Earnings Call: Q2 2019

Jul 12, 2019

2nd Quarter and First Half Presentation of 2019 here at Voden. And also, a warm welcome to all of those who follow us online or on our conference call. Let me warm up by giving you a quick overview over the highlights of this exciting second quarter. Production volumes were low, mainly due to maintenance activities and mostly in line with our previously communicated plans. All our development projects are continuing on track, and we look forward to the start up of production from both Johan Saver and the Valhall wet flag later this year. We also continued to deliver strong exploration performance. And today, we are announcing a new significant discovery in the Nuaka area. I will come back to all of these detail later in the presentation. But before we dive into the details, I would like to share some reflections over the activity level in Aker BP. As I'm used to saying on this quarterly presentation, it's been yet another exciting quarter at Aker BP. But it's really amazing to see the massive amount of work going on in the organization. I'd like to take a little bit of an opportunity to basically walk you through the activity levels that we have. Today, we have 6 simultaneous ongoing drilling operations in Alkadipi. We are planning to drill 17 exploration wells in 2019, 2 more than previously announced due to better performance on drilling than we anticipated at the beginning of the year. There are 4 new greenfield projects that are currently in the installation phase and more than 10 that are in the planning phase. And on the production side, we have currently executed in this quarter 2 month long turnarounds where more than 55,000 hours of offshore maintenance work supported by roughly 20,000 hours of planning work in the quarter. And in the decommissioning, we have executed 2 projects this quarter, the removal of QP, which I'll get back to, and also the decommissioning and P and L P and A of the Jetha wells. And now I'd like to give the word to our Head of Exploration, Eva Stadtlaak, who talk about our recent exploration successes. Edith, floor is yours. I'm very pleased to present the exploration program in 2019. I presented the exploration program in the Capital Markets Day earlier this year, and now I'm giving you an update and Carlos giving you a little bit of a taste of what's coming now. We've drilled 9 wells so far, and we have 3 discoveries. That is a high success rate in exploration. We have also industry leading drilling performance, and that's very important as well for us to drill efficiently and also more in expenses so we can drill more wells. When we're looking at the rig that's drilled the last few actuation wells for us, the DSS, we actually are demonstrating very high drilling performance and placing in a rush more statistics that the 1st place, 3rd place and 4th place drilling performance, and that's very good. We have also added 2 more exploration wells to the exploration program. I presented 16 wells earlier this year, and now we're going to drill 17 wells. We have added the Nipa well. I did not change this, I'm sorry about that. The Nipa well in license PL 986 in the Nuatha area, and we're adding the Nidhogg well, license PL-10008 in the Skateboard area in the Norwegian Sea. They all represent wells that are important to us to help building infrastructure led exploration in the Skaerob area. And for the Nippo well, it's important for Nuaka, future hopefully future development. But I'm also here today to present the Liatorno discovery. We sent out a press release this morning. This is a significant oil discovery, both for Aker BP and on the Norwegian shelf for this year. It is it has a volume in place of about BRL 500,000,000 to BRL 700,000,000 of oil equivalent. We still need to work a little bit further to figure out how much of that oil we can get out of the ground. We need to look into recovery factors and we need to look at drainage strategies. So but so far, we have press released a recoverable volume preliminary estimated to 80,000,000 to 200,000,000 barrels. So it is very significant. It's located in the PL-four forty two license, where Alco BP is operated with 90%. It's adjacent to the Flikgamma Delta discovery, and it will add significant value and robustness to an area development. This well is a well that we haven't presented externally before. So on the Capital Market Day, it was actually just listed as a Nuwaka well. So we haven't done that with any pre drill estimates. So we're now presenting this for the first time. It is a part of the long term strategy in the area to really unlock the potential in the Noaka area. It does not have a stand alone potential and will also require that we get an area development. But it also shows how exciting it still is to do exploration on the Norwegian continental shelf. So this is, for us, a success story today. I also spent some time externally just presenting the Alvheim area. I talked about how we've done a lot of data acquisition, and we really tried to unlock the injecti plane in the Alvheim area. In the Q1, we presented the Froskular discovery, which is also a significant discovery this year. It has an estimate of 60,000,000 to 130,000,000 barrels of oil equivalent discovered. And in the Q2, we followed that with the Srivosklar Northeast well, which is a minor discovery, but it was also one of the appraisal wells linked to the whole Srivosk test producer drilling campaign. So we've done a lot of drilling activity in this area, but we haven't gotten any of the results yet from the Surovsk test production, but it's all a part of evaluating this injector play and trying to figure out how much that play can produce. You can also see the GECKO appraisal, but that was one of the discoveries from last year. And we're currently drilling the Rupakil well, which is ongoing operations, and we're not sharing any of that information still. But a lot of focus in the Alvheim area, spending quite a bit of exploration money in that area and very successful so far the last 1.5 years. As I also mentioned, we have done some we've done really good drilling performance. And what this PSS rig has done for us is the world's 1st dual drilling operations done, and that's very exciting. It's drilling faster and faster, and we now completed dual drilling on 3 wells: the JK prospect, the Hwarna and Fereke and Goyne. All the three prospects were unfortunately dry, but just showing what the dual drilling can do is very exciting. It has the potential of time savings and also significant cost savings for us when we move forward. The DP Stavanger is a very good with world class capabilities. It has 2 top drives, it has 2 circulating systems and it has 2 drill crews. So while you're drilling the top hole, the primary can still run the whole BOP operation. So that's why this becomes very efficient. So just looking at the exploration program for 2019, where we have added 2 new wells. You can see that we have the Nidhogg well in here, which was the Skariv ILX well, and then we have the Nipa well here, which is the Nuwaka well. Other than that, we have the same list as we presented externally before, now also listed with the discoveries. We have 2 ongoing operations. Have no press release or ongoing drilling to fill, and that's Klaaf and Irumpetrol. With that, I'm giving back the word to Karl. Thank you, Javier. It's great to see that the exploration is really thriving in Aperdipi. And as I said on the Capital Market Day, we are actually the 2nd biggest licensor loan in reaching Continental Shelf, and that strategy is now paying off. That's great to see. Now moving into the operational update and starting with a production overview. As previously said, the production was 127,000 barrels in the Q1, representing a decrease of roughly 31,000 barrels per day compared to the previous quarter. This was more or less in line with our plans and also previously communicated estimates. The main driver was maintenance planned maintenance on Valhall and Ula, which each carried out a month long turnaround that's been planned for 1.5 year. That also, of course, reflects the low production efficiency as these month long turnarounds are included in the production efficiency numbers on Valhall and Mula. It will also be worth mentioning the very strong production efficiency number for Skal, which is the star of this quarter, where the uptime was an impressive 98%. In Oslo also performed very well but was unfortunately impacted by reduced power supply from Bob Kidd. I will now go on, as I usually do, to share the highlights of each of the hubs, and I will start with Alpen. As always, there's been a high activity on Alvheim in this quarter. We have taken you through the exciting exploration activities in the area, and there are also several wells drilled and completed. The Vorland sidetrack well was drilled and completed within 23 days, 12 days ahead of plan, quite ambitious plan, I must say. So again, kudos to the drilling department. And it's already been put on stream. We have completed drilling of the Fosk test producer. The test producer is soon to come on production during the Q3 following subsea installation processes. And the test producer will contribute with important results of the Fosk formation and supporting later the drainage strategy in the area. The subsea installation campaign of Skogdrill is successfully completed in June, and drilling operations are scheduled to start in the 3rd quarter. The reduction in production this quarter was driven by natural decline and shut in of a few wells due to a damage on the support system and anchoring systems. Pending repairs, we have shut in production from a few wells at Alshan and Wilje, but have been able to mitigate most of the production effect by increasing output from other wells in the area. Now moving on to an asset with even more activity in the quarter. At Valhall, we have executed a month long turnaround in June, executing about 34 1,000 offshore hours, supported by 10,000 onshore hours. And of course, production was affected negatively by this. During the shut in period, we have also removed the QP topside, which is one of the old topsides, and I'll come back to that shortly. But first, the most exciting news on Valhall during the quarter, we have successfully installed the Valhall Westbank topsides only 14 months after first dealers' cup at Radvan. And this is probably the most complete offshore platform that has gone into the sea on the Norwegian company on the shelf. Ahead of schedule, under budget and with no serious injuries, There are no carryover work, and testing and commissioning was 93% complete on installation, meaning only the systems that require live hardener gardens were yet to be tested and completed. The Nasi Peninsula rig is now in place and will drill wells and function as a combination rig for a reminder of the hookup and commissioning work. Start up is planned in the 4th quarter of 2019. The safe and efficient removal operations at Valhall is an important role for the Valhall asset and for Aker BP. The QP top site is the first of the 3 original structures that will be removed from the field center. The single lift operation using Pioneering Spirit took 2 hours to complete, following about 2 years of engineering, planning and pre lift operations. I'd like to extend a big thank you to the entire decommissioning team. It's a truly impressive feat. We have also plugged wells at the YETTER field and successfully recovered the Christmas trees. And we will consider using these trees in future projects as they are in really good condition. At Ebrodersen, both production and production efficiency was down in the 2nd quarter, mainly related to turbine challenges at Pevartig, which led to approximately 1 week of no production and no WAF injection. Apart from this, it's been at the usual smooth operations. Nafkinter Fektor is now drilling at the field again, and one well is successfully started up in June. This well was completed with fishbone technology, which is an enhancement technology for reservoir performance, and the performance so far has been really excellent. This is yet another example of aggressive technology deployment by Aker BP. A second well will be is currently being drilled and should be ready for start production by the end of Q3. Now moving on to Skav. At Skav, production was steady and production efficiency was outstanding at 98% on average for the quarter. We have increased gas injection and thus accelerated oil production in the quarter, and this is why the total production is not up just as an effect of the increased production efficiency. This is a part of our revised drainage strategy. The Afro project is progressing according to plan, and offshore modification work is ongoing. The picture shows the 1st Aspen SPS flow base being loaded out from the yard in May. The new generation of our vertical Christmas trees is close to completed, and subsea installation and drilling will start in the second half of this year. Phase 2 of the project is also progressing as planned, and final investment decision is planned by the end of this year. At Ula, production was affected by 1 month maintenance shutdown, which was in part mitigated by ramp up of production from Oda, which is tied back to the Ula field. And following the removal of the Ula drilling derrick, the Maask integrator is now located at the Ula B platform, and drilling operations will commence shortly as we're now out of the turnaround window. We're really looking forward to commencing drilling at Yla again. At Johan Sverdrup, we are pleased to see the continued progress of the project, and we are looking forward to the production start. In the Q2, the main activities have included offer hookup, commissioning and completion of the forward platforms as well as tieback operations for the prepared production wells. During the Q2, the partnership also got the government approval for Johan Sverdrup Phase 2, which will increase the field's production capacity from 440,000 barrels of oil equivalent per day to 660,000 barrels of oil equivalent per day when it's completed in 2022. Now moving on from the giant Johan Sava project over to another project that is now the largest project remaining on the Norwegian continental shelf, namely the Nuaka project. Following the Liautoni discovery, the total recoverable resources in the area are now in the order of 700,000,000 barrels of oil equivalent. And as Eeva mentioned, we're also planning to drill another exploration well shortly on the Dnieper prospect. The resources in the Naka area are significant, but they are spread across many accumulations and many various hydrocarbon types, and the area currently lack infrastructure. Aker BP's answer to these challenges is to develop the entire area with a so called PQ concept, consisting of a central processing hub in the middle of roughly in the middle of the area. The objective is to maximize resource utilization and value creation. Our proposed solution also provides sufficient capacity to tie in additional discoveries in the future. And as should be well known by now, discussions are currently ongoing between the partners on how to develop the area. Now with that, I'll leave the floor to David and his walk through of the financial results. David? Thank you, Good morning, everyone. As normal, I will walk you through the financials of the quarter, focusing on the statement of income, changes in the balance sheet and the cash flow. But before I do that, let me start with the big picture. In the second quarter, as Karl has already mentioned, we produced 127,300 barrels per day. But similarly to the last quarter, we sold more volumes than we produced, and the total sold volumes ended at 140,700 barrels. Liquid prices increased throughout the quarter, but this was offset by a further reduction in gas prices and the realized average hydrocarbon price ended at $60.60 per BOE, which is 3% higher than in the Q1. In total, petroleum revenues were SEK 780,000,000, which is approximately 9% down from the Q1. If we move on to the income statement, adjusting petroleum revenues for other income, we get the total income of SEK785 1,000,000. Production costs in the quarter were SEK 198 1,000,000. And remember, this line item is impacted by the change in accounting principle from the entitlement method to the sales method, and this now refers to the cost of sold volumes. If we exclude the adjustment for over lift as disclosed in note number 3, the production cost related to the produced barrels amounted to 178,000,000, which is a decrease of 13,000,000 from the Q1. This change is mainly driven by the reduced production due to the turnarounds at Varhall and Nula, which Karl has diligently talked about. At Ardenne, Ivar Ostmen and Skard, production cost per barrel were stable in the quarter with the average cost across the fields at $8.1 This is exactly the same as in the Q1. At Varuhalle Nuhla, the reduction in production is relatively higher than the reduction in costs due to the maintenance conducted during the turnarounds. And the cost per produced barrel this quarter was, therefore, as expected, relatively high for those fields. This drive the average cost for the portfolio up to $15.4 Exploration expenses amounted to NOK 16,000,000 in the second quarter, roughly NOK 29,000,000 is related to the dry costs on Jekko, Vlhekegaard and Hulenet. And in addition, we spent roughly SEK 30,000,000 on seismic, G and G and field evaluation combined. As planned, the exploration activity was high this quarter and the cash spend ended at NOK 190,000,000. If we summarize the items discussed so far, this gives us an EBITDA of NOK522 1,000,000. Depreciation in the quarter was €168,000,000 or $14.5 per barrel, And the reduction from Q1 is driven by the lower production volumes, while the increase per barrel is driven mainly by the change in relative share of production from the various fields. Deducting depreciation, we get an operating profit of NOK354,000,000. Net financial expenses in the quarter were NOK86 1,000,000. This is higher than normal due to the one off cost of 35,000,000 that was triggered by the expense of the remaining unamortized fees related to the termination of the RBL when this was refinanced into a new RCF. Profit before tax were NOK 268,000,000 and taxes amounted to NOK 206,000,000. Of these NOK 206, NOK 78,000,000 was the current tax arising in the quarter, NOK 123,000,000 was the changes in deferred tax and €5,000,000 was related to prior period adjustments. The effective tax rate for the quarter was 77% and the tax rate can in broad terms be explained by uplift on CapEx driving the tax rate down, while the financial expenses related to the termination of the RBL and reevaluation of dollar denominated loans drove it slightly up again. The actual tax payment in the quarter amounted to NOK 208,000,000, which is in line with the guidance that we provided in our Q4 presentation. Thus, net profit in the second quarter ended at NOK62 1,000,000. If we move on to the balance sheet, which were fairly stable this quarter, you can see that PP and E increased by NOK346 1,000,000. We had additions of 4.90, where investment at Valhall and Ferdrup made up roughly 70%. And then we have depreciation of PP and E amounting to 144,000,000. We had additions of SEK 32,000,000 in right of use assets as we added the Maersk integrated rig to be used at Gula to the balance sheet. Net of depreciation and use, the increase in the balance sheet was €14,000,000 in right of use assets. On the other side of the balance sheet, we can see that equity was reduced by SEK136 1,000,000, representing the netting of net income dividends and the purchase of treasury shares for the employee share program. Deferred tax increased by €124,000,000 which was mainly made up of an increase of €80,000,000 or €81,000,000 related to difference in accounting and tax depreciation, an increase of €102,000,000 related to capitalized exploration, interest and actual decommissioning cost, which is expensed for tax purposes and then reevaluation costs, which is expensed for tax purposes. And then reevaluation of tax balances, decreasing the deferred tax with SEK 24,000,000 and accretion reducing the deferred tax with another €24,000,000 Bonds and bank debt increased in the quarter with €409,000,000 and tax payables decreased by roughly €128,000,000 giving a balance of €439,000,000 which can be divided into €207,000,000 related to the income year 2019, €4,000,000 related to 2018 and then NOK229 related to accrual for uncertain tax positions. In sum, total equity and liabilities amounted to SEK11.5 billion at the end of the quarter. Aker BP is always working to optimize its capital structure, and we made a couple of improvements in the last couple of months that I'll quickly run you through. As already touched briefly upon, we have now established a new unsecured credit facility of $4,000,000,000 This replaces the old secured RBL. With this, we have achieved the 3 main objectives, which I mentioned in my first quarter presentation. 1, we have extended the maturity of our bank debt 2, we have reduced interest costs significantly and 3, we have made all lenders to Aker BP prior to Zu. In the second quarter, all the 3 main credit rating agencies also issued new reports on Aker BP. Fitch took up coverage for the first time and issued an investment grade company rating of BBB-. Moody's and S and P confirmed their company ratings. And in addition, Mudis rated up our existing bonds as they are no longer subordinated to our bank's debt. In June, capitalizing on the tailwind from the new bank facility and the updated credit ratings, we decided to issue a new bond. Due to the strong interest and favorable turns, the issue was upscaled from the original planned $500,000,000 to $750,000,000 This new bond matures in 2024 and has a coupon of 4.75%. The proceeds of the bond issue was used to reduce drawings on the new RCF. With these activities in the Q2, Aker BP has increased its financial capacity and flexibility, while at the same time reduced funding costs. Moving on to how the activities in the second quarter has impacted cash flows. We started the 2nd quarter with cash of NOK 114,000,000 and during the quarter, we drew net debt of NOK365. Cash flows from operations amounted to NOK595 1,000,000 and tax payment was, as already mentioned, NOK 208,000,000. Cash flows to investments was NOK 541,000,000 of which the main contributors were NOK 414,000,000 in investments in fixed assets, and that includes €44,000,000 in capitalized interests, €87,000,000 in exploration and €40,000,000 in Dcom and P and A. Lease payments amounted to NOK26 1,000,000 and NOK21 1,000,000 of these were related to CapEx activities. Lastly, dividends amounted to SEK 187,500,000. At the end of the quarter, our cash balance was NOK 102,000,000. The book value of net interest bearing debt, including the East debt, was roughly NOK2.9 billion, and we had SEK3.2 billion of committed undrawn capacity on the new SEK4 billion bank facility. Excluding the effects of IFRS 16, our leverage ratio, net debt over EBITDAX, was 0.9 at the end of the quarter. In our Q4 presentation, we provided some guidance on cash tax payments for the coming quarters. And in June, we set the actual amount for the 3 tax installments for the second half of twenty nineteen. And the estimated amount for the 3 installments for the first half of twenty twenty. The installments are very much aligned with the forecast that we provided, and we expect to pay an installment of NOK 106,000,000 in Q3 and then 2 installments of the same amount in Q4. To round off my section, I would like to revisit our guidance for 2019 as normal. We guided 2019 production between 155,000,160,000 barrels per day. Q1 came in a bit above the midpoint and in line with plan. And the 2nd quarter also came in as expected, roughly 30,000 barrels lower than in the Q1 due to the planned maintenance of Varhall and Ula. With the turnarounds behind us and the start up of Vlaar Hall West Flank and Johan Sverdrup in the second half of the year, we expect production to increase accordingly. And consequently, we maintain the full year guidance of 155,000 to 160,000 barrels per day. If we jump down to abandonment, the spend for 2019 was guided at 150,000,000. Spend year to date has been roughly EUR 62,000,000 and this is below our plans and is driven by the strong performance that Karl has already talked about. During my Q1 presentation, I mentioned that we were looking into postponing planned P and A activities at Walhalla and Hobb in order to utilize the rig for production drilling at Walhalla instead. I'm happy to say that this has now been confirmed, and we therefore expect abandonment spend to end roughly around SEK 100,000,000 for the full year, and the remaining budget of SEK 50 is then moved to CapEx. On CapEx, we originally guided at SEK1.6 billion for the full year. Both the first and second quarter have seen spend a bit below average, but we believe this is mainly due to phasing. And now that we have moved rig capacity from P and A to production drilling and adjusted down the AbEx, We therefore simultaneously also adjust CapEx slightly up and the new guiding is $1,600,000,000 to $1,700,000,000 Exploration spend was guided at NOK 500,000,000 and with an original program of 15 wells. The success with discoveries at Soskeller and Liatore and the ongoing work at Rumpetron means that we increased data gathering related to those wells and thereby also slightly increasing the associated costs. Furthermore, as Evi has mentioned, due to the very strong drilling performance, we have created room in our rig lines to fast track 2 additional wells into the 2019 program. Thus, in total, this could put some pressure on the guided exploration spend, and we therefore adjust it slightly upwards to a new guiding of €550,000,000 for the full year. Production cost per produced barrel is guided at 12.5. We expect that the first half of 2019 to be higher than the yearly average due to the maintenance activities, especially at Walhalla Nula and including the turnarounds in June. In Q3 and Q4, we estimate cost per barrel to go down, especially as the turnarounds are behind us and of course with Valhall West Frank in Hans Werner coming on stream. We therefore keep the guidance as is. Regarding dividends, we paid another SEK187,500,000 in the 2nd quarter, and we still plan to pay SEK750,000,000 for the full year. That concludes my part of the presentation. I'll hand the word back to Karl for some closing remarks before moving on to the Q and A session. Thank you. Thanks, David. A thorough walk through of the financials as always. Our last hit, Aker BP is never boring. And this quarter, we've had more activities than we've had ever before. So my main priorities also going forward is to continue to focus on safe and efficient operations, whether that is related to production activities, drilling activities or project activities. We're really happy to see the project execution accelerate and that these alliances are now really getting up to speed, and we'll continue focusing on further improvement in the project execution range. On the improvement side, we are continuing to keep the momentum of the improvement agenda. Evi has just showed you one of these examples of activities, and we try to present 1 in each quarter. And again, it's an application of technology and supported by excellent people. And I also touched on the fishbone application at Inverosen, which is yet another application of high end technology in our operations. So we really utilize technology to drive value creation. Is fundamental in our payment program as well. The when it comes to growth, the exploration activity is high and actually increasing from the start of the year and as our appraisal activity activities related to the discoveries that I will just walk you through. We are also looking quite a lot into maturing resources to reserves in our existing fields, and the recommencement of drilling on Ula is an example of that. And of course, we are really looking forward to the start of all the new fields, Johan Sverdrup and Wall Hall West Flank in the next quarter. So again, I want to thank you for Now I think we'll open up for Q and A. And David, if you'd like to join me. Guys, should we start with questions in the room? Okay. Jurgen Drieset from Nordea, Active Research. So the discovery on IEA Torna, would you say that this has any major impact on your discussions with your partners regarding content selection? Or is this in line with the business case you have outlined in your previous discussions? Well, we just announced this morning. So what impact it will have on concert selection discussions is yet to be determined. But from our perspective, this further underlines the need for infrastructure in the area and supports the development solutions that we've been advocating for quite a while. Thank you. And just a question for you, David. You referred to your net debt of SEK 2,900,000,000 including IFRS 16 leases, and you referred to your eDAIX under net debt of 0.9x excluding leases. Can you just net out, so what is the net interest bearing debt pre IFRS 16? So of the SEK 2,900,000,000, how much are these obligations? Yes, roughly SEK 365,000,000. Okay. Thank you. First of all, congratulations on what seems to be a great discovery amount this morning. I have a question on the OpEx per barrel guidance. It seems like it has to come down quite a bit towards the end of the year. How confident are you that you will achieve that, that target of $12.5 per barrel? And can you comment on sort of how you expect to get down to the, I guess, around $10 at the end of the year? Sure. I'll stop and then maybe Karl let you add on. So I think the 12.5%, as you mentioned, is the average throughout the year. 1st quarter, we saw significant maintenance work, including the accommodation units that was present at Varuhall and Ruhla, driving the cost up. 2nd quarter, we had much lower production due to the turnarounds and the higher maintenance activities there. With that behind us, we're moving towards a more normal maintenance level. And then with increasing productions from Varhall Westflang coming in and also Johan Sverdrup towards the end of the year, that balances out. So we're still confident, and our best estimate is that we'll end up at 12.5% and then we're yet to see. And just another one. I think it's fair to say that the share price has been quite volatile during the past 6 to 9 months. Have you considered introducing a buyback program or sort of changing possibly a different payouts to buyback program, pure dividends? We have been very clear on our dividend program and also our ambitions for that program. And that ambition stands firm and as previously communicated during the Capital Market Day. Okay. Let's move online, shall we? So first of all, congrats on a solid quarter. And of course, the L'Eaclonal Discovery is of interest. I'd just like to pick up on something that was mentioned during your presentation here. You say that the Liatronis discovery, you're giving a range of €80,000,000 to €200,000,000 but you're also quite clear in saying that it's not a stand alone development. Now if you saw a stand alone development, then €200,000,000, is that not a tiny bit high in terms of the recoverable resources? And also if you could give a bit more color on where you stand in terms of the confidence of that interval target? Thanks, Thomas. We can hear you now, okay? I don't know how you can hear us. But when we comment on this, of course, this is all very fresh. The data is just in. And we expect to carry out 1 or possibly 2 appraisal wells in that discovery before concluding on Development Solutions. However, the first look at this field gives us reason to believe that it would be better served as a part of a larger field development in the entire area than as alone development in its own right. That's also, of course, driven by the location and the other discoveries in that area. And then we'll come back to the market with more information as soon as we have conducted the vessel activities, which will give us reason to lower the range. Okay. And just a follow-up question here. I mean, there's been quite a lot of noise in the media, I should say, on the Nuakaa development. Is there anything new you can share with us on the progress a potential area development there? I think I'll reiterate my statement during the presentation that are ongoing between the parties. We will take our next question from the line of Johan Suresnes from Societe Generale. Please go ahead. Yes, good morning. I would like to ask a few questions. First set of question will be on M and A, a topic du jour on the NCS, it seems. In this respect, have you achieved any progress in finding an additional equity partner at Valhall? And where does Carantiana fit in the context of potential swaps? Okay. Thanks, Johan. We have actually not looked for another partner at Randhald. So I guess the answer to that is no. We've been preoccupied with driving up value in the asset. And for the time being, we are happy with our ownership in Lal Hall. We previously communicated that over time, we would like to reduce to about 67% or 2 thirds. But right now, there are no such processes ongoing. Of course, there are a lot of M and A activity ongoing on the Norwegian continent shelf, and we don't normally comment on our discussions on that field. There are also a number of swap opportunities and possibly also discussions ongoing. But again, we normally don't comment on these issues. Thank you. That's very clear. And maybe then as well during this quarter, you announced digital cooperation with OMV. Does such a partnership involve any data sharing on the NCS with OMV? And if so, what sort of data fall under the scope of the cooperation? Thanks. Yes, we did. This is kind of following our strategy of trying to be as open and driving standards in the digital space in the oil and gas industry. So in NME, we found a partner, a collaboration partner, who shared a lot of the mindset that we at Aker BP has been advocating for the at least past couple of years. So really happy about that collaboration and the combination between DigitOps, which is their digital program and Eureka, which is our digital program. And then in the middle, with the Cognite and their platform technology, It looks like we have a very forceful collaboration scheme ongoing. So far, we have been discussing exchanging information about ongoing digital projects, exchanging development projects and technologies and also sharing technologies and ways of working. The collaboration agreement The collaboration agreement did not exclude sharing of data. And as you're probably aware, Johan, we are very much in favor of sharing data. So I wouldn't exclude that, that will become a case later on. But thank you for picking it up. We're actually quite excited about that. And the last question will be following your exploration success in the first sub area. Have you considered entering the UK Continental Shelf? Could you repeat that, Johan? Yes. Sorry about this. Hopefully, you can hear me well. Given your success in the Frosk sub area, which is fairly close to the UKCS, would you have considered entering the UK waters? We have previously communicated that we predominantly are looking at Aker BP as a pure play Norwegian oil and gas company. Of course, if it ends up in a situation where it's natural for us to progress our operations into U. K. Because, for example, our extension of restaurants, a place, a similar type of geology, we'll consider that in due course, but I wouldn't completely rule it out. Okay. Thanks a lot for your time. We'll take our next question from the line of Alwyn Thomas from BNP Paribas. Please go ahead. Hi, guys. Just a couple of quick ones from me, hopefully. Just on the CapEx drivers, I know there's some moving parts there. With the development CapEx slight increase in guidance, is that and I know there's a reallocation sort of there as well. Will that save CapEx in future? Is that a productivity improvement type of movement? I can just a few thoughts on that. And again, on the sort of financials, given the high over lift position you've had in the first half of the year, should we expect some reversal in the second half of the year? And perhaps a little bit more broadly on the NCS color, I just wanted to ask, we've seen a few indications of some cost inflation on the NCS in sort of absolute terms. But I was wondering, are you seeing effects being offset by productivity, some of the technology improvements that you're seeing? Is that more than offset at the moment? Or is that going to take a little bit longer to come through? Thanks, David. I think we've got all three questions. So you would start with the CapEx, David. Yes. Well, so thank you for those questions, Alan. So on the CapEx side, slight increase that we do is sort of mechanical since removing the P and A scope from Vararl Hob to production drilling at Vararl. Obviously, that's fast tracking production drilling at Vararl, which would naturally have come later on. So I guess you can say that it's pulling production drilling forward. When it comes to your question with regards to free cash flow, if I heard you correctly, and if there is potential reversal of working capital given that the development in working capital has positively impacted free cash flow this quarter. We expect that there might be some reversal. So we're a bit low on working capital now if you compare to the last 6 quarters. Yes. And then on NCS and cost inflation, again, remembering that we put a lot of these alliance contracts in place a few years ago. So while we're actually seeing impact on cost, particularly related to our rates and just certain extent grid rates and service contracts. So far, the increase in productivity has more than removed that activity. And we're actually seeing more activity being coming into our grid lines and activity lines, whereas you can see the guidance are pretty stable over the year. So, so far, we're seeing that the activity level and the productivity increase has compensated from the slight increase in cost. Now of course, Aker BP is not immune to cost increases in the industry, but we're doing our best to mitigate those cost increases by implementing productivity increasing measures. And so far, we've been quite successful. Okay. Maybe just one quick one. Just into the Q3, what are your sort of production expectations? And where might there be sort of continued maintenance in the Q3? So most of the maintenance activities that were planned for 2019 are now executed. So the remaining scope is related the tie in of Skov at Skov and also at Walhalla West Bank at the Walhalla Field Center Complex. Those are all accounted for when we reiterated our guidance of 100 and 55 to 160 over the complete year. The exact timing of the distribution of the remaining production in second half of twenty nineteen, we'll come back to. But we're currently following our plans. We'll take our next question from the line of Safikanth Chilukuru from Morgan Stanley. Please go ahead. Good morning, gentlemen. I had one question on the discovery. Again, you mentioned leotenoid discovery, it needs to be in as part of a bigger development. I was just wondering, with this discovery, would it support 2 development plans, an unmanned platform at Krahla and centralized processing hub for the remaining reserves? That's, of course thank you for that, Verkad. You're, of course, in the middle of the discussion right now. I think the easier answer is to say that so far, the indications have been that the economy will improve more in the PQ alternative or the common fee and development alternative than in the dual development alternative. And this is simply put because the total CapEx of the PQ over the barrel of total barrel of oil, it's lower than for 2 developments, which will have higher CapEx per barrel of oil, which should, well, from a very easy perspective, give better economy. And then we'll have to redo the calculations once we have appraised the field. Thank you very much. We'll take our next question from the line of Michael Astorff from Citi. Please go ahead. Thanks. Good morning, everyone. I've got a couple of questions, if I could, please. Just on Johan Sverdrup, could you maybe talk a little bit about what the key outstanding, I guess, events or risks that you see to 1st production in November? Are you more or less confident that we could see it in November or maybe even earlier than that will be my first question? Secondly, coming back to the new discovery today, congratulations on that. But I was a bit surprised at the low end of your range, the recovery rate is particularly low at about 16%. So I was wondering if you could talk a little bit more about what you see in terms of, so I guess, reservoir properties and why is that recovery rate so low? And then just sort of finalizing on Noaca. It does feel like there's clearly ongoing discussions, which I can understand. But would one of those discussions be that you give up operatorship of the area in order to push this through? Thanks. Now when it comes to Altaarib, again, I must say that Equinor is doing a great job as the operator of that field, and we are seeing the project progressing on or better than our plans and hopes. The remaining activity is mostly related to testing, tieback of pre drilled producers and also preconditioning activities of pipelines and utility systems as well as control systems on the platform. So right now, we are really happy about the progress, and we are quite confident that we'll be able to deliver start up according to our plans or maybe even sooner. There are a couple of deadlines later this month that may give more light on the start up dates. Now Liat, on Revi, you want to comment on range? Yes. Just a little bit. I mean, we haven't told you much about the prospect. There is a very shallow in-depth discovery. It's at about 1,000 meters depth. So and we haven't really succeeded in the data acquisition that we wanted to have because it's unconsolidated sediments. So since we're struggling a little bit to get all the data we need to talk more about the oil quality, mobility and also recovery factors, we have to go out with a very wide range until we go back and test it. So that's why you see that wide range. It's not to be overly optimistic, but to show some pragmatic range until we have more data. Yes. So I wouldn't put too much of an emphasis on the calculation and recovery factors just yet. It's basically an outline where you combine recovery factors, rock mechanics, velocities and then gross rock volumes that gives that kind of reach. Yes, we, of course, in this phase, we may even be accused of being a bit conservative, but I'll take that on my head and not on Eris. Now on Nuocca, I won't comment on the specifics in the discussions ongoing, just comment on the fact that we continue to see PQ as the most realistic but also most economically viable development scheme in that area. And then we'll keep the discussions between the parties. Understood. And sorry, just a quick follow-up. I know you've just announced the discovery, but when would you expect to come back and appraise? Would that be early next year? Or would that be longer to get that in place? I'm speculating a bit now, Michael. But the next well will be the Vogarval in the Norwegian Sea, and then we'll do the Nipa, which is in the same area. So we'll do our best to fast track an appraisal well and try to put that into the drilling schedule immediately following the Nippaval. We'll get back to you on specifics on that, but that's the working hypothesis as of now. Great. Many of them. In that case, it will be towards the end of this year. Understood. Thank you. We'll take our next question from the line of Teodor Nilsen from SV1 Markets. Please go ahead. Thank you and good morning and congrats on a great day. Two questions from me. You spent a lot of time discussing the exploration activity. So just looking into 2020, should we expect an even higher exploration activity in 2020 versus 2019 in terms of number of wells and spending? And second portion is to David. You mentioned some uncertain tax positions in your balance sheet. Can you just elaborate a little bit on those? Thank you. If I let Edi answer that first question, I'm probably getting a lot more wells in 2020. But maybe you can start, Edi. Yes. No, we haven't planned higher activity. We've said that for 2020, we're going to have roughly the same activity level that we've had in 2019. It's still a little bit uncertain which wells that we're going to drill in 2020. We're going to evaluate the discoveries that we have had this year so far and see if we need to do more appraisal on more of them. Yes. And also, Theodore, as you saw during the presentation, we have actually accelerated 2 of the 2020 wells into 2 into the 2019 program due to significantly higher drilling performance than we accounted for in the beginning of the year. So the I would say that the drilling program for 2020 is a bit volatile at the moment, but there's a lot of exciting prospects also in that drilling program. So we'll get back to you later this autumn with more information on that. And then, David, about tax, And this is your favorite topic. My favorite topic, yes. Thank you, please. No, so the uncertain tax position that we have in the balance sheet is typically related to the historical tax discussions with the Oil Taxation Office that typically has been accumulated through the acquisitions back both with Hessian Norway and also BP Norway. So we don't comment specifically on the ongoing discussions, but typically, they are related to intercompany transactions between the parent company and the Norwegian subsidiaries. We'll take our next question from the line of Karl Fendrei from JBC Sundial Collier. Please go ahead. Hi, guys. Congratulations on your discovery on the NAK area. Just trying to get the grips on the economics of such a discovery relative to the full area development. So I guess if you could shed some light on, in broad terms, how would the breakeven levels of a discovery of this type? You don't have the specific on this discovery, but in general terms, discovery on this type affect the breakeven of the entire PQ concept? It's, of course, a bit speculative to generalize on development concepts and related drilling activities and breakevens. But I think I'll reiterate what we've stated previously and that's in the PQ without the Liaison discovery, we had a breakeven that was hovering around $35 per barrel with OpEx per barrel down at the $3 to $5 range. And of course, the more volume you put into such a PQ, then of course, the breakeven will drop. How much it will drop depends, of course, on the marginal economy of the barrels you put in, which is directly related to how much oil you're actually getting out of this as well. So there is, of course, a really different impact whether this ends up as ATL 200. If I'm going to be really generalistic. But you should expect of the breakeven when you include discoveries of this magnitude. And when you're looking at the ongoing discussions with Equinor, how would, in your view, such a contribution to reserves in the area as a whole that altered the power of the negotiations in your favor? Again, I think I'll refrain from commenting on how this will impact discussions on Area Solutions, like Alparek. I'm sorry about that. We'll take our We'll take our last question from the line of Eddie Stern from Bloomberg. Please go ahead. Hi, guys. Congratulations on the discovery. I just wanted to ask about the increase in CapEx. It's not that normal at the moment for oil companies to be doing so, especially given the kind of volatility we've seen over the past year. Is there a particular reason you guys are sort of setting yourselves apart? Yes. Let me just reiterate that. So the total spend level doesn't increase. So basically, what we have done, we have moved $50,000,000 from abandonment expenditure as we have postponed decommissioning work and then fast track production drilling, which is obviously more value accretive for the company. So it's not an increase in total spend, but it's just a shifting between buckets of costs. Okay. Is that the last question operator? Yes. We have one last person, sir. Would you like to take it? Absolutely. Let's do one last question. Sure. It's James Thompson from JPMorgan. Great. Thank you very much for filling in and much appreciated. I just wanted to go back to one of your comments in the presentation on Scarves, if that's the right color. You talked about a new production strategy there, obviously, much higher liquids content this quarter versus last quarter. I just wanted to understand how much flex there is in the system and what's driving that change? Is it gas prices? Do you really have a lot of flex to flip between the amount of gas you're injecting over a short time frame? And sort of what's the value proposition for SCARF by doing by having this completion tactics? That would be great. Yes. Good. We have actually been reassessing or reevaluating the drilling strategy has been to inject more of the gas in the early phase and thereby increase oil production and then, of course, subsequently produce back out that cost and sell it to the markets. The reason we've postponed this or not executed sooner is related to restrictions in the gas distribution system and particularly related to flow induced vibrations in the flow basis in fuel to gas ejectors. But now we have verified by inspection and installation of instrumentation that such flow induced vibration is below the acceptable threshold. And thus, we've been able to increase gas ejection and thereby increasing oil production in the area. So we'll continue that drainage strategy, but it's more value accretive in the longer term than the drilling strategy that we've been pursuing previously. And of course, there's complete flexibility. Should we end up in a situation where gas prices are soaring and the reversal of the strategy is necessary. There's no real problem in reversing that strategy. It's basically just a distribution of gas in the injection system. Okay. So you've actually increased I think you dropped off there a bit, so I didn't get the last question. Sorry, Carlos. Just to reiterate, it sounds to me like you've got quite a lot more flexibility in terms of how you produce cars over the next few years on that basis. Will that also fold into Air Liquor as well? Yes. Ethical has don't really have the amount of liquids that the Skal development does. Remember, Skal has several different segments with different GEOs, different oil, water, gas distributions. So here, we're basically redistributing gas from high gas parts of the field and into high oil parts of the field and then increasing oil production as we're maintaining mass balance in those segments. When we introduce Afrin, you have more gas, of course, But we are currently gas constrained, so it won't really impact the production strategy over the field. And with that, I think we Okay. Thank you. And with that, I think we conclude the Q3 presentations. Thank you to everybody both here at Hornblatt Porten and those online. And I wish you all a great and safe summer. Thank you. That concludes today's conference. Thank you everyone for your participation. You may now disconnect.