OKEA : Q1 2021 Quarterly report

2021Quarterly Q1 report

okea.no

First quarter 2021 summary

Highlights

• No serious incidents at operated assets
• Continued managing the Covid-19 situation without production disruptions
• Two new wells in Gjøa P1 segment onstream in February
• Non-commercialdiscovery Jerv exploration well
• Production of 16,557 (16,171) boepd
• Operating income of NOK 524 (584) million
• Profit from operating activities of NOK 68 (167) million
• Profit / loss (-) before tax of NOK 63 (410) million
• Net profit / loss (-) of NOK 23 (182) million
• Cash flow from operations of NOK 322 (272) million

(Amounts in parentheses refer to previous quarter)

Financial and operational summary

	Unit		Q1 2021		Q4 2020		Q1 2020		Full year
					2020
Total operating income	MNOK	524	584	551		1,730
EBITDA 1)	MNOK	240	229	312		867
EBITDAX 1)	MNOK	349	272	340		964
Profit/loss (-) before income tax	MNOK	63	410	-926		-1,231
Net profit / loss (-)	MNOK	23	182	-785		-603
Net cash flow from operations	MNOK	322	272	45		641
Net cash flow from investments	MNOK	-182	-188	-333		-1,043
Net cash flow from financing activities	MNOK	-33	-96	-116	-390
Net interest-bearing debt 1)	MNOK	1,424	1,529	1,752		1,529
Net production	Boepd 2)		16,557		16,171		19,099		16,147
Over/underlift/inventory adjustments	Boepd 2)	-1,359	2,623	-3,289		-276
Net sold volume	Boepd 2)		15,198		18,794		15,810		15,871
Production expense per boe 1)	NOK/boe	101.8	110.4	87.3		104.8
Realised liquids price	USD/boe	49.5	39.0	48.4		36.3
Realised gas price	USD/scm	0.24	0.19	0.10		0.11

1)

2)

Definitions of alternative performance measures are available on page 28 of this report Boepd is defined as barrels of oil equivalents per day

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Financial review

Statement of comprehensive income

Total operating income in the first quarter amounted to NOK 524 (584) million, whereof NOK 536 (581) million related to revenue from oil and gas sales. Sold volumes were 361 thousand boe lower than previous quarter mainly due to a larger lift on Draugen and the first volumes allocated to OKEA since mid-2018 on Ivar Aasen in the previous quarter. Realised prices for liquids were USD 49.5 (39.0) per boe and realised gas prices were USD 0.24 (0.19) per standard cubic meter (scm).

Other operating income / loss (-) amounted to NOK -12 (3) million consisting of tariff income at Gjøa of NOK 13 (16) million, income from joint utilisation of logistics resources of NOK 6 (2) million, offset by loss from oil hedging activities of NOK -31(-15) million.

Production expenses amounted to NOK 176 (189) million, corresponding to NOK 101.8 (110.4) per boe. Produced volumes net to OKEA were 16,557 (16,171) boepd. The increase in produced volumes compared to previous quarter was mainly due to production start at Gjøa P1 on 23 February.

Changes in over-/underlift positions and production inventory amounted to NOK 17 (-74) million. Produced volumes exceeded sold volumes by 1,359 boepd in the quarter, while sold volumes exceeded produced volumes by 2,623 boepd previous quarter.

Exploration and evaluation expenses amounted to NOK 109 (43) million, whereof NOK 93 million related to the exploration well Jerv in PL973 which was concluded a non-commercial discovery on 23 March. In addition, field evaluation activities on Aurora and Grevling/Vette amounted to NOK 10 million for the quarter. Exploration and evaluation expenses previous quarter mainly consisted of field evaluation activities for Hasselmus of NOK 10 million and seismic data purchases of NOK 16 million.

General and administrative expenses amounted to NOK 16 (48) million and represent OKEA's share of costs after allocation to licence activities. The decrease was mainly due to an annual recalculation of distributable costs including costs related to OKEA's employee share incentive program in the previous quarter.

Net financial items amounted to NOK -5 (243) million and mainly comprise NOK -12(-23) million in interest expense and net foreign exchange gain of NOK 10 (268) million due to NOK strengthening by 10% against USD in the previous quarter while remaining stable in the current quarter.

Profit / loss (-) before tax amounted to NOK 63 (410) million for the quarter. The lower profit was mainly due to the positive income effects of reversal of impairment NOK 117 million and net exchange rate gain of NOK 268 million in previous quarter not repeated in the current quarter in addition to expensing of the exploration well Jerv of NOK 93 million in the current quarter.

Tax expenses (-) / tax income (+) amounted to NOK -40(-227) million representing an effective tax rate of 64% (55%). The deviation from the expected 78% was mainly due to the positive effect of uplift, partly offset by lower tax rate on onshore and financial items.

Net profit / loss (-) for the period was NOK 23 (182) million. Earnings per share were NOK 0.22 (1.78).

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Statement of financial position

Goodwill amounted to NOK 769 (769) million consisting of NOK 606 (606) million in technical goodwill and NOK 163 (163) million in ordinary goodwill.

Oil and gas properties was NOK 3,807 (3,758) million at the end of the quarter. The increase mainly relates to investments in Yme New Development project and Gjøa P1 partly offset by depreciation from producing assets.

Right-of-use assets amounted to NOK 174 (179) million and mainly relate to logistical resources on operated assets and lease of offices.

Other non-current assets were NOK 3,049 (3,029) million which relate to Shell's obligation to cover the decommissioning costs of Draugen and Gjøa.

Total tax refund amounted to NOK 223 (296) million, split into non-current refund of NOK 12 (0) million and current refund of NOK 211 (296) million.

Cash and cash equivalents amounted to NOK 978 (871) million. The increase from previous quarter was mainly due to net cash flow from operating activities exceeding cash used in investment activities and interest payments as further outlined in the section "statement of cash flows".

Spare parts, equipment and inventory amounted to NOK 228 (229) million whereof NOK 114 (117) million related to oil inventory at Draugen.

Equity amounted to NOK 1,113 (1,083) million, corresponding to an equity ratio of 11% (11%). The increase from previous quarter was due to net profit in the period and share based payment in relation to the company's long term incentive plan.

Provisions for asset retirement obligations amounted to NOK 4,221 (4,200) million. The obligation was partly offset by 3,049 (3,029) million in asset retirement receivable as described in the section "non-current assets".

Interest-bearing loans and borrowings amounted to NOK 2,402 (2,400) million, consisting of the remaining outstanding amounts on the OKEA02 and OKEA03 bonds.

The lease liability relating to IFRS 16 was split into a non-current liability of NOK 138 (144) million and a current liability of NOK 36 (35) million and represents the liability of the right-of-use assets as described above.

Trade and other payables amounted to NOK 898 (890) million and mainly relate to working capital from joint licences, prepayments and accrued expenses.

Statement of cash flows

Net cash flows from operating activities amounted to NOK 322 (272) million, whereof NOK 97 (164) million was net taxes received. The increase from previous quarter was mainly due to increased realised prices on both liquids and gas.

Net cash flows used in investment activities amounted to NOK -182(-188) million of which investment in oil and gas properties amounted to NOK -175(-164) million mainly relating to the Yme New Development project and the Gjøa P1 project.

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Net cash flows used in financing activities amounted to NOK -33(-96) million, of which interest paid amounted to NOK -24(-71) million. The reduction from previous quarter was mainly due to interest payments of the OKEA03 bond loan being payable semi-annually in December and June.

Financial risk management

OKEA uses derivative financial instruments to manage exposures to fluctuations in commodity prices. At the end of the quarter, OKEA had outstanding put options for 150 000 barrels of oil (bbl) at a strike price of 40 USD per bbl with expiration in April 2021 and put options for 150 000 barrels of oil at a strike price of 50 USD per bbl with expiration in July 2021.

Operational review

Net production to OKEA was 16,557 (16,171) boepd. The increase compared to previous quarter was mainly due to production start from the P1 wells at Gjøa in February partly offset by lower production from Draugen as outlined in further detail below.

			Unit		Q1 2021		Q4 2020		Q1 2020		Full year
						2020
Draugen - production reliability4	%	97	99	98	99
Draugen - production availability5	%	96		98	97	90
Gjøa - production reliability	%	96		99	97	99
Gjøa - production availability	%	99		95	98	86
Ivar Aasen - production availability	%	95		95	99	94
Draugen - production			Boepd	7,246		7,592	8,922	7,774
Gjøa - production			Boepd	8,998		8,293	9,812	8,059
Ivar Aasen - production			Boepd	313		286	365	314
Total net production			Boepd		16,557		16,171		19,099		16,147
Draugen - sold volume			Boepd	7,055		9,272	7,446	7,923
Gjøa - sold volume			Boepd	8,076		8,360	8,303	7,610
Ivar Aasen - sold volume			Boepd	67		1,162	61	338
Total net sold volume			Boepd		15,198		18,794		15,810		15,871
Total over/underlift/inventory adj.			Boepd	-1,359		2,623	-3,289	-276

1. Production reliability = Actual Production / (Actual production + Unscheduled deferment)
2. Production availability = Actual Production / (Actual production + Scheduled deferment + Unscheduled deferment)
   Deferment is the reduction in production caused by a reduction in available production capacity due to an activity, an unscheduled event, poor equipment performance or sub-optimum settings.

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