Orrön Energy AB (publ)

Thanks very much, Sarah. Welcome, everyone, to the Q1 2020 call from London Energy. It's been an eventful morning already, and I'll hand over to Alex Schneider. He'll take you through the highlights, and after that, Taj will take you through the financials, and then we'll do Q&A at the end. Thanks very much.

Thanks, Ed, and good morning, everybody. I'm very happy to be here for this first quarter of 2020. Well, let me start right away with the highlights. And on the highlights, of course, I will add point number seven, which is the news we just all received with the Norwegian cuts. But starting from the start, first of all, on the coronavirus, it's important to state that we had no disruption on production and very pleased at how the industry has reacted. And today, we feel very comfortable with the procedures we have in place. And as I said, we had no disruptions in our production. Our production for the first quarter has been very strong. We are actually on the upper end of the guidance with over 152,000 barrels of oil equivalent per day. And you will see later on that as a consequence of this performance, we've upgraded our guidance for the year. Of course, just to be clear, this upgrade in the guidance is before any announcement of our national cuts in Norway. In terms of OPEX, we continue to outperform. We've been producing numbers below the guidance at 3.22 US dollars per BOE. And again, we actually now have a revised guidance below $3 for the year. So very, very pleased with this performance. And you also, this is not news, it was already announced previously, Jons Fedrop not only has achieved phase one plateau ahead of schedule, But also phase one now is increased from what used to be 440 to 470 and fulfilled to 690. In actual fact, we've reached and we've achieved in April the 470,000 barrels of oil per day. So really, really pleased with Jens Fedrup and how this project continues to outperform. On the numbers, we've generated a strong free cash flow of over 1 million for the quarter. And for the first quarter, obviously, we had still a strong oil price, on average, about $50 oil price per barrel. And, of course, as we enter into the second quarter, we are nowhere near the same oil price, and it will be, obviously, a more difficult quarter. And finally, in terms of the resilience to low oil price, we've done several projects which has led to a liquidity improvement for the company of close to $800 million, and I will say a few more words in the next slides. So we were resilient in January to a low oil price, and with the different action we've taken, the company is more than ever resilient to a low oil price, so very pleased with the position we're in. And as I said, the seventh bullet point really that we should add on this highlight is the the announcement that Norwegian have just made last night where there will be a national production cost that will be spread evenly between the companies. What I would like to say at this point is that it's difficult for us to say a lot more. There's going to be a consultation period over the next few weeks where discussion will be taking place, depending also on certain fields and technicality. And, of course, once we have a clearer vision in terms of the impact that it has in our fields, then we will come up to the market with a revised guidance. So that's probably to be anticipated in several weeks from now. Moving on, in terms of specifically to the corona crisis, as I said, we've continuously successfully operating both onshore and offshore. The main focus, obviously, has been the safeguarding of the well-being of our people and also, of course, minimizing the risk to operations. We've taken a lot of actions, and I have to say, in general, the way the industry has responded, both at the government level, unions, and companies, has been really, really good. And we have now a contingency plan in place, and we've also taken steps in our existing fields where we minimize the... the offshore activities, so we minimize any disruption to production. But this reduction in activities actually hasn't impacted the long-term production guidance either for this year or next year or in the longer term. So it's more re-phasing of some of the activities. So overall, really pleased in how our company has reacted and how the industry has reacted to this crisis. In terms of resilience to low oil prices, as I mentioned before, we maintain very high-quality, low-cost assets. That's certainly the fundamental part of London Energy. Just the operating costs now, we have now a revised guidance at 2.8 US dollars per barrel, which is down to the previous guidance, a number of 3.4. Those are really exceptional numbers, and it's even more exceptional when you think about Jens Fedrup, who are actually having cost of below $2 per barrel. So, you know, it's foreseeable in the future as yield surger grows that we will be able not only to maintain but even go lower in terms of operating costs. And that's in this environment is even more important. So that's also the results of our low cash flow break-evens. If you take the average of the next seven years, it's below $70 per BOE. In actual fact, if you take all cash flow breakeven post-Yonsei phase 2, so from 2023, they are below $10. So, you know, an exceptional position to be in, and it's a result of, you know, over the last 15 years, strategy of London through organic growth and developing of new high-quality assets. Furthermore, as I said, we've improved liquidity. Specifically, we've now increased, we announced the market $170 million of savings or phasings, and we've increased now to over $300 million. Those are cost reductions and also deferrals to 2021. It includes CAPEX, OPEX, GNA, and other costs. And so please do what the company and the team has done to achieve those numbers. We've also entered into new corporate facilities of $340 million, which is now signed and completed. And as you know, we reduced our dividend to the tune of 45%. So if you sum up all this, we actually, since the capital market day, improved liquidity position by close to $800 million. So as I said, we were already in a strong position, but today we are in an even stronger position. And I think two things I'd like to say. One is absolutely critical to be resilient to lower price. And secondly, it's also a time of opportunity. It's possible that in the coming months we will see opportunities and we want to be in a position to be able to enter, should we wish to do so, to enter such opportunity. So to put, in essence, put the company in a position of strength. Moving on to the next slide, this is a more detailed in terms of our production. I think the highlight, I would say two highlights here. First of all, due to the result of the first quarter and the operations of both, in particular, Edvard Grieg and Jens Fedrup, we increased our full year guidance now to 160,000 to 170,000, so a midpoint of 165. Again, I would like to reemphasize this is pre-national cuts in Norway. And we will come back once we have clarity and when we've gone through the consultation period with a revised guidance. And secondly, this is now the 19th court in a row that we have been at or above guidance. So at this point, as I said, we will give you more clarity once we have gone through this consultation period into what the impact will be. It's perhaps, if you look at the press release of the revision, was made last night if you take the weighted average of the oil production cuts it accounts for about eight percent excluding any delays in the fields but that doesn't mean that you can apply eight percent to our production it's something we have to be will become clear once we have gone through the consultation period moving on to the industry on the operating performance I think one of the reasons, of course, we've outperformed in terms of production and low operating costs has been, you know, fantastic production efficiency. I mean, 99% for Edvard Grieg is an exceptional number, 98% in Alvine, and also in Jonsvedrup, 89% for a field that just started. They are all very good numbers and very high efficiency numbers. So a splendid job done by our teams, both in Edvard Grieg and Alvam from AKBP and Jonsvedrop from Equinor. And that is what's leading to low operating cost. In addition, obviously, as I said, we've seen great performance in terms of the subsurface. We continue to see outperformance in Hedberg-Rieg, and we see significant performance on Jonsvedrop. On the efficiency also, I think it's important to highlight, and that goes also in terms of the overall carbon decarbonization strategy. or intensity, we got it for the full year, less than four kilograms of CO2 per BOE produced. And at this stage, we are, you know, about three kilograms of CO2 produced per barrel. So, quite significantly lower than what we guided and, you know, significantly lower than what the world average is, about a fifth of the average. So, also very pleased. And of course, without any health and safety, high performance, there's no business, and very pleased with how the performance on HSE have developed, particularly in these difficult times of the coronavirus. Moving on to the assets in particular, starting with the Jonsvedrop. Of course, we talked about Jonsvedrop for Phase 1 and the ramp-up being ahead of schedule. and phase one now production being higher in plateau than what was guided previously. So in terms of phase one, overall, we're really pleased where we are. I mentioned the OPEX below $2, exceptional OPEX per barrel, and an exceptional low carbon footprint. Going forward, of course, the focus is on phase two. Phase two is actually now over 30% complete. It's moving according to plan. I think it's an important statement when you take into consideration the turmoil in the last few months. Despite the coronavirus and the slowdown in economies, we've been able to continue to progress according to plan on phase two of Jans' FedDrop. So really, really pleased. And so the first all Q4 2022 as guided remains fully on track. In terms of the ramp-up, which is the next slide, I think a lot has been said already ahead of schedule and higher. I think it's important to realize that during the month of April, we've achieved 470. Not only we've exceeded the 440, which is the previous guidance, but we've achieved 470,000 miles of oil per day. So an exceptional performance from Equinor, the operator, and the onsetter field. This is based on 10 wells, and currently we're drilling well number 11, which will be coming in production during the second quarter of this year. And also from the drilling side, very pleased with the performance. So overall, very happy in how Jönsved is performing and where we're heading. In terms of Edvard Grieg, the strategy remains the same, is to maintain the capacity of the field full for as long as possible. Number one, Hedberg-Rieg continues to outperform. I think the best way to reflect this is in terms of the water cuts, for instance. We still see low water cuts in Hedberg-Rieg, which is good news, and we see very high uptime, as I mentioned before. And so in terms of the Hedberg-Grigg itself, the field is doing really a fantastic job, and the team is doing a fantastic job. We've actually deferred the planned shutdown in 2020, which is now moving to 2021, which is increasing, obviously, the Hedberg-Grigg production for the year. And we also defer the infield drilling, which was due to start this year to next year. I think the important thing is to note is that the deferral of the infield drilling has no impact on our guidance has no impact on the production of the field itself. And this is because we have ample capacity from the existing wells as we speak. So the fact that we have deferred the infill drilling actually doesn't impact our production. In terms of the full, we stated in December that we're going to fully electrify that by Greek. That's ongoing as per plan. And of course, we have growth opportunities that we are currently working on. And I'm thinking about Solveig. Rolfsness and later on the Merckx Expiration Well. Solveig and Rolfsness both have been deferred from Q1 2021 for Solveig to Q3 2021, and Rolfsness has been moved from 2021 second quarter to second quarter of 2022. Again, this deferral actually will not impact our long-term guidance in production. And that's also very much, again, due to the fact that Hedberg-Rigg is continuously outperforming. So overall, Hedberg-Rigg, it's all going according to plan, and if anything, better than what we anticipated. So very pleased with the performance there. A few words about Solvig. Solvig, if you remember, it's a development of subsea tied back to the facilities at Hedberg-Rigg. We have a range between 40 to 100 million barrels of oil equivalent. And we also have very low break-even, below $30 per barrel. Raw business, which is a basement play, stands between 15 to 80 million barrels of oil equivalent range. Again, the plan there is to bring one well into production to the platform and assess the potential of the basement play. So this now will be tied back into the platform and producing in 2022. And this is what you really see on the schedule with first all Solveig on Q1 2021 and then followed later by Rovers in 2022. Moving on to Alvim, I would say Alvim continues to outperform. Still, despite the fact that Alvim is a very mature field, the operating cost stands at $8, which is a good number considering the age of the field. In Alvim, same story as Hedberg-Rieg, the shutdown has been deferred from 2020 to 2021, and we will see two further infill wells in 2020. And really, the game plan in Alba is to reduce as much as possible the decline of the field by drilling new infill wells. And we also have the frost development, which we anticipate, which is project sanctioned towards mid-2021. But overall, also very pleased with the performance on Alba, and very pleased with the ACOBP as well. In the organic growth, we've seen several movements, but before we talk about the plan, perhaps it's worth highlighting that today with the wells we drilled, we already had one success, Iving, which is likely going to be a commercial subsea tieback, and it's likely going to be a project we're going to do seismic and appraisal this year, the appraisal probably next year. So it's something we're going to move quite actively and certainly towards 2021 to try to mature this discovery into a commercial discovery. We have four projects underway. We've discussed some of the main ones in the previous slides. And in terms of the remaining wells now, we will have three remaining wells. And so the program overall has reduced, and that's because we phased out some of the drilling activities. So in total, the total activity in terms of exploration appraisal will be six wells, three have been drilled, one discovery made, and three remain to be drilled, which we're going to see the results or the activity on the fourth quarter of this year. So we remain active, but of course we've phased out some of the activities to 2021, but still very active in terms of also new areas and new opportunities that we will see developing over the years. And then... My last slide before I hand over to Titra, this is in terms of the carbonization strategy. I would say the key message is that nothing has changed despite this environment. The ambition is to become carbon neutral or the target more than the ambition is to be carbon neutral by 2030 from our operations emissions. And as you've seen in the previous slides, the target we set ourselves, for instance, for 2020-2022, less than four kilogram of CO2 per barrel produced is actually achieving better than that. And we're on track to achieve all our ambition and our strategies is firmly in place to achieve our carbon neutrality by 2030. We've completed also the farm out of our wind project. And we are on track with the hydropower project for first power in the second quarter of this year. So they're all also very pleased on that side. So with that, I think it's over to you, Titus.

Thank you very much, Alex, and good morning, everybody. So starting off here with the financial highlights for the quarter, I think we can characterize this as yet another very strong financial performance for the quarter. Obviously, most of the Q1 was still shuttered from the impact of the COVID-19, a scenario which will obviously change as we go into Q2. But sticking with the first quarter, sales volumes of slightly higher than what we produced over-lifted, so 153,000 barrels oil equivalent per day was the sales volume lifted, and that was split into 17.6 oil cargoes and then some some gas and condensate in addition to that. Price realization has been good for the quarter, somewhat negatively impacted by timing of liftings, but nevertheless realizing $48 a barrel on oil and the blend of gas and condensate just over $25 a barrel equivalent. Alex talked about the low costs we have in the portfolio and that metric keeps improving. So, as Alex already said, the Q1, $3.22 OPEX per barrel, and the oil and gas, CAPEX and E&A, below $200 million for spend, and renewable, $26, $27 million for spend. And this all translated into very strong cash flow from operation, actually a record number for the company, just below $640 million. And the free cash flow was in excess of... $400 million, which effectively was implicitly guided upon given that we guided net debt. So if you look in more detail on the next slide on the key financial metrics, $581 million of EBITDA generation for the quarter, which is up 45% relative to the same period last year. And as you can see in the table at the top there, that's driven by higher sales volumes, obviously, 92% up, and a lower oil price realization of 26% lower than same period last year. On a per share basis, the improvement is even better, 74% up, given the 16% share cancellation we did in the summer last year. As I said, cash flow from operations just below $640 million. Obviously, underlying performance has been very good from the portfolio, but also somewhat helped by a working capital release of over $140 million in the quarter. We had quite a large working capital build at year-end last year with a very back-end loaded lifting program from Johan Sverdrup in particular, so we had significant accounts receivables. So, CFFO up 85% compared to the same period last year. And on a per share basis, we achieved $2.25 per share in CFFO, which is 120% improvement. And as I said, free cash flow before dividend payments, $407 million, which is up over 300% on the same period last year. So, again, a record increase. quarter of free cash flow generation pre-dividends. The net results for the quarter were significantly impacted by mostly non-cash FX losses of close to $360 million. So that gave us a net result after tax of negative $310 million. But when we net out mostly the FX loss plus some other non-cash accounting items, the operational net profit after tax was $66 million, which is up 12% on the same period last year. And the adjusted net profit on a per share basis is up 35% compared to the same period last year. last year. Then going to the next slide and looking at the price realization, you can see in the previous four quarters our oil price realization has been very close to the dated Brent. And I emphasize the dated Brent as opposed to ice Brent because we are pricing off dated Brent as everyone in the North Sea does. So you can see, as I said, that the oil price realization was just below $48 a barrel. per barrel of lifted crude oil for the quarter, versus the dated Brent average for the quarter was just over 50 a barrel. So this was partially negatively impacted by the timing of our lifting, around about $1.50 per barrel negative impact on that. And then the delta has been the pricing of the physical crude relative to dated Brent. And of course, what we've seen in early April were the dated Brent differential traded at historical low levels. At one point, it was a minus $10 differential to the ICE Brent, which is unheard of. But that has somewhat recovered. I think at the moment it's trading at around about $5 negative. So given that we are trading off dated Brent, that clearly is going to have a negative impact on on prices in Q2. And the data breadth is an indication of an oversupplied physical market, which is not a surprise to anyone. So that's also going to filter through into our physical marketing of crude oil in Q2, where we have a weak market situation at the moment. But the good news is that our marketing team has been very proactive through this turbulent time. And where we sit today, we've actually sold all our barrels right out to the end of June. So those cargoes have all been placed with various customers, and most of those cargoes are going to China. If we then go to the next slide and look at the operating costs in a bit more detail, I think the operational team in Norway is continuing to do a fantastic job in keeping costs under control. You can see the absolute costs, just over $50 million for the quarter. And if you look at the dark blue part of these bars, which is the base OPEX, you can see how that's trending down, also helped by a weakening NOC, given that most of our operating costs are incurred in NOC, but also helped by lower electricity prices and generally downmanning the platforms to mitigate the COVID-19 issues. So non-essential maintenance has essentially been deferred. So all of these items are obviously helping to reduce our costs. And as Alex said, our new full-year guidance now stands at $2.80 per barrel oil equivalent. So that's a 17% reduction on our previous guidance of $3.40. also helped by an increased production guidance, and that's pre the Norwegian national costs, and also helped by a weaker NOC. We are now assuming 10 NOC to the dollar as the average FX rate for the full year in 2020. In terms of tax rates, on the face of the income statement, we actually reported a pre-tax loss And then we had close to $300 million of taxes on top of that. Most of it is current. We are out of tax loss positions in Norway now. So $260 million of current taxes and $38 million of deferred taxes. And this is roughly in line with what we have guided at the Captain Marcus Day. So if you take the current tax charge as a percentage of EBITDA, it's around about 44% current tax rate. versus our guidance of capital markets at $50 for the full year at 42% current tax of EBITDA. So this is trending very much in line with guidance. If we then look on the right-hand side of this slide and reconcile back to our adjusted net profits where we take out the non-cash or the FX losses and some other non-cash accounting items, You can see we had a pre-tax profit of just below $360 million. And the adjusted total tax charge then is $290 million. Again, most of it current. And that yields an adjusted tax rate of around about... Tax rate in Norway in isolation was 73% for the quarter. And then we had certain financial interest rate swap losses, et cetera, through our Dutch holding structure. which therefore has pushed off the effective rate to 81%. On cash flow generation and the liquidity position, the company is still in a very, very strong position. We've talked about the cash flow generation, just splitting it out into more detail on the left-hand side here. As I said, the organic cash flows from operation just below $500 million for the quarter, and then we had the release of working capital of $140 million, so total cash flows from operations of $640 million. Our investment levels totaled $230 million for the quarter, just below $200 million, as I said, on oil and gas activities, and then around about $30 million in renewable investments in terms of the wind farm in In Finland, the hydropower project in Norway has as yet not completed. We expect that to complete in this quarter. So therefore, there has been so far no cash outgoings on the hydropower project so far. But as I said, we expect that in Q2. So that has generated $406 million of free cash flow. The last quarterly dividend payment was paid out in January of $105 million. This relates to the 2018 dividend. And in April this year, we paid out the first installment of the 2019 dividend of $71 million, which was after quarter end, so not reflected in these numbers. And then, as we said, we reduced the debt numbers from $4 billion at the beginning of the period down to $3.7 billion. at the end of Q1. Our liquidity position at the end of the quarter remained very, very solid indeed. You can see here over $5 billion of committed credit lines versus a net debt drawn of $3.7 billion, so in excess of $1.3 billion of liquidity headroom at the end of the quarter. But obviously, as we have previously guided, Our RBL starts to amortize later this year and by end of this year is amortized down to $4 billion. And to mitigate that amortization schedule, as Alex mentioned, we have entered into a new corporate facility of $340 million with five of the existing banks within the RBL facility. This is a relatively short-term facility. It runs out to mid-2021. We have some extension options on that. But with that $340 million facility, in addition to the renewable facility of $160 million, it means that even taking account of the amortization of the RBL, we still have committed credit lines at the beginning of next year of $4.5 billion. And obviously, we are still looking at the refinancing exercise, which we flagged at Capital Markets Day and which we plan to carry out this year or next year. Clearly, with current market conditions, it's not an ideal time to enter into any refinancing negotiations. But we will monitor that situation as we go through the second half, and then we will assess whether we refinance in the second half this year or whether we delay that until 2021. Alex mentioned the measures we have put in place to improve near-term liquidity for the company, totaling over $780 million pre-tax. And you see the split here, $315 million of mostly phasing, also somewhat helped by the fact that we have assumed a weaker knock of $10 to the dollar for the rest of this year. And then I mentioned the credit facility. It is $340 million, but With the farm out of the wind farm in Finland, one condition was that we had to cancel $100 million of availability in the renewable facility in the quarter as well. So the net additional credit commitments during the quarter were $240 million. And then on the dividend reductions, as you know, earlier in the year, we were one of the first to take measures to reduce dividends. where we reduced our original proposed dividend of $1.80 per share down to $1 per share, which was then approved by the AGM at the end of March. So, as I said, pre-tax $780 million liquidity improvement, but even on a post-tax basis, this liquidity improvement would be in excess of $700 million, so a material improvement for the company. Then just to recap on the guidance, we outline all this in the report itself as well. So production now 160,000 to 170,000 barrels. This is, again, pre the Norwegian COTS. So a midpoint of 165,000 barrels oil equivalent per year, which is a 6.5% improvement on the previous midpoint guidance of 155,000 barrels oil equivalent. Production costs, production off-ex costs, we have mentioned already an 18% reduction. And then we look at the sum of the capital items here on CapEx and E&A decommissioning and renewable investment. That is a cut of $285 million, equating to a 22% expenditure cut compared to the original guidance given at Capital Markets Day. And the last slide I had here before handing over to Alex again for concluding remarks is just a recap on our new dividend schedule in terms of ex-dividend dates and expected payments dates. And as I said, the first quarter installment has already been made in early April, with the second quarter coming up on the 8th of July in terms of payment and ex-dividend 2nd of July. So with that, I will hand back to Alex for some concluding remarks.