Aker Bp Asa Ord

Good morning and welcome to Akabipi's presentation of our Q2 2020 fund results. Today's agenda reflects a strong quarter with clear momentum across both our operations and our strategic priorities. We will begin with an update on our operational performance, which continues to deliver solid results. Then we will move on to our field development portfolio, where we remain firmly on track, and where we have sanctioned two new expansion projects this quarter at Johan Sverdrup and Yggdrasil. We are also pleased to share encouraging news from Yggdrasil on the exploration side, where we have discovered more oil in an ongoing exploration well. And as always, our CFO David Turner will guide you through the financials later in the presentation. In the second quarter, production averaged 415,000 barrels per day, down 26,000 barrels from the first quarter. This decline was primarily due to a one-month planned maintenance shutdown at Valhall and Ula. Despite the shutdown, we maintained a portfolio-wide production efficiency of 95%. Our other assets, including Johan Svaldrup, continued to perform really well, with a production efficiency ranging from 96% to nearly 100%. During the Valhall shutdown, we also reached a key milestone on PVP Fenris. The successful installation of the jacket and the connecting bridge for the new platform. Looking ahead, we expect lower production in the second half, driven by scheduled maintenance and natural decline. However, with a solid first half now behind us, forecast uncertainty has been reduced. As a result, we are narrowing our full year production guidance, raising the lower end of the range from 390 to 400,000 barrels per day. Unit cost edged up to $7.3 per barrel in the quarter, primarily due to lower production volumes, higher maintenance and a weaker US dollar against the Norwegian krona. Nevertheless, we remained firmly on track to meet our full year production guidance of $7 per barrel, a level that remains highly competitive within the industry. On CO2 emissions, the picture remained consistent. Our emissions intensity held steady at 2.8 kilograms per barrel, an industry leading level that continues to set the benchmark globally. At the start of the year, we outlined our ambition to sustain production above 500,000 barrels per day beyond 2030 and to pursue further growth. We are working every day to make this a reality. On this illustration, the dark blue area represents our current business plan, covering production from existing fields, ongoing field developments and regular IOR activities. Key growth drivers include the large-scale Yggdrasil development, the Valhalla PVP-Fendres project and a series of tie-back projects to Alfheim, Skarv and Grigorsen. It also includes the Johan Sverdrup Phase 3 project and the tie-back of the Eastfreg discovery to Yggdrasil, which have now both been formally sanctioned in the partnerships. This visible outlook supports our target to produce around 525,000 barrels per day in 2028. Beyond 2028, the light blue edges illustrate our potential to sustain production above 500,000 barrels per day through infill drilling and tiebacks from known discovery across our portfolio. Progress this year has further strengthened our confidence in this trajectory. Looking even further ahead, we see additional growth potential beyond the current outlook. With continued exploration success and selective M&A, we see a clear path to expanding our production base well into the next decade. This is our ambition, and we are well equipped to deliver it. We have the people, the assets, the supplier, the digital ecosystem, the capital, and maybe most importantly, the track record to make it happen. Our project continues to advance steadily, with several key milestones being achieved in the recent months. These include the successful offshore installation of the Valal PVP jacket, the completion of the Fenris drilling campaign, and others. And, as we speak, we are preparing to install the jacket for the main Yggdrasil platform, the Huguenay. These achievements reflect the scale, pace and precision of our execution. They are the result of close collaboration across teams and partners, and they mark critical steps towards delivering on our long-term value creation plan. And since images speak louder than words, let's just have a look. This video highlights the scale and complexity of the projects we are delivering and the impressive effort from our teams and alliance partners to make it happen. Offshore projects progress through distinct phases, engineering, procurement, construction, offshore installation, commissioning, and finally handover to operations. The successful execution is defined not just with progress within each phase, but by the ability to transition smoothly between them. If a project is off track, it typically becomes visible at these transition points. We are now roughly midway through the execution phase, with engineering and procurement largely complete. We are well into the construction phase and we reach the point where the modules are being assembled into complete platform units. This gives us a clear operational visibility into the remaining work and resource needs in the different projects. In this context, we have conducted our most comprehensive project review and budget update since action. The conclusion is reassuring. The plan holds firm. The project remains on schedule for a planned startup in 2026 and 2027, as originally communicated. That said, we have naturally faced some challenges along the way. Some work packages have experienced delays, macroeconomic conditions have impacted prices and currencies, and labour markets have tightened. And finally, the security situation in the Middle East have led to longer sailing distances between Asia and Europe. All these external factors are driving up costs across the industry. While we can't control global inflation, we can and do respond decisively. We have mobilized the necessary resources to navigate and mitigate these challenges, maintain focus and ensure momentum in the project execution. Now, taking all of these factors into account, we now project a roughly 6% increase in investments for the ongoing projects. This includes a 10% contingency of the remaining capital, and the adjustment reflects the full scope of what is needed to deliver, on time and with quality. Now, importantly, when we look at the Value Creation Plan from 2023 to 2028, the total investment estimate for all the PDO projects sanctioned in 2022 is up by only 3-4% on a like-for-like basis. This is a strong signal of disciplined execution in a highly dynamic environment. Let's now turn to exploration, and to what is arguably one of the most exciting wells on the Norwegian continental shelf this year, Omega Alpha in the Yggdrasil area. This well is remarkable, not only because we have discovered oil, which I will return to, but because we are breaking new ground in how we explore. Omega Alpha is pushing the frontiers of what is technically possible, using advanced geosteering to drill ultra-long, high-precision horizontal sections with unprecedented speeds. This enables us to map the subsurface with high accuracy and pinpoint oil accumulations with confidence. Two years ago, with the East Frigg well, we set a new benchmark by achieving more than 13 kilometers of reservoir exposure. Since then, we have equipped our rigs with wired pipe technology, a high bandwidth data link between the drill bit and the surface. This innovation allows us to drill faster, steer with greater precision, and access significantly more reservoir in real time. To put it into perspective, a typical exploration well might intersect a few hundred meters of reservoir. Omega Alpha, by contrast, is on track to exceed 20 kilometers of reservoir exposure at only twice the cost of a conventional well. Moreover, the quality and quantity of the data we are acquiring are vastly superior, substantially reducing uncertainty and accelerating the timeline from discovery to development. The East Friguel is a prime example, with only two years between the discovery and the final investment decision. Omega Alpha is a multilateral well targeting five different structures, Omega, Alpha, Alpha South, Sigma Nor'East and Pi. The combined pre-drilled volume estimates ranged from 40 to 135 million barrels. Drilling started in May and is progressing really well. We have already covered the Alpha structure and parts of the Omega structure, confirming commercial oil volumes in the range of 20 to 40 million barrels. Operations are now progressing towards the northern part of Omega, as well as the Sigma North East and Pi, which together have a pre-drilled volume estimate of 30 to 70 million barrels. Geologically, this setting resembles the East Frigg discovery, with thin oil zones sealed beneath a shale layer that effectively traps the hydrocarbons. We will, of course, provide further details once drilling is complete and the data has been more thoroughly analyzed. However, in my view, this is already a success and will contribute valuable additional volumes to the Yggdrasil development. In essence, we are also pioneering a new exploration method, one that paves the way for efficient future exploration in the Frigg area west of Yggdrasil. Freg was, as many remember, originally developed as a gas field in the 1970s and was decommissioned 20 years ago after producing 700 million barrels of oil equivalent exclusively of gas. The initial exploration well also identified an oil zone with an estimated in-place volume of 1 billion barrels of oil. However, this was never produced as horizontal drilling was still years away at that time. Based on the current geological insight, we see significant potential for further oil discoveries in the Frigg area. And this represents a substantial upside for the Yggdrasil development. And that is why we, together with the Yggdrasil partners, have secured this acreage and will be drilling additional exploration wells in the years ahead.

Good morning. Aaker BP has delivered another quarter of strong operational performance. And although commodity prices were down and we had planned maintenance at several fields, the operating cash flow was in line with recent quarters where we paid two tax installments. Our current investment level is high, reflecting strong progress on our field development projects that were sanctioned back in December 2022. As Kalle has just mentioned, a thorough project review completed this quarter confirms that the ongoing projects are on schedule, while total investment estimates are up around 6% compared to original guidance. In sum, this implies a significant de-risking of the business cases of these highly profitable projects. Furthermore, we continue to see substantial upsides, as exemplified with the ongoing exploration in the Yggdrasil area. At the end of the quarter, Aker BP's financial position remains strong with ample available liquidity, low leverage, and low net debt. Altogether, the quarter marks one more step forward on our value creation plan. We are well positioned to navigate market volatility as we focus on maximizing shareholder returns by maintaining financial flexibility, investing in profitable growth, and delivering a resilient dividend that grows in line with value creation. Let's now take a closer look at the main drivers behind the results. Net production declined slightly, impacted by a one-month planned shutdown at Valhall and Ula for maintenance and project activities. Production in the quarter was 415,000 barrels of oil equivalents per day, and with a very small underlift, sold volumes ended at 414. Operating cost increased to $7.3 per barrel, driven by reduced volumes and a strengthening of the Norwegian Kroner. Year-to-date, our unit cost is $6.9, and we are on track to deliver on our full year guidance of approximately $7 per barrel. Cash flow from operations reached $1.2 billion in the quarter. This is in line with previous quarters where we have paid two tax installments, as can be seen on the illustration down to the left for the second and the fourth quarters last year. Investments in the quarter increased to $1.9 billion, reflecting high activity across our project portfolio. Within financing cash flow, the main item was the dividend payment of 63 cents per share. Zooming in on a few items in the income statement. With lower volumes and realized prices versus the first quarter, revenues decreased to $2.6 billion in the second quarter. As mentioned, production cost per barrel increased due to lower volume and stronger NOC, but remained relatively flat on an absolute level. Net financial items were impacted by currency losses on non-dollar-denominated balance sheet items, mainly from the revaluation of our euro-denominated bonds. While our Norwegian kroner hedging program, covering current tax liabilities and investment plans, generated a solid gain this quarter. As shown in the notes to the balance sheet, our derivatives positions are now valued at around $200 million. Impairments totaled 717 million in the second quarter, consisting of technical goodwill on Johan Sverdrup, Valhall, Grieg Åsen and Alveim, mainly driven by lower forward prices for oil and gas. Since goodwill impairment has no tax impact, this leads to an artificially high reported tax rate of 138%. Adjusted for impairments, earnings per share was 62 cents in the quarter, and the effective tax rate was 75%, which should be more in line with expectations. For more information on technical goodwill and impairments, I recommend watching the explanatory video that our IR team has published on our website. Let me also briefly comment on cash flows. Taxes paid was relatively high. and was, as mentioned, impacted by two installments this quarter compared to one in the first quarter. These payments are for taxes accrued in 2024. Taxes accrued in the second quarter was significantly lower than the taxes paid, which materially reduces tax payables in the balance sheet. For the quarter in isolation, this lowers free cash flow, but as taxes payable is reduced, we also expect lower tax payments in the coming quarters. The observant reader may also have noticed a new line in this statement, investment in financial assets of 300 million. This is short-term financial placements in liquid notes to enhance returns on surplus cash while maintaining liquidity. While this is formally classified as an investment, it is considered as cash equivalents under our bank facilities and by rating agencies, and is also included in the net debt and leverage ratio calculations. With the strong operational performance flowing through to the financial performance, we exit the second quarter with a continued strong financial position. Net interest-bearing debt increased to 4.6 billion, but as we illustrate to the left, the main driver was the high tax payment in the second quarter, which reduced tax payables with an almost equal amount. Our leverage ratio remains at a low level, now marginally up to 0.4 times net debt to EBITDAX. Total available liquidity remains conservative at $6 billion, providing a lot of flexibility. The decrease quarter-on-quarter is driven by the tax payments and a planned step-down in our undrawn RCF facility from $3.4 to $3 billion. Following the completion of our comprehensive project review this quarter, we have also updated our total investment plan for 2025 to 2028. The approximate 6% increase in investments for our ongoing field development projects is now reflected in this updated plan. We continue to expect 2025 to be the peak investment year, with capital expenditures reaching approximately $6.5 billion before tapering off from 2026 and onwards. In aggregate, the updated net estimates for the ongoing PDO projects reflect an upward revision of around $1.2 billion. As all of these projects fall under the 2020 tax system with approximately 87% tax deduction, the after-tax effect of this increase is between $150 and $200 million. One additional thing to note is that although this investment profile is sensitive to future changes in foreign exchange rate, the actual financial exposure to a further strengthening of the Norwegian kroner is limited as we have over 75% of the planned NOC expenditures for the next three years hedged at an average dollar NOC rate between 10.5 and 11%. The updated investment estimates have a marginal impact on project economics, our value creation plan, and the financial metrics for the period up to 2028 that we presented back in February. The impact on estimated cumulative free cash flow generated across oil price scenarios largely follows the after-tax effect of the increased capex with some variations due to phasing of tax and financing costs. Consequently, our financial metrics remain very robust across most plausible oil price scenarios. Assuming a continued 5% annual increase in dividends, our leverage remains comfortably below the internal threshold of 1.5 times, and well within the bank covenant limit of 3.5 times. And even in a prolonged $50 oil price environment, where we have conservatively assumed $50 per barrel from the beginning of 2025, as we also did back in February, our modeling indicates that leverage only temporarily exceeds 1.5 times in 2026 before declining again in 2027. In summary, our value creation plan is on track, and we have the capacity and resilience for attractive shareholder distributions in the years to come. On the topic of shareholder distributions, our guiding principle is to maintain a resilient dividend that reflects our financial strength and outlook. And to be clear, our ambition to grow the dividend by at least 5% annually through this investment cycle remains firm. For 2025, our plan is to distribute a total dividend of $2.52 per share. We have already paid two of the four quarterly installments, and the Board of Directors has resolved to distribute the third installment of 63 cents in the third quarter. Now let me round off with a few comments to the main elements of our 2025 guidance, starting with near-term tax payments. As mentioned, the tax payments in the second quarter were relatively high, at around $1.5 billion. and is the result of taxes accrued last year. Now in the third quarter, we will start paying taxes related to 2025, which will be significantly lower as the high investment level this year leads to higher tax deductions. This is a key feature of the Norwegian tax system. It provides resilience to market volatility when investing in profitable growth. Moving on to the key operational parameters. Production averaged 428,000 barrels of oil equivalents per day in the first half of the year, above the top end of our full year guidance range, but in line with our expectations. We still anticipate some natural decline as the year progresses, along with planned maintenance shutdowns in the third quarter. But with half of the year now behind us, we lift the low end of the guidance range and update the full year estimate to 400,000 to 420,000 barrels per day. Production cost is $6.9 per barrel year to date, and although the recent strengthening of the Norwegian kroner adds some risk to the full year estimate before accounting for the financial effects of our hedging program, we maintain strong cost control and still expect to end at roughly $7 per barrel for the full year. Investment activities are currently at peak levels, with construction activity at full speed and drilling campaigns ramping up. We invested 3.1 billion dollars in the first half of the year and we lift our full year guidance to approximately 6.5 billion. The increase in 2025 is a combination of very good progress across the projects, updated investment estimates and the cost impact of the strengthening of the Norwegian kroner. While most of the after-tax financial impact of the latter is hedged, the reported investment levels on a pre-tax basis is still impacted. Expiration is progressing in line with plan. The program is somewhat front-loaded in 2025, so we still expect expiration spend of around $450 million pre-tax for the full year. Abandonment activities are also on track, but we lowered the cost estimate to around 100 million, reflecting good execution, but also some facing of plugging in abandonment activities to 2028. And with that, I leave the word back to Kalle for some concluding remarks. Thank you, David.

So, to sum up, we have delivered a solid second quarter, operationally, financially, and strategically. Our projects are progressing well, our exploration efforts are breaking new ground, and we remain firmly on track to deliver on our long-term ambitions. We continue to navigate a complex external environment with discipline and resilience, and we are confident in the strength of our portfolio, our people and our partnerships. We will now take a short pause before opening the Q&A session. To participate, please use the Teams link provided on the webpage, or if you prefer to listen only, please stay tuned and we will resume in one minute. Welcome back, everybody. And as usual, Kjetil Bakken, our eminent head of IR, is running the queue of the questions today. And Kjetil, I assume we have a first question here or a first caller.