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.

Thank you, Taita. And I've just got one final slide to summarize before we open up for questions. I want to leave you with the message that the business is delivering on all fronts. We have world-class assets that just continue to outperform, yielding production and operating costs ahead of guidance. Our resilient, low-cost business delivered record financial results in the quarter. and generated strong free cash flow, which covered dividends, funds growth, and significantly deleveraged the business. You've seen that all of our key projects are on track, providing production growth to over 200,000 BOEs per day by 2023, and we'll be able to sustain at those levels with upsides and a pipeline of new opportunities and projects that we're moving forward. And then finally, we're delivering on our decarbonization plans. We'll be carbon neutral from 2025, and we've again made further progress on that in the quarter. I think this is a key aspect of our strategy, and I think makes us relevant and investable long term in response to the challenges around the energy transition. So those are our first quarter 2021 results. And thank you for your time. And I think we'd now like to open up for questions.

Thank you. If you wish to ask an audio question, please press 01 on your telephone keypad. If you wish to decline from the polling process, please press 02 to cancel. Once again, please press 01 on your telephone keypad if you wish to ask an audio question. There'll be a brief pause whilst we wait for questions to be registered. Our first question comes from Theodore Sven Nilsson from SpareBank One. Please go ahead.

Good afternoon, Nick and Tato. Thanks for taking my questions and also congrats on the fantastic results. It's impressive. Two questions from me. Nick, you mentioned again the 200,000 barrels per day from 2023. For how long do you expect that level to stay with the current portfolio? And of course, I expect that you also will be able to add on something on that if you make any discoveries. So that's my first question. Second question is on the economics on the Karskurv Could you provide any details on project returns or earnings contribution or anything more than just the capex number? That would be useful. Thank you.

Yeah, Theodore, I mean, that's a good question, and thanks for the comments. You know, we guided our Capital Markets Day, the long-term production outlook, in terms of our production. And you can see that, you know, the business goes over 200,000 barrels a day in 2023, in fact, quite substantially over 200,000 barrels a day. We also provided some guidance at the time of the impact of upsides and the stream of new projects. What we haven't done is given you a long-term outlook for that, but I think we have a strong business that continues to create opportunity, and I think we can continue to do that in the long term, and that's definitely the aim of what we're doing as a business. I think your second question was around some metrics around the Cast Group project. It's a wind farm in southern Australia, It's in a good price area for electricity pricing. We've taken it 100%, and the partner and the development partner in that is OX2, who we partnered with for the Finnish wind farm. It's going to generate around 290 gigawatt hours of electricity per annum when it's on demand. online and the project will start construction next year and should be online by the end of 2023. So we would expect that to be generating positive cash flow from the start of 2024 probably or late 2023. So with that project, it means that we have more than 100% of our own electricity generation to meet our usage. So, you know, it's sort of closed that aspect of our decarbonization strategy and ensure that we can, you know, it's another step in achieving the target by 2025.

And maybe I can add, I mean, you asked specifically on what rate of returns we are getting. I mean, that's not something we're disclosing as such. Suffice it to say that the risk profile that comes with a project like that is materially different to the risk profile on an oil and gas project, because in here the wind farm is all turnkey contractual arrangements, which therefore takes out a lot of development risk, and also operationally it's a much simpler concept. So given that there's less risk, we are also willing to accept a somewhat lower rate of return than we typically would demand of an oil and gas project.

Okay, sure, I understand. Is it possible to disclose any kind of, what kind of electricity price to achieve, or do you have a ticket price agreement?

We haven't guided on the basis on which we make agreements. those decisions like we don't on oil price. But, you know, I can't say we're going to sell a spot, which is what we've chosen to do with all of our renewable power. And the reality is that we're buying electricity on a spot basis in Norway to power our offshore facilities. So, you know, we're basically linked in price.

Okay, understood. Thank you.

Thank you. Our next question comes from from Morgan Stanley. Please go ahead.

Hi, this is from Morgan Stanley. Thanks for taking these questions. I had two, please. The first one, I just wanted to understand regarding the first certified carbon neutrally produced crude oil sale. I was just wondering if there was any premium on the price that you got for that cargo or Or is the pricing different from your regular cargos in that way? Anything on that would be quite helpful. The second one, I just wanted to touch on your policy regarding inorganic expansion in the M&A. Just wondering whether the decarbonization strategy that you have, would that put... Would that put some kind of limitations on the options that are available for M&A, especially M&A with assets producing in the longer-term horizon? Thank you.

Yeah, yeah, both good questions, and perhaps I'll take them. And on the first one about did we get a premium, we sold the crude cargo to SARAS at market. You know, this is a long-term game, and I think what we're trying to do is to generate a market here. The reality is it costs us very, you know, because our crude has already produced a very low carbon, the cost of doing this for us is extremely low. But what we want to do is to try and case the market here. And, you know, it's key for us to also have this certified by Intertech. I think it gives credibility to what we're doing. And the aim now is, once we've done one, is to see whether we can do more and see whether we can create some value out of it. But I think if you look at this, you know, the buyers of our crude are also faced with trying to decarbonize. you know, if they're faced with buying a barrel of crude that's produced with high carbon emissions and one with low carbon emissions, then they should see more value in the low carbon emissions barrel. And, you know, we estimate it could be a few dollars a barrel of opportunity here between us that we could share or even further beyond that if carbon taxes go up. So we think in time this is going to to create a market, and we're going to aim to try and do more of this. I think the second question is around the M&A market and our decarbonization strategy. I think, you know, it's a good question, and I think, you know, everything we do as a business will be in terms of A and D activity, and in terms of development activity, we will look at it with that lens. uh and uh you know i think i think we have to i mean i think the whole industry has to um and uh and so it will play a part in how we think about acquisition opportunities you know a good example is the wisting opportunity that we purchased last year up in the balance That's expected to move forward with electrification from power from shore. And that played a part in us and how we thought about that opportunity when we went into it. And I think if you look at Norway, there's really nowhere in Norway that you couldn't deploy power from shore if you wanted to, if the scale of resource was big enough. So to me, I don't think it has a material impact on the things that we can look at.

Very helpful. Thank you very much.

Thank you. Our next question comes from James Carmichael from Barenburg. Please go ahead.

Hi, good afternoon, guys. Just a couple. Firstly, I guess just on the phase two, you mentioned studies to try and de-bottleneck that and perhaps increase that guidance above the 720 levels. Maybe you could just provide a bit of color on what those bottlenecks are and sort of timing on the studies. And then, secondly, just on the wind farm investment, and obviously looking at weight power as well, the wind farm is certainly a much higher equity position than you've got in the other wind and the hydro investments you've made previously. I guess, is there any sort of sense that there's a bit of creep in terms of renewables becoming a more substantial part of the strategy, or are you pretty firm that it's just going to be offsetting emissions in the underlying oil and gas business? Thanks.

Yeah, I mean, maybe catch the second question first. I mean, the strategy of our business is oil and gas focused, and that's what it will remain. I firmly believe that the best companies are the ones that focus on what they do well, and that's our business. We set out our decarbonization strategy, and the component of it was to provide all of our own renewable energy to support our business. It just so happens that when you look at opportunities, I mean, we took 100% of this one in Sweden, but it just fit quite well with our desire to achieve 100% coverage of our renewable power requirements by the end of 2023, and that's why we chose to do it on a 100% basis. I don't think there's anything to read into that. I don't think you're going to see us branch out and do a lot more renewable. I think you mentioned there was a press release out I think yesterday around some R&D investment we have in some wave power. But that's a small spend. And through our R&D funding in Norway, we fund quite a number of projects. And I just see this as something that's interesting and relevant to what we do. But again, don't read anything through that we're heading into wave power. It's just the funding of an R&D project on a relatively low level. And your second question about Johan's FedRUP capacity levels, I think if you go back to the guidance that was provided around the Phase 2 increment, it was 220,000 barrels of oil per day increment for Phase 2, and that's the design level. And of course, now Phase 1 is sitting at 535, and the sum of those is 755, which is above the guidance of 720 that's provided. And that's without taking any potential account of any potential debottlenecking upsides in the Phase 2 facilities, which are a similar design of the Phase 1. So, you know, there's clearly a potential for upside. The challenge is that we start to hit other other constraints in the facilities around the utilities and the export pipeline. So work's going on at the moment to understand that. But I think it's, you know, it's very high chance that we will see that 720 increased somewhere above where it is at. And I think you have to be patient and wait probably middle of the year before we start to understand the detail around that. Does that answer the questions? Yeah, thank you.

Thank you. Just as a quick reminder, if you wish to ask an audio question, please press 01 on your telephone keypad. Once again, that's 01 on your telephone keypad if you wish to ask an audio question. Our next question comes from Johan Charlton from Society General. Please go ahead. The line is now open.

Good afternoon, everyone. Thank you for holding this call at midday, which is appreciated. I will have two sets of questions. You continue to refer to nine projects that could be sanctioned by year-end 2022. That said, given the relatively small size of the discovery on Segment D, it now sounds like its development belongs to the broader Solveig Phase 2 project. But at the same time, correct me if I'm wrong again, another round of infield drilling at HEDVA Greek may be making its way onto this FID or potential FID list. So can you please clarify what are the nine projects you have in mind that could be sanctioned by AN2022. And the second set of questions will be, if you don't mind coming back onto this first certified carbon neutral oil cell, Are you able to disclose the actual size of these trades? And in view of the high interest you referred to during this call, and given the fact that Intertech issued this certification, this carbon clear certification back in July 2020, why is the first sale only happening in April? In other words, what would it take for your marketing arm to do more of these deals in the coming quarters? Thank you.

Yeah, so the first, the question around the project. So Segment D was one of the original projects and I now see that as mixed in with Solvai. So if we develop, it's relatively small reserves, but it's potentially developable with wells from Solvai. And we also have a second phase of development for Solvai. So we look at that now as one project. um so you would argue that our nine projects that we showed last time had gone down by one uh but uh we've added since then through an acquisition or a swap opportunity the trail and train opportunity within the alvine area relatively small interest but that's also another project that's moving forward so segment d gets amalgamated within at the Solvay area and we add Trellentreen. So that's how you get back to the nine potential projects. They're all listed in the Q1 text, all the other projects. And I think I've been through most of them other than Wisting and Alta up in the evening as we went through. The second question around why has it taken us so long to go from a carbon certification a year ago, I think we've been thinking about how to make this work and how to move this forward. And, you know, this area of the business is developing quite quickly, and it's taken us a little while to get there. But we had to go one further step to do this. which was to certify, so the certification we did a year ago was what Intertech called their carbon clear certification, which certifies EDVAGREDIA's low CO2 emissions, which certified it as 3.8 kilograms of CO2 per barrel. But of course, that still means that we're emitting CO2 in the delivery of the barrel. So we had to go a second step here, which was to work with Intertech to develop a certification for what they're calling their carbon zero standard, which included, you know, the requirement for us to offset or provide offsets, certifiable offsets, for the remaining emissions from the evergreen field. So, yeah, I think there's two components, building interest and just putting into place the practicalities around doing this. But I think what I've seen and what we see from the market, from the connections and contacts that we have, that there's a lot of interest in this, and I think we're hopeful that we can build momentum and do some further follow-on opportunities.

Thanks a lot for the insight, Nick.

Thank you. There appears to be no further questions registered, so I'll now hand over back to the speakers.

Thanks very much, Akwasi. We have got a couple of questions from the line, actually. There's a few that have already been answered through the case, but these are anonymous. But I think the first one to cover off is, given the announcement of the renewable acquisition today, the cost group, et cetera, and I think we talked about it earlier, but maybe just to reiterate it, Is that a continuing future direction business, or are we going to continue focusing on oil and gas?

Yeah, well, I think I covered most of this earlier. I mean, the focus of our business and strategy is around oil and gas exploration, production, and development. And, you know, that's going to be the key focus of our business. The renewable aspects of our business I see as part of our decarbonization strategy and part of facilitating, making sure as a company we deliver our barrels in the lowest carbon emissions possible and heading towards carbon neutrality by 2025 and sustaining that. So that's the focus of the business. You're not going to see us build a big renewable arm to the business. That's not the strategy at all.

Thanks. So it's something that on the wider business and on guidance, the questions around, you know, what would it take to see guidance being upgraded this year, whether it be on price differentials or on production? Is there anything that you could point people towards that might indicate guidance changing this year?

Well, in terms of production, we've had a good first quarter ahead of guidance. You know, we like to maintain a relatively prudent view on our production guidance. And, you know, you can see that from the track record that we've had of meeting or beating every quarter for 23 quarters. But I indicated as I presented that, you know, I think if we have continued good production through the second quarter, I think we'll revisit production guidance with the aim of narrowing it down in the second quarter results that come, I guess, at the end of around July.

Very good. The next one is from Anish Kapadia from Palissy, and there's a couple of questions here. All sales were very strong in Q1 at 17 million barrels. What's the expectation for Q2? Is it a similar amount? What are the plans for the strong free cash flow generation? Excess free cash flow, will it be used at M&A, or are you going to be accelerating any development capex. Can you accelerate any development capex this year? Or if not, is there a potential for dividend increases?

Yeah, I mean, it is correct. We had an abnormally high sales volume in Q1, and that related to, as we said earlier, 15,000 barrels, or the equivalent of what we're lifting, coming from both Edvard Grieg and Johan Sverdrup. And then, in addition, we had a 7,000 barrel inventory release, where at the end of Q4, we had a lifting of a cargo which we hadn't sold by the end of Q4, so therefore that went into inventory, and then we sold it in early January, at which point you release that inventory. But of course, as you look at this over a period of time, say over the full year, you would expect the over-lift and under-lift positions to roughly balance out at the end of the year. So therefore, you should expect that to normalize, and therefore our sales volumes to roughly equal the produced volumes that we will have over the year. And then, of course, on cash flow and free cash flow generation, I mean, Q1 was exceptionally strong. And also, remember, we had the working capital bill of $135 million. But that needs to be counterbalanced by the fact that we had a low cash tax payment, which really still reflects the 2020 financial performance. And as you will see on the slide where we showed the tax installments as we move through the year, given the higher production volume and oil prices this year, we expect by Q3 onward to pay significantly higher cash taxes, which is a good thing because it means the business is performing well. And what we've also guided, you know, despite those higher cash taxes at $60 pre-dividends, we still see us being on track to deliver a billion dollars in pre-cash flow through the year. So, you know, we've obviously found the dividends from that more than twice over at $60, and the delta is either allocated towards debt repayment or, obviously, if we find the right M&A opportunity, then that's quite clearly something we have capacity to look at and move very quickly on, depending on whether the opportunity is right or not.

Thanks, Arne. A couple more. This is specifically on the car screw project. The question is, 86 megawatts at 1.5 euros per megawatt, nameplate implied average, and when conditioned, it sounds expensive. Why is that?

Maybe I can touch that. I mean, you know, that's... I think the way to look at this is not just on cost per megawatt. You have to look at the electricity generation yield that you get in the area, and there's also feed-in tariffs costs as well. So there's a whole host of elements there. But when we benchmark this project against other deals done, this is actually very, very favorable. compared with other deals that have been done in the region and actually the better end of the price curve for doing it. So actually, we're very comfortable. We've got a really good deal here. And so it's a great project, actually.

Next question is in regards to fishbone completions. Given you already have good performance in Edvald Grieg, why are you pursuing new completion strategies such as fishbones? Yeah, maybe some color around why Fishbone, given Evergreen, is already performing so well, is needed here.

Yeah, no, so, I mean, yes, Evergreen has performed really, really well, and I think everyone knows that we've increased reserves, basically doubled them, actually, since sanction, and there's still more to come, I think. But we have two reservoirs here. We basically have very high-quality sandstone reservoir, and then we have quite a lot lower-quality conglomerate reservoirs. And these fishbone completions are aimed at improving the productivity and the recovery out of the conglomerates. And if we can do that, then there's an opportunity potentially to increase reserves in those areas of the field beyond the booking levels that we have at the moment. So what this completion does is a horizontal well, and we drill out all these little fingers out of the completion. So actually in this well, 159 additional holes at six meters long and I think about an inch in diameter which double essentially the productivity of the wellbore and with the aim that we can improve recovery. And so it's actually very exciting. It's being done elsewhere. There's one well being done in Eberhausen, and I think Equinor have done one well as well. But this is with the most sort of needle holes. And so it's exciting technology. And I think there's lots of other applications for us. I mean, we have a lot of conglomerate reservoir, lower quality conglomerate reservoir in the Greek area. And if we can get more recovery out of that, that would be great. We have Rolls-Nest, which might benefit from this. And Solvay has two reservoirs, a high-quality on the out, on the down-dip side, and there's a SynRift reservoir, which is not such good quality. And, again, this technology might work there. And I think there's other places it could work in our portfolio. So, actually, I think it's a really good technology aimed at improving recovery factor from these poorer-quality reservoirs.

I think the last question comes down to our sort of conservative guidance, the fact that we're beating production guidance quarter on quarter. Does it suggest that we're being overly prudent or overly conservative?

Well, you could look at it that way, and we have a debate internally around that. But, you know, actually we beat it by two, midpoint by 2% this quarter. And I think if you look back, unless we've had big projects coming online where there's quite a lot of uncertainty around the startup date, I think we've not been that high above it. We've put a lot of effort into making sure we get this right. And, you know, what I'd rather do is pitch the guidance at a level that we can meet or beat rather than a level where we fail to meet it and then have to explain why we failed. And I think we've pitched it about right. Again, we're not significantly above it, but, I mean, we can't plan on having production uptime of 99%. We're just never going to do that. And even though we strive to get 100%, we shouldn't plan our business on that.

So I think we take a prudent approach. Very good. Thanks, Nick. There is one last question just come in. We're responding to a question regarding the price of the recent wind project. Mr. Walker mentioned feeding tariffs as part of the assessment justifying price. Are there actually feeding tariffs on this project?

Well, I think tariffs are going into the grid system. We have operating costs associated with that, and maybe I used the wrong term, but that's the way it is.

Very good. That's it for questions, and that concludes the audio casting conference call this morning, this afternoon. Thanks very much, everyone, for joining. If you have any further questions or want more detail, you can know where to find us and me. Stay safe, and we'll see you again soon, hopefully in person. Thanks a lot. Bye-bye.