Orrön Energy AB (publ)

Good afternoon or morning, wherever you are. Welcome to the Lundin Energy Q1 results call. I know it's a busy day, so thank you very much for joining. We'll follow the usual form. Nick Walker, the Chief Executive, will take you through the operations, and Taita Poulsen will take you through the financial section. There will be the normal Q&A function at the end, so first of all, we'll take questions from the conference call and then any questions from the web I will moderate at the end and if you do have a question on the web please use the ask a question function in the top right hand side of your screen. So thank you again for joining and I will hand over to Nick.

Well good afternoon or good morning if you're joining us from North America and welcome to our first quarter 2021 results discussion. I first want to run through the key highlights for the quarter. It's been about delivery on all fronts, which, combined with the oil price recovery, has yielded record financial results for the quarter. You can see our Q1 production, 183,000 BOEs per day. That's above guidance. And as we've announced previously, Johan's phase one capacity is set to step up to 535,000 barrels of oil per day gross. And this will now happen ahead of schedule in early May. And all of our key projects are on track to provide growth to over 200,000 BOEs per day by 2023. Our resilient, low-cost business delivered record financial results in the quarter. You can see operating costs for the quarter were $2.85 per BOE, which again also is better than guidance. We also delivered record quarterly free cash flow of $526 million in the quarter, resulting in deleveraging of the business with net debt reduced to below $3.5 billion at the end of the quarter. As a company, we're also providing a material dividends with 2021 AGM approved dividends of $1.80 per share, corresponding to $512 million for the financial year 2020. which is more than covered by the free cash flow that we generated in the first quarter of the year. And we continue to make good progress on a decarbonization of our operations, with everything in place to achieve carbon neutrality from 2025. Today we've announced the acquisition of the Karsgrove wind farm project in Sweden, which means our business will be fully powered by our own generated renewables by the end of 2023. And a few days ago, I was really pleased that we could announce the world's first certified carbon mutually produced crude oil sale. This leverages our industry-leading low emissions position, and I believe in time will become a key value differentiator for Lundin Energy. So overall, a record start to the year with delivery on all fronts, and I now want to step into the detail behind some of this. So first turning to production, our world-class assets continue to outperform, delivering production in Q1 of 183,000 BOEs today. That's above the midpoint of the guidance range. And you can now see that 23 quarters running, we've met or exceeded production guidance. And looking forward, you can see that Q2 production is going to be slightly down. That's due to maintenance activities at the onshore gas terminal for Alvine and some shutdowns at Johan's Fedrup to allow for the phase two installations to start. But then we'll see a step up in the second half with additional capacity at Johan's Fedrup lifting the rates and further capacity upside at Edvard Grieg due to further declines at Iverawson. For now, we're retaining the full year guidance range of 170 to 190,000 BOEs per day. But I think with continued strong performance, I anticipate we'll be upgrading our guidance with our Q2 results. This delivery is backed by top tier operating performance. You can see excellent production efficiency metrics of 98 to 99% across all the assets. These are just stellar metrics. I talked about operating costs $2.85 per barrel. That's better than guidance and, of course, continues in line with our industry-leading metrics in this area. You also see really good performance on carbon emissions, 2.8 kilograms of CO2 per BOE emitted in the quarter, and that continues to be about one-sixth of the world average. And you can also see that we delivered safe operations in the quarter. So turning now to our decarbonization strategy, we're making good progress on our plans with everything in place to achieve carbon neutrality from 2025, which will be a first for the upstream industry. To recap, the plan is supported by real action around three pillars. Firstly, reducing emissions with the electrification of our assets by providing power from shore. Second, replacing and offsetting our power usage with investments in renewable energy. And thirdly, what we can't reduce, commitment to nature-based carbon capture through reforestation projects to offset the balance. What this means is that we will sell all of our barrels as carbon usually produced by 2025. And leveraging our industry leading low emissions position, it was really pleasing that we could a few days ago announce the world's first to certify carbon mutually produced crude oil sale. This combines the intertech carbon clear certification of every Greek at low carbon with natural carbon capture offsets to cover the residual emissions to deliver a barrel of oil that is carbon neutrally produced at the point of sale. with the entire trade being certified as carbon neutral by Intertech under its new carbon zero standard. I think this is going to be a first of many sales. It's generated a huge amount of interest already, and we're already working on follow-on opportunities. And I believe in time this will become a key value differentiator for the company. A key aspect of our decarbonization plan is powering our business with renewables. We're on track with the power from shore projects at Jöns Fedrup and Edvard Grieg. And our target is to meet all of our own power usage with our own generated renewable energy. And today we've announced the commitment to the Kars Group wind farm project in southern Sweden, which will be operational from the end of 2023. Our Lycanga Hydro project investment in Norway is now fully operational, which you can see will cover over 60% of our net power usage this year. And in Finland, our MLK wind farm project is progressing well and will be operational from the end of this year or early next year. And so when the Swedish, new Swedish project comes online, you can see that we'll have a net generating capacity of 600 gigawatt hours per annum, which is more than our projected usage of around 500 gigawatt hours per annum. This means that by the end of 2023, over 95% of our production will be fully powered by our own generated renewable energy. So now moving on to our world class assets, which underpin our business. The Jones-Federick performance continues to exceed expectations and just gets better and better. You can see the stellar operating metrics here, OPEX, of under $2 per barrel and exceptionally low carbon emissions of more than 100 times better than the world average. We continue to see excellent reservoir performance ahead of expectations, which in time I firmly believe will lead to reserves growth. But we need to be patient. It's such a big field, it's going to take some time to get the production history you need to provide support and upgrade. As I commented on a few moments ago, Phase 1 capacity is increasing to 535,000 barrels of oil per take gross, and that's happening ahead of schedule in the start of May. which takes the capacity additions to around 100,000 barrels of oil per day above the original design level. And this has come for almost zero cost. So phase one is performing really well. And now if we look at phase two of the project, it remains firmly on track for first oil in Q4 2022. And with costs unchanged from the PDO, Yes, there have been some challenges with COVID, but Equinor have done a tremendous job to mitigate these issues. And as I say, the project remains firmly on track. It's starting to get an exciting time for the project with the offshore installation set to commence in the current quarter. The jacket for the phase two process platform is now loaded onto a barge and will be installed in the next month or so. and the parts of the phase two process top sides are coming together and the photo here shows the module support frame that was built in thailand and is now on a vessel on its way to norway and starting shortly the subsea equipment installations will start to happen and will run through the summer so starting to become an active project offshore You can see the full field capacity guidance still stands at 720,000 barrels of oil per day. The bottlenecking studies are ongoing to understand the impact of the phase one capacity increases I talked about on the full field capacity. And when that works finished, I expect we're going to see the full field capacity level increased. So Johans Federer continues to outperform and everything is on track regarding the phase two of the project. Turning now to the Greater Edvard Grieg area. Our focus here is on delivering the multiple projects aimed at keeping the facilities full in the long term. We've got a huge amount of activity going on this year. At Edvard Grieg, we've commenced a three-well infill well program, which I'll cover on the next slide. And we see also further capacity upsides as Eberhausen continues to decline, and I think we're on line with seeing some of that come through this year. And we're also on track with the Power From Shore project. We've just installed the power cable between Edvard Grieg and Johan Svedrup, and the top-size work is progressing well. We have two tieback projects, Solvai Phase 1 and Rolls-Ness are underway. I'm going to talk about those in a moment, but the projects continue on track. And we're working hard to bring forward a number of new opportunities with the de-risking of the Solvai Phase 2 and Rolls-Ness full field developments, which I hope we can move forward. And we have exploration wells in the area at Lille-Princeton, actually a combined exploration appraisal well at Lille-Princeton and the Merckx Exploration Well. And these are material opportunities that will be exciting to see the results from. And we're continuing to work on a program of activity for next year. So lots going on in the Evergreen area. I'm now focusing on the infill program at Evergrieg. This is all on track here, and we've completed the first well, which is targeting the lower quality conglomerate reservoirs in the south of the field. And we're developing and deploying here new fishbone completion technology, which you can see in the chart here. which involves the drilling of 159 small bore holes out of the main bore. And the aim here is to increase productivity and reserves from these lower quality reservoirs in the Edward Grieg area. It's going to be, the whole operation has gone really smoothly and will be online in the next month. And it's going to be exciting to see the results. And I see lots of opportunity to deploy this in other areas. I think Solvay, I think Rolsnes, further areas of Edvard Grieg and maybe in other things that we do in Norway. So this is exciting technology that we've been involved in the development of. So it's going to be great to see how this performs. There's two further wells to be drilled on Edvard Grieg this year. First of all, a multi-branch well to the east, which will develop the Jorvik area, which we discovered last year. And the second branch on that will explore the Jorvik high area that's not been developed or drilled previously. So it's going to be exciting to see the results from that. And then we'll be drilling a long-reach well down to the southwest as a dual-producer water injector. But, you know, there's big upside that you can see shaded in yellow there. So it's going to also be exciting to see what that opportunity offers. So those two wells you'll see before the end of the year. You can see this project has stellar economics, break-even oil price below $20 a barrel. And we're already beginning to think about a second phase of infield drilling here. So I think there's still going to be lots more to come after this year. And the field performance continues to meet expectations. So, now, moving on to the Solvi phase 1 and Rawlsness extended well test projects. These are tie back projects to Ebb for Grieg and we're making great progress on these. Everything's on track for first oil in Q3 this year. And both projects are within budget. The subsea facilities and top size modifications are nearing completion. And the West Bolster rig that we have on hire to do this program has commenced completion operations at Rolls-Ness. This is to complete the previously drilled horizontal well that we suspended for this purpose, after which the rig will move on to drill the five sold-by wells later this year. Of course, the early production results from both of these are going to be key for de-risking the second phase of Solvi development and also the Rolls-Nest full field development where there's material resources you can see here. Rolls-Nest potentially up to 100 million barrels and a significant increase potential at Solvi too. And if we have success on those, we aim to bring both those projects forward for PDOs by the end of next year. And we're on track to do that. It's really down to seeing the reservoir performance that's going to drive whether we move those forward. And, of course, these key projects are really important to sustain the long-term plateau through the evergreen facilities. You know, when Solvi comes online, it will plateau around 30,000 barrels a day. So this is an important element about keeping the facilities full long-term. And to remind you and pull all that together and remind you the long-term production outlook for the greater Edvard Grieg area, we've shown this chart before. These projects and opportunities extend the plateau to the end of 2023. And you can see that with Eberhausen declines, we have the potential to expand the production levels through the Edvard Grieg facility. The contractual level that we've been working at for a long time has been at 95,000 BOEs per day gross. And we estimate that with declines, there is the potential to go up to 135,000 BOEs growth through the Evergreen area. And this is material and significant to Lundin. I think this is a continually evolving picture. I see lots of further upside to keep the facilities full in the longer term, and I think we've got multiple activities happening this year that we hope can see further progression and pushing the profile out to the right here. So very exciting activities this year, and it's going to be really key to see the results. And moving on to Alvime, this continues to deliver new opportunities. We're drilling three infill wells this year, the first online and it's performing in line with expectations and the other two wells will come in later in the year. We're maturing three projects here. First of all, the Frosk project and then the Cobra East and Gecko projects, which are due for sanction in the middle of this year. And concept studies are ongoing at the Trell and Treen opportunity. And the aim with all three of these, of course, is to bring them forward for sanction in time to benefit from the temporary tax incentives that require us to sanction before the end of next year. You can see we're continuing to explore the area. And for me, it's really encouraging that we continue to find opportunities here to create value. And I'm sure there's still lots more to come. So this, whilst a smaller asset for us, it continues to create value. And then to sort of bring that all together, we're continuing to deliver on our growth strategy. Our key projects that I've talked about are all on track and will deliver production growth to over 200,000 BOEs per day by 2023. And I'm confident we can sustain at those levels with a pipeline of opportunities. We've got nine potential projects being matured, targeting around 200 million barrels per of oil net. And four of those projects are now on track and heading towards PDO. And the other five require a level of de-risking, but all the activities are in place to achieve that. And if we get the right results there, we'll be able to move those forward to sanction to take advantage also of the tax incentives requiring sanction by the end of 2022. And a key part of our strategy is we aim to continue to create future value with the material exploration program. We have six remaining wells this year targeting around 300 million barrels of net unrest resources with three material wells in there and a couple of important wells targeting more appraisal exploration opportunities. And we're already working on our program for future years, so I'm sure we're going to be bringing forward a big program for next year. So before I hand over to Titor, I'm excited by the opportunities prospects ahead and confident that we can continue to create growth and add value and sustain production long term. And with that, I'm going to hand over to Titor, who's going to run through the Q1 financials.

Okay, thank you very much, Nick, and good afternoon, good morning, everybody. So as you will have gathered from the operational slides, the asset base is still performing exceptionally well, and that's shining through on the financial numbers as well. And as Nick said, it really is a record-breaking quarter more or less across the board on the key financial metrics. So the key highlights here, as Nick mentioned, 183,000 barrels of oil equivalent per day in production, but we were over-lifted, and we also had another 7,000 barrels of inventory released. So the total sales volume we had amounted to 205,000 barrels for the quarter. Very good oil price realization, essentially flat to the data breadth average for the quarter, $61 a barrel. And we've also seen a very good recovery in gas NGL prices, so just below $46 a barrel BOE is what we achieved through the quarter. As Nick mentioned, $2.85 in OPEX, which is below our $3 guidance for the year on average. And spend was $220 million for oil and gas capex, including exploration and appraisal, and around about $7 million on renewable capex, which will wrap up as we go through the year. So the key financial metrics, over a billion dollars in EBITDAX, a billion and 18, which is a record for the company. Similarly for CFFO, $750 million, another record. And free cash flow, as Nick mentioned, $526 million. So more than covering the full year dividend, the 2020 dividend in this quarter in terms of cash generation. And that cash generation has obviously led to us deleveraging the debt quite significantly down to a net debt of $3.46 billion, leaving a net debt EBITDA ratio of 1.3 times at the end of Q1. If we then zoom in a bit on the key financial metrics that we normally measure ourselves against, the table on the top right shows you comparative periods and also sequential quarter-on-quarter. And you can see comparative periods, both sales prices and sales volumes are up 33% on both metrics. And if we take sequential quarters, sales volume is up 38%. And sales prices up 38% and sales volume up 7%. So as I said, that led to over a billion dollars in EBITDA, which is up 75% on the same period last year. And our EBITDA margin is continuing to be extremely strong, 92% in Q1 this year. CFFO was also very strong, $750 million, and that's despite having a working capital build of $135 million. So excluding working capital build, we would have been up at $885 million for the quarter. We had a significant build of receivable towards the quarter end. So you will see in our balance sheet we have receivables exceeding $440 million at the end of Q1. We also were wrapping up cash taxes, and we will do so continuously as we go through this year. But in Q1, we have paid cash tax of $121 million, which then also impacted the CFFO. And as I said, the free cash flow, $526 million after having incurred investments across CAPEX and E&A and renewables of $224 million. The adjusted net profit was $150 million, which excludes an FX, mostly a non-cash FX loss incurred of $81 million. The net profit on the face of the P&L we reported was $69 million for the quarter. If we then go to the next slide and look at our realized prices, as I said, very good quarter for price realization for us. You can see the timing effect of the different cargoes. We lifted 21.4 cargoes during the quarter, and that lifting schedule was somewhat back-end weighted when we look at the quarter on average. And given that we had a continuous, more or less continuous oil price increase over the quarter, it means on a weighted average basis that we have a positive timing effect from those back-end loaded lifting cargoes equating to 50 cents a barrel roughly. And then we had the physical differentials to the dated Brent of around about 50 cents as well. So getting us back to $61.1 for oil sold. And that's then reflected in the bar to the extreme right on this slide, $61.10 for crude oil sales, and that is exactly in line with the dated Brent average for the quarter. And when we then blend in gas and NGLs on a BOE basis, we essentially realized $60 a barrel. A very good performance, really, by our marketing department, too, and a very busy quarter as well. Almost a cargo done every fourth day during the quarter. Then looking at the cost metrics, we've talked about the – the OPEX per barrel for the quarter, $2.85, which is what you see on the right-hand bar in this chart. What we're also seeing now is that the NOC is strengthening quite a lot. If we compare it to Q2 2020, we have seen a strengthening of 15% over this period. And if you compare to the comparative period last year, it's a 10% strengthening in NOC. And given that all our OPEX costs are not denominated, that is increasing the US dollar unit metrics. But with an increasing production volume going in tandem with this, that means that we keep the unit costs very much under control here. And you see really the absolute OPEX $53 million for the quarter, pretty much in line with Q1 last year, despite having 20% higher production. These numbers exclude the over-lift and inventory movements that we had in the quarter. So if you add that in, we would be sitting at around about $80 million for the quarter, with $14 million coming from the over-lift position and $12 million coming from the change in inventory. but essentially a great job by the operational team in Norway to keep these costs very much in control in absolute terms. Then looking at tax installments on the next slide, we had a relatively high effective tax rate on the face of the P&L of 89%. That mainly relates to the fact that we had an FX loss of $81 million, which occurs outside the Norway jurisdiction. And most of those FX losses are non-taxable, and therefore that pushes off the effective tax rate. But adjusting for that, we were sitting on an operational tax rate of 79%, which is roughly in line with what you would expect in Norway, given the 78% tax regime in Norway. And then on the bottom of this slide, we are showing tax installments we are incurring quarter on quarter as we go through the year. As I mentioned, $120 million was paid in Q1, which is a tax installment which really relates to the 2020 financial year. And similarly, in Q2, we will have a further two of those tax installments, so double of Q1, $240 million, again relating to the 2020 tax liability. And then what we are showing here as we project forward around about the middle of the year, we will provide projections to the Norwegian Taxation Office to give a forecast of what we estimate to have to pay in tax for the 2021 financial year. And you can see here on price ranges from 50 to 70 from Q2 to Q4. We're estimating to pay somewhere between 220 to 340 million dollars in Q3 and double those amounts in Q4, given that you have two installments in Q4 and only one in Q3. So all in, if you look at the prices from 50 to 70, we expect the total cash bill for this year to be somewhere between $1.1 to $1.5 billion in the $50 to $70 dated Brent price range. Then quickly on the cash flow statement itself, as I said, $750 million of CFFO for the quarter, and that is a net of our working capital built of $135 million. The spend was $224 million, just shy of $160 million on oil and gas capex and $64 on E&A. And then we spent around about $5 to $7 million on renewables. We are guiding renewables of $100 million now for the full year And in Q2, you should expect roughly half of that guidance to be cash spent in Q2, particularly in relation to this Karlsruhe renewable wind farm in Sweden completing. And we paid the first installment early in Q2 on that transaction. So that gives us our free cash flow pre-dividend of $526 million. We paid the last 2019 dividend out in January this year, $71 million. So that's what you see here. And then that left us with the debt repayments of $370 million, which led to the deleveraging of the debt by the end of the quarter. We also had a bigger cash build than usual, $78 million. And that mostly relates to the fact that we We have another cash tax installment to pay in early April, so we had drawn that cash sitting on the balance sheet at the end of the quarter to have the liquidity to fund that tax installment. Debt position is looking very healthy. We are showing here the debt gearing over the last nine quarters. And you can see at year end 2020, we were at 1.8 times the net debt EBITDA. And we've delivered that down to 1.3 times now. And as we guided in Capital Markets Day, if we assume a $60 average price for the full year, we do expect to be below one time net debt EBITDA by the end of this year. And as we also previously announced, we successfully refinanced the balance sheet at the end of 2020 with a new $5 billion credit facility running for five years. So at the end of Q1, we were drawn just below $3.5 billion in net debt, and that therefore leaves just in excess of $1.5 billion of liquidity headroom as of end of Q1. If we look at the average margin over Q1, it was 1.56% over LIBOR. which is lower than what we announced when we announced the facility itself, where we announced 1.6% over LIBOR. And the delta here is relating to the ESG KPIs we have in this credit facility. So if we outperform on certain ESG metrics, that has a direct impact on the margin. And that is the benefit we've seen in Q1. And we should expect to continue to see those sort of ESG impacts over the next three quarters. Then a quick recap on our guidance. There are no changes here compared to what we guided at the CMD, except for the renewable capex. As I mentioned earlier, we've now signed the transaction on Karskru Wind Farm in Sweden, increasing our capex by $30 million this year. The total all-in CAPEX coming with that wind farm is going to be 130 million euros. So most of the car screw CAPEX is actually sitting in 2022 and 2023. But all other guidance remains unchanged compared to CMD at the moment. And then just a quick recap on the dividend. As Nick mentioned up front, the AGM approved $1.80 per share in dividend for 2020. And as usual, we will pay that out in quarterly installments. And the first quarterly payment of $128 million was paid out in early April. So that will have a cash impact in our Q2 numbers. And you see the rest of the dividend schedule on this table. So with that, that concludes the financial run-through, and I'll hand back to Nick for some concluding remarks.