴⁾ in the third quarter of 2006 amounted to NOK 1.73 per Sm³, representing an increase of 27 percent compared with the

	3)		Average oil price realized by Oil & Energy’s Exploration and Production sub-segment.
	4)		Realized gas prices include both spot market prices and long-term contract prices. Approximately two-thirds of the natural gas produced from fields in which Hydro has an equity interest is sold under long-term contracts.

Financial review 7

third quarter of 2005, and a decrease of 3 percent compared with the second quarter of 2006. The positive development compared to last year reflected increased reference prices (oil products) for long-term gas contracts, as well as increased spot prices for gas.

The average spot price in the Nordic electricity market was NOK 483 per MWh in the third quarter of 2006, compared with NOK 234 per MWh in the third quarter of 2005. The increase was mainly due to lower reservoir levels compared to the prior year. The Nordic spot price averaged NOK 349 per MWh in the second quarter of 2006.

Business development

In August 2006, Hydro was the successful bidder on 23 leases in the Western Gulf Lease Sale 200 in the GoM, of which 16 blocks are in deep water and 7 blocks are on the shelf. Hydro will be the operator of 21 of the leases. Each of the bids will go through an evaluation process before the lease is awarded by the US Minerals Management Service.

In the third quarter, Hydro completed the acquisition of a 50 percent interest in the BM-C-7 Concession offshore Brazil, containing the Peregrino (formerly know as Chinook) heavy oil discovery requiring a cash payment of approximately NOK 2.1 billion. Hydro is the operator in the concept development phase of the Peregrino field. In Iran, Hydro signed an exploration and development agreement with the National Iranian Oil Company (NIOC) covering the Khorramabad block in south-western Iran.

The sale of Hydro’s 50 percent shareholding in the gasoline retail chain Hydro Texaco in Norway and Denmark to the Scandinavian retail company Reitan Servicehandel was finalized on 2 October 2006. The transaction is not expected to have any significant effect on Hydro’s fourth quarter results.

Projects under development

The development plan for the Thunder Hawk field in the GoM was approved by the partners in September 2006. Production from the Thunder Hawk field is expected to begin in 2009 and reach a plateau production level of approximately 11,000 boe per day (Hydro’s share) in 2010.

Factors affecting developments in the coming quarters

On 5 October, Hydro announced a further revision of its production estimate for 2006 from 585,000 boe per day to 570,000 boe per day. Production in the fourth quarter will be affected by delayed production build-up from the Kristin field and lower-than-expected gas production from the Kvitebjørn and Troll fields in the NCS. Drilling capacity constraints on the NCS are also leading to deferred production on other fields. Internationally, production from fields in the GoM has not met expectations. In addition, the resumption of production from the Terra Nova field in Canada, following an extensive maintenance shut-down, has been delayed from late September to the end of October. Planned maintenance stops in the fourth quarter are expected to result in oil production losses of about 13,000 boe per day.

The Front Runner field, which is the largest producing field in Hydro’s GoM portfolio, was acquired by Hydro as part of the Spinnaker acquisition in December of 2005 (Hydro’s share 25 percent). The field began production in December 2004. As of 30 September 2006, five of the eight production wells were producing, while the other three production wells were shut down. Production from the Front Runner field for the first nine months of 2006 was 20,250 barrels per day, (Hydro’s share 5,063 barrels per day), which is significantly below Hydro’s planned production for this period. As a result, Hydro has established an internal project team to determine if the recoverable resources estimated by Hydro at the time of the Spinnaker acquisition, can be produced from the reservoirs. Hydro expects to finalize this work during the fourth quarter of 2006 and to work with its partners in an integrated project team toward maximizing production rates and ultimate recovery. One percent of Hydro’s proved oil and gas reserves of 2,046 million boe as of 31 December 2005 come from the Front Runner field.

Production costs, excluding cost of gas for injection, are expected to increase to NOK 26 per boe for 2006 as a whole, which is NOK 3 per boe higher than the amount targeted and NOK 6 per boe higher than in 2005. The increase compared with the targeted amount is mainly due to higher field costs, including increased well and platform maintenance costs, in addition to lower production volumes. Exploration expenditures amounted to NOK 4.2 billion for the first nine months of the year, and is expected to continue at a high level with 10 to 15 wells planned to be spudded during the fourth quarter.

Exploration and Production

Operating income

Third quarter operating income for Exploration and Production was NOK 12,078 million, an increase of 2 percent compared with the third quarter of 2005, mainly as a result of somewhat higher oil and gas prices. Operating income increased by 4 percent compared with the second quarter of 2006, mainly as a result of higher oil production. Operating income for the first nine months of 2006 was NOK 36,834 million, an increase of 23 percent, compared with the first nine months of 2005.

Average oil and gas production in the third quarter of 2006 reached 548,000 boe per day. Production in the third quarter was 7,000 boe per day higher than in the third quarter of 2005, and increased by 11,000 boe per day compared with the second quarter of 2006. For the first nine months of the year, average oil and gas production increased to 565,000 boe per day, compared with 554,000 boe per day in the first nine months of 2005. However, production in the third quarter was lower than expected mainly due to lower gas production from the Kvitebjørn, Troll and Oseberg fields on the NCS as a result of reduced gas offtake. Production from the GoM fields contributed around 22,000 boe per day for the third quarter of 2006, which was below expectations. Production from fields in the GoM increased by around 2,000 boe per day compared with the second quarter of 2006.

Oil production decreased by 18,000 barrels per day in the third quarter of 2006 to an average of 381,000 barrels per day, compared with the third quarter of 2005, mainly as a result of the maturing production portfolio on the NCS. Oil production increased by 13,000 barrels per day for the quarter compared with the second quarter of 2006. There was no production from the Terra Nova field in Canada in the third quarter due to the maintenance shut-down. Unscheduled shut downs and planned maintenance stops resulted in oil production losses of approximately 38,000 boe per day during the third quarter.

Average gas production in the third quarter of 2006 amounted to 168,000 boe per day, which was 26,000 boe per day higher than in the third quarter of 2005. The most significant increase came from gas production from the GoM fields, which contributed approximately 12,000 boe per day in the third quarter of 2006. Gas production in Norway also increased, mainly sourced from the Kvitebjørn and Kristin fields, which came on stream in late

8 Third quarter report 2006

2004 and late 2005, respectively. Gas production in the third quarter was approximately at the same level as in the second quarter of 2006.

Production costs⁵⁾ amounted to NOK 32 per boe for the first nine months of 2006, compared to NOK 25.3 per boe for 2005 as a whole. The increase mainly resulted from higher field costs, including well maintenance costs and costs related to the Terra Nova shut-down. Costs related to injection gas for the Grane field also increased as a result of higher gas prices. Gas for injection included in average production costs amounted to NOK 7.9 per boe in the first nine months of 2006, compared with NOK 5.4 per boe for 2005 as a whole. Total depreciation charges relating to Hydro’s GoM portfolio for the third quarter of 2006 amounted to NOK 723 million, corresponding to US dollar 55 per barrel⁶⁾.

Exploration costs of NOK 868 million were charged to the results for the third quarter of 2006, compared with NOK 199 million in the third quarter of 2005. Exploration costs for the first nine months of 2006 were NOK 2,893 million compared with NOK 747 million for the first nine months of 2005. Exploration costs in the first quarter of 2006 included approximately NOK 470 million related to the acquisition of seismic data under licenses held by Spinnaker⁷⁾. Exploration activity continued at a high level in the third quarter of 2006. Hydro participated in the completion of 13 exploration wells including exploration extensions of producing wells. Five of the wells resulted in discoveries, while two wells are still under evaluation. In the GoM, three exploration wells were completed on the shelf, resulting in two discoveries. In Canada, Hydro participated in one successful well. Hydro participated in five exploration wells in Libya, of which one well resulted in a discovery. Hydro participated in two exploration wells in Angola, of which one well resulted in a discovery and one well is still under evaluation. On the NCS, Hydro participated in two exploration wells in the third quarter. One of the wells was unsuccessful and one well is under evaluation. In the first nine months of 2006, Hydro participated in 38 exploration wells including extensions of producing wells. Nineteen of the wells have resulted in discoveries while two wells are still under evaluation. Drilling operations underway at the end of the quarter included eight wells, of which seven related to Hydro’s international exploration activities.

Gains of NOK 568 million related to the Spinnaker hedge program⁸⁾ due to lower gas prices were recognized in the third quarter of 2006, of which NOK 517 million were unrealized. Realized gains of NOK 37 million and unrealized losses of NOK 163 million were recognized in the second quarter of 2006.

Adjusted EBITDA

Exploration and Production adjusted EBITDA in the third quarter of 2006 was NOK 15,222 million, an increase of 8 percent compared with the same period last year. Exploration and Production adjusted EBITDA for the first nine months of 2006 was NOK 45,854 million, compared with NOK 36,925 million in the first nine months of 2005.

Energy and Oil Marketing

Operating income

Energy and Oil Marketing operating income amounted to NOK 851 million in the third quarter of 2006, an increase of 83 percent compared with the same period last year, and a decrease of 27 percent compared with the second quarter of 2006. The results were influenced by volatility in forward prices affecting the marked-to-market valuation of Hydro’s gas contracts portfolio. Energy and Oil Marketing operating income for the first nine months of 2006 was NOK 2,988 million, compared to NOK 2,172 million for the same period in 2005.

Operating income from power activities decreased by 11 percent to NOK 329 million in the third quarter of 2006 compared with the third quarter of 2005. The decline resulted mainly from unrealized losses on an operational hedge caused by higher forward prices, as well as lower production. The decrease was partly offset by high spot prices, which more than doubled, compared with the third quarter of 2005. Power production in the third quarter of 2006 was 1.9 TWh, 30 percent lower than in the third quarter of 2005. Hydro’s reservoir balance (water and snow) at the end of the third quarter was below normal level and significantly lower than at the same time last year, which was a record year both in terms of precipitation and production.

Operating income from gas activities was NOK 557 million for the quarter, an increase of NOK 502 million compared with the third quarter of 2005. Gas activities consist of gas transportation and gas trading activities. Operating income for gas transportation increased by 24 percent to NOK 509 million for the third quarter of 2006, compared with the third quarter of 2005, as a result of higher transportation booking volumes. Operating income for gas trading activities was NOK 48 million in the third quarter of 2006, compared with an operating loss of NOK 355 million in the third quarter of 2005, and an operating income of NOK 430 million in the second quarter of 2006. Operating income for gas trading is heavily impacted by marked-to-market valuations on certain gas contracts included in the total gas contracts portfolio⁹⁾. Gas contracts that are not marked-to-market increased in value during the quarter.

Financial review 9

Operating income from oil and gas liquids trading activities was NOK 60 million in the third quarter of 2006, an increase of 46 percent compared with the third quarter of 2005 mainly due to favourable positioning during the quarter.

Operating losses from Hydro’s wholly-owned oil marketing unit in Sweden amounted to NOK 55 million in the third quarter, a decline of NOK 110 million compared with the third quarter of 2005 mainly as a result of decreasing prices affecting the valuation of gasoline and gasoil inventories.

Adjusted EBITDA

Energy and Oil Marketing adjusted EBITDA in the third quarter of 2006 was NOK 1,098 million, an increase of 55 percent compared with the third quarter of 2005. Hydro’s 50 percent ownership interest in Hydro Texaco contributed NOK 25 million to EBITDA in the third quarter of 2006, compared with NOK 44 million in the third quarter of 2005. Energy and Oil Marketing adjusted EBITDA for the first nine months of 2006 was NOK 3,787 million, compared to NOK 2,811 million for first nine months of 2005.

Eliminations Oil & Energy

As part of its downstream activities, Energy and Oil Marketing enters into purchase contracts for natural gas with Exploration and Production for resale to external customers. Energy and Oil Marketing recognizes both the internal purchase and the external sales contracts at market value. As a result, Energy and Oil Marketing recognizes unrealized gains and losses on the internal contracts as a result of fluctuations in the forward price of gas. In addition, Energy and Oil Marketing sells power to Exploration and Production for use in some of their processing facilities. Exploration and Production regards the purchase and supply contracts with Energy and Oil Marketing as normal purchase and sales agreements and does not recognize unrealized gains and losses on the contracts. Elimination of the effects of internal sales and purchase contracts between Energy and Oil Marketing and Exploration and Production resulted in a positive effect on the operating income for Eliminations Oil and Energy of NOK 382 million in the third quarter of 2006 mainly resulting from declining gas prices.

Aluminium activities

Operating income (loss)

		Third quarter								01.01-30.09								Year
NOK million		2006				2005				2006				2005				2005
Aluminium Metal			1,854				447				5,513				2,682				2,694
Aluminium Products			(192	)			371				560				860				(175	)
Eliminations			(5	)			24				(161	)			(21	)			(8	)
Total			1,657				842				5,912				3,520				2,511

Adjusted EBITDA

		Third quarter								01.01-30.09								Year
NOK million		2006				2005				2006				2005				2005
Aluminium Metal			2,706				1,053				7,781				4,425				4,821
Aluminium Products			308				872				2,113				2,433				3,231
Eliminations			(5	)			24				(161	)			(21	)			(8	)
Total			3,009				1,948				9,733				6,837				8,044

     See discussion pertaining to non-GAAP financial measures included later in this report.

In January 2006, Hydro divided its upstream and downstream aluminium operations into two separate business areas: Aluminium Metal and Aluminium Products¹⁰⁾.

Operating income from Hydro’s total Aluminium operations increased by NOK 815 million to NOK 1,657 million mainly as a result of higher aluminium prices. Primary aluminium production declined by 3 percent, compared with the third quarter of 2005. Aluminium products incurred an operating loss of NOK 192 million, compared to operating income of NOK 371 million for the third quarter of 2005. Operating results for the downstream business were heavily influenced by unrealized losses on the ongoing LME operational hedge program, higher energy costs, negative metal effects, and rationalization and impairment costs, in addition to continued challenging market conditions and strong competition, particularly within the automotive sector. Hydro’s European extrusion operations delivered a strong performance for the quarter.

10 Third quarter report 2006

Aluminium Metal

Results and key operational data

		Third quarter								01.01-30.09								Year
NOK million		2006				2005				2006				2005				2005
Operating income (loss)			1,854				447				5,513				2,682				2,694
Adjusted EBITDA			2,706				1,053				7,781				4,425				4,821
Aluminium price LME, realized (USD/mt)			2,462				1,770				2,325				1,798				1,812
Aluminium price LME, realized (NOK/mt)			15,662				11,453				15,230				11,703				11,813
NOK/USD exchange rate, realized			6.36				6.47				6.55				6.51				6.52
Primary production (Kmt)			449				461				1,349				1,362				1,826

Market developments¹¹⁾

The average market price for aluminium (LME three month average) increased by 37 percent to US dollar 2,528 per mt in the third quarter of 2006, compared with the third quarter of 2005. The corresponding LME price measured in NOK increased by 34 percent.

During the third quarter the LME price traded within a range of US dollar 2,400 to 2,700 per mt following the highly volatile price developments in the previous quarter. Overall market fundamentals were favorable, led by consumption growth and inventory reduction. However, a sharp drop in spot alumina prices triggered the restart of some idle Chinese smelter capacity.

Global production and consumption of primary aluminium increased by roughly 4 percent and 7 percent, respectively, in the third quarter of 2006 compared with the third quarter of 2005. China continued to demonstrate strong growth in production and consumption, both increasing 16 to 18 percent in the quarter, compared with the corresponding quarter of 2005.

Chinese net exports of primary metal during the period January to August amounted to 480,000 mt, and are estimated to reach a level of 700,000 to 800,000 mt for the full year. Adjusted for net imports of scrap metal and including net exports of rolled and extruded products as well as other fabricated products, China became a net exporter of aluminium for the first time during the second quarter of 2006. In addition, Chinese net exports of extrusion and rolled products showed significant growth.

Reported primary metal inventories declined about 130,000 mt during the third quarter of 2006, to a level of approximately 2.8 million mt at the end of the quarter.

Operating income

Aluminium Metal’s operating income amounted to NOK 1,854 million in the third quarter, a substantial increase from NOK 447 million in the third quarter of 2005, mainly driven by continued high aluminium prices. Operating income amounted to NOK 1,620 million for the second quarter of 2006.

In third quarter 2006 realized aluminium prices measured in Norwegian kroner increased by 37 percent, contributing about NOK 1,900 million to operating income compared to the third quarter of last year, including a realized loss of NOK 325 million on LME future contracts and a gain on US dollar forward contracts of NOK 47 million relating to strategic hedge programs¹²⁾. Realized aluminium prices measured in Norwegian kroner increased by 2 percent, compared with the second quarter of 2006. Higher raw material and energy costs had a negative impact on operating income for the third quarter, compared with the third quarter of 2005 amounting to NOK 880 million. In addition, the results for the quarter were positively influenced by unrealized effects on LME contracts of NOK 224 million, compared to negative unrealized effects of NOK 375 million in the third quarter of last year and positive unrealized effects of NOK 181 million in the second quarter of 2006¹³⁾. Due to seasonal fluctuations, there was a reduction in external sales of metal products in the third quarter compared to the second quarter. This corresponds to a negative margin effect of approximately NOK 70 million impacting the operating profit. Operating income for third quarter of 2006 also included an unrealized gain amounting to NOK 59 million relating to power contracts in Germany, compared with an unrealized loss of NOK 85 million in the second quarter of 2006. Costs amounting to NOK 75 million relating to the Qatalum project were charged in the third quarter of 2006.

Hydro’s primary aluminium production, including production from partly owned companies, was 449,000 mt in the third quarter of 2006, compared to 461,000 mt in the third quarter of 2005. Production declines due to the closures of the Hamburger Aluminium Werk (HAW) smelter in Germany and the Søderberg production line at Høyanger in Norway were partly offset by increased production from the Alouette expansion in Canada. Production of primary metal in the second quarter of 2006 amounted to 451,000 mt.

Financial review 11

Hydro’s sourcing and trading operations incurred an operating loss of NOK 91 million in the third quarter of 2006, compared with operating income of NOK 184 million in the third quarter of 2005 and an operating loss of NOK 149 million in the second quarter of 2006. Unrealized gains on LME and currency contracts excluded from these amounted to a net gain of about NOK 235 million in the third quarter of 2006, compared with a corresponding net loss of about NOK 130 million in the same period of the previous year¹⁴⁾. Results from alumina sales declined in the third quarter of 2006 compared to the second quarter of 2006 due to a reduction in realized prices.

Operating income increased by NOK 2,832 million to NOK 5,513 million for the first nine months of 2006 compared with the corresponding period of 2005. Realized aluminium prices measured in Norwegian kroner increased by 30 percent contributing about NOK 4,600 million to operating income for the period. Higher raw material and energy costs had a negative impact of approximately NOK 2,300 million, in addition to costs relating to the closures of the Stade metal plant in Germany and the Søderberg production lines in the Norwegian plants in Årdal and Høyanger amounting to NOK 524 million. Positive unrealized effects on LME contracts amounted to NOK 885 million for the first nine months of 2006, compared to negative unrealized effects of NOK 84 million in the same period of last year.

Adjusted EBITDA

Adjusted EBITDA for the third quarter of 2006 was NOK 2,706 million, compared with NOK 1,053 million in the third quarter of 2005. Adjusted EBITDA forthe first nine months of 2006 amounted to NOK 7,781 million, compared with NOK 4,425 million for the first nine months of last year.

Earnings from non-consolidated investees amounted to NOK 381 million in the third quarter of 2006, compared with NOK 128 million in the third quarter of 2005. Alunorte, the Brazilian alumina refinery, showed significantly improved earnings amounting to NOK 258 million, compared with NOK 80 million in the third quarter of 2005. The increase was mainly due to higher alumina market prices and increased production following the start-up of the second major expansion of the plant. The positive effects were partly offset by lower currency gains amounting to NOK 8 million in the third quarter of 2006, compared with gains of NOK 78 million in the third quarter of 2005. Earnings from Hydro’s Søral smelter improved to NOK 123 million from NOK 44 million in the third quarter of 2005 due to higher aluminium prices and unrealized gains on power contracts of NOK 52 million compared with unrealized gains of NOK 8 million in the third quarter of 2005.

Plant closures

Total costs related to the closure of the Norwegian Søderberg plants at Høyanger and Årdal, and the German metal plants in Hamburg and Stade, are expected to be somewhat lower than the previous estimate of NOK 1 billion. Of the total estimated amount, NOK 724 million was expensed by the end of the third quarter of 2006. Most of the remaining closure costs are expected to be incurred in 2007.

Key development activities

Preparations for the development of the Qatalum aluminium plant are progressing according to schedule, and the final investment decision is expected during the first half of 2007.

During the third quarter of 2006, Hydro exercised its option to acquire a majority ownership position in the Slovakian aluminium company Slovalco. As a result, Hydro’s interest has increased from 20 to 55.3 percent. Slovalco has a primary aluminium production of 160,000 mt per year, and has been fully consolidated in Hydro’s financial statements since 2004.

Factors affecting developments in the coming quarters

The general economic outlook for the remainder of 2006 remains positive, but there are signs of slowing growth in the United States. Key economic indicators signal lower global growth in 2007. China’s strong economic growth is expected to continue.

Hydro expects shipments of primary metal in the Western World to increase about 4.5 percent for 2006 as a whole, with somewhat higher than the expected growth in industrial production, as a result of build up of customers’ inventories. Shipments are estimated to grow 2.5 percent for 2007, slightly lower than the expected increase in industrial production. Global consumption growth is expected to decline from about 7.5 percent this year to 6 percent in 2007. China’s growth in consumption is expected to continue at a high level in 2007, and is estimated to be between 16 and 17 percent.

The primary aluminium market is expected to move from a moderate deficit in 2006 to a moderate surplus in 2007 as a result of a decline in the growth of shipments and increasing production. Developments in China continue to be a main driver of industry fundamentals. Relatively small changes in Chinese supply and demand can lead to substantial changes in the global metal balance. In addition, the behavior of financial investors continues to be an important factor underlying developments within the primary aluminium market.

Strong increases in global alumina production capacities, particularly in China, have caused a sharp drop in spot alumina prices. A combination of high LME prices and low spot alumina prices is expected to lead to increased smelter capacity utilization, especially in China, and to some extent also in the United States. Hydro expects Western World production of alumina to increase about 3.5 percent in 2007, and about 7.5 percent globally.

By the end of the third quarter of 2006, Hydro had sold approximately 80 percent of its estimated production for the fourth quarter of 2006. The sold volume was priced at US dollar 2,360 per mt, including the effect of strategic hedges entered into for the period.

12 Third quarter report 2006

Aluminium Products

Operating income (loss)

		Third quarter								01.01-30.09								Year
NOK million		2006				2005				2006				2005				2005
Rolled Products			60				181				746				720				754
Extrusion			169				107				160				240				275
Automotive			(136	)			(60	)			(201	)			(162	)			(1,384	)
Other and eliminations			(286	)			143				(144	)			63				180
Total			(192	)			371				560				860				(175	)

Adjusted EBITDA

		Third quarter								01.01-30.09								Year
NOK million		2006				2005				2006				2005				2005
Rolled Products			212				343				1,176				1,202				1,565
Extrusion			298				233				676				659				867
Automotive			84				154				405				513				628
Other and eliminations			(286	)			142				(144	)			59				171
Total			308				872				2,113				2,433				3,231

Aluminium Products incurred an operating loss of NOK 192 million for the quarter, compared with an operating income of NOK 371 million in the third quarter of 2005 and NOK 301 million in the second quarter of 2006. The results reflected continuing intense competition in some business sectors within the industry. However, costs relating to plant rationalization and impairments, together amounting to NOK 78 million, higher energy costs in general and reduced margins within the automotive sector conceal a strong performance for Hydro’s European extrusion operations.

The result was also heavily influenced by unrealized losses on the ongoing LME operational hedge program¹⁵⁾ amounting to NOK 286 million in the third quarter of 2006, compared with corresponding gains of NOK 144 million in the third quarter of 2005 and losses of NOK 13 million in the second quarter of 2006. In addition, results in the third quarter of 2006 were impacted by negative metal effects¹⁶⁾ of NOK 73 million, compared with negative effects of NOK 26 million in the third quarter of 2005 and positive effects of NOK 149 million in the second quarter of 2006.

Operating income for first nine months of 2006 amounted to NOK 560 million, declining from NOK 860 million for the same period in 2005. Increased volumes in all business sectors, net of margin reductions and capacity related cost increases, had a positive effect on results for the period. However, this was more than offset by pension charges in the UK and plant rationalization charges and impairment write-downs. Results for the first nine months of 2006 included positive metal effects in Rolled Products offset somewhat by negative effects relating to LME hedge contracts.

During the third quarter of 2006, Hydro wrote down the value of its 49 percent ownership interest in Meridian Technologies Inc. by NOK 239 million. The amount is reflected in equity in net income of non-consolidated invest-ees. Merdian provides magnesium die-casting products to the automotive industry. The write down resulted from declining earnings’ forecasts as a result of a continued deterioration in market conditions.

Market developments¹⁷⁾

On the basis of improved European economic developments, the market for standard rolled products remained stable in the quarter with firm order activity, although with a decline in demand for certain special products. Preliminary estimates indicate an increase in shipments of about 6.6 percent in the third quarter of 2006, compared with the third quarter of 2005. Shipments picked up in the US rolled products market in the third quarter of 2006, following a decline in the second quarter.

The upward momentum in the European general extrusion market experienced in the first half of 2006 continued in the third quarter. During the third quarter of 2006, shipments rose about 4 percent from the third quarter of 2005. The US extrusion market remained sound due to strong demand within transportation and non-residential construction. However, there are growing signals of a gradual slow-down in demand driven by softer residential construction and consumer durables markets. Preliminary estimates indicate an increase in shipments from the third quarter 2005 to the third quarter 2006 of about 3.8 percent.

Financial review 13

Estimated global automotive sales increased by 3.4 percent for the first nine months of 2006, compared with the corresponding period of 2005, driven by growth in emerging markets. US sales were down 3.8 percent and the big three US producers lost market share to Asian and European car manufacturers. Sales in Western Europe were stable for the first nine months of 2006, compared with the first nine months of 2005.

Factors affecting development in the coming quarters

The European economic outlook continues to be positive, however a slowdown in growth is expected during the fourth quarter and into 2007. Industrial production in Western Europe is estimated to grow about 2.6 percent for 2006 as a whole.

The European rolled products and extrusion markets normally have an underlying growth in line with industrial production developments. However, a somewhat stronger growth in shipments is expected in 2006 due to customer restocking. Demand in Germany in particular is expected to be supported by an announced increase in VAT beginning 2007. A seasonal reduction is expected in both market segments in the fourth quarter. Margins are expected to remain stable for extruded products, and to improve somewhat for standard rolled products, but from a low level. Shipment growth in 2007 is expected to be lower than in 2006, in line with developments in industrial production.

The US economy remains strong, but industrial production is expected to show lower growth rates towards the end of 2006 and into 2007. Growth within the extrusion and rolled products sectors is expected to slow during fourth quarter of 2006 and into 2007.

The global light vehicle market is expected to continue growing during the remainder of 2006, although at a slightly reduced pace. The Western European market is expected to remain flat or slightly down, while the US market is expected to continue the negative development in the fourth quarter. Margins are expected to remain under pressure.

The earnings of Aluminium Products in the fourth quarter will be influenced by continued progress on plant rationalization programs as well as seasonal related volume reductions and plant maintenance shut-downs.

Rolled Products

Operating income

Rolled Products’ operating income for the third quarter of 2006 was NOK 60 million, compared with NOK 181 million in the corresponding quarter of 2005. Operating income for the third quarter included negative metal effects of NOK 73 million compared to negative effects of NOK 26 million in the third quarter of 2005 reflecting decreasing metal prices.

Hydro’s total sales volumes increased by about 3 percent during the quarter, compared with the third quarter in 2005. European shipments, amounting to roughly 80 percent of the total volumes, increased about 5 percent while sales outside of Europe declined by 5 percent compared to third quarter 2005. Net volume increases contributed NOK 33 million, while higher energy prices and other production related cost increases reduced operating results for the quarter by about NOK 80 million, compared with the third quarter of 2005.

Adjusted EBITDA

Adjusted EBITDA in the third quarter of 2006 was NOK 212 million, compared with NOK 343 million for the third quarter of 2005.

Extrusion

Operating income

Operating income for Hydro’s extrusion operations was NOK 169 million in the third quarter of 2006, compared with NOK 107 million in the same quarter in 2005. Charges relating to plant rationalization and asset impairments amounted to about NOK 23 million in the third quarter of 2006.

Hydro’s European extrusion shipments increased about 15 percent during the third quarter, compared with the same quarter of 2005, while shipments within North America were at the same level as 2005. Building Systems volumes increased by 4 percent. Improved volumes contributed approximately NOK 140 million to operating income for the quarter. Volumes declined compared to the second quarter of 2006 due to seasonal factors.

Margins continued to strengthen during the quarter, compared with the third quarter of 2005, while capacity related costs increased due to higher volumes, resulting in a reduction in operating income of NOK 41 million in third quarter of 2006 compared with the same quarter in 2005.

Adjusted EBITDA

Adjusted EBITDA in the third quarter of 2006 was NOK 298 million, compared with NOK 233 million in the same quarter of 2005.

Automotive

Operating income

Hydro’s automotive operations incurred an operating loss of NOK 136 million in the third quarter 2006, compared with an operating loss of NOK 60 million in the same quarter in 2005. Operating results for the third quarter of 2006 included costs relating to plant rationalization and fixed asset impairments amounting to NOK 55 million compared to NOK 5 million in the same quarter in 2005.

Volumes improved during the quarter compared with third quarter of 2005 while margins declined resulting in a net negative impact of about NOK 90 million. Results for the quarter were impacted by lower depreciation charges of NOK 38 million, primarily as a result of impairment writedowns relating to magnesium operations in 2005.

Adjusted EBITDA

Adjusted EBITDA in the third quarter of 2006 was NOK 84 million, compared with NOK 154 million in the same quarter of 2005.

14 Third quarter report 2006

Other activities

Operating income (loss)

		Third quarter								01.01-30.09								Year
NOK million		2006				2005				2006				2005				2005
Polymers			207				(35	)			469				178				69
Other			27				(152	)			101				(82	)			(71	)
Total			235				(187	)			1,507				96				(2	)

Adjusted EBITDA

		Third quarter								01.01-30.09								Year
NOK million		2006				2005				2006				2005				2005
Polymers			323				91				794				563				564
Other			100				(10	)			301				531				1,316
Total			423				82				1,095				1,094				1,880

Other activities consists of Polymers, the casualty insurance company Industriforsikring, Hydro’s internal services and BioMar Holding A/S (sold in December 2005).

Polymers

Operating income for Hydro Polymers amounted to NOK 207 million in the third quarter of 2006, compared to an operating loss of NOK 35 million in the same period in 2005. The increase primarily resulted from continuous high production combined with higher sales volumes and prices compared with the third quarter of 2005. The 2005 result was negatively affected by production irregularities as well as high costs for external purchases of ethylene in connection with the major maintenance shutdown of the Norwegian ethylene cracker, Noretyl, a 50 percent Hydro investee. Operating income for the first nine months of 2006 amounted to NOK 469 million compared to NOK 178 million for the same period of 2005. The new membrane chlorine plant at Rafnes in Norway and the expanded Noretyl cracker, which both began operations last year, are performing according to plan and contributing to record high production.

Adjusted EBITDA amounted to NOK 323 million in the third quarter and NOK 794 million for the first nine months of 2006. Results from non-consolidated investees decreased by NOK 14 million in the third quarter and NOK 76 million for the first nine months of the year compared to 2005, mainly due to lower contribution from Qatar Vinyl Company.

Commissioning of the second membrane chlorine plant at Rafnes is progressing according to plan and expected to be completed by the end of the year. The old diaphragm chlorine plant was closed in September.

Corporate activities and eliminations

Operating income for Corporate activities and eliminations amounted to NOK 80 million for the third quarter of 2006, compared with an operating loss of NOK 282 million in third quarter of 2005. The result for the quarter included a positive effect amounting to NOK 444 million relating to the elimination of unrealized losses on power and NGL contracts, compared with a corresponding positive effect of NOK 3 million in the third quarter of 2005. For the first nine months of 2006, Corporate activities and eliminations had operating income amounting to NOK 546 million, compared with operating income of NOK 431 million in the first nine months of 2005. The result for the first nine months of the year included a positive effect of NOK 1,258 million relating to the elimination of unrealized losses on power and NGL contracts, compared to a corresponding positive effect of NOK 1,073 million in the first nine months of 2005.

Hydro’s Energy and Oil Marketing unit is responsible for supplying electricity for Hydro’s own consumption, and has entered into long-term purchase contracts with external power suppliers. The power is then sold on long-term sales contracts to other units in Hydro. Energy and Oil Marketing recognizes the majority of the external purchase contracts and the internal sales contracts at market value, while the related internal purchase contracts are regarded as normal purchase agreements by the consuming unit and are not recognized at market value. The elimination of the market value adjustment on the internal sales contracts booked within Energy and Oil Marketing resulted in a positive effect on operating income in the third quarter of 2006 and a positive effect in the first nine months of 2006 as indicated above.

The power purchase contracts have a long duration and can result in significant unrealized gains and losses, impacting the reported results in future periods. The magnitude of the reported effects depends on changes in forward prices for electricity and changes in the contract portfolio.

Net pension and social security costs amounted to NOK 222 million for the third quarter of 2006, compared with NOK 154 million in the third quarter of 2005. Net pension and social security costs for the first nine months of 2006 amounted to NOK 331 million, compared to NOK 344 million in the corresponding period of 2005. The amount for the first nine months of 2006 included the reversal of costs relating to funding a deficit in a UK defined benefit pension plan of approximately NOK 380 million. The amount for the first nine months of 2005 included the reversal of a settlement loss charged to Automotive related to the plant closure in Leeds amounting to NOK 154 million.

Financial review 15

Finance

Financial income and expense

		Third quarter								01.01-30.09								Year
NOK million		2006				2005				2006				2005				2005
Interest income			345				227				791				631				897
Dividends received / net gain (loss) on securities			94				101				278				264				338
Interest income and other financial income			439				328				1,070				895				1,235
Interest expense			(503	)			(322	)			(1,363	)			(1,190	)			(1,745	)
Capitalized interest			359				219				931				615				867
Net foreign exchange gain (loss)			(999	)			(46	)			344				(1,558	)			(2,159	)
Other			(37	)			(22	)			(43	)			(73	)			(89	)
Interest expense and foreign exchange gain/(loss)			(1,179	)			(170	)			(131	)			(2,206	)			(3,125	)
Net financial income (expense)			(740	)			157				938				(1,311	)			(1,890	)

		Third quarter								01.01-30.09								Year
		2006				2005				2006				2005				2005
NOK/USD Average exchange rate			6.33				6.46				6.41				6.38				6.45
NOK/USD Balance sheet date exchange rate			6.50				6.54				6.50				6.54				6.77
NOK/EUR Average exchange rate			8.06				7.88				7.97				8.06				8.01
NOK/EUR Balance sheet date exchange rate			8.24				7.88				8.24				7.88				7.99

     Source: Norges Bank

Net financial expense for the third quarter amounted to NOK 740 million, including a net currency loss of NOK 999 million. The currency loss was mainly due to a weakening of the Norwegian kroner during the quarter resulting in losses on Hydro’s US dollar denominated debt and foreign currency contracts. The third quarter of 2005 included a net currency loss amounting to NOK 46 million.

Net interest-bearing debt decreased by about NOK 8 billion during the quarter resulting in cash (including short- term assets) exceeding interest-bearing debt by NOK 5 billion. Hydro completed the acquisition of a 50 percent interest in the Peregrino (formerly named Chinook) discovery in Brazil requiring a cash payment of approximately NOK 2.1 billion. Taxes amounting to NOK 22 billion were paid on 2 October 2006.

Hydro’s adjusted debt/equity ratio¹⁸⁾ was 0.11 at the end of the quarter, compared to 0.21 at the end of the second quarter of 2006.

Tax

The provision for current and deferred taxes amounted to NOK 33,358 million for the first nine months of 2006, approximately 67 percent of income before tax and minority interest. Most of the amount consists of current taxes. The equivalent amount for 2005 was NOK 23,895 million, approximately 67 percent of income before tax and minority interest.

The high tax rate in both periods resulted from oil and gas activities in Norway, which account for a relatively large part of earnings and are charged a marginal tax rate of 78 percent.

Oslo, 23 October 2006
Board of Directors

16 Third quarter report 2006

Liquidity and capital resources

Reference is made to the “Liquidity and capital resources” section of Hydro’s Annual Report and Form 20-F 2005.

Cash flow

Hydro has historically financed its operations primarily through cash generated by operating activities. During the first nine months of 2006, net cash generated by Hydro’s operations of NOK 41.8 billion was sufficient to fund the net cash used in investing activities of NOK 25.3 billion. Hydro used another NOK 10.7 billion in financing activities. Including net foreign currency gains on cash of NOK 0.2 billion, Hydro’s cash balance increased by NOK 6.0 billion.

Net cash provided by operating activities amounted to NOK 41,792 million for the nine months ended 30 September 2006, compared to NOK 25,385 million for the same period of 2005. The NOK 16,407 million improvement reflected increased earnings due to sustained high oil and gas prices and improved aluminium prices. However, approximately NOK 6,200 million of the increase related to higher current tax accruals.

Net cash used in investing activities in the first nine months of 2006 amounted to NOK 25,324 million compared to NOK 15,877 million for the same period of 2005, an increase of NOK 9,447 million. Net purchases of short-term investments increased by NOK 3,233 million, while net cash used for capital expenditure and other long-term investments increased by NOK 6,214 million as compared to the same period of 2005.

Net cash used in financing activities was NOK 10,663 million for the nine months ended 30 September 2006, an increase of NOK 3,535 million compared to net cash used in financing activities of NOK 7,128 million for the corresponding period of 2005.

Liquidity

Cash and cash equivalents were NOK 16.5 billion as of 30 September 2006, compared to NOK 10.5 billion as of 31 December 2005. Hydro’s cash positions and short-term investments including bank term deposits amounted to NOK 29.2 billion as of 30 September 2006, compared to NOK 14.3 billion at the end of 2005.

As discussed in the 2005 20-F, Hydro continues to expect that cash from continuing operations, together with the liquid holdings and available credit facilities, will be more than sufficient to meet all planned capital expenditures, operational requirements, dividends and debt repayments in 2006.

Market risk

Reference is made to the “Market risk” section of Hydro’s Annual Report and Form 20-F 2005.

During the third quarter of 2006, Hydro’s total financial derivative sensitivity increased compared to the previous quarter, mainly due to currency exposures.

For Oil & Energy, the sensitivity to changes in oil and natural gas prices on derivative contracts has been reduced over the quarter. Oil & Energy’s risk exposure on oil and gas contracts is to a large extent offset by the risk exposure on power contracts.

Hydro’s exposure to changes in the LME price remains virtually unchanged from the previous quarter. The short position is slightly reduced due to a net combined effect of the unwinding of existing hedge programs, a reduction in buybacks of short positions created through customer sales and establishment of a minor hedge program.

Total USD sensitivity has increased during the quarter due to increased short positions in the currency market. Interest rate sensitivity was, however, relatively unchanged, compared to the second quarter of 2006.

The total fair value of all financial assets, financial liabilities and derivative positions has increased compared to the previous quarter, due to higher balances of cash and cash equivalents. However, reduced longer-term interest rates have increased the fair value of long-term debt. Further, a stronger USD to NOK exchange rate also enhanced the effects on both debt and short derivative currency positions. Sensitivity to other currencies increased marginally.

As discussed in the 2005 20-F, the hypothetical loss does not include, among other things, certain positions necessary to reflect the net market risk of Hydro. Therefore, Hydro’s management cautions against relying on the information presented.

Financial statements 17

Condensed consolidated statements of income
(unaudited)

		Third quarter												01.01-30.09												Year
		2006				2006				2005				2006				2006				2005				2005
Million, except per share data		NOK				EUR1)				NOK				NOK				EUR1)				NOK				NOK
Operating revenues			50,961				6,189				44,612				157,813				19,166				128,883				174,201
Depreciation, depletion and amortization			4,286				521				3,536				12,510				1,519				10,598				16,086
Other operating costs			31,387				3,812				28,102				97,507				11,842				82,302				111,683
Operating income			15,288				1,857				12,973				47,795				5,805				35,982				46,432
Equity in net income of non-consolidated investees			228				28				236				916				111				696				619
Financial income (expense), net			(740	)			(90	)			157				938				114				(1,311	)			(1 ,890	)
Other income (loss), net			—				—				—				—				—				233				990
Income before tax and minority interest			14,776				1,794				13,367				49,650				6,030				35,600				46,152
Income tax expense			(9,787	)			(1,189	)			(9,182	)			(33,358	)			(4,051	)			(23,895	)			(30,317	)
Minority interest			(185	)			(22	)			(2	)			(224	)			(27	)			(252	)			(118	)
Income before cumulative effect of change in accounting principles			4,804				583				4,183				16,068				1,951				11 ,453				15,716
Cumulative effect of change in accounting principles			—				—				—				—				—				—				(78	)
Net income			4,804				583				4,183				16,068				1,951				11 ,453				15,638
Basic and diluted earnings per share before change in accounting principles (in NOK and Euro) 2)3)			3.90				0.47				3.30				12.90				1.57				9.10				12.50
Basic and diluted earnings per share (in NOK and Euro) 2)3)			3,90				0.47				3.30				12,90				1,57				9.10				12.50
Weighted average number of outstanding shares			1,236				1,236				1,255				1,245				1,245				1,255				1,254

	1)		Presentation in Euro is a convenience translation based on the exchange rate at 30 September 2006, which was 8.2340.
	2)		Basic earnings per share were computed using the weighted average number of ordinary shares outstanding. There were no diluting elements.
	3)		Previously reported earnings per share and total number of outstanding shares have been adjusted to reflect the 5-for-1 stock split effective 10 May 2006.

The accompanying notes are an integral part of these condensed consolidated financial statements.

18 Third quarter report 2006

Condensed consolidated balance sheets
(unaudited)

		30 September												31 December
		2006				2006				2005				2005
Million		NOK				EUR1)				NOK				NOK
Assets
Cash and cash equivalents			16,490				2,003				16,607				10,463
Short-term investments			12,699				1,542				16,760				3,865
Receivables and other current assets			46,490				5,646				38,852				41,411
Inventories			16,310				1,981				14,225				14,553
Total current assets			91,990				11,172				86,443				70,293
Property, plant and equipment, less accumulated depreciation, depletion and amortization			131,215				15,936				108,060				128,191
Other assets			29,626				3,598				23,711				28,711
Total non-current assets			160,840				19,533				131,771				156,902
Total assets			252,830				30,705				218,214				227,195
Liabilities and shareholders’ equity
Bank loans and other interest bearing short-term debt			3,103				377				4,324				4,658
Current portion of long-term debt			243				29				397				379
Other current liabilities			68,452				8,313				51,406				48,219
Total current liabilities			71,798				8,720				56,128				53,256
Long-term debt			20,653				2,508				20,456				21,387
Other long-term liabilities			22,607				2,746				19,461				22,363
Deferred tax liabilities			33,853				4,111				29,207				33,713
Total long-term liabilities			77,113				9,365				69,124				77,462
Minority shareholders’ interest in consolidated subsidiaries			754				92				1,357				981
Share capital			4,708				572				4,739				4,739
Other shareholders’ equity			98,457				11,957				86,868				90,756
Shareholders’ equity			103,165				12,529				91,606				95,495
Total liabilities and shareholders’ equity			252,830				30,705				218,214				227,195
Total number of outstanding shares 2)			1,231				1,231				1,254				1,251

	1)		Presentation in Euro is a convenience translation based on the exchange rate at 30 September 2006, which was 8.2340.
	2)		Previously reported earnings per share and total number of outstanding shares have been adjusted to reflect the 5-for-1 stock split effective 10 May 2006.

The accompanying notes are an integral part of these condensed consolidated financial statements.

Financial statements 19

Condensed consolidated statements of cash flows
(unaudited)

		Nine months ended
		30 September												Year
		2006				2006				2005				2005
Million		NOK				EUR1)				NOK				NOK
Operating activities:
Net income			16,068				1,951				11 ,453				15,638
Adjustments:
Depreciation, depletion and amortization			12,510				1,519				10,598				16,086
Other adjustments			13,214				1,605				3,334				(4,339	)
Net cash provided by operating activities			41,792				5,075				25,385				27,385
Investing activities:
Purchases of property, plant and equipment			(13,659	)			(1,659	)			(11,819	)			(17,562	)
Purchases of other long-term investments			(3,448	)			(419	)			(444	)			(17,263	)
Purchases of short-term investments			(10,700	)			(1,299	)			(15,162	)			(15,162	)
Proceeds from sales of property, plant and equipment			239				29				1,256				1,362
Proceeds from sales of other long-term investments			394				48				747				1,862
Proceeds from sales of short-term investments			1,850				225				9,545				22,445
Net cash used in investing activities			(25,324	)			(3,076	)			(15,877	)			(24,318	)
Financing activities:
Loan proceeds			79				10				677				1,844
Principal repayments			(2,116	)			(257	)			(1, 663	)			(2,102	)
Ordinary shares purchased			(3,165	)			(384	)			(1,177	)			(1 ,589	)
Ordinary shares issued			45				5				56				71
Dividends paid			(5,506	)			(669	)			(5,021	)			(5,021	)
Net cash used in financing activities			(10,663	)			(1,295	)			(7,128	)			(6,797	)
Foreign currency effects on cash			222				27				(139	)			(173	)
Net increase (decrease) in cash and cash equivalents			6,027				732				2,241				(3,903	)
Cash and cash equivalents at beginning of period			10,463				1,271				14,366				14,366
Cash and cash equivalents at end of period			16,490				2,003				16,607				10,463

1)

Presentation in Euro is a convenience translation based on the exchange rate at 30 September 2006, which was 8.2340.

The accompanying notes are an integral part of these condensed consolidated financial statements.

20 Third quarter report 2006

Notes to the condensed consolidated financial statements

Note 1: Accounting policies

The condensed consolidated interim financial statements and notes should be read in conjunction with the consolidated financial statements and notes for the year ended 31 December 2005 included in Norsk Hydro’s Annual Report on Form 20-F. The condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (US GAAP) for interim financial information. The accounting policies applied in preparing the accompanying condensed consolidated financial statements are consistent with those for the year ended 31 December 2005 with the addition of the accounting standards implemented during 2006. The preparation of the accompanying condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates. In the opinion of management, the accompanying financial statements include all adjustments (including normal recurring accruals) considered necessary to present fairly the financial position, re-sults of operations and cash flows of the interim periods presented.

The interim financial statements are unaudited and certain information and footnote disclosures normally included in the annual financial statements have been condensed or omitted. The results of operations for any interim period are not necessarily indicative of results for the full fiscal year. Unless otherwise stated, comparative figures are for the corresponding period in 2005. Previously reported earnings per share and total number of outstanding shares have been adjusted to reflect the 5-for-1 stock split effective 10 May 2006. As a result of rounding adjustments, the figures in one or more columns in the condensed consolidated financial statements may not add up to the total of that column.

Changes in Accounting Principles

Share-based compensation

In December 2004 the FASB issued Statement of Financial Accounting Standards No. 123 (revised 2004) “Share-Based Payment” (“SFAS 123 (R)”). The revised standard focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. The standard requires that all share-based payments be recognized in the financial statements at fair value.

Effective 1 January 2006, Hydro adopted SFAS 123 (R) using the modified prospective approach. On 15 June 2006 Hydro’s Board of Directors decided to grant 705,000 stock options with an exercise price of NOK 175 to 31 top managers in Hydro. The stock options are in the form of cash settled share appreciation rights and as a consequence, the number of issued and outstanding shares will not be impacted upon exercise. These options have been granted under the same terms as the prior year stock option grant, and none of the outstanding plans have been modified or changed during the first nine months of 2006. The liability recognized in the financial statements related to these plans is measured at fair value in accordance with SFAS 123 (R). The impact of adopting SFAS 123 (R) on Hydro’s financial statements for the first nine months of 2006 is de minimis and the income statement cumulative effect of change in accounting principle is nil.

Accounting Changes and Error Corrections

In May 2005 the FASB issued Statement of Financial Accounting Standards No. 154 “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS 154”). The standard applies to all voluntary changes in accounting principle, error corrections and required changes due to new accounting pronouncements which do not specify a certain transition method. It generally requires retrospective application to prior periods’ financial statements for changes in accounting principles.

Effective 1 January 2006, Hydro adopted SFAS 154. Hydro did not have any accounting changes or error corrections within the scope of SFAS 154 during the first nine months of 2006.

Altersteilzeit (ATZ) Early Retirement Programs

In June 2005 the EITF reached a consensus on Issue No. 05-05 “Accounting for the Altersteilzeit Early Retirement Programs and Similar Type Arrangements.” An Altersteilzeit Type II program is an early retirement program supported by the German government. This Issue addresses the accounting treatment of the annual bonus and additional pension contributions. The EITF consensus is that employee benefits provided under a Altersteilzeit Type II arrangement should be accounted for as a termination benefit under the FASB Statement of Financial Accounting Standards No. 112 “Employers’ Accounting for Postemployment Benefits.” Recognition of the cost of the benefits begins at the time individual employees enroll in the ATZ arrangements (e.g., sign a contract). The German government provides a subsidy to an employer related to the early retirement benefit payments if the employer has hired replacement employees. The EITF concluded that subsidies received under the ATZ arrangements should be accounted for when the employer meets the criteria necessary to receive the subsidy.

Effective 1 January 2006, Hydro adopted EITF No. 05-05. The impact of adopting EITF No. 05-05 on Hydro’s financial statements has not been material.

Inventory Counterparty Purchases and Sales

During 2005 the FASB ratified the consensus reached by the EITF on Issue No. 04-13 “Accounting for Purchases and Sales of Inventory with the Same Counterparty.” The issue arose specifically related to buy/sell arrangements within the oil and gas industry. The EITF concluded that inventory purchase and sale transactions with the same counterparty that are entered into in contemplation of one another should be combined for purposes of applying Opinion 29 (nonmonetary exchanges). The EITF also concluded that exchanges of inventory should be recognized at carryover basis except for exchanges of finished goods for either raw materials or work-in-process, which would be recognized at fair value.

Effective 1 April 2006, Hydro implemented Issue No. 04-13 with no material impact. Issue No. 04-13 applies only to any new arrangements entered into after the implementation date.

Financial statements 21

New Pronouncements

FASB Statement No. 155

In February 2006 the FASB issued Statement of Financial Accounting Standards No. 155 “Accounting for Certain Hybrid Financial Instruments An Amendment of FASB Statements No. 133 and 140” (“SFAS 155”). The standard affects companies that hold or issue financial instruments with embedded derivatives that otherwise would require bifurcation and companies that invest in securitized financial assets. The standard allows entities to make an irrevocable election to measure hybrid financial instruments at fair value in their entirety, with changes recognized in earnings, rather than bifurcate and value separately the embedded derivative and host contract. SFAS 155 is effective for all financial instruments acquired, issued or subject to a remeasurement event occurring after an entity’s first fiscal year that begins after 15 September 15 2006. Early adoption is permitted. Hydro currently does not have any financial instruments that would fall within the scope of SFAS 155. Hydro will implement SFAS 155 no later than 1 January 2007.

FASB Statement No. 157

In September 2006 the FASB issued Statement of Financial Accounting Standards No. 157 “Fair Value Measurements” (“SFAS 157”). SFAS 157 is effective for fiscal years beginning after 15 November 2007 and interim periods within those fiscal years. This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This statement does not require any new fair value measurements, but applies under other accounting pronouncements that require or permit fair value measurements. Hydro is currently evaluating the accounting impact of SFAS 157 on the fair value measures that are recognized and/or disclosed in the financial statements. Hydro will implement SFAS 157 no later than 1 January 2008.

FASB Statement No. 158

In September 2006 the FASB issued Statement of Financial Accounting Standards No. 158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (“SFAS 158”). This standard is an amendment of FASB Statements No. 87, 88, 106 and 132(R). The standard requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position. Changes in the funded status are to be recognized through comprehensive income in the year in which changes occur. In addition, SFAS 158 requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position. An employer with publicly traded securities shall initially apply the requirement to recognize the funded status of a benefit plan and the disclosure requirements as of the end of the fiscal year ending after 15 December 2006. The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position shall be effective for fiscal years ending after 15 December 2008.

Hydro will adopt the new disclosure requirements and recognition of the overfunded/underfunded status related to the defined benefit postretirement plans as of 31 December 2006. The impact of this requirement on the statement of financial position is expected to be material. As Hydro is already in compliance with the requirement to measure plan assets and benefit obligations as of fiscal year-end for defined benefit postretirement plans, the expected impact of this requirement of SFAS 158 is nil. Hydro will early adopt as of 31 December 2006 the requirement to measure plan assets and benefit obligations as of the fiscal year-end.

FSP AUG AIR-1

On September 8, 2006 the FASB posted the Staff Position (FSP) “Accounting for Planned Major Maintenance Activities.” The FSP amends certain provisions in the AICPA Industry Audit Guide, “Audits of Airlines,” and APB Opinion No. 28, “Interim Financial Reporting.” FSP AUG AIR-1 prohibits the use of the currently allowed accrue-in-advance method of accounting for planned major maintenance activities in the annual and interim financial statements. This guidance is effective for the first fiscal period beginning after 15 December 2006, and shall be applied retrospectively for all financial statements presented, unless impracticable to do so.

Hydro currently accounts for periodic maintenance and repairs applicable to production facilities on an accrual basis. Hydro will implement FSP AUG AIR-1 as of 1 January 2007 with application retrospectively applied for all comparable prior periods presented. The impact of implementing FSP AUG AIR-1 on the financial statements is currently being evaluated.

FASB Interpretation No. 48

In June 2006 the FASB issued Interpretation No. 48 “Accounting for Uncertainty in Income Tax Positions, an interpretation of FASB Statement No. 109” (FIN 48). This interpretation addresses the diversity in practice that has arisen, due to a lack of specific guidance in Statement No. 109, related to the recognition, derecognition and measurement of income taxes. FIN 48 specifically clarifies the accounting for uncertainty in income taxes by prescribing a recognition threshold. Tax positions must meet a more-likely-than-not recognition threshold. The tax benefit is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. FIN 48 is effective for fiscal years beginning after 15 December 2006. Early adoption is permitted. Hydro is currently evaluating the accounting impact but does not expect the adoption of FIN 48 to materially impact the results of operations or financial position. Hydro will implement FIN 48 no later than 1 January 2007.

22 Third quarter report 2006

Note 2: Changes in shareholders’ equity

		01.01-30.09								Year
NOK million		2006				2005				2005
Shareholders’ equity at beginning of period			95,495				85,890				85,890
Net income			16,068				11,453				15,638
Dividends declared and paid 1)			(5,506	)			(5,021	)			(5,021	)
Foreign currency translation, net			423				(277	)			711
Hedge of net investment and cash flow hedge 2)			(477	)			(354	)			(718	)
Other items recorded directly to shareholders’ equity			211				(10	)			(519	)
Net purchase of treasury stock			(3,047	)3)			(74	)			(487	)
Shareholders’ equity at end of period			103,165				91,606				95,495

	1)		Dividends are declared and paid once each year. Dividends declared and paid constitute NOK 4.40 per share in 2006 and NOK 4.00 per share in 2005. Previously reported dividends per share have been adjusted to reflect the 5-for-1 stock split effective 10 May 2006.
	2)		As of 1 January 2005, Hydro no longer designates certain financial instruments as hedges of net investment in foreign subsidiaries.
	3)		Includes redemption of shares approved in the General meeting 9 May 2006 with NOK 471 million, completed on 14 July 2006.

Note 3: Operating segment information

Segment measures

Hydro’s segment reporting, presented in accordance with SFAS 131 “Disclosures about Segments of an Enterprise and Related Information,” includes two measures of segment results, “Operating Income” and “Adjusted EBITDA” which both are regularly reviewed by senior management. “Operating Income” is defined in accordance with the Norwegian Accounting Act, and is consistent with the same measure for the Group. The segment measures are an integral part of Hydro’s steering model. Hydro’s management makes regular use of both these measures to evaluate performance in its operating segments, both in absolute terms and comparatively from period to period, and to allocate resources among its operating segments. Management views the combination of these measures, in combination with other reported measures, as providing a better understanding — for management and for investors — of the operating results of its business segments for the period under evaluation compared to relying on one of the measures.

Hydro defines “Adjusted EBITDA” as “income/(loss) before tax, interest expense, depreciation, amortization and write-downs.” Adjusted EBITDA is a measure that includes in addition to “Operating income,” “Interest income and other financial income,” results from nonconsolidated investees and gains and losses on sales of activities classified as “Other income, net” in the income statement. It excludes depreciation, writedowns and amortization, as well as amortization of excess values in nonconsolidated investees. Hydro’s definition of Adjusted EBITDA may differ from that of other companies. Specifically, Hydro has chosen to include interest income in Adjusted EBITDA.

Hydro manages long-term debt and taxes on a Group basis. Therefore, net income is presented only for the Group as a whole.

Intersegment sales and transfers reflect arm’s length prices as if sold or transferred to third parties. Transfers of businesses or assets within or between Hydro’s segments are not considered to be intersegment sales, and are reported without recognizing gains or losses. Results of activities considered incidental to Hydro’s main operations as well as unallocated revenues, expenses, liabilities and assets are reported separately under the caption “Corporate and eliminations.” These amounts principally include interest income and expenses, realized and unrealized foreign exchange gains and losses and the net effect of pension schemes. In addition, elimination of gains and losses related to transactions between the operating segments are included in Corporate and Eliminations.

The accounting policies of the operating segments reflect those described in the summary of significant accounting policies in Note 1 to Hydro’s financial statements, with the following exceptions: Certain internal commodity contracts may meet the definition of a derivative under SFAS 133. However, Hydro considers these contracts as sourcing of raw materials or sale of own production even though contracts for various reasons include clauses that meet the definition of a derivative. Such internal contracts are accounted for as executory contracts. Also certain internal contracts may contain lease arrangements that qualify as capital leases. However, Hydro management has allocated the responsibility for assets to a segment, and this allocation is reflected in the segment reporting even though contract clauses may indicate that another segment leases the assets under a capital lease arrangement. Costs related to certain pension schemes covering more than one segment are allocated to the operating segments based on either the premium charged by the scheme (UK) or charged based on service cost (Norway and Germany). Any difference between these charges and pension expenses measured in accordance with GAAP is included in Corporate and Eliminations.

Financial statements 23

Effective 1 February 2006 Hydro decided to split the Aluminium segment into two new segments, Aluminium Metal and Aluminium Products. Aluminium Metal consists of the previous Metals sub-segment. Aluminium Products consists of the previous Rolled Products and Extrusion and Automotive sub-segments. Eliminations and other, including unrealized gains and losses on LME contracts, have been split between the two segments. Accordingly, the segment results for the 2005 financial year have been reclassified to be consistent with the revised reporting structure and presentation, and to facilitate analysis of current and future operating segment information.

Subsequent to the issuance of Hydro’s annual consolidated financial statements for 2005, management determined that certain intersegment revenues and expenses for the years 2005, 2004 and 2003 were incorrectly disclosed. As a result, such amounts have been restated from the amounts previously reported. These disclosures had no impact on the consolidated financial position, revenues or results of operations.

The following pages include information about Hydro’s operating segments, including a reconciliation of Adjusted EBITDA to operating income for the core business areas and sub-segments.

Operating revenues

		Third quarter								01.01-30.09								Year
		2006				2005				2006				2005				2005
NOK million						Restated 2)								Restated 2)				Restated 2)
Exploration and Production			19,489				17,312				58,372	3)			45,942				64,201
Energy and Oil Marketing			21,311				19,795				66,498	3)			52,410				72,440
Eliminations			(14,027	)			(13,107	)			(43,369	)3)			(35,304	)			(50,166	)
Oil & Energy			26,773				24,001				81,501				63,048				86,475
Aluminium Metal 1)			16,213				12,479				52,116				40,549				54,579
Aluminium Products 1)			13,302				10,993				39,872				34,320				45,446
Other activities			2,619				3,195				8,351				9,341				12,297
Corporate and eliminations			(7,945	)			(6,055	)			(24,028	)			(18,376	)			(24,597	)
Total			(50,961	)			44,612				157,813				128,883				174,201
External revenues
		Third quarter								01.01-30.09								Year
NOK million		2006				2005				2006				2005				2005
Exploration and Production			5,099				4,524				16,007				12,897				18,362
Energy and Oil Marketing			20,636				18,609				62,582				48,478				65,742
Eliminations			1				—				3				—				—
Oil & Energy			25,736				23,133				78,592				61,375				84,104
Aluminium Metal 1)			9,943				7,959				33,216				26,239				35,642
Aluminium Products 1)			13,244				10,882				39,695				33,936				44,933
Other activities			2,033				2,634				6,314				7,331				9,510
Corporate and eliminations			5				4				(4	)			2				11
Total			50,961				44,612				157,813				128,883				174,201