OKEA : Q4 2022 Quarterly report

2022

Q4Quarterly report

Photo credit: Wintershall Dea

okea.no

Fourth quarter 2022 summary

Highlights

• No serious incidents at operated assets
• Production of 19,887 (16,064) boepd
• Operating income of NOK 1,664 (2,143) million
• EBITDA of NOK 1,086 (1,636) million
• Impairment of NOK 251 (609) million of the Yme asset due to re-phasing of production
• Profit before tax of NOK 659 (738) million
• Record high net profit after tax of NOK 324 (104) million
• Transfer of operatorship of Brage and partner-operated working interests in Nova and Ivar Aasen completed on 1 November
• Dividend paid of NOK 1.00 (1.00) per share, in total NOK 104 (104) million
• 2022 year-end 2P reserves of 60.2 million boe; an increase of ~29% compared to year-end 2021

(Amounts in parentheses refer to previous quarter)

Financial and operational summary

	Unit		Q4 2022		Q3 2022		Q4 2021	Full year	Full year
				2022		2021
Total operating income	MNOK	1,664		2,143	1,725	6,653		3,882
EBITDA 1)	MNOK	1,086		1,636	1,258	4,758		2,607
EBITDAX 1)	MNOK	1,277		1,654	1,347	5,085		2,950
Profit/loss (-) before income tax	MNOK	659		738	654	3,215		2,106
Net profit / loss (-)	MNOK	324		104	283	670		603
Net cash flow from operations	MNOK	390		1,183	1,003	3,344		2,515
Net cash flow used in investments	MNOK	-1,729		-116	-308	-2,434		-941
Net cash flow used in financing activities	MNOK	-189		-1,248	-172	-1,969		-422
Net interest-bearing debt (IBD) 1)	MNOK	583		-799	750	583		750
Net IBD ex. other int. bearing liabilities1)	MNOK	75		-1,371	256	75		256
Net production	Boepd 2)		19,887 4)		16,064		16,038	16,736 4)		15,530
Third-party volumes available for sale 3)	Boepd 2)	633	431	419	596		147
Over/underlift/inventory adjustments	Boepd 2)	-4,198	769	1,645	-1,080		166
Net sold volume	Boepd 2)		16,322		17,264		18,102	16,252		15,843
Production expense per boe 1)	NOK/boe	258.4		253.1	170.8	236.8		133.5
Realised liquids price	USD/boe	95.2		106.6	78	98,4		65.3
Realised gas price	USD/boe	112.6		194.8	188.5	138.5		105.2

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Definitions of alternative performance measures are available on page 36 of this report Boepd is defined as barrels of oil equivalents per day

Compensation volumes received from Duva and Nova (tie-in to Gjøa) included in Net sold volumes Production if Nova, Ivar Aasen and Brage included for the entire quarter is 21,450 boepd

OKEA ASA Q4 2022

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Financial review

Completion of the Wintershall Dea transaction

On 23 May 2022, OKEA announced that an agreement had been reached with Wintershall Dea Norge AS ("Wintershall Dea") to acquire a material portfolio of assets for an initial aggregate post-tax cash consideration of USD 117.5 million. The transaction comprised acquisition of 35.2% operated working interest ("WI") in the Brage Unit, 6.4615% WI in the Ivar Aasen Unit and 6% WI in the Nova field with effective date 1 January 2022. In addition to the fixed consideration, OKEA shall pay an additional contingent consideration based on an upside sharing arrangement subject to oil price level and oil production performance during the period 2022-

1. The contingent consideration will be paid if the average oil price for each of the six half year periods during 2022-24 exceeds USD 80/bbl. The split on the price exceeding 80 USD/bbl is 70% net after tax to Wintershall Dea and 30% to OKEA in 2022 and a net after tax split of 42.5% to Wintershall Dea / 57.5% to OKEA in 2023-

1. Wintershall Dea retains responsibility for 80% of OKEA's share of total decommissioning costs related to the Brage Unit. The transaction was financed through existing cash resources.

The Wintershall Dea transaction was completed on 1 November and was recognised in the financial statements on a fair value basis from and including the fourth quarter. As the effective date of the transaction was 1 January, all transactions and activities in the 10-month period until completion were reflected as part of the purchase price allocation ("PPA") in the statement of financial position. Related transactions and activities in November and December were reflected in the statement of comprehensive income and key figures including produced volumes.

The PPA includes estimated fair value of the contingent consideration which will be revalued each balance sheet date. Any changes in valuation will be recognised as other operating income. The PPA also includes fair value of crude inventory at Brage on 31 October of 446 thousand bbl. This volume is expected to be lifted in February 2023. The related impact on comprehensive income from those volumes will be the difference between the realised price in the first quarter of 2023 and the recognised fair value. Note 27 to the financial statements provides further details on the PPA.

Statement of comprehensive income

Total operating income in the fourth quarter was NOK 1,664 (2,143) million, whereof NOK 1,516 (2,114) million related to revenue from liquids and gas sales. The average realised liquids price was USD 95.2 (106.6) per boe while the average realised price for gas was USD 112.6 (194.8) per boe. Total sold volumes were 1,502 (1,588) thousand boe.

Other operating income/loss (-) was NOK 149 (30) million consisting of tariff income at Gjøa of NOK 40 (42) million, change in fair value of contingent consideration to Wintershall Dea of NOK 12 (0) million, income from joint utilisation of logistic resources of NOK 10 (9) million, and a net gain/loss (-) from gas forward contracts of NOK 86 (- 21) million.

Production expenses amounted to NOK 522 (425) million, corresponding to NOK 258.4 (253.1) per boe. Total expenses have increased following completion of the transaction with Wintershall Dea Norge on 1 November which added Brage (WI 35.2%), Ivar Aasen (increase of 6.4615% WI) and Nova (WI 6%) to OKEA's asset portfolio which is recognised in the profit and loss statement for the last two months of fourth quarter. Production disturbances at Brage, Nova and Yme in the quarter reduced volumes which adversely impact production expense per boe.

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Changes in over-/underlift positions and production inventory amounted to an income of NOK 222 (expense of

1. million. Produced volumes exceeded sold volumes by 4,198 (-769) boepd in the quarter. In addition, sold volumes from third-party compensation received from Duva and Nova (tie-ins to Gjøa) amounted to 633 (431) boepd.

Exploration and evaluation expenses amounted to NOK 190 (19) million, whereof NOK 79 (0) million related to expensing of previously capitalised cost on the Hamlet well and NOK 86 (0) million related to seismic purchases in the quarter. In addition, other expenses - including costs for APA 2022 and various field evaluation activities - amounted to NOK 24 (19) million.

An impairment charge of NOK 251 (609) million was recognised on the Yme asset in the quarter. The impairment was mainly driven by a re-phasing of volumes due to expected plant availability. Tax income relating to the impairment amounted to NOK 196 (475) million, resulting in a net after tax impact of NOK 55 (134) million. The impairment in previous quarter was mainly due to a reserves revision at Yme.

General and administrative expenses amounted to NOK 87 (45) million and represent OKEA's share of costs after allocation to licence activities. The high expense in the quarter was mainly due to transition activities relating to the transfer of operatorship of the Brage asset and the annual recalculation of activities distributable to licences including the employee incentive program. Expense in the previous quarter was also above normal due to transition activities of Brage.

Net financial items amounted to NOK 94 (-113) million. Expensed interest amounted to NOK -23(-52) million. Net foreign exchange gain/loss (-) amounted to NOK 115 (-41) million following a strengthened (weakened) NOK compared to USD by ~9% (-~9%) in the quarter. For further details on financial items, reference is made to note 14.

Profit / loss (-) before tax amounted to NOK 659 (738) million.

Tax expenses (-) / tax income (+) amounted to NOK -335(-633) million and represents an effective tax rate of 51% (86%). The deviation from the expected 78% was mainly due to gains on financial items and hedging being taxable at a tax rate of 22%, uplift, and a non-taxable gain on change in fair value of the contingent consideration to Wintershall Dea.

Net profit / loss (-) for the quarter was NOK 324 (104) million. Earnings per share were NOK 3.12 (1.01).

Statement of financial position

Goodwill amounted to 1,297 (801) million consisting of NOK 1,133 (638) million in technical goodwill and NOK 163 (163) million in ordinary goodwill. The increase in technical goodwill of NOK 496 million related to the PPA following completion of the Wintershall Dea transaction. Reference is made to note 27 for further information.

Oil and gas properties amounted to NOK 6,556 (4,718) million at the end of the quarter. The increase mainly related to asset additions from the Wintershall Dea transaction of NOK 1,792 (0) million. In addition, investment in the Hasselmus development, Draugen modifications and Yme amounted to NOK 433 million. These increases were partly offset by depreciation of producing assets of NOK 262 (170) million and impairment of the Yme asset of NOK 251 (609) million.

Right-of-use assets amounted to NOK 233 (217) million and mainly related to logistical resources on operated assets and lease of offices. The increase in the quarter related to new office leases in Bergen and Stavanger.

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Non-current asset retirement reimbursement right amounted to NOK 3,662 (2,486) million and related to Shell's and Wintershall Dea's obligation to cover decommissioning costs for Draugen/Gjøa and Brage, respectively. The increase relates to the Wintershall Dea transaction.

Trade and other receivables amounted to NOK 1,744 (1,347) million and comprised accrued revenue, working capital from joint venture licences, underlift of petroleum products and payment quantity agreements.

Cash and cash equivalents amounted to NOK 1,104 (2,668) million. In the quarter, OKEA paid taxes of NOK 1,201 (509) million relating to two tax instalments for 2022 and residual tax for 2021. In addition, a net consideration of NOK 1,103 (0) million was paid for the transaction with Wintershall Dea, and NOK 104 (104) million was distributed to shareholders as dividend.

Spare parts, equipment and inventory amounted to NOK 800 (229) million whereof NOK 512 (85) million mainly related to oil inventory Draugen, Brage and Yme. The increase mainly related to oil inventory at Brage valued at fair value of NOK 263 million.

Equity amounted to NOK 2,078 (1,857) million, corresponding to an equity ratio of 13% (15%). The net increase was due to net profit after tax exceeding the dividend payment of NOK 104 million.

Non-current provision for asset retirement obligations amounted to NOK 5,915 (3,621) million. The increase was mainly due to obligations recognised on the new assets acquired from Wintershall Dea. The obligation is largely offset by the asset retirement reimbursement right outlined above.

Interest-bearing bond loans amounted to NOK 1,179 (1,298) million. The reduction from previous quarter was due to an unrealised foreign exchange gain as the OKEA03 bond is nominated in USD.

Total other interest-bearing liabilities amounted to NOK 508 (572) million, whereof the non-current portion was NOK 462 (522) million and the current portion was NOK 46 (50) million. The amount represents OKEA's share of the net present value of the future obligations under the bareboat charter (BBC) agreement for Yme on the Inspirer rig. Reference is made to note 23 for further details.

The lease liability relating to IFRS 16 is split into a non-current liability of NOK 212 (202) million and a current liability of NOK 50 (44) million and represents the liability of the right-of-use assets as described above.

Trade and other payables amounted to NOK 2,220 (1,193) million and mainly relate to working capital from joint venture licences, payment quantity agreements and accrued expenses.

Income tax payable was NOK 477 (1,749) million, mainly consisting of remaining accrued tax payable for 2022. The remaining three tax instalments for 2022, payable in the first half of 2023, were reduced from NOK 509 million, paid for the first three instalments, to NOK 164 million.

Statement of cash flows

Net cash flows from operating activities amounted to NOK 390 (1,183) million, including taxes paid of NOK 1,201 (509) million. The reduction in cash flow from operating activities compared to previous quarter was mainly due to two tax instalments paid for 2022, lower sold volumes and lower realised prices, partly offset by positive working capital changes mainly related to payment quantity agreements entered into for the new oil volumes following the Wintershall Dea transaction.

OKEA ASA Q4 2022

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