Orrön Energy AB (publ)

The line is now live.

Please begin your meeting. Thanks very much, Mark. Good afternoon or good morning, wherever you are. Welcome to the London Energy Third Quarter 2021 results call. We'll follow the normal course of business today. Nick Walker, the CEO, will take you through operations in an update from the quarter. and Title Post and CFO will take you through the financials, and then Nick will finish off with a quick summary. And then Q&A, again, will follow the normal course. We'll take calls from the line first, and then I'll moderate any calls from the web. So please get your questions in early if you want. So thanks very much, and Nick, I'll hand over to you.

Well, thanks, Ed, and good afternoon or good morning if you're joining us from North America. And of course, welcome to our third quarter 2021 results discussion. I'll start off with the key highlights. I'm pleased to report another set of record production and financial results for the third quarter. This is underpinned by continued strong operating performance and further strengthening of oil and gas prices. And you can see here Q3 production was 194,000 BOEs per day, and we expect full-year production to come in towards the top of the guidance range. All of our key projects are on track. The Evergreen Tyvek projects of Solvay and Rolls-Ness achieved first oil in the first quarter on schedule and below budget. And the Yeoans Federate Phase 2 project is firmly on schedule for first oil in the fourth quarter next year. And yesterday, we announced the strategic acquisition of a further 25% interest in the Whisting Development I think this is a great deal for us. It adds 130 million barrels of resources at a price of $2.50 per barrel, which I think is very value accretive and further supports the long term production outlook for our business. On top of that, a high quality cash generated business delivered record financial results in the quarter. You can see operating costs here of $2.90 per BOE, which is better than guidance. And we delivered record free cash flow for the period of $1.6 billion, resulting in deleveraging of the business. And you can see net debt at the end of the period is $2.6 billion. And I'm pleased to note that the Board of Directors anticipates to propose to the 2022 AGM a 25% increased dividend for 2021 of $2.25 per share, which in total is $640 million. And I think this clearly demonstrates our commitment to grow shareholder returns. And we continue to be firmly positioned as an industry leader on carbon emissions. And during the quarter, we further accelerated our decarbonization plan to become carbon neutral by 2023 from our operational emissions. And already today, 60% of our production is independently certified as carbon-neutrally produced. And I see this as a key value differentiator for London Energy looking forward. So in summary, we've delivered another set of excellent results in the third quarter, but all of our key business priorities are on track. And now what I want to do is step through some of the details supporting this performance. So first of all, looking at production, World-class assets keep on outperforming. As I've mentioned, 3Q production was 194,000 BOEs per day, which was towards the top of the guidance range, as you can see on the charts. And that's now 25 quarters running that we've met or exceeded guidance. And this performance continues to be driven by excellent production efficiencies across all assets and additional facilities capacity at every degree due to further declines at Eva Rawson. And when we look forward, we expect the production for the full year to come in towards the upper end of the guidance range, which I think you'll recall is between 180,000 to 195,000 BOEs per day. So we should come in towards the top of that range. This delivery is backed by continued top tier operating performance, which you can see shown on this chart with excellent production efficiency metrics of 95 to 98% across all our assets. I've already talked about operating costs of $2.90 per barrel, which is better than guidance, and these are truly industry leading levels. And also really good performance on carbon emissions, 2.9 kilograms of CO2 per BOE, and to put that into context, that's one sixth of the world average. And importantly, we again delivered safe operations in the quarter. So I think stellar operating metrics all around. Turning now to our decarbonization plan, where we're firmly an industry leader, we're making great progress. And during the quarter, we further accelerated our plans to become carbon neutral from operational emissions by 2023. And to recap, the plan is supported by real action around three key pillars. Firstly, reducing emissions with electrification of our assets with power from shore, which you can see on the chart significantly reduces our carbon emissions. Secondly, replacing and offsetting our power usage with our own investments in renewables. And then thirdly, what we can't reduce, a commitment to nature-based carbon capture through quality reforestation projects to neutralize the balance. This means that by 2023, every barrel that we produce will be independently certified as carbon neutrally produced. We're continuing to work to build a market for carbon neutrally produced barrels. I think we're seeing lots of interest and we've made quite a number of sales on that basis. As I mentioned, I see this as a key value differentiator for the company looking forward. A key aspect of our decarbonisation plan is powering our business with renewables. We're on track with the Power From Shore projects at Johan Federer and Everett Grieg. Our target is to meet all of our own power usage with our own generated renewable energy. And our Lycanga hydropower investment in Norway, as you can see from the chart, covers around 40% of our net power usage this year. The MLK wind farm in Finland, which you can see in the photo, has just started generating power and will be fully operational by the end of the year. And our Swedish Karsgrove wind farm will be online at the end of 2023, by which time, as you can see in the chart, we'll have net generating capacity of around 600 gigawatt hours per annum, which covers all of our usage, including the requirement we now need for whisking. And this means that by the end of 2023, our business will be fully powered by our own generated renewable energy. So now turning to our world class assets that underpin our business performance. Firstly, Johan Fedrup continues to perform at an extremely high level with phase one operating very stably at 535,000 barrels of oil per day gross with extremely high production efficiency. And you can see some stellar operating metrics. OPEX is well under $2 a barrel and exceptionally low carbon emissions, more than 100 times better than the world average. And when phase two comes online, this will lift full field capacity levels to over 755,000 barrels of oil per day. And to put that into context, it's about 25% of Norway's total production. And we continue to see excellent reservoir performance and based on the company's latest technical assessments, there is potential for increased resources and also to extend the plateau through infill drilling. And we're working to complete this work as part of our reserves process. So I think you'll hear more of that in the coming months. So now looking at phase two of Johan Svedrup, the project remains firmly on track for first oil in Q4 of next year and with costs unchanged from the PDO. And I think the key elements of the project are coming together very nicely. We reported in the last quarter that the jacket for the Phase II platform and a large module on the existing riser platform were installed in the summer. The subsea facilities are being installed at the moment and will be complete by the end of the year, which will allow drilling operations on the subsea wells to commence early next year. And in the photo, you can see the fully assembled phase two process top size, which is being completed in Norway and will be installed offshore in the second quarter next year. So in summary, Johan Fedrup continues to deliver above expectations and everything's on track for phase two. So now turning to the Greater Evergreen area, where we're delivering on our multiple projects that will keep the facilities full in the long term. At Edvard Grieg, we've had excellent results from the infill well program, which I'll cover in the next slide. And we continue to see the benefits of facilities capacity upside with Ivar Orson clearly in the decline phase. And we're on track with our Power From Shore project for completion at the end of next year. The Solva and Roldnest tieback projects, which flow through Edvard Grieg, I'll talk about those in a moment. They're now online. And we recently completed a successful appraisal well and test of the little Princeton discovery. And we're now moving forward with development studies to potentially submit a PDO at the end of 2022. And we're also working hard to bring forward a number of new opportunities. And I expect we will be exploring and appraising in this area for many years to come. So now focusing on the Evergreen Reservoir, the performance continues to exceed expectations, which I expect will lead to reserve increase and further plateau extension and will update on that with our 2021 year end reserves process. We've had great results from the three well infill well program in the field as highlighted on the map. You can see the three wells that have been drilled and this is now complete with results from all three wells in line with or better than expected. And this is a great project with stellar economics and to remind the breakevens for this project are less than $20 a barrel. And we're already beginning to think about the further phase of infill drilling. So the Edvard Grieg reservoir continues to outperform and continues to offer upside. So now focusing on the tie back projects to Edvard Grieg. I'm pleased to report that we've delivered first oil from Solvay phase one on schedule. and below budget and this is a key project for us to sustain production through the evergreen facilities that will produce as you can see a plateau rate of 300 30 000 barrels of oil per day gross the project's got great economics with a break-even oil price of below 20 a barrel and i think this shows the value of tyvek projects into existing facilities you can see from the chart that the first two horizontal production wells have been completed And we saw excellent results that are better than expected. And I anticipate this will lead to a reserve increase at year end. The third producer is currently drilling. And then we've got two water injectors to complete, which will be done in the first quarter next year. And that will complete the phase one development. The early production results here are key to de-risking a possible Solvi phase two project. which on success we aim to bring forward for PDO at the end of 2022. And there's quite a lot of upside here. You can see that the whole area has a potential up to 100 million barrels of boil equivalent gross. So it's quite a big prize for us if we can move forward with a phase two development. So this has been a great project for us so far. I think it's going to be super exciting to see the production results and hopefully then we can move forward with a phase two project in the area. We've also delivered the Rolls-Royce extended weld test project again on schedule and on budget. This is an exciting project and is aimed at unlocking significant potential resources in weathered and fractured basement reservoirs on the Utsura High. And early production performance from the extended weld test is in line with expectations, which is, I think, very encouraging. The aim of the EWT is to gain a better understanding of the long-term production performance of the reservoir. And on success, the potential is to unlock a full field development here of rolls nest with you can see resources up to 80 million barrels gross. So in parallel with understanding the reservoir, we're moving forward the development studies and we're ready to submit a PDO at the end of next year if the reservoir performance supports that. And success here could unlock significant additional basement potential in the area, potentially up to another 100 million barrels gross. So I think it's going to be super exciting to see how the EWT performance goes over the next year. And hopefully then we can step into a full field development here and start to think about the other opportunities that are available in the area. And this chart we've shown before, I think, pulled all of the elements of the Greater Edvard Grieg area together and reminds you of the long-term production outlook for the area. We've already stated in the past that the plateau has been extended to the end of 2023. That's five years on from where the original PDO was. And with Eberhausen on decline, it allows production through the Edvard Grieg facilities to further expand, as you can see. which has already increased production from the contractual levels that we have with EvoRawson from 95,000 BOEs per day. And we have the potential to lift this up to 135,000 barrels a day as EvoRawson declines further. And the key thing here is that we have the wealth capacity to use any of the capacity that's available to us. And I think there's lots more upside in the area with the potential to keep the facilities full in the longer term. And as I've discussed, we're working super hard to bring forward a number of those new projects in the area, and I think it's going to continue to be an exciting opportunity to grow resources here. I just one slide on the album area. This continues to be a good asset for us, so it's got a strong track record of continued growing reserves and creating value. and we continue to progress multiple opportunities in the area. With three infill wells planned this year, two have been completed with results in line with expectations, and the third well is currently drilling. And with three new projects being progressed, PDOs have been submitted for the Cobra East and Gecko and Frost projects, and these projects are now moving forward. And concept studies are ongoing on the Trell and Treen development with the aim to submit a PDO next year. And all of these projects have been progressed under the Norwegian temporary tax regime, have great economics with break evens in the $25 to $30 per barrel range. And you can see from the chart what these do for us. Together they add 65 million barrels of gross reserves and deliver gross peak production of up to 45,000 BOEs per day. So I think it's super encouraging that we continue to find opportunities here to create value, and I think there's still more to come in the future. And turning now to Wisting, I was super pleased yesterday that we could announce that we've acquired a further interest in the Wisting oil developments. Last year, we acquired 10% in Wisting for Imidimitsu. And at the time, we said we made it clear that we'd have liked more. And it's great this opportunity has come along for us. This deal with OMV gives us an additional 25% in the project, taking our working interest to 35%. I think this is a strategic deal. It creates the next production core area for the company and supports the long-term production outlook for our business. And you can see the deal adds 130 million barrels of net fully appraised contingent resources at an acquisition price of approximately $2.50 per barrel, which I think is very value accretive. And the addition of these resources alone, you can see, delivers a total resource replacement ratio for the company in 2021 of about 190%. Wisting's a high-quality 500 million barrel project with strong economics. At the moment, the finalization of the concept select for the project is ongoing, and the PDO is planned to be submitted by the end of next year. And as this development is being powered from shore, the deals fully aligned with our decarbonisation strategy. And on top of that, we see significant exploration upside close to Whisting, with the surrounding acreage estimated to hold another 500 million barrels of oil of unrisked prospective resources. So I think this still is a perfect example of how we look to supplement our organic growth strategy with opportunistic acquisitions and fitting our ambition to sustain our business in the long term. So I was super pleased that we could do this. So we're continuing to deliver on our growth strategy. The business is set to produce over 200,000 barrels a day by 2023. In fact, we're almost there, and that's supported by the projects that we've recently completed and those that are underway. And we aim to sustain at those levels with a pipeline of new projects. We've got two projects heading to sanction. Three projects are being de-risked. And we aim to also deliver future value. For example, The strategic acquisition of Wisting is a good example of that, but we also aim to continue a material exploration program. As I've mentioned, we're set to, again, more than replace our resources. The Wisting deal alone adds almost two times this year's production, showing we continue to grow the business. And so I remain really excited by the growth opportunities and prospects ahead, and I'm confident that we can continue to sustain our business in the longer term. So that wraps up the operations overview, and with that, on their hand, over to Paita to review our financials.

Okay. Thanks very much, Nick, and good morning or good afternoon, everybody. So I think third quarter, again, can be characterized as a very solid financial performance quarter for us, obviously driven by the outstanding operational performance, very strong cash generation overall, and we continue to deliver and therefore to build the balance sheet strength. So some of the key financial highlights on this first slide here. Nick has been through the production volume, but our financials are, as usual, driven off sales volumes. And you can see in this quarter, we were over-lifted by around about 7,000 barrels of oil equivalent per day, with both Edvard Grieg and Alwein being over-lifted, whilst Johan Sverdrup was somewhat under-lifted during the quarter. Hydrocarbon prices is very much in the theme of the day these days. and during third quarter very strong real realized prices both on oil and gas 72 dollars for oil and actually over 100 dollars of per boe in terms of gas price 16.8 dollars per mcs costs continue to be very much in in control and in fact as you're seeing we're we're guiding down for your capex guidance for the year but in the quarter optics of just over three dollars a barrel And we had oil and gas investments of $322 million and renewable CapEx, which also includes carbon capture investments of $21 million. So, this has now generated yet another record EBITDAX number of close to $1.3 billion. And for the first time also, cash flows from operation in excess of $1 billion for one quarter. and then generating $674 million of free cash flow before the dividends. And as Nick mentioned, just over $2.6 billion of net debt at the end of third quarter, which now leaves our net debt to a 12-month trading EBITDA at 0.7 times. Then looking on the next slide and some of the key financial metrics that we measure ourselves on, you can see in the top right the volume we sold equated to 18.5 million barrels oil equivalent, which is up 38% on the same period last year and 13% on the previous quarter. And as I said, sales prices for BOE $72.80. which again is significantly up on both the prior same period last year, 78, 79% up, and 9% up on the previous quarter. So you can see on EBITDA generation up 21% driven off our total revenue of close to $1.5 billion. So EBITDA of 1.28 billion. Cash flows from operation over a billion dollars. This includes now higher tax installments, $321 million installed in the quarter, which is up from the second quarter. But CFFO was also somewhat positively impacted by an online working capital of $91 million. We had the total investments during the quarter of $338 million, so that leaves a free cash flow generation of $674 million. which covers more than five times the dividend we paid out in the quarter of $128 million. And the free cash flow is up 59% on the previous quarter. And the net adjusted results for the quarter, $234 million. Then on the next slide, holding in on our realized prices for oil sales, In the bottom left, you can see that the data breadth average for the third quarter was $73.50. The timing impact in this quarter was a negative 50 cents. We had a disproportionate amount of volume lifted during August, and out of the three months during the quarter, August was the weaker pricing month. And then we had the physical discount of $1.40, which is an improvement on second quarter when we had a fiscal discount of $2.10. So that left us with a realized oil price of $71.60 for all the cargoes that we sold during the quarter. And on the chart to the right, you can see that the All in blended cost was $72.80 when you include the gas and the NGOs. So actually a higher price than what we achieved for the oil on a standalone basis. Then going to the next slide and just a slide on gas. It's not something that normally shines through in our numbers to the gas revenues, but given where gas prices have been recently, this is now starting to make an impact on our financials. Just to remind people, all our gas sold a spot. Edvard Grieg and Alwine gas goes to St. Fergus in the UK, whilst the Johan Frederik Gauss gas goes via the Korsø terminal in Norway and then ends up on the Dutch market. And all gas sold on a day ahead, principle. And you can see the volume we sold in Q3, just over 12,000 barrels oil equivalent per day. And you can also see how the gas price has strengthened during the quarter, actually the whole year, particularly in the quarter and finishing the quarter in excess of $120 per BOE. So very strong gas price realization. And as I said, on average for the quarter, $101 BOE equivalent for our gas sales. Then also looking at The working capital trend, you can see in the previous four quarters, we have continued to build a working capital position. That's really been reflected through an increase in oil price environment over those four quarters and also increasing production. And since that was also the trend in the third quarter, you would logically expect Q3 also to continue to build working capital. But in fact, what happened here is that we unbound working capital close to $100 million in the quarter. The reason for that can be explained by those three small bars in the top right, where you can see that in July and August were the two months where we lifted the majority of the volume, close to 75% of the volume was lifted over those two months. Given that we invoice on a 30-day payment term, it means that we got paid for both July and August And that's really what led to an unwinding of working capital in the quarter. So three quarters of the volume was lifted over the first two months, and therefore we got full payment for those volumes. If we then go and look at the operating cost and EBITDA margin, operating costs continue to be extremely low, as Nick said, industry-leading in reality. The NOC has continued to strengthen somewhat and given that all our costs, more or less all of our operating costs are NOC denominated with a stronger NOC that leads to somewhat higher US dollar costs, but nevertheless still just over $3 a barrel during the quarter and in absolute numbers just below $60 million. And we reiterate the full year guidance of $3 for the full year. And you can also see here on the EBITDA margin continues to be extremely strong. The average for the nine months on about 94% and also 94% in the third quarter. Then turning to taxes, if you start with the top two charts first, this is the tax rate we reported on the phase of the income statement. A pre-tax profit of $936 million and a tax charge of $800 million. So that equates to an 85% tax rate on the face of the income statement. But that includes FX loss of $97 million. And most of that FX loss is non-tax deductible, which therefore drives off the effective tax rate. But if we adjust for the FX and some other smaller items, then the underlying operational tax rate we've had is around about 77%. which is in line with the effective tax rate in Norway of 78%. In terms of cash tax payments, as I mentioned earlier, you can see in the bottom here, the third quarter in payments, $321 million. And what you also see here in the fourth quarter, we are going to pay, based on a NOC exchange rate of 8.5, we are paying $722 million. Of that, around about $640 million and another 80 million relates to a catch-up payment to fully settle our 2020 tax bill and we're also providing here a look ahead on the first half next year in terms of tax installments we anticipate to pay to fully settle the 2021 tax bill so based on on an oil price deck of 70 to 90 for the fourth quarter this year we expect to pay in the first half next year somewhere between $1.46 to $1.72 billion of tax installments spread across those two first and second quarters, as you can see here, as I said, to fully settle the 2021 tax bill. And you can see also on our balance sheet book the tax liability of 1.4 billion dollars relating to this year's tax charge and also the cash of payment to make for 2020. Then looking at cash flow generation organic CFFO 921 million dollars and then unwinding of working capital as I mentioned earlier of 91 million dollars so that takes us above a billion dollars of CFFO generation just in the third quarter. The investments we've been through just below $340 million. So that's how we generate a free cash flow number of 674 million during the quarter. The dividends you're paying is $128 million per quarter. So for the full year 2020 dividend, we are going to pay $512 million all in. And that then leaves our cash filled for the quarter of $531 million, which therefore leaves the company with a cash balance at the end of third quarter of $853 million. On liquidity position and debt position on the right here, you see how the net debt is derived. We have $2 billion of bonds outstanding, and we have $1.5 billion of terminals outstanding, so a gross debt of 3.5. And as I said, just over $850 million of cash, which leaves us with a net debt position of $2.6 billion. And that leaves the company with a very solid liquidity position. of $2.4 billion when we add in the undrawn revolving credit facility of $1.5 billion. On the bottom left here, you can see the maturity profile of the debt instruments we have outstanding, and the average maturity here is 5.25 years, and we actually have no maturities falling until the end of 2023 when a terminal of half a billion dollars matures. And also on the investment grade credit ratings, we continue to have three ratings publicly available, and all of those three are still part of that investment grade. Then just a recap on our latest guidance. Nick has been through the production volume, and as I said, $3 a barrel OPEX is still our full year guidance on that front. As I mentioned, we are taking down our CAPEX guidance to $770 million for the full year. That's driven by some CAPEX savings on both Solvayk and Evergreek through better drilling performance than expected, and also some re-facing of the Hans-Fergus CAPEX. While the DNA expenditure is increasing to $325 million, oil field, which has an effective date of 1 January this year, so therefore we have to account for all costs incurred from that point onward. And renewables continues to be at $100 million for the full year, reflecting this latest Swedish wind farm we acquired earlier in the year. And my last slide then is just to tap on the dividends. In the third quarter, we paid the second quarter dividend in early July, and we have already paid the third quarter dividend, which will then be reflected in our four quarter numbers we paid up in early October. And the big news, of course, is that the Board of Directors anticipate to propose to the AGM next year an increase of 25% in dividends to $2.25, which will create an absolute number of $640 million of payout, which is still going to be significantly less than half of the free cash flow generation we have during this year. So that concludes my commentary and I'll hand back to Nick for concluding remarks.

Yeah, thanks, Titor. And I've just got one final slide to summarize. I want to leave you with the message that we delivered another set of record results during the quarter and all of our main business priorities are on track. And the key points are listed on this slide. Our world-class assets keep on outperforming, yielding record production and operating costs ahead of guidance. Second, we delivered record-free cash flow and have a really strong financial outlook for the business, which supports the increased dividend proposal that we've talked about. Thirdly, all of our key projects are on track, providing growth to over 200,000 BOEs per day by 2023. And in fact, when you reflect back on our capital markets there, we're set to go somewhat higher than that. And we have a pipeline of opportunities to sustain at that level. And fourthly, as we talked about, we've announced yesterday the Wisting acquisition. I think this is a great deal, and I think it further supports the long-term production outlook for the company. And the fifth element is that we've further accelerated our decarbonization plans to be carbon neutral by 2023 from operational emissions. And crucially, we're already 60% of the way there today. So those are our third quarter 2021 results. Thank you for your time. We'd now like to open up the call for your questions. So I think it's back to you, Ed, or the operator.

Thank you. If you wish to ask a question, please dial 01 on your telephone keypad now to enter the queue. Once your name has been announced, you can ask your question. If you find your question is answered before it's your turn to speak, you can dial 02 to cancel. So once again, that's 01 to ask a question, or 02 if you need to cancel. Our first question comes from the line of Sachikant Chilukuru of Morgan Stanley. Please go ahead, your line is open.

Hi, good afternoon. Thanks for taking my questions. I had two, please, both related to the balance C. Now that you have acquired the additional 25% stake and you have a 35% stake investing and you've established another core area, in a core area in the Barents Sea. However, there have been issues of major cost escalations or delays with projects associated with the developments in Barents Sea, Goliad, and more recently, Johannesburg. And visiting is further away from the shore. I was just wondering when you look at how do you actually or how did you actually account for the development risks associated for a project like Wisting, especially before increasing your stake in the project here, or committing to what's likely to be a very big CAPEX program? The second question was also sticking to the Barents Sea, but in terms of exploration. 2021 so far has turned out to be another disappointing year for exploration in this area. You highlight the unrisked prospective resources around the visiting area. Will you be restricting your exploration program towards that area in the visiting, or are you still optimistic about exploring in other parts of the Barents Sea? Thanks.

Good. They're both good questions. I can't really comment on Goliath and Johan Casberg. We're not involved in those projects. But what I will say is that, you know, we've been, you know, Equinor, the operator of Wissinger in the development phase, and, you know, we enjoy a tremendous performance with Equinor on the Johan Svedrup field, and they've done an amazing job to deliver that project. Both phase one and phase two looks like it's going to come in on schedule and below budget. And And so we think with the right structure, with the right focus on the project, that there's no reason why a project in the balance can't be delivered efficiently and on schedule. And I'm sure that's the motivation for Equinor. In fact, I know that is. So I think we also carry an element of contingency in all our numbers. And as the project comes closer to sanction, you reduce that level of contingency. So we have quite a wide range of cost estimates But when you take those cost estimates in the end, we see that we have strong economics, even on downside cases. So I think we're confident that we can move this forward, and I'm sure that the project will be set up in a way to deliver on schedule and on budget. And so we feel confident about that. And then around exploration, it's true that there hasn't been a lot of recent success in the branch, but it's a big area. And there's a number of big projects already there, Kasberg, Wisting, Goliath, Snowvit. And, you know, I think there's more to come. And of course, building this material position in Wisting, I think we're motivated to explore around Wisting. And we've been building the acreage there, joining with the partners. So, you know, we're excited by those opportunities. There's some similar prospects with similar seismic attributes that you see over Wisting in those prospects. So those are the opportunities that we have. It's, you know, I think we have probably one other well to be drilled there next year, which is the only other commitment well we have that's closer to Goliath. But, you know, we have a big exploration portfolio also in other parts of Norway and would continue to drill in those areas as well. So hopefully that answers your good questions.

Sure, thanks. If I can just have one follow-up or a clarification essentially regarding the acquisition. There's this increase in the E&A expenditure of around $65 million related to this listing acquisition. I was just wondering, will that be a payment towards OMV or how do we account for that? Or is it already considered in the cash consideration of $320 million?

Yeah, no, that's, that will be a catch-up payment that we have to make to OMVs because they've effectively been funding the 25% spent on that license from 1st of January. And given that our deal is effective from 1st of January, we have to repay them whatever they have funded from 1st of January to the completion of the deal. Okay. Thank you.

Thank you. Our next question comes from the line of Theodore Nielsen of SB1 Markets. Please go ahead. Your line is open.

Good afternoon, guys. Thanks for taking my questions and also congrats on very strong results. Two questions, if I may. First, on the dividend versus cash flow, you pointed out that cash flow this quarter is five times the dividend. And looking into 2022 and your indication of 2022 dividend, it still looks like you will pay pay a pretty low share of your earnings and cash flow in dividends. So I just wonder, going forward, should we expect you to pay a pretty low share of earnings and free cash flow in dividends? And secondly, on the listing deal, which looks very exciting, I just wonder the difference in the price you paid for the first 10% of $1.8 compared to the $2.5 you paid now. How much of that is explained by by capex invested from last year until the time of deed closing now, and how much is explained by other factors? Thank you.

Yeah, I mean, on the dividend, I mean, we've been very clear, and we're just following our policy, really, which is that we want to continue to grow dividend year on year in line with our financial performance, and that's what this latest proposed dividend increase is doing. Of course, you know, this year's free cash flow number is – is looking somewhat better because of the facing of the tax installments. So there is a catch-up payment of cash taxes next year, as we showed on our slide. But even so, you're right that our pre-cash flow should exceed the dividends we are proposing now. So that means that we will continue to deliver the balance sheet next year also, even after dividend payments. But we need to look at this through the cycle, and we need to set the dividend level so that we can actually follow the policy of increasing it year on year. So we look out more than just one year. We look out a number of years and make sure that we can actually fulfill that increase over that time frame.

And I think on the second question, I mean, the deal we did with Ilimitsu didn't just include 10% of whisking. It also included a share of outer And so, when we quoted the purchase price for that deal, it included the resources that we picked up from Elta. So, if you actually split those out, we played very similar amounts for the listing share that we've received from OMV as to the deal that we did last year with Irimitsu.

Okay. So, then just a poll, but only to remind me on the gas oil portion. Gas oil.

Oh, it's almost 100% oil. It's a very, very small amount of gas. It's a shallow field with low pressure, so you don't get much gas. The gas is exported, but it's basically no value in the development.

Okay, thank you. That's all from me.

Thank you. Our next question comes from the line of Michael Olsford at Citigroup. Please go ahead. Your line is open.

Thanks. Good afternoon. A couple of for me, actually, and maybe following up a little bit on the last question around the cash flow breakdown next year. Could you maybe try to isolate what the catch up payment is for the 2021 tax payment in your guidance for 2022 tax? And just to pick up on your question or your comment around the fact that you think you'll generate free cash flow next year. I'm just wondering what that oil price is that you need to deliver that because I guess with the capex obviously rising probably with wasting investment, you've got clearly the cash taxes increasing substantially. It would seem to me that you would need at least $65 to meet that threshold. Maybe you could talk a bit about that, please. And then just secondly on exploration, you spent several hundred million dollars this year and really found limited amount of organic So it's another year of inorganic reserve replacement, which is still a way to replace reserves. But I'm just wondering, how do we think about investment going forward? How much exploration spend should we expect from the business, maybe going forward in 2022 and beyond? Thanks.

Michael, maybe I can start on your tax question. What we are guiding on the slide on tax is a payment in Q1 of next year of around about $575 million. And then another two tax installments in Q2 next year of 1.1 billion or so, $1.1 billion. So that makes a total payment of $1.4 to $1.7 billion. depending on what realized price we get in the fourth quarter, the quarter we are currently in. So those tax installments fully relate to the 2021 tax charge that we are accruing for. And then it's only from August next year that we then start to pay tax installments relating to 2022. And we haven't given any further guidance on that in terms of what that tax tax charge will be. But it's obviously clear that when you look at the cash taxes we have to pay next year, they are going to be significantly higher than the taxes we have paid this year because the 2020 fiscal year was a much weaker year macro wise, so therefore the tax bill from 2020 spilling into 2021 was significantly lower. But we will give further guidance on our cash flow breakdown for 2022 as we normally do including what oil prices we need to achieve for breakeven pre- and post-dividend payments.

And then, Michael, for your question around exploration, I think, you know, the way to look at this is that we see exploration and resource growth coming in multiple areas. First of all, step-outs around our world-class fields, and then near-field exploration opportunities in the mature areas in the basins. And then a component that we dedicate to the frontier basins where we see higher reward but higher risk. And then we supplement that with opportunistic acquisitions. And I see all of those as levers to continue to sustain and grow the resource base for the business. I think it's fair to say we haven't had much success on the frontier exploration opportunities for a while. But the other areas I think we've had a lot of success are near field, step outs, And of course, some of the acquisitions I think have been very value accretive. And I think if you look over the last five years, we've had 150% resource replacement ratio averaged over that period of time. So for every barrel we've produced in the last five years, we've added one and a half barrels, so growing the business. And then I think I'm quite confident now looking at where we are in the business that we're going to have a resource replacement ratio this year towards two times what we produce. And Wisting alone does that. And so again, growing the business. So I think we've had a lot of success growing the business. I think we can keep doing it. But yes, it's true that our frontier areas haven't, the exploration haven't particularly delivered for us. But I guess for me, it doesn't matter where it comes as long as it comes and that's what we've been doing. I think when you look at the expenditure levels, I think we've got quite a heavy load of appraisal spend this year in our exploration appraisal spend, so that's quite a big component. All of the, for example, the study money that we talked about on on on wisting goes into that bucket and we've drilled quite a number of appraisal wells. relatively speaking of the $325 million that we're guiding for this year, it's a relatively small amount is on sort of frontier exploration areas. I think we've tended to guide somewhere between two and $300 million per year on exploration appraisal, and we haven't really set our plans for next year, but we will do that around the capital markets day and it's coming together at the moment, but you can expect it to be in that sort of range. for next year.

Hopefully that answers your question. It does. Thanks, Nick, and thanks, Titus.

Thank you. Our next question comes from the line of Yoann Charmenton of Societe Generale. Please go ahead. Your line is open.

Good afternoon, everyone. Thank you for the presentation. Just would like to ask a few questions again on the Barents Sea. Is it fair to say that bringing forward The dividend upgrade announcement, which comes something like three months ahead of your CMD, has a lot to do with the listing deal announced last night. I'm just trying to understand if there is basically a link between the timing of the dividend upgrade announcement and the listing deal. Then again, on the balance sheet, you refer to that area in the vicinity of a listing, And you stated basically that there is an unrisked prospective resource potential of 500 million barrels. How much of this can be targeted next year as part of your ENA program? And then maybe a final question looking away from the Barents Sea and thinking about the Edvald Creek area. Are you able to say how much of the reduction you had this year in your development expenditure budget came from this better than expected trading performance at the Greek and Solveig? Thank you.

Okay. You know, good questions. In terms of the exploration area around Wisting, you know, We see some good prospects there and but with things on a development timescale which will be 2028 first production and then won't have capacity for some years after that. So I think what we're looking at is the exploration will come some years from now. The first step is to put the acreage together and develop the plans and really we need to explore in a time frame that can keep the facilities full in the long term because these would be tieback type opportunities. So hopefully that gives you a sense. It may be three or four years from now that we start to drill some of these opportunities. So it's good upside and we'll continue to study them and do seismic surveys and analysis to move those forward. In terms of the timing of the two announcements, there's absolutely no correlation between them. I think in terms of bringing forward our dividend announcement, it's, you know, the business is in such great shape. We keep getting asked so many questions around what's the dividend going to be for next year, and we thought it would be good to provide some forward guidance rather than wait till our capital markets day at the end of January. So there's absolutely no correlation between the two. The business is able to fund both growth and deleverage the business as well as fund a growing dividend. So, you know, we don't see that there's any conflict there. And then your final question, I didn't follow exactly what it was around Evergreen.

Yeah, it was on the CapEx savings. So we're reducing it from 850 to 770. So it's around about an $80 million drop. And in rough numbers, roughly half of it relates to Johan Sverre Group and the other half relates to the most of the savings on Solveig and the other Greek drilling company in Rome.

That's very clear. Got it. Thank you.

Thank you. Our next question comes from the line of Carl Frederik Schulte-Petersen of ABG Sunbelt Collier. Please go ahead. Your line is open.

Thank you, guys. Thanks for the presentation, and thank you for taking my questions. To verify my thoughts related to this thing, First, is this a thing that would have been developed without the temporary tax regime in Norway? And as a kind of part to that question, what if the 2020 timeline is not met? Is it something that we should expect to be developed regardless? And the second question is, if it proves that electrification of this thing is not feasible, Is it still an asset that you would be keener, or is it an asset that does not fit with your low-carbon strategy?

In terms of I mean, it's absolutely on the trajectory to get sanctioned at the end of next year, so I don't think there's any question about that happening. There's a lot of motivation to do that. The projects are going to make concept select about sort of defining the exact concept, which is happening very shortly, and actually the feed contract has been awarded to ACCA Solutions already, so this is moving forward in my view. And we're very confident that we'll get to PDO at the end of next year. And in terms of, remind me of your second question again. Sorry, that was regarding electrification, if it proves not to be peaceful. Yeah, yeah, sure. In terms of electrification, the technology is 300 kilometers offshore, but the technology is well advanced for doing this, and it's perfectly feasible to do it. You know, to give you a sense, there's been a recent connector built from the UK to Norway, which is further distant than that, and that's become operational. So I don't think there's any doubt that this is going to be electrified.

It's also feasible from an economical point of view.

Yes. Yes. It's all part of the project concept that's being defined at the moment and has been engineered for sanction at the end of next year.

Okay. Thank you. Thank you. Our next question comes from the line of James Thompson at JP Morgan. Please go ahead. Your line is open.

Great. Thanks for that. A few questions for me, actually. First of all, Nick, are we now into a time where effectively it's kind of continuous drilling on Edward Grieg? I mean, you've had kind of first infill campaign, you're now talking about another one. Should we just expect it now to be a sort of consistent drilling program there? And then secondly, on Edward Grieg, have you kind of formally increased your allocation in the facility now? I think you talked about sort of 95 heading upwards. I mean, obviously you've got full access to it at any time, but is there sort of a formal change in the amount you're able to utilise every day?

Good questions. You know, we just come to the end of the current infill drilling campaign of three wells. The rig will depart from the field very shortly and then we are starting to plan another infill campaign, which we haven't defined when the timing is going to be. And so that could be a year or two away. We need to define what the program is going to be. We'll probably do another 4D seismic survey next year, which will help define the opportunities. And of course we like to continue to see field performance. But I think, you know, it's probably not going to be the final infield program when we do the next one. So I'm sure we'll be drilling here on and off for many years and not just in the field, but around it, because I think there's lots of opportunity. So, you know, you can see developments of the full field on the rolls nest as a potential and further phases sold by and other exploration appraisal in the area. So I think we'll be drilling overall in the whole area for many, many years.

Okay, but I guess not so much drilling on the field itself next year when you've got sole legs and plateau. Pardon? Well, you're not going to be drilling much on Grieg next year.

On there for Grieg next year. And in fact, Solvay, we will be completing the phase one development drilling. So by the end of first quarter, we should be finished with the water injectors that we need to drill there. And then the rig will depart that field. So what we're now doing is starting to plan for the future phases, full field on Rolls-Nest if we see success with the extended well test. phase two at Solvay. Both of those projects, hopefully we can move forward at the end of next year. And I'm hoping during next year, we can also define another phase of infill drilling at Evergreen. So as I say, I think we'll be drilling here for many years. There's lots of upside.

Okay, that's clear. Chetan, on Whisting, I mean, obviously you've got quite a big stake there now. Are you able to give us any colour at this stage in terms of the kind of capex that you're going to be exposed to ahead of First Oil?

No, we're not. I think we can, you know, we tend to update on our capital guidance outlook at a capital markets day. And I think we'll do that again. And it's a bit early to be doing that, particularly given the projects in the definition stage. So that's something for the future.

Okay, okay. I thought it was quite interesting in your pack that you talked about the amount of gas that you are going to be able to sell because of the electrification strategy in 2023. I mean, I think that's one part of it. I'd be interested to know as well, you know, obviously carbon prices have been going up and up and up in 2021. Do you have a good estimate for how much you saved dollar terms by your electrification strategy this year? And the second part on that kind of cost angle is, you know, are you starting to see much cost inflation at all in Norway? I mean, clearly your operating costs are, you know, sector leading. But, you know, prices are rising and I'm sure service contractors want to get paid. So are you seeing much pressure there?

So on the first question, I mean, I think it's well known that carbon taxes in Norway at the moment are just over $100 a ton and it was announced a while ago that they would progressively increase to $240 a ton by 2030. If you look life of field, uh on our electrification net to us uh we we're saving through electrification about 1.4 billion dollars on carbon taxes by electrification so it's material uh and uh so so so so it's a big part of the value creation that we get from it and and of course we don't we don't as carbon taxes go up we're not going to be paying uh anymore so it gets better and better in terms of inflation i think it's a good question and i think uh I think obviously we are going to see some inflation. I think we haven't seen it into the services yet. I think still things like drilling activity is not is relatively modest, so I think in terms of that area will probably OK for now. But I think, of course, where we need materials that are on a worldwide market like steel, for example, I'm sure we're going to see growth there. And we haven't already seen it into our business, but as we start to define new projects, I'm sure we're going to see cost growth there. But we've already, I think, built in latest cost growth into the outlooks that we have. But, you know, it's going to be sort of clear to us that we need to understand what this looks like going forward. And are we looking at short-term inflation or is it a longer-term structural change?

Okay. All right. Thanks. I'll hand over. Cheers to that.

Thank you. Our next question comes from the line of Al Stanton at RBC. Please go ahead. Your line is open.

yes uh good afternoon guys i've just got one question so i'll be i'll be fairly quick and it's for tighter um i don't think it's spelt out in the presentation but i think it is in today's release that your forecast for fourth quarter cash flow from operations is is 400 to 500 million dollars which is a bit less than i'm assuming and you're also guiding to either no free cash flow or negative free cash flow of 200 million dollars so i'm wondering in addition to the the the big tax bill, the $700 million tax bill and the $320 million acquisition. Is there any other big chunky numbers that we should just look out for in the fourth quarter?

No, not really. But the reason why, you know, there could be flat to even negative free cash flow during the fourth quarter is obviously the movement in working capital, which is a bit more tricky to forecast and predict. which is why we left ourselves a little bit more of a margin on that particular range, in addition to movements in capital and DNA programs.

Okay, I lied. I'll ask a second question then, if I may, and this one's for Nick. The disclosure in Norway is better than we have in the UK, and so when the Lancaster field, the granite, fractured granite basement was being produced, there wasn't that much clarity on on water cut, but we will get the water cut figures for RoseNest. Is there any guidance or anything that we should worry about when we're looking at the production figures?

No, I mean, it's too early for us to update and it's not been producing for very long, but what I will say is that the early production data is in line with the expectations, which I think is very positive. But of course, you know, there's the water cut development in the field is key to understanding it and also the pressure performance of the field will be also key to understand it's connected to a big enough volume. And so it's going to be exciting to see the results over the next year because that's going to be key to defining whether we can move forward the full field development. I will say it's a different type of geology than Lancaster. So the difference here is that this is not just a fractured basement, but it's also weathered. So you have porous secondary porosity in the basement. So the key here is to see that that responds, and that's what the key is about the extended welter. So too early to really give you any sense of how it's performing other than it's in line with expectations.

Okay, cool. Thanks, guys.

Thank you. As there are no further questions on the phone at this time, I'll hand back to Ed for any questions on the web.

Yeah, thanks very much, Mark. We've actually only got two from the web, so I'll just quickly run through them. The first one is from Anish Kapadia. Your production from 2025 to 2030 from your current producing asset base could potentially halve over that period. Which things should now offset some of this? do you see further development projects required, or are you happy for longer-term production to decline?

I mean, it's a good question. And, you know, obviously at some point our fields would decline, but I think there's still lots of upside in the Ewa Grieg area, in the Alvarm area, and particularly in Joensvedrup. And I think all of those things are going to push the profile out. And, of course, Wisting adds to that. and we would expect to see our exploration appraisal program also add to that so i think i think we're pretty confident that we can continue to sustain the business longer term and uh and you know i think we've demonstrated that our assets continue to grow and create value and i think there's lots of opportunity to continue to do that longer term i think um the last question um is unnamed a shy shareholder um

Will the increased stake in Wisting impact your 2022 CAPEX and E&A budget? Are there any ways you can guide on the increased stake and what it will do to CAPEX and E&A next year?

Yeah, it will at the margin. But obviously, next year's big CAPEX number really still relates to phase two

But, indeed, our capital drops relatively quickly next year, too. So, because Johan's fed up comes to an end, so, and the other green projects are complete. So, actually, you should be looking at capex significantly down on this year, next year.

Thanks very much, gents, and thanks very much for everyone on the audience listening in. That concludes the Q3 2021 call. If you have any other questions or want more detail, please drop me at Westrop Align.