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.

Thank you, Titro. Only one slide, so we can move quickly on to the questions and answers. But in summary, really, I'm very pleased with the quarter results. Strong production performance and increased guidance pre any Norwegian cuts, and with a midpoint now at 165,000 with the revised guidance. Beyond FedDrop, plateau production rate increased and achieved. and in April achieved 470,000 barrels of oil per day, and really very pleased in general with the operation in Jöns Fedrop. Operating costs, we continue to lead in terms of our low operating costs with the revised guidance standing now at $2.8 per barrel, and taking into account our major assets, Jöns Fedrop has operating costs of below $2 per barrel. We've taken a lot of action in the last three months, and since we met at the capital market day, in terms of the coronavirus and all the impact the coronavirus could have had, and we see no production disruptions. And the second thing since the capital market day is that we've significantly improved. We were already in a very good position in resilient to lower price. We've already improved that position with about $800 million of improved liquidity from what already Taito described based on a new facility in place, reduction in cost, capex cost, and of course also the combination with reduced dividend and access to a facility. Today our debt is $3.7 billion with the facilities or access to capital of over $5 billion sample liquidity. And our plan remains the same, is to retain material dividend. The fact that we reduced the dividend is still standing at about a yield of close to 5%. The market these days fluctuates quite a lot, but it's about 5% yield. And our plan is to maintain a sustainable dividend. And should the environment improve, it's our intention to maintain or increase dividend over time. And of course, lastly, but very important, continue to have safe and responsible operations. So I think from that we'll leave it to the operator to coordinate the questions and answers.

Thank you. Ladies and gentlemen, if you would like to ask a question, please press 01 on your telephone keypad now. If you would like to withdraw your question, please press 02 to cancel. Once again, that's 01 on your telephone keypad to register for any questions. Our first question comes from the line of James Roseau from Barclays. Please go ahead. Your line is now open.

I appreciate it's too early to properly revise guidance for the production cuts being imposed, but given London will be required to shut down some cash-generative barrels, can you give any comment on whether it's likely to prompt further capex cuts this year? And also, could it require you to revise your dividend again? Thank you.

I can take. In terms of CAPEX, I mean, this is the, we call it the phase two of CAPEX reduction or phasing. We announced 170 and now we say 300. Currently, there is no plan to further reduce or phasing out CAPEX. Of course, internally, we're looking at all the options we have should the market continues to stay low or even lower. But at this moment, even including a reduction on the national announcement made by the Norwegian, there's no plan to further reduce or capex. The second one, you question the dividend. I think the straight answer is no. We've reduced our dividend from 1.8 to 1, and we feel very comfortable with that level, and we have no intention to further reduce the dividend this year. Of course, coming next year when we have to reinstate another year of dividend, there will be further discussion with the board, but for this year, certainly, we have no intention to further reduce the dividend.

Okay, just in that last comment then, are you slightly reining back from the commitment previously to have a sort of a growing dividend in the future? Is it potentially that we should look at this dividend of a dollar this year being you'd hope to maintain it next year?

The plan hasn't changed. The plan is to have a sustainable dividend and grow dividend over time. Of course, We can't completely ignore the macroeconomics. I always said, you know, on comparing the same macroeconomics, we will maintain that strategy. Now, if I go to the extreme, if the oil price remains at $10, obviously our view will be slightly different. But, you know, I'm certainly, I believe the market will improve, particularly as the lockdown is being progressively lifted. and then I think the market economy will be different and that strategy will remain the same, which is maintaining current dividend or increasing.

Okay, thank you.

Thank you. Our next question comes from the line of Johan Charenton from Société Générale. Please go ahead. Your line is now open.

Good morning, gentlemen. I will have two questions on dividend and taxation. So the first one on dividend is, following the prudent reduction you announced, is this DPS level of $1 per share set in stone? Will future decisions on the dividend be made quarterly rather than annually? And how to put this timeline for dividend revision in perspective with the refinancing milestone? And did you have a question on Tax? Yes, I can add one on taxation. I mean, clearly today the Norwegian government has moved first with these production restrictions, and you clearly, you were very clear on the fact that you'll come back onto this later. But in view of possible temporary tax changes at the same time, If all capex-induced tax deductions were to be front-loaded in year one, as it is being proposed and currently being negotiated at the industry level, what would be the rough impact on your capex plans, and what is your view on likely projects that could be fast-tracked rather than deferred? Thank you.

Yeah, I mean, I can take on the dividends, Johan. I mean, as Alex said, The cut was announced and proposed to the AGM in March of reducing from $1.80 to $1. The AGM has now approved that, and that is technically an annual approval, which we then pay out in quarterly installments. Of course, the dividend we are paying is always mandated by the shareholders. So if the shareholders give us a revised mandate at any point in time, we as a company obviously have to honor that and react accordingly. As Alex says, the base plan for us is to grow dividend. If you recall, the original dividend policy was to sustain dividends even at oil prices below $50 a barrel, but clearly going from $50 down to $10 is a different scenario, as Alex says. So as market will normalize and recover again, then you should expect that our originally stated dividend policy will remain in place, and we will adjust dividends according to our financial performance as we move forward.

Alex, I don't know what you want to... On the CAPEX, I guess, on the taxes. Yeah, I mean, right now, I would say we've done the majority of our phasing on CAPEX, and we have to see what the taxes recommendation are coming with. We obviously will evaluate... But I understand that taxes will impact the year 2020 and 2021. So in that basis, what we've done in our strategy will remain unchanged. In terms of your specific question in terms of accelerating existing discoveries to be able to submit, I suppose, what you meant, a plan of development to take advantage of any tax relief. Obviously, that's very much dependent on what we also have in our hands. So it could either change our strategy when it comes to new opportunities. And for the existing opportunity, really the only one I can think of at this stage is EVING, which is the discovery we made this year, which we could appraise next year and could take advantage of our tax relief. And so that's something we're going to monitor as we understand better what and if there is a tax relief coming.

That's very clear. Thank you.

Thank you. And our next question comes from the line of Evan Thomas from Exxon BMP. Please go ahead. Your line is open.

Hi, good morning. If I could just ask a question, perhaps a broader question to begin with on cash flow and guidance for the year. I appreciate there's a huge number of moving parts at the moment. But I guess given... given your net debt of $3.7 billion at the moment and the amortization of the RPL towards the year-end, are you able to provide any rough guidance on where you would expect year-end net debt to be in a broad range in a sort of $30 to $40 environment? Just sort of looking, I think, to try and get some sort of free cash flow proxied for this year on the restated sort of Brent oil price levels. And secondly, just to follow up, I want to ask, is there any risk to Sverdrup Phase 2 because of the COVID impacts that we're seeing so far?

Okay. Good morning, Alvin. On your first question, what we estimate from this point going forward is that the company should be... cash flow break even at around about $28 realized oil prices from April to year end, which will make the sort of full year average break even at around about just over $30 a barrel, $33 a barrel. So in that scenario, and these are all numbers pre-dividend payments, in that scenario we would therefore keep debt levels flat compared to the debt we had at the beginning of the year, which was $4. $4 billion. So that gives you a rough estimate. Clearly, with potential production costs from the Norwegian government, we may have to revise some of these numbers. But that's a rough sort of guidance for you in terms of liquidity outlook for the company.

Sorry, if I could just ask on that. What sort of realised Brent price discount are you assuming? Sorry, what realised discount to Brent would you be assuming? Do you think for that. I think it's very difficult at the moment.

Yeah, that is the realized price we're assuming. So assuming we realize $28 a barrel from now to year end on average, that just remains flat.

And that's pre-dividend?

Yes.

Yeah, and I guess your second question was related to the relation to Young's Fed Group in phase two. Maybe I take that one and the COVID-19 impact. As I said, so far we have about 30% complete on phase two. In actual fact, we are right on track and we were almost kind of surprised that things went perhaps even better than we anticipated and there's been little disruption. Some of the yards are in Thailand, some in Norway, some in other parts of the world. But in general, we haven't seen any disruptions. And for the time being, certainly we maintain the target of a fourth quarter 2022 for first oil. But right now, we don't see any delay on phase two on the impact on the COVID-19 situation.

Okay.

Thank you very much.

Thank you. Our next question comes from the line of Anders Holter from Kepler Schibler. Please go ahead. Your line is now open.

Good morning, guys. Thank you for taking my questions. I have two questions, if I may. First, I appreciate that these are, as you mentioned earlier, on several occasions, difficult times. Could you give us any flavor on what kind of oil prices you're currently now realizing in the cargo that you're shifting off from Evercrig? That would be good in terms of any color on the current discounts that you see towards the price we see on our screen. And secondly, as the production cuts get rolled out, will you take the opportunity to do some more maintenance work, especially on every grid, and therefore couldn't expect every grid performance to be somewhat better for next year, given that you could front-run some maintenance for the assets?

Yeah, Good morning, Anders. On the price realization, obviously we realize it's a hot topic these days. And I can reiterate what I said in the presentation. I mean, the good news for us is that we have managed to actually place and sell all our cargoes to the end of June. So our marketing team has done a fantastic job because with the oversupply, market at the moment, actually just selling the cargoes in some cases is an issue because you're struggling to find the buyers. And the way we've done that, we've teamed up with some of the other sort of producers from our fields and done joint liftings with VLCCs going to China for the most part. And the pricing, obviously, I can't disclose that in detail here, but what we clearly saw as we placed the April barrels and then the May and then the June, that the oversupplied nature of the market got increasingly worse as we went through those three months. So whilst we have historically achieved a premium on Edward Greek for the most part, I think what you should expect for Q2 is that that premium will no longer be there. And in fact, we are selling all our barrels at the discount to the dated breadth. Obviously, the dated breadth over this period, we don't know yet, because that will be pricing on a daily basis. But the physical discounts to dated breadth will be somewhat higher in Q2 than what we have seen historically. I don't think I can disclose much more than that.

Okay. So, in other words, you have actually managed to shift all your cargoes up until June?

Yes.

Yeah, that's our advice. Thank you.

Yeah, and then your second question was, you know, based on the production cuts that NOAA has announced, will we change perhaps our strategy? You mentioned maintenance. Now, first of all, you know, we still, there's a consolidation period, and we still need to understand ourselves what it means. We obviously have the main figures, and as I said, the weighted average in terms of reduction is about 8% from early June to end of the year. Now, the two areas where we have moved maintenance, actually, from this year to next year is Alvim, the operator, RKVP has moved their maintenance on the armor field from this year to next year, and we made a decision to move our maintenance of an Edva Grieg from this year to next year. This will not change. Now, you know, once we have more clarity on the cuts and what they mean and how they impact both Edva Grieg and also Jens Fedrup, Of course, any opportunity we will have to optimize operations also in looking at next year, of course, we're going to look into it. But pure maintenance, those have been moved now, certainly for Alvam and Edvard Grieg, and I don't foresee this to change.

Okay. Thank you.

Thank you. Our next question comes from the line of Robert Howe from Stiefel. Please go ahead to your line of snow. Open.

On the fact that you forward sold your cargo... Hello? Hello? Can you hear me again?

Yeah, I think you have to start from the beginning. You were cut off.

Sorry about that. So just on the forward sales of oil, I was wondering if, you know, with production cuts being mandated by Norway, you could find yourself in a position where you've sold barrels that you don't have in June. And then second question, on the tax reform, I guess we obviously have to see what it says, but is there any scope for a tax change to involve depreciation of prior years, capex? So you're obviously sitting there with a large undepreciated asset with depreciation over four years. Is there any scope for that to be accelerated into 2020 or 2021? Thank you.

Hi, Robin. On your first question, I asked exactly that question of our marketing guys, what the scenario is if, as I said, the June cargoes have already been sold, and what is the scenario if we don't have the barrels to sell at that point, given the cutbacks. But my understanding is that we will still be awarded those barrels if we have entered into sales contracts and then that will be adjusted. from July onward to the various lifting schedules that we have out of the terminal. So I believe that will be managed through sort of just phasing out of June into July, where we will have fewer barrels to sell in that case. And on the tax breaks, our understanding, I mean, we haven't seen any of the details, as no one has, but as Alex said, our understanding is that you will get 100%. or potentially one of the proposals is that you can get 100% tax depreciation in 2020 and 2021, but we have yet to see the details. I've certainly not heard any talk of that being retroactively applied to prior years. But as I said, we have seen no details at the moment, so we're all speculating at this point. Okay, great.

Thanks very much. Very helpful.

Thank you. The next question comes from the line of Peter Nielsen from SEB Markets. Please go ahead. Your line is now open for your question.

Hello, good morning, and thanks for taking my questions. First of all, one very quick question on the changed optics per barrel guidance. How much is the impact of all changed effect rates? And second question, we already discussed that briefly, but Do you just have some very high level thoughts around NTS production cuts and which field that potentially may be impacted with big fields, small fields, fields with high optics or low optics and any thoughts around that would be very useful. Thank you.

Yeah, Ted, on the optics, so what we said is the reduction per barrel is 17% and roughly 12% of that relates to change in FX assumptions and the delta is then higher production and some actual OPEX absolute numbers being phased into next year, lower maintenance and mounting.

And I guess your second question was in relation to the cuts in Norway and which will affect low or high OPEX. At this stage, all I know is what I read in the press release that you also seen. And my understanding is that now we're going through a consultation period all the different fields will be treated equally. But of course, there will be some technicality. We also know the cross-border fields were not being included. And then maybe fields either, you know, not necessarily related to OPEX, but fields that have some technical issues who could not be treated the same way than others. So it's very early days. I also need myself to understand this. And I think this next few weeks of consultation will be exactly that, to understand how we're going to share the pie of the proposed reduction. So that's, at this stage, I would say it's not very clear to me yet.

Okay. Just regarding production, because I just noticed that last time, or production in 2002, it was meant that there were big fields that were impacted. So do you see an obvious reason this time for that Sveidrup will be less impacted than other fields?

Difficult to say. I think all I know today from my own knowledge is that the government in Norway wants to treat as much as possible everybody equally. You're right, in the past, I guess it was now many years ago, it was four or five fields who took the majority of the cuts, but you have to remember that at that time there were also fewer fields in Norway, in large fields, and so this time my understanding is that everybody will be treated equally but of course it will be dependent on the other technicalities. So it's early days to make any other statements. So we will see in the next few weeks what, you know, the final results. And as we said, once we have clear pictures, we will make that as soon as we know public, and we will come up with also a revised guidance and the impact that it has in our fields. Primarily for us, it will be obviously Edvard Grieg and Jens Federer.

Sure, understood. Thank you.

Operator? Once again, if you do have any questions, it's 01 on your telephone keypad if you would like to register, and it is 02 if you would like to cancel. The next question comes from the line of Carl Fredrik Koppelissen from ABG Sandal Collier. Please go ahead. Your line is now open.

Hi, guys. Two questions, if I may. The first is kind of a follow-up on Theodore's question regarding FX components, but in this regard to the CAPEX guidance, meaning how much of the CAPEX reduction is associated with FX. And the second question is, If we see a tax exemption or change to the tax system, as outlined by the Regional Oil and Gas Association, where you get cash refunds for investments in 2020-2021, what do you then anticipate? And since you also said that you have, I guess, on the evening to push forward in terms of sanctioning new projects, what will you then do with the cash that is injected into the company? Is it debt deductions, or is it any potential for further dividends?

Yeah, I mean, on the FX impact, on the CAPEX facing and saving over $300 million, I think just less than a third is FX-related or thereabout, talking from memory here, but I think it's roughly that sort of order of magnitude. And again, on the tax changes, you know, we keep speculating. We haven't seen any details, but clearly any cash tax savings through this year and next year, we will have to assess in the totality of the business how that excess cash is best allocated. So before we know the details of all of this, we're not going to jump to any conclusions in terms of how that's allocated.

Okay, thank you.

Thank you. The next question comes from the line of David Rand from BMO Capital Markets. Please go ahead, your line is open.

Morning, guys. We've probably covered year-end liquidity expectations, but can I just ask what levels of liquidity you are comfortable with, particularly given the uncertainty over both Brent and the Norwegian cuts? And I suppose it's really a question of what level are you comfortable with before you are forced to maybe refinance earlier than you would perhaps want? And is it possible to upsize the new corporate facility?

Yeah, good morning. I mean, historically, we've been running with a liquidity headroom, I would say, of plus minus a billion billion dollars and I think given this as a company we are as we look at the refinancing and how we look at this going forward I think that will still be the planning assumptions that we would ideally would want to have around about a billion dollars liquidity headroom for any unforeseen events or indeed for M&A opportunities now clearly as we as we move towards the back end of this year when the RBL does amortize I mean what are the options we could As I said, refinance in the second half this year, that will very much be dependent upon market conditions because the driver for refinancing really is to get better commercial firms as our credit metrics continue to improve with the transfer of wrapping up. But if that's not achievable relative to what we already are paying on the RBL, then it defeats the purpose of refinancing this year, in which case we would delay it until next year. And then we would have to look at the liquidity position as we go into next year and see Clearly, the lowest hanging fruit on that front would be to go back to the RBL syndicate to amend the amortization schedule as we go through 2021. And through the redetermination of the RBL, we've already had preliminary discussions with RBL banks in looking at that as an option. And that looks pretty doable to me. So we will see. And we just have to monitor, first of all, the market condition on the refinancing and then obviously the market condition on the oil and gas prices as we move forward. Okay, understood. Thank you, Patrick.

Thank you. The next question comes from the line of Al Sampson from RBC. Please go ahead. Your line is open.

Yes, good morning, folks. Most of my questions have actually been asked, so I just want to go in a slightly different direction if I can in terms of exploration and new opportunities. I suppose most of the attention so far has been deferral of spending. But I was wondering whether there's any wells that you particularly like more than others and you'd rather have a bit more and reduce somebody else's spending as a result. And maybe actually, you know, if you're set to benefit from potential tax changes, you know, whether you should be restocking the cupboard. So I'm just wondering if if whether any of management time is being reallocated to new opportunities rather than just fighting fires?

Yeah, it's a good question. The answer is definitely. I mean, we've always been very active on that front. I mean, there are several ways to tackle this. Number one is obviously the ongoing up-arounds, and we've been always very active. In actual fact, our acreage position has increased over the years, and we continuously work on those and trying to find new opportunities, and that's one. Second one is, you know, like last year, we've done quite few deals where we enter into new areas by far means. And this hasn't changed. And as we speak, we have a dedicated team of people just looking at all opportunities and really either being, you know, people in distress or people who are not interested in exploration anymore. And that opens up opportunity. We've seen that back in 2015. We had the same dilemma where, of course, you focus on the strength of your balance sheet, but at the same time, we saw opportunities, and this is no different this year. And so, no, right at the opposite, we're very active. The fact that we moved some of the timing with the rigs is this is to strengthen our balance sheet, but by no means it has reduced our appetite for new opportunities. And then also on the bigger scale, we have a dedicated team who is on it day and night, and that hasn't changed.

Okay, thank you.

Thank you. The next question comes from the line of Mark Wilton from Jefferies. Please go ahead. Your line is now open for your question.

Hi, thank you very much. I appreciate your comments on the refinancing possibilities back half of the year or 2021. But can I just move back tighter to this year's RBL redetermination and the timeline on that? I understand it starts in May. You just said you'd had preliminary discussions with the syndicate regarding amortization amendment. What is the chance of any revision to that amortization schedule in this year's RBL redetermination, given it's the first one since Johan Sevedrup has come on stream. Thank you.

Yeah, hi. Good morning, Mark. So we have actually completed the redetermination of the RBL. It takes effect as of tomorrow, and the total committed credit lines post that redetermination will continue to be in excess of $5 billion for the remainder of this year. So this year is fully covered in terms of liquidity. As I said, the issue is when the RBL starts to amortize more aggressively from 1st of January next year. And it's in that light that we've had some preliminary discussions with the RBL banks on smoothening out effectively that amortization schedule next year. The small amortization we see in the mid of this year is a non-issue really. That doesn't really impact the liquidity really that much for this year. It's more a 2021 issue. So that's why I'm saying the two options are either to amend that amortization schedule within the RBL or to do a complete refinancing. So those two are the two options, the main options we would look at.

Okay, got it. And just to check on, is that the fact that the RBL redetermination is complete as of yesterday, is that in the results or have I dismissed that?

No, but that's after Q1. And the redetermination is more of a mechanics as we see it. I mean, we redetermined the RBL. We normally did it every six months. We now do it every year. But it's never an event we have announced as a company. It's more of a continuous process of redetermining as stipulated within the loan agreements, which is what we have done year in, year out over the last 15 years or so.

Okay. Thanks for the clarity.

Thank you. The next question comes from the line of James Thompson from J.P. Morgan. Please go ahead. Your line is open.

Morning, guys. Thank you very much for taking my question. It's a bit of a combination of ones we've had before, really. But I guess I try to think more strategically. As Al mentioned, exploration has been pushed out this year. One of the things we've really focused on is the sort of limited contingent resources. And certainly when I see the discussions in the press around sort of tax changes in Norway, you know, other than some small opportunities I don't really think that you could potentially use to take advantage of any changes as they come. So I guess the question is, how are you thinking about this, Alex, in terms of do you have the liquidity available? I mean, with the amortization, it doesn't feel like certainly in 2020 that you have the liquidity to chase any kind of inorganic opportunities at scale. And so are you thinking about upscaling your facilities sort of more materially to potentially take advantage of this position and, you know, your relative strength overall, given your asset base versus the competition?

Yeah, as I said, I mean, first of all, just to be clear, our appetite for the organic growth hasn't changed. You're right, we've phased, moved... from some of the wells from 2020 to 2021. But that's activity in wells we're drilling based on some of the work we've done in the last few years. And a lot of the activities actually on the fourth quarter will be up towards the Alta area where we're drilling two follow-up wells, one Basque and Polmark. Now, beyond the scene, we remain, as I said, very active, both from the upper rounds, but also in terms of looking at opportunities. And And when you say our ability to do inorganic deals or the capacity to do deals is kind of limited, that I would say is not true. Because today, if you look at our net debt, it announces $3.7 billion. And we have facilities, total facilities, if you take them all, in excess of $5 billion. So, you know, and particularly if we believe in a medium term, the economies will improve and the oil price will somehow improve, we do have the capacity to actually do deals. And we're looking at every option and we're turning every stone in order to see what opportunities and what is strategically important or not important to us. And the ability, right now, we don't think with a constraint in our mind. We're looking at our... every possible angle, and then, depending on the opportunity, we will see how we can finance this and how we can approach it. So I would say we remain very active, and we are very conscious about our contingent resources, and we're conscious that this is an area we also need to be active. And regarding the taxes, as I said, right now, the one that I can think of that is not immaterial to us is even where we own a 40% equity interest. and that could be developed relatively quickly. So that's the type of prospects or areas which we could look at being active.

And James, maybe if I could add on liquidity, I mean, we entered into this corporate facility of $340 million. And the reason why it's exactly that number is that because within the clauses of the RBL, we are permitted to incur half a billion dollars of additional debt without getting approval from the RBL bank. So that was the path of least resistance for boosting the short-term liquidity position. But clearly, if there's a change of tack or if there's an opportunity we want to go after quickly, then we can either do subordinated bonds, which we are permitted to do under the RBL, or we can go back to the RBL and get approval to enter into further prior pursue additional debt instruments if we wanted to. So it's not because of a lack of raising debt capacity. That's not the issue. It's more legalistic mechanics in and around the RBL agreement itself.

And I guess to finish, liquidity is definitely important in the end. Liquidity discipline or spending discipline is important in this environment. But what we do see this environment as being also a time of opportunities. And so we're really active on both fronts.

That's great, thank you. Just separately, in terms of Sverdrup performance since Stoyle, I just wonder if you could maybe talk a little bit about how you're thinking about the reserve space. I appreciate we're pretty early in the productive life of the field, but just in terms of that, well, performance has been pretty good. Maybe lay out a sort of plan for us about how you're going to look at the reserves over the coming year.

Yeah. I think right now is early days. It's difficult to make any statements. I mean, we stated publicly that we believe, you know, for instance, as one example that, you know, we will end up making the same statement that we have the ambition to exceed 70% recovery factor on the field, which obviously will have an impact on reserves. But beyond that, I think we need to see more production, and there's quite a lot of work to do. So, of course, we are eager to do all this work and see the results. But I think it will take at least another good year of production before we can actually come up with more substance in terms of additional reserves or narrowing the range that we currently have. Okay, perfect. Thanks, James.

Thank you. And our last question comes from the line of Michael Olstead from Citi. Please go ahead. Your line is now open.

Hi there. Good morning. Thanks for taking my question and to wrap it all up. So just a couple left for me. Just on the comments you made around the production outlook, medium term, the delays, the sort of Solveig and Rolls-Nest, DWT, you're still sort of saying that you think that production sort of unchanged. And so I clearly understand that Edward Grigg is performing well. So does that mean that we should see or expect higher reserves to be booked following that kind of comment. So maybe we could talk a little bit about that. That would be great. And just a quick clarification on what Titus said on net debt. So did he say that you were expecting net debt to be around $4 billion at the end of 2020? Thank you.

Okay. I'll start with the first one, and then I'll leave Titus with the second one. In terms of, yeah, of course, the reason we're able to maintain production, despite the fact that Solveig and Roses are phased out, is obviously the outperformance of Hedvard Grieg, but also Jöns Fedrup. I think I answered the question regarding Jöns Fedrup and reserves. And for Hedvard Grieg, the same. I mean, currently, obviously, we continue to see low water cut, which is positive. And the team is currently, as I said, doing all the work in the dynamic model, the reservoir model. And I think towards the second half of the year end, we will come up with an assessment of any potential revision on Hedberg-Rieg. So it's too early right now to make any statement, but I anticipate towards the fourth quarter we'll have more clarity or when we announce our reserve certification updates in the early part of next year.

Okay, Michael, and then on your net debt question, what I said was that if we achieve a $28 realized oil price from April to end of December, pre-dividends, then our net debt will remain unchanged compared to what we entered the year at, which is $4 billion.

Great. So that's pre-dividends. So with dividends, it will be more like 4.3 then? Just below, yes. Okay, so closer to the four and a half of debt capacity. Okay, that's great. Thanks very much.

Thank you. And if we have no more questions registered, I'll now hand back to our speakers for any closing comments.

Thanks very much, Sarah, and thanks very much, everyone, for joining. I think there might have been a bit of an issue on the webcast, so if anyone's... It lost sound for a couple of minutes, so if anyone's got any questions or want any more clarity, don't hesitate to give me a call. With that, thanks very much. Have a good day. Yep. Thank you.