Orrön Energy AB (publ)

Thanks very much Roberto. Welcome everyone to the Q2 results of London Energy and the half-year results. We'll follow the usual form. Alex Schneider will take you through the highlights and the operations and then Taita Paulson will take you through the financials and Alex will summarise at the end. We're going to do questions from the conference call first and then we'll take any questions from the webcast afterwards. So if that's all clear I'll hand over to Alex.

Yeah, good morning. Thanks, Ed, and good morning, everybody. Sorry, here we go. So, well, let me get into the second quarter and the last six months right away, starting with on page two and the highlights. I guess before I go into the highlights, we can say that the second quarter has seen four records. On the positive side, we've seen an historical record production for the company at close to 163,000 bars of oil equivalent per day. We've seen also record low quarterly operating costs at below 2.4 US dollars per BOE. And we've seen also our emissions. We were targeting below 4 kilograms per barrel produced, and our emissions were well below 3 kilograms per barrel produced. excellent record during the second quarter and what we can qualify as a difficult quarter, taking consideration of COVID-19 and the economic environment. And of course, the fourth record, which was more a challenging record, is obviously the oil price. And as you've seen on our report, we've realized an oil price of just short of $25 for the second quarter. But I think, to me, what was really pleasing and important is that this low oil price really show that the company is very resilient to low oil prices. And despite a realized oil price of $25, we've actually posted a positive free cash flow for the oil and gas operations. So very pleased with that. And it's a good proof that our business is very resilient to economic disruptions and low oil prices. On the Corona crisis itself, we had no disruptions. There was a lot of attention on this subject and particularly on the operation side, but very pleased to say that we had absolutely no disruption on production during the second quarter of this year. I mentioned the free cash flow positive. which is in relation to oil and gas operation. We actually posted close to $20 million on free cash flow positive for the second quarter. I think the other point that is important is the activities and the organic growth of the company, which still remain on the heart of our strategy. And you've seen that not only we have four ongoing projects, developing projects, but we also have eight new potential projects. and some of them will be accelerated thanks to the uplift or the improvement of the tax. And as you probably know, not only your liquidity has improved in the short term due to the tax improvement, and Taito will say a few more words on this, but also if you are able to submit a plan of development before the end of 2022, you will be able to actually benefit for this tax incentive. And this is significant. It's significant on the rate of returns and on NPVs. And it's certainly a focus today for us because we see several projects that could become really great projects and great returns. So we'll say a little bit more later on. On the response to the lower prices, of course, capital discipline has been on the forefront of our mind, and we've phased out some of the costs, and we've saved also costs, and this is in excess of $300 million. We also raised a new corporate debt of $340 million, and of course, we took the prudent measure to reduce the dividend. Plus the improvement on the taxes. If you take all these items together, we've improved from the pre-COVID to the post-COVID situation over $850 million in our liquidity. So the company today, in my view, it is in a better position than it actually was on the pre-COVID situation. Moving on to the next slide, that's an highlight in the coronavirus crisis. I think the highlight really is that, first of all, we had no disruption as a state in our production. And secondly, of course, the safeguarding of the well-being of our people was on our forefront. and we've taken a lot of mitigating action to reduce the number of activities without impacting our productions and that has worked really well and I think the whole industry in Norway has worked really well to cooperate and finding the right solution and the best solution. Today I would finish on this to say that the offshore activity resumed to normal operations And so far I would say, I would consider this now all our projects and operations are going as planned. in terms of the resilience as i mentioned uh you know the market is the market and then of course we had a you know quite a crisis in the during the second quarter with the probably the lowest demand ever after the second world war and we had to be we had to face this this this crisis but uh but i think that as i really highlighted the quality of the company First of all, on our industry-leading operating costs, as I mentioned, and as you know, not only we're posting very low operating costs today, but this is sustainable over the long term. And we don't see operating costs. We actually give a guidance between $3.2 to $4.2 over the years on the operating costs, very much led by Edvard Grieg and Jens Fedrup. The second point in terms of high quality, low cost is, of course, the low cash flow breakeven. If you take the next seven years, on average, all cash flow, free cash flow breakevens are at about 15 US dollars per BOE. In actual fact, if you take these numbers post Yonsei phase two, so from 2023, this 15 dollars will go as low as below 10 dollars. So the company is extremely resilient to low oil prices. And that's very much led by high world-class assets and also, of course, low operating costs. On the liquidity side, I mentioned about the $850 million of improved liquidity for 2020. And I think I'm not going to go through each slide. Taito can say a little bit more about it. And I think I mentioned the different part of the puzzles who makes up the $850 million. But in a very privileged position we are today as a company. Let me move on to the 2020 productions. For the first half, we posted 158,000 vals of oil equivalent per day. And as I mentioned, the second quarter was actually a record production for the company, close to 163,000. That record was achieved despite the fact that in June we already had the curtailment of production that was imposed by the Norwegian government. And as you know, from until year end, we have to somehow reduce our production. I would say the reduction in production due to the restriction are relatively small, but we had to revise our guidance and we are now targeting 157,000 bars of oil equivalent per day for the full year guidance. And I think to highlight also the last point is that this is the 20th quarter in a row that actually we posted at or above guidance in terms of production. So very pleased by what the team has achieved and the operation in general. It's very, very good. In terms of operating performance and more an overall operating performance, what we've seen is again on the efficiency, very high efficiency on Hedberg-Rieg and Alwine. I mean, we talked about 99%. This is absolutely world-class efficiency. And we've seen also high efficiency in Jonsvedrop at 91%, despite the fact that Jonsvedrop is, fair to say, still in a commissioning mode. And it was only a few months ago that we started producing in Jonsvedrop, and Jonsvedrop has been absolutely brilliant. And in addition, we've seen the capacity of Jonsvedrop increasing now to fall in 70,000. We mentioned the operating cost and the full year guidance remaining at 2.8, which is really a quarter of what you see in the North Sea, probably some of the lowest operating costs you see in our industry. And the final puzzle in terms of operating performance is obviously the carbon intensity. And I'm very pleased to see that not only we have achieved our targets, which was below 4 kilograms of CO2 per barrels of oil equivalent, but we went below 3 to 2.8. And we've seen that Jöns Fedrup is achieving very, very good track record in terms of emissions per barrel produced, and so does Edvard Grieg. So we are well on our way to achieve our targets and our ambition to become target neutral by 2030. Let me move into the assets. I will start with Jón Svedrup. I think in page 7, those figures are well known to the industry. But just to repeat, in terms of reserves, Jón Svedrup today stands between 2.2 to 3.2 billion on a gross basis. Phase 1 now, as I mentioned, the capacity has increased and is standing at 470. That was achieved in April. Not only we have achieved plateau two months ahead of schedule, but higher than what was anticipated. And as a consequence, the full field production capacity has also increased. And today stands at 690,000 bars of oil per day. On phase two, and that's important considering the crisis we live in, we're still living with COVID-19. But phase two is on track and on budget and so very pleased despite the uncertainties out there in the world that the project has progressed as per plan. And we still anticipate and there are no changes to achieve first oil in the fourth quarter of 2022. And as a reminder, that's been stated several times, but the full field break-even stands at below $20 per BOE. So, I would say Jöns Fedorvi is really the field of the future with an absolutely phenomenal track record and phenomenal reservoir and field. And obviously, to mention very low OPEX, below $2 a barrel. Overall, Eon's FedDrop has definitely performed above expectation. We've achieved, I mentioned that, 470 head of schedule and the 470 is above the anticipated plateau production. I think it's important to highlight that now we have Well 11 that is on stream and now we have the capacity to test above and beyond 470,000. So we are currently working on a plan for the next few months to test the capacity of Young's FedDrop Phase 1 and see if we can actually achieve rates above 470,000 buzzers per day. So that's going to be very exciting to see. Reservoir is performing extremely well. It's an absolutely world-class reservoir, and I think over time we're going to see some very positive news from this reservoir. And as I mentioned, we have now 11 wells producing, so we have capacity to go beyond 470,000 basalt per day. Moving on to the greater Edvard Grieg area and Edvard Grieg itself. I think the most important message to you today on Edvard Grieg is that based on the performance of Edvard Grieg, we are currently finalizing a dynamic reservoir model. And we definitely see that Edvard Grieg will have an increase in reserves and we will have further extension on the plateau. And today the plateau has been extended up to end of 2022. So we see already now that we will extend this. There will be further news coming during the autumn when we have finalized all the work, but it is very pleasing to see how this asset has performed over time. We are now at 300 million on 2P reserves, and we definitely see scope to increase this number. We will take the advantage of the shutdown and move back the shutdown to this year since we've been constrained in production. We're going to move forward this shutdown so that next year we don't have to plan another shutdown. We will also resume, for the first time in the history of Edvard Grieg, an infield drilling program, which is due to start in the Q2 of 2021. And of course, we are now well on the way to to implement the full power from shore, which, as you know, will bring to full electrification by the end of 2022 and will actually allow us to go even lower on our emissions as a company post-2022 to below 2 kilograms per bar produced. The third item is on future growth. I think the story on the Otsira high and in particular also Edvard Grieg is far from finished. We have the Solveig first oil, which is a subsidiary back to Edvard Grieg due to come on stream on the Q3 of 2021. And that's well on the way. Very pleased with the progress. We have the Roses Extended Wealth Test, first of all, also in the Q3 2021. And this is also progressing very well. This is a play in the basement between Jens Fedorov and Edvard Grieg. And that production will allow us to decide to move to the next level, to the full field, full development of roses, and actually also being able to take advantage of the tax incentives should we be able to submit a plan of development before 2022 for the full field of development. We will see also what we call Merck's exploration well in Q4, which is on the western flank down deep from Solveig, a very interesting play. And actually beyond that, there's still further exploration on the Edvergrieg area. We haven't yet explored the western flank of Edvergrieg, and we have other projects such as Lilleprinsen, which are potentially future tiebacks. So overall, very exciting, and that will allow us to maintain the capacity full for as long as possible. So overall, Hedva Grieg is performing extremely well. The next slide is more detailed in terms of the ongoing project, the tiebacks to Hedva Grieg. Solveig, as a reminder, is a subsea tieback development with a resource range between 40 to 100 million barrels of oil equivalent and a very attractive break-even oil price of below $30. Rovers currently the range stands between 14 to 78 but of course this range will be very much dependent on any upside on how the extended well test will behave when we have the well on production and as I stated The current project, both projects, are progressing well and pleased with the progress. In the slide itself, you see actually pictures of the ongoing activities next to the Edvig Rig platform for ROSE and Solvig. Moving on to the third key assets, Halvime. I think overall I would say Halvime is performing also very well. In 2020 we have a plan to drill two further infill wells and also importantly we have the Frosk and the Cobra East Gecko developments which are planned to be sanctioned by mid-2021. But overall, and I will remain to that statement, Alvam is progressing very well and is producing well and is also a very efficient production. But of course, it's compared to Edvard Grieg and Jens Federer, but it's a smaller equity for us. In terms of the organic growth, that's really very exciting and a major focus for us. As I mentioned, we have four projects ongoing. And I think more importantly, the latest uplift in taxes and particularly our ability to be able to take advantage of the tax uplift. If you submit a plan of development before 2022, has been really a major focus in our company. And we see some very attractive projects. We currently have a preliminary estimate of a target of an excess of 120 million barrels of oil, equivalent of resources. But of course, as we go along the way, these numbers will be revised and there will be projects that may be better and there will be projects that may not reach the threshold of commerciality. But very exciting, a lot of projects, and it's something we're focusing a lot right now. And we'll add above and beyond the guidance in terms of production should this project go ahead. On the expiration and appraisal, This year we have a total of seven wells. We drilled already four and made a really interesting discovery every evening, which will be appraised next year. This is another project that will be able to potentially take advantage of the uplift in taxes that we could submit before the deadline of 2022. And we have four wells remaining. The fourth quarter will see a lot of activity and explorations. And three out of four will be wells drilled in the southern Barents Sea. Very interesting wells with high potential and all in existing petroleum systems, all in trend with existing discoveries. I'm thinking about Alta, but I'm thinking also about Katzberg. So it's going to be a really interesting quarter from an exploration point of view. And we remain very active. The company is very focused on organic growth in Norway, and you'll see the company active through the whole Norwegian continental shelf from the very north to the very south. Moving on to the decarbonization strategy, I would say the punchline is that we are well on the way to achieve our targets. You've seen the result on Q2, which are well below our target with the emission of CO2 per barrel produced of less than 3 kilograms. We are well on the way to achieve below two kilograms of CO2 per barrel produced by the time Edvard Grieg is fully electrified, and we're well on the way to achieve carbon neutrality by 2030. On the renewable side, The projects are on track. The hydropower project is now producing, and it's fair to say so far performance are above expectations, and the wind farm project in Finland is progressing well and according to plan and budgets. So with this, I'll leave the floor to Titor on the financial side.

So here we go.

Over to you, Titor.

Thank you very much, Alex. And good morning, everybody. So I think we can say the Q2 period has been a challenging one in terms of macro backdrop. But the key highlight we take away from it, though, is that our oil and gas portfolio still generated significantly. positive free cash flow so that's just great testimony to the low cost the nature of of our assets the key highlights we we emphasize here on this first slide is the the sales volume was hundred and seventy two thousand bars well equivalent per day we were quite significantly over lifted in the in the second quarter we had 21 oil cargoes sold. Our marketing guys have been doing a great job in what has been a very challenging backdrop in terms of getting all our cargoes sold and delivered to the market. We've been through the operating costs, as Alex said, the record low numbers of $2.37 per BOE and we reiterate our full year guidance of $2.80 for the full year. Obviously the Q2 number is somewhat Helped also by record high production and also a weak knock during the period. CapEx investments of $221 million and renewable investments of $47 million. On cash flow generation, we will come back to this in more detail later on, but the main headline numbers, CFFO of just below $900 million for the six months and free cash flow generation of just over $380 million. And as I said, if we just look at the Q2 in isolation, just on oil and gas, still generated $20 million of positive free cash flow before dividend payments. The Norwegian government took some fairly significant steps during the quarter to improve liquidity positions for companies in terms of a tax change. So this is quite material for us, $670 million over the period this year out to mid-2022. And we'll come back to that in terms of what the shape of that liquidity impact looks like as we look out over the next two and a half years. And also what we announced this morning is we've now received a public credit rating from S&P. achieving a triple B minus credit rating, which in the industry is categorized as investment grade and thus another sort of independent verification of the quality of our assets and the strength of our balance sheet. And this is clearly good news as we look forward into our refinancing options that we can explore over the next few quarters. So we then go to the next slide and look at some of the key metrics in a bit more detail. We look at EBITDA and CFFO here on the first slide. So for the six months, just over $900 million of EBITDA generation, a 13% increase on the period last year. Obviously, prices, as we said, were weaker to the tune of 46% compared to last year. But the sales volumes with Johannes Frederick now ramping up significantly higher, 110% up. And for the quarter, it's a slight drop of 19%, $335 million for the second quarter. Cash flows from operations are also up on the same period last year for the six months, just below $900 million as I said. This has also been somewhat helped by a release of working capital of over $160 million with a drop in the oil price that has reduced working capital balances somewhat during that period. And for the second quarter, we posted $260 million of CFFO. Again, also slightly helped by a release of working capital of around about $20 million. And then looking at the next slide, free cash flow and net profits. So for the six months before dividend payments, we generated, as I said, $380 million, which is already at the half-year point would more than fully cover our cash dividends for the full year. So we are way ahead on that. So it's up 128% relative to the six months last year. The investment levels in the first six months are slightly lower than the investment levels in the same period last year. And you see then for the quarter, there's a slight negative of $25 million of free cash flow. That's driven by the fact that the Lycagon Hydro Project in Norway completed in June. So we paid the consideration for that transaction in June, which meant we expensed $45 million roughly of renewable investment in the quarter. So without that, we would have been $20 million free cash flow positive. Adjusted net results, not too much change compared to the same period last year, just below $120 million for the first six months. And the reported income statement net results was negative $131 million. And that was driven mainly by a non-cash FX loss of $230 million for the first six months. And during the quarter, we posted $51 million of adjusted net results, reflecting the underlying operational performance from the portfolio. But if we include, again, FX gains in the second quarter of $131 million, the reported net results on the income statement just below $180 million for the quarter. If you then go to the next slide and look at the realized prices, this has been much talked about for this particular quarter and the reason for that you can see in the bottom left hand corner here where we look at the future breadth curve which is the blue part of this graph and then you look at the dated breadth which is actually the reference points that our cargoes are being priced against. And you can see there, particularly in early April, there was a huge discrepancy between the two. Normally, these two lines are swinging within zero to one to maybe $2 a barrel differentials. But in April, we had up to a $10 differential on the dated Brent versus the future Brent. And perhaps some market players didn't sort of pick up this fact. And that's obviously put pressure on the realized prices in the second quarter. So you can see on the bars to the right that the realized oil price for our crudes that we achieved was just over $25, $25.78 versus a dated Brent average for the period of $29.50. So we had close to a $4 discount to the dated Brent on the price. on the physicals of what we sold during the quarter. And if you then blend in the gas, gas prices remain extremely weak. So that takes the realized price per barrel or the equivalent below $25 a barrel at $24.70. But the good news is that we've already seen during July and August that the cargoes that we have marketed and sold in that period have all sold at a premium to Brent, or premium to dated Brent, should I say. And you can also see on the graph, as we head into July, that the dated Brent and the future Brent are converging again in terms of pricing. So that makes the macro environment much more favorable as we look forward. We are also announcing this morning that we got the CO2 intensity on our Edward Greek barrels independently certified now by a company called Intertech. So we are the first company to move into this product and this should be a great help to those customers that we sell our carcass to who have a very strong ESG focus because this will serve as an independent verification of our CO2 intensity of the barrels. And that will in turn clearly feed positively into the CO2 intensity of the refiners and eventually to the end products being sold. So the full chain CO2 traceability with this instrument is being unlocked. So that could create some marketing opportunities for us as we move forward. Then on operating costs, we've already mentioned the low unit operating costs of just below $2.40 for the quarter. And you can see here in absolute numbers, just over $41 million of operating costs. We downmaned all non-essential personnel on the platforms during the COVID period. That has also reduced some of the OPEX. Some of that will be phasing, so coming back later in the year. And as I said in the introduction, also the NOC has been averaging 10 NOC to the US dollar during the Q2 period. And given that most of our OPEX costs are NOC denominated, That's clearly pushing down our dollar absolute and unit costs. And as I said, we do reiterate a full year guidance of $2.80, but I think it's safe to say that our operational team in Norway have done a stellar job through this very difficult period to keep costs under control. Then we will go into tax and we will have a few slides on tax, given the tax changes that we have had from the Norwegian government. So you see here we had a total tax charge on the income statement of $360 million, split into $130 million of current tax and $230 million of deferred tax, which then resulted in a negative post-tax result of $131 million for the six months. But if we adjust as we normally do for the non-cash FX items and certain other non-operational items and look at what the underlying effective tax rate should have been, we have posted around about 75% effective tax rate on our operations. Most of that obviously relates to Norway. If we then home in on the current tax piece, which we then highlight on the graph to the right here, You can see if we had remained with the old tax regime, we already posted in Q1 a current tax charge of $260 million. And if we hadn't had the tax changes, we would have posted another current tax charge for the second quarter of $56 million. So taking the total current tax charge for the six months to about $300 million. But with the tax changes that the Norwegian government introduced where they allow 100% depreciation on capex against the SBT tax regime and also increase the uplift from 20.8% to 24%, that has meant that we have had the current tax credits to adjust for during the period. And with these changes, the impact on the Q1 number is a credit of $80 million, and on the Q2 numbers, $107 million, so all in $187 million of current tax credits on this, which therefore results in a first-half reported current tax number of $130 million. Obviously, the flip side to this is that the deferred tax charge has increased increase, not proportionately, but it has increased by around 150 million dollars. Then looking on the next slide and examining how this will impact our actual cash tax installments. You can see on the left of this slide the actual tax installments we have made during the first half amounting to 52 million dollars. We have now locked in with the Oil Taxation Office in Norway the next two tax installments in Q3 and Q4 this year of $36 and $72 million, respectively, in addition to a tax installment of $265 million, which actually relates to our 2019 tax. tax bill. So in Q4 this year all in we will pay close to 340 million dollars in cash tax. And then when we look forward into the installments we have to make in the first half next year, which will relate to the full year tax return 2020, We're showing here three sensitivities on different oil price assumptions for the second half 2020. So you see a $35 Brent, we would estimate to make another $138 million of tax installments in spread between Q1 and Q2 next year. And a $50 realized prices for second half this year, we will pay another $454 million over Q2 and Q1, Q2 next year, in addition to the 108 million we will pay in the second half in 2020. And you can then also see at the extreme right, if we assume a realized price for second half of $20 a barrel, we will actually get the tax credits from the taxation office in the first and second quarter next year in total just below $180 million of tax credits. So this gives pretty good visibility in terms of cash flow impact on the taxes we have to pay for the next four quarters. And then the last slide on tax. This is the impact we will have on the left here. You'll see the impact from the tax changes on our current tax charge both in 2020 and 2021. As I said in the intro, in total, around about $670 million less current tax incurred over those two years based on our current CapEx estimate for 2020 and 2021. Of course, most of this is a facing impact in that you can depreciate capex 100% in the year you incurred it in 2020 and 2021. That obviously means that you have no tax shelter from that capex as you then go forward from 2020 to onward and that means that you have therefore a higher tax bill to pay than we otherwise would have had but still the 645 million dollars so there's a delta there's an absolute tax saving of around about $25 million because of the higher uplift on the CapEx we spend in 2020 and 2021. And because of the phasing of the tax installments that we went through on the previous slide, the liquidity impact of this is actually spread over three years, if you like, into the first half of 2022 as well. So here you see how that liquidity impact will look like in terms of phasing. Then looking on the cash flow statement itself and also the liquidity position of the company, if we start with the cash flow statement. So as we said, excluding working capital movements, the first half cash flows from operations, $735 million. And then the release of working capital of $163 million. So in total, CFFO just below $900 million. Investment levels in oil and gas, $440 million for the first six months. And as I mentioned, the renewables, the hydropower project in Norway, the deal completed in June. So in total, we have invested $77 million of renewable capex in the first six months. So still generating $380 million of free cash flow pre-dividend for the first six months. Dividend payments $176 million for the six months and then a debt reduction of $221 million during the period. Then looking at the liquidity position, so we are posting a net debt position at the half-year point of $3.8 billion. We remain to have credit lines commitments in excess of $5 billion as of the 30th of June. So that leaves over a billion dollars in liquidity headroom as we stand. But of course, as we have documented in the past, the RBL starts to amortize as we head towards the end of the year with 750 million dollars of semi-annual amortization commencing from the end of this year and then every half year going forward. So therefore the RBL commitment will drop down to $4 billion at year end. And I think it's fair to say on the refinancing of the We're still monitoring the situation. We still have a window of refinancing either in the second half this year or in the first half next year, and that will be entirely market dependent as to when we decide to move forward with such refinancing. Obviously, the objective is to achieve as competitive rates as we can, and we need the right market conditions to achieve that. Then a quick recap on the guidance. The latest guidance is effectively unchanged, but this is a Capital Markets Day guidance. You can see that the midpoint of Capital Markets Day was 155 and we are now guiding 157, honouring the production costs that the Norwegian government has introduced. And OPEX guidance, as we've said, $2.80. CAPEX remains at $710 million for oil and gas and $140 million for E&A expenditure for the full year. And the decommissioning costs, mainly relating to the Brunel decommissioning operations, $45 million and then $90 million of renewable investments. And this is my last slide, just a recap on dividend. As you know, the dividend we have in place is $1 per share for the 2019 dividend being paid out during 2020. And you can see that in early July, we went X dividend and that 25 cents quarterly dividend was paid out around about 8th of July 2020. with the next upcoming dividend going ex-dividend on the 1st of October. And we expect that to be paid out around about the 7th of October in 2020. So with that, I will hand back to Alex for some concluding remarks.

Thank you, Titor. Just one last slide. So definitely Q2 has been a challenging quarter, particularly when thinking about the oil price, but also from an operation point of view with the COVID-19 But I think these challenging times have really shown and highlighted how resilient the company is on a downturn and on a low price environment. And at the same time, we've shown record performance when you look at our production operating costs. So it has been, yes, challenging, but also very interesting. And it really highlighted the strength of the company. Specifically, to summarize, we've seen strong production performance through the six months and the second quarter at the upper end of the guidance. We've seen also during the second quarter record low operating costs and emissions below our target and also very high uptime. We've also seen the company mitigating the potential impact of the coronavirus with no disruption in production and all our projects on track according to our plan and budget. You also see that not only the existing ongoing development projects are going according to plan, but also we have now pipeline or new projects. Some also improved through the tax incentive that was announced a few months ago. And on the expiration appraisal, we continue to be very active and you're going to continue the company to Certainly, target about 10 exploration wells per year, and we will see in the fourth quarter of this year, the activity level to increase, particularly towards the Southern Barents Sea as a starting point, but during the years, it will be across the whole Norwegian continental shelf. Title highlighted quite well the increase of liquidity, and through either phasing and savings, and also obviously through the tax incentives. And finally, high-quality, resilient business that has definitely been shown over the performance of the last few months. And this is perhaps best highlighted with our free cash flow breakeven. And as I said, for the next seven years, we anticipated an average of $15. for break-even and post-unsafe phase to as low as below $10 a barrel. So that really is a testament to the resilience of the company going forward. So overall, really pleased with where the company is and where we're heading. And with this, I think we'll leave it to the floor to the questions.

Ladies and gentlemen, we now begin the question and answer session. As a reminder, if you wish to ask a question, please press star 1 on your telephone. If you wish to cancel your request, please press the hash key. And again, please press star 1 if you wish to ask a question. We have one question from the line of James Ozzie from Barclays. Please go ahead. Your line is open.

Hello, good morning. Yeah, a couple from me. First off, you highlighted London's first public credit rating, investment grade. So I'm just wondering what you plan to do with this now. I mean, is this the point when London diversifies its debt structure away from the RBL? And then a second question is on your decarbonisation strategy. Obviously, you've got a carbon intensity of 2.8 year to date. That's already well below the target of under four for 2020 through 22. So really, is the target you've set for the next few years just not ambitious enough?

Good morning James, on your first question on credit rating I mean we just felt it was a prudent thing to do and clearly with the refinancing coming up in whatever shape or form that will take this is going to serve us well as we go into that process and in terms of the options we have available I mean We are not going to go refinancing into the standard RBL format again. If we go down the route of refinancing through the banks, we are aiming to achieve more of a corporate type of facility with greater flexibility than what the current RBL gives us in terms of running the business. But clearly, bonds is another option, and it always has been. It's always something we have considered and will continue to consider. But I will say where we stand today, the most likely route remains a new corporate facility as an initial starting point at least, and then we can assess whether we do bonds or not a bit further down the road. But effectively, we have both those options available to us. I guess the thinking will then progress as we go into the second half of this year or the first half of next year. As I said, it very much depends on the shape of the market as and when we decide to launch the refinancing.

On your ambition target in terms of decarbonization, I think we just started with Jöns Fedrup and we're seeing now the real numbers on Jöns Fedrup which are very low and I think we're going to let go this year and see how the whole year's performance on Jöns Fedrup And then we have also Edvard Grieg that will be fully electrified by 2022. So of course, if we feel that we can upgrade our targets, we will. But I think we need a little bit more time to monitor the current performance. But my feeling is that there is room to maneuver here, and obviously our ambitions is to reach, in terms of emissions per barrel, the best possible number based on facts and something we can sustain. So it's possible we will be able over time to modify our targets, but we need a little bit more of productions and performance support from Jönsveig to Wetterberg RIG. But regardless, I mean, if it's three kilograms or two kilograms, I think we will be, you know, about 10 times lower than the world average. But our ambition is to do the best possible, for sure. Okay, that's all nice and clear. Thank you.

Thank you for your question. The next question came from the line of Alan Toman from Exxon BNB Paribas. Please go ahead. Your line is open.

Hi. Good morning, gentlemen. A couple of questions from me. Given a little bit more visibility now with the tax regime and your potential developments, are you able to give rough guidance on where you think development capex will be for 2021 and potentially what some of the tax implications could be around that as well. On low enough oil price, would you expect to get an exploration rebate next year? Perhaps following on from that as well, could you possibly comment on what your outlook is for shareholder returns now. Again, with that sort of surety, whether you'd like to start increasing the dividend from next year or maybe just some commentary around what you're thinking there would be helpful. Thank you.

Yeah, hi, good morning. On the CAPEX in particular for the new projects, I think this is a bit early days. We have some internal discussion ongoing and there's a lot of work ongoing. I think we will become clearer during the capital market there probably next year. And as you know, currently our tax or CAPEX profile is decreasing dramatically and is very much led by Jonsvedo Phase 2. These other projects are mainly subsea tiebacks, so we're not going to see the same CAPEX level that we've seen through the Jons Fedrop days, but we will give more lights probably during the capital market day and update our CAPEX profile as required. But just to be clear, it's not going to be to the level that we've seen in the past led by Jons Fedrop. In terms of shareholder return, I think your question was very much related to the dividend. I think we said it all along, we want to return cash to shareholder and we want dividend to be sustainable. Of course, this year has been a very exceptional year. We had to reduce by 45% of dividend and we did it for a reason to be prudent. At that time, we really didn't know what was happening and how the economy were going to behave. So we felt prudent to emphasize or put our focus on the liquidity of the company and the strength of the balance sheet. Now, you know, as the COVID-19 improves and oil prices improves, of course, you know, our intention is, A, to continue to pay dividend. That's a given, but also to increase dividend over time. But, of course, we need to also see we still are, you know, living in certain times. So we'll have to see how things evolve in the coming months.

Alvin, maybe I could just also add on the tax implications from the CAPEX. The guidance we're giving here does not really include any additional CAPEX from these eight projects we potentially are going to sanction. So the $670 million liquidity impact really only relates to the CAPEX we have as of now being Jedra Greek, Tybax and Johan Frederik, really. So none of that is reflected in the tax implications we are guiding on this morning.

Okay, maybe I could just ask you, is it fair to say there should be an uptick in exploration activity and is that partly spurred by the tax incentives to get more tiebacks, to get more development opportunities signed off by 2022?

Well, I think, you know, it's going to be a challenge through exploration to get project sanctions within 2022. So the project we're talking about here are more, you know, projects which are more mature than a pure exploration stage, because the timeframe wouldn't really allow us to progress projects within 2022 on the exploration front.

Yeah, I think this is related to existing discoveries. Are there discoveries already being appraised or on the process of being appraised? That's really the project that we're talking about.

Okay, thanks very much, guys.

Thank you for your question. The next question came from the line of Ruben Howard from Stifel. Please go ahead.

Your line is open. Good morning. A couple from me, please, if I may. So you mentioned this morning about production testing at Johan Sverdrup, testing the limits of the facilities and maybe getting about 470,000 barrels a day in the second half. I was just wondering if you could talk through what that second half programme might look like and if that may lead to a sustainably higher phase one plateau, please. And then the second question, if I may, just on the carbon certification. You talked about refinery demand. Is that what's driving this? It's the potential for higher realizations for your crews. Is that right? And I was wondering if you could just describe the process of certification. Is this something that you think all operators might be doing at some point soon enough? And is it actually necessary? exhaustive and painful process, or is it something that's relatively easy to do and therefore might become an industry standard?

Thanks. Yeah, I'll take the first one, and Taito can cover the second one. In terms of Jans' federal capacity, of course, we just increased from what used to be 440 to 470, and now we really have to wait for another producer to come on stream, which is well 11, to be able to go beyond that. So, there is an ongoing plan right now to prepare for the capacity test. There's some work to do. As I said, there's going to be, we're not getting exactly a precise timing of when we're going to do it, but it's definitely going to be this autumn and there's a plan together to do it. Should we prove the high capacity, certainly our intention is that this is sustainable and will be a revised capacity for phase one on sphedrope. I'd just like to emphasize the capacity is one thing, but it's also the other variables such as water injection to maintain reservoir pressure So it's a complex equation, but certainly there is scope definitely to test the capacity further beyond 470,000. And we will have much more clarity on this in the third and fourth quarter of this year.

Yeah, and on the Edward Grieg CO2 intensity, so it's a company called Intertech and it's a product called CarbonClear. And as I said, we've been the first mover on this and clearly we've done this because we do think it will play positively into pricing of cleaner crews going forward. Intertech has certified the Edward Grieg barrels at 3.8 kilograms per BOE of CO2 intensity. And clearly with Refinery, we're focusing on ESG metrics as well. This effectively constitutes scope 3 impact from their point of view. And if they can verify that the input products they're using are cleaner than the world average, that clearly should play well into their ESG metrics. And ultimately, the hope is that it will just enhance the valuation of the crude through the chain. That is essentially the rationale of doing this.

Got it. Okay. Thank you. And is the certification challenging for an operator to deal with, or is it a relatively straightforward process?

I think it's relatively straightforward. You just need a good quality field to demonstrate that you have those lower CO2 footprints than the industry average. And of course, with Edward Grieg also becoming fully electrified, that's just going to play even better into that particular narrative.

Thank you.

Thank you for your question. The next question came from the line of Sashi Kantushagiri from Morgan Stanley. Please go ahead.

Hi, good morning. This is Sashi from Morgan Stanley. I had two questions, please. The first one, I just wanted to, it was regarding the Edward Grigg, potential Edward Grigg reserves upgrade. You talk about 2P reserves upgrade, but I was just wondering, If you were to look at the contingent resource base as well, the 2P plus 2C, would we see any deserves upgrade also based on the contingent resource base? The second question I had was regarding the tax laws impact on your potential new projects. You've talked about eight potential new projects that you're kind of looking at. Just wondering whether AltaGota was included in this. and wanted to check what the impact of these tax changes were on the profitability of that project. Would you need to do more appraisal work in order to prove this, or with the tax changes in itself, is it looking more attractive? Thanks.

Okay. Edvard Grieg, as I said, right now we're definitely stating that based on the work we've done so far, we feel confident that there will be an upgrade in reserves. And we're talking about some of the 3P moving into 2P. When it comes to contingent at this time, we're not guiding specifically. As I mentioned initially on my presentation, the You know, the story on the EOTRI in general and Enver Grieg also is far from over. And as we go along, we will be building up, you know, we will become clear on some of the opportunities and potentials. But at this time, it's really in relation to the... and reserves upgrade and moving into further 2P reserves. And towards the second half of this year, we will certainly come up with clearer pictures in terms of what the quantum and what it means. And as I said, this will definitely lead also to an extension of the plateau production. In terms of your question on the, yes, the answer to your question specifically on Alta-Gota, it includes Alta-Gota, but I would specify it is Alta, not Gota. So out of this eight projects, Alta is a potential subsea tieback. And we see great improvement on the rate of return from the tax incentive if you submit a plan of development before 2022. And Alta is a good example because we've done all the appraisal, all the latest seismic, and we also did an extensive production test. that lasted for two months. So we have a very good understanding and knowledge of the reservoir. So it's now a matter of putting all that together. So that's one of them for sure. I don't know on the taxes if you wanted to say anything.

No, I think we've obviously done some screening on all these projects and it's fair to say that the IRRs are improving materially. I think what the Norwegian government and parliament have done with these tax changes has been very well thought through and it has a very desirable impact on both breakeven prices in some cases. Some of these projects' breakeven prices are dropping by $10 a barrel, which is very significant. and IRRs are also increasing significantly. Obviously, the more CAPEX-intensive a project is, the more impactful these tax changes are going to be on those projects. So it's too early for us to come out with specific numbers on any of these projects. It's all work in progress at the moment. Thank you.

Thank you for your question. The next question came from the line of Theodor Milsen. Please go ahead. Your line is open.

Good morning and thanks for taking my questions. Two questions for me. First, regarding these eight potential new projects that you talked about. You mentioned three or four around Gregg and Olsta. Could you discuss the remaining projects? Are those related to Sverdrup or by more other areas? And second question is regarding your renewable projects. Could you just indicate what kind of discount rate you use for when you evaluate your renewable projects compared to convention oil and gas projects? Thank you.

Yeah, I'll take the first question. In terms of the eight projects, you've heard obviously Alta is definitely one of them. Around the Greek area, we also have several projects. I'm thinking about the full phase of Solveig or further phases on Rosnes. And there are other discoveries around that area that are certainly interesting. Alvim, yes, it's also an area where there will be potential new developments. And I think I would leave it to that for now, and we will be more specific later on. But definitely, both on the Barents, on the Alvim, and on the Otira High, there are quite a lot of projects there. One other one I can mention is the latest discovery we made in early this year, Evraiving, which is really interesting. Now we're going to push as hard as we can in terms of the appraisal to prove the potential of this discovery, and that could be also another one, just as an example, on the renewable, perhaps a little to title.

Yeah. Good morning, Peter. Now, we are not disclosing what discount rates we use either on oil and gas investments or renewables, but I guess it's safe to say that we take the same disciplined approach on our investment decisions within renewable as indeed we do with oil and gas. But clearly... The risk profile of our renewable project is very different to the risk profile of an oil and gas project. So therefore, we do recognize that fact and differentiate accordingly. But I think that's all we can say at the moment.

Okay, that's fair. Thank you.

Thank you for your question. The next question came from the line from Yohan Shainton from Societe 08. Please go ahead. Your line is open.

Yes, good morning, gentlemen. Thank you for the newly disclosed data points you have provided on tax changes. That's very helpful. In this respect, I would like to ask two questions on these tax changes. I will not look for any firm indication on future CapEx level beyond what is already committed, but I will welcome some more color on two points. First, you have quantified the liquidity impact in 2020 and 2021 of $670 million. This is based, as you said, on the currently forecast CapEx for both years. We know about 2020. what kind of specific comments you can make for 2021 following this COVID-19 induced changes. The second point on CAPEX, I appreciate that these more than 120 million barrels of net resources you refer to as potentially falling under the scope of tax changes is very preliminary. At the same time, you already said that you cannot comment on the amount associated with these resources. However, could you please let us know how these capex will be staggered over time? I'm sure we expect most of such capex to hit cash flow in 2022. or most of this capex basically to come through in 2023 and 2024 so that will be uh it for tax the last question if i may will be on production um as edward greek produced more than a load in june under the revised production permits and are you able to provide any further comment on the production trend for this field in q3 and q4 please

Okay. Good morning, Johan. It's Tijer here. I can take the first two questions and leave the last one to Alex. On the CAPEX profile, I mean, we, in our capital market set guidance, we actually did guide also on 2021. cutbacks based on the committed projects we have, which, as I said, is Johan Sverdrup and the subsidy tiebacks to Edvard Grieg in addition to the electrification. And what you've seen this year, we've made the savings of around about $300 million. But actually quite a big chunk of that is facing, so it will reappear in 2021. And within these tax guidance we've given this morning, that's all taken account of. And you can roughly sort of estimate, given the current tax credits we're showing, what the actual CAPEX spend will be from that. There are some unsure related CAPEX which will not qualify for these tax changes, but that's relatively small. So I think that's all we can say at the moment. Then at Capital Markets Day, we will obviously give a fresh outlook on 2021 guidance and beyond. And in terms of the eight projects, I think what we can say in terms of facing is that that CAPEX will actually fit in quite well with our current committed profile, because that will fall off quite significantly from 2022 onwards, with Johan Frederik coming towards the end of its development phase. So all these new projects, which all of them have to be PDO'd before end 2022 to qualify for the new tax regime. So we are going to do our utmost to get as many projects across the line before that deadline as we can. And therefore, by nature, the capex associated with those projects will start to come in from 2023 onward, and probably the bulk of it will be a bit later than 2023 even. So I think directionally, that's what we can say regarding that.

Yeah, and on your production, Edvard Grieg, I mean, we don't guide individually fields, but as I said, I mean, this year, revised guidance is 157. When you take into account Alvar Medved Grieg, Jens Fedrup, I think it's fair to say Edvard Grieg, as I said, it's performing very well. So he's at plateau. And from that, you have to deduct a little bit of reduction in production due to the Norwegian curtailment decision on national production, which will be in...

in uh in action until the end of the end of the year okay thank you both for your time thank you for your question the next question came from the line of christine copper from another please go ahead your hand is open

Thanks, operator, and good morning, everyone. Just a short follow-up from my side. It's on the free cash flow outlook. Maybe you touched a little bit upon it already, Taylor, but you mentioned this morning as well that you have free cash flow breakeven of $15 per barrel for the next up until 2026. So if you look at the message that you gave on the capital market today, I think it was slightly above $700 million on a $50 oil price on average for 2020 up to 2026. Is that still relevant or should we look at a slightly higher number for that?

No, I think that's still roughly valid. I mean, the tax changes will obviously change the shape of that free cash flow. profile, given that you're reducing your cash taxes quite significantly in the early years, and then you have to repay that in the latter years. So other than that, obviously, if anything, we have upgraded our production guidance outlook compared to what we gave at Capital Markets Day. So on a like-for-like oil price, you should expect to see slightly better free cash flow numbers than what we got at Capital Markets Day, both because of the tax change and because of better production performance than what we anticipated at Capital Markets Day.

Right. Can you say anything on what kind of free cash flow average we should look at around, say, $40?

No, I think we will come back to this at Kaplan Markets AS we do every year and give sort of a full bottom-up analysis of what the shape of that will look like. Because obviously there are a lot of moving parts here also in terms of the CAPEX program going forward, particularly in light of these eight new projects we are highlighting now. So we have to see how that impacts also going forward.

Okay, thank you very much.

Your next question came from the line of Matt Wilson. Please go ahead.

Thank you. Good morning. I'd just like to ask if there are any potential for greenfield projects within the eight potential developments. Obviously, I'm speaking specifically to Irving or Alta. Are they, as Singh stands, even if they move forward within the possibilities being looked at as subsea tieback developments.

Yeah. I mean, at this stage, I think we're not going to be too specific. I think most of the projects we do see today are mainly subsea tiebacks or in second phases of existing subsea tiebacks. And I think as we go along and we mature this project, we're going to be more specific and give you more details.

Okay, thank you very much. One follow-up, if I may. Very good numbers on the CO2 intensity and very good to get into tech and independent certification. Can you remind us of the specific carbon tax implications that you pay on these emissions? Thank you.

Yeah, on the taxes, I mean, in Norway we have two taxes. You have the CO2 taxes and then you have the European quota. And today, at about, if you take the sums of those two, you pay about $100 per ton of CO2 produced. And yeah, I think that should answer your question.

Very good. Do you see any changes to those down the line?

Yeah, well, upwards, yes. I mean, the government of Norway has stated clearly that they want to increase the taxes on CO2 at about 5% per year over, I think, the next three years or four years. And so there's going to be an upward pressure. And that's really fundamental to our strategy. Well, of course, not only we want to be as efficient as possible, but we're also very clear that over time, CO2 taxes in Norway, but probably elsewhere will only go one way. Hence, it's extremely important that you reduce your emissions to the lowest possible so you're not affected by these existing taxes and tax increases in the future.

Okay, very good. Thanks a lot, guys.

I'll hand it over.

Thank you for your questions. The next question came from the line from Carl Pedersen from ABG. Please go ahead. Your line is open.

Hi, guys. Two questions from me, if I may. The first is, you want further, but you're now talking about testing the upside of the capacity on phase one. Do you also have more data that allows you to kind of narrow the range of the resource or the resource range on the field? That was the first question. The second question is, We've seen several companies being more or less positive towards the Barn C, whilst you are very vocal on stating that you will explore the entire NCS. What do you find to be the main differences between the two approaches for you and other operators?

Yes, okay. Jöns Fedrup reserves, I think it's simply too early to talk about any reserves range updates or increases. I think we've just started the field a few months ago, so to speak, and so we will need more production data to see the performance and understanding the field, and then it will require an updated reservoir model. So it's too early to talk about this at this moment. On the second question on the Barents, yes, we're still very keen on the Southern Barents Sea. I think fundamentally, first of all, there are not many people exploring in the Southern Barents Sea. Secondly, if you just look at the facts, you have several very interesting fields that have been discovered and actually under development here. We obviously, Goliath, which is producing from a specific reservoir and petroleum system. You have Katzberg, which is half a billion barrels of oil, which is currently going, will go into development. And then you have Wisding, which is, I believe the appraisal is completed and soon to be, soon a plan of development to be submitted, which is another half a billion barrels And we have our other discovery, which is, you know, we talk about 100 million plus of barrels of oil. So it's actually not bad at all. In the last five years, you know, more than a billion, well above a billion barrels of oil has been discovered from different petrolicies and different reservoirs. So we consider the Southern Barents Sea a great area to explore, and so far our plan is to continue, and this year we'll have three really exciting wells there. But we're not just focusing on the Southern Barents Sea. We are actually across the whole Norwegian continental shelf, but we certainly believe the Southern Barents Sea has all the ingredients to be a successful province.

Very clear.

Thank you.

Thanks very much, everyone. I think that concludes the questions from the phones. And actually, we haven't got any further questions online either. So I'd just like to take this opportunity to thank you all for joining us. If you have any follow-up questions, don't hesitate to drop me a line. Have a good summer. Thanks.

Thank you. Thank you.