Good morning, and welcome to Aker BP's Third Quarter 2021 Conference Call. As always, today's speakers are CEO Karl Hersvik and CFO David Tønne. After the presentation, we will open up for questions. With that, here is CEO Karl Hersvik.
Thank you, Kjetil, and good morning to all of you listening in. I can promise you for the CMU or the fourth quarter presentation, there will be a physical meeting. I think we're all looking forward to that. Let's get down to business. Q3 has been another eventful quarter behind us. The macro environment has definitely been on our side, with continued growth in oil price and with European gas prices reaching new record heights. Combined with continued stable operation, this leads to very strong financial results for the third quarter for Aker BP. This is, of course, very good news. However, let me emphasize, this is not the time to be complacent. Our ambition is to be the leading company in our industry, and this requires full focus on the things that we can impact and improve.
Safety, capital efficiency, and emissions are key focus areas in this respect. As we are approaching the end of 2021, we continue to work relentlessly to progress our prioritized projects. During the quarter, we have passed several important milestones. The picture on this slide shows the new platform at Hod, where the jacket and topsides were safely installed in July and August. On the early phase side, we have, among other things, done the concept select for NOA Fulla, and we have started on the FEED phase. I will refer to this later. On the financial side, the strong operating cash flow this quarter has added further to our financial strength and balance sheet robustness. As a result, the board has decided to increase the annualized dividend level from $450 million- $600 million, effective from the fourth quarter this year.
I am sure David would come back to this in his financial review. Let us first zoom in on operational performance in the quarter. Q3 production ended at 210,000 bbl per day, up roughly 6% compared to the second quarter. The increase was driven by higher production efficiency, which was back to more normal levels in Q3 after Q2, where production was lower due to high maintenance activity. Looking into the crystal ball, we now expect to end up towards the lower end of the guided range of 210,000-220,000 bbl per day for the full year of 2021. The main deviations from our initial estimates are related to a temporary power outage at Ivar Aasen and lower production from the Ula area.
The Ivar Aasen field is powered with electricity, which is delivered from the Edvard Grieg platform. Unfortunately, this power solution has over time been less reliable than we would have liked, and this has had negative effect on the production efficiency at Ivar Aasen over time. On the tenth of September, Edvard Grieg was affected by a power outage which damaged the power transformer that serves Ivar Aasen. The transformer had to be shipped to shore for repairs, and despite production being negatively impacted while the transformer is being repaired and made ready for reinstallation at Edvard Grieg, I'm pleased to see that the persistent efforts from the Ivar Aasen team and partners allow us to maintain a production level which is pretty impressive while the situation is being resolved. We expect the transformer to be reinstalled within a few weeks.
When Johan Sverdrup Phase 2 comes on stream next year, Ivar Aasen will receive power from shore, which will hopefully eliminate such issues in the future. In the Ula area, production has been below our expectations this year, and this is caused by a combination of factors, including lower productivity than expected from certain wells and less available gas for WAG injection than anticipated. These issues are also reflected in the impairment charge for Ula this quarter. Finally, on production, we are pleased to see Skarv making a strong comeback in the quarter following a major upgrade of the processing capacity, when that was carried out in the second quarter to cater for the startup of Alvheim Phase 2 as well as other future tiebacks. Now let's turn to safety and environmental performance for the quarter.
Safety is always our first priority, and we are working relentlessly to build and maintain a strong safety culture in Aker BP. The long-term safety trend has been moving in the right direction. In the third quarter, we recorded six minor injuries to our personnel. Consequently, our TRIF indicator went up to 1.5 this quarter. Even though none of these injuries were serious, our goal is always zero, and we will follow up each incident systematically to learn and improve. Our CO2 emissions intensity stands at 4.4 kg per barrel on average for the last 12 months. Not sharp from the previous quarter due to higher drilling activity this quarter. Still well within our range to be below 5 kg per barrel, and still less than a third of the global industry average.
As the cost of emitting CO2 are increasing, and as access to capital is increasingly linked to the environmental performance of a company, this puts Aker BP in a very strong position. Also here, our ultimate goal is zero, and we continue to work systematically to lower our CO2 emissions, focusing on process improvement and energy optimization. So far this year, our operations team have identified a combined potential to cut emissions from our operated assets with roughly 25,000 tons of CO2 equivalents, and realized CO2 emission reductions of approximately 10,000 tons. This demonstrates our ability to identify and implement measures to reduce our carbon footprint. Before we leave the topic of operational performance, let us zoom out and take a look at where we stand after the end of the third quarter.
When it comes to our financial performance this quarter, I don't want to steal David's thunder, but there are three points that I'd like to highlight. Firstly, production cost was stable at $9 a barrel in Q3. For the first nine months, we are now at $8.9 a barrel, and for the full year, we expect to be in the higher range, higher end of the guidance range from $8 to $8.5 to $9, mirroring my comments on production. Second, operating cash flow the first nine months has exceeded $3 billion, which is more than two times the capital spend in the same period. Thirdly, on capital spend, as David will refer to, we are today reducing our full year guidance by $100 million, which is driven by a combination of efficient project execution and phasing of activities.
That brings us to the next main topic of today, our projects. As you know, Aker BP has a large hopper of development projects. These projects represent the foundation for organic growth plans, and consequently, progressing and executing these projects according to plan is the top of our agenda. Since our last quarterly report, we have passed important milestones on several of our projects. On our Ærfugl Phase II, it's now completed, and production from the last two wells is expected to start in just a few days. This will enable us to increase our gas exports, which is very good news in the current market conditions. It will also contribute to higher capacity utilization, and hence lower CO2 emissions per barrel at Skarv. During the quarter, we submitted the PDO for the Kobra East & Gekko to authorities.
Together with Kobra East & Gekko, where we submitted the PDO in Q2, this project will contribute to increased production, lower unit cost, lower emissions, and longer lifetime for the Alvheim area. When it comes to our largest project, NOAKA, we have completed concept studies and started on the FEED work for the NOA Fulla area leading up to the final investment decision in Q4 next year. I'll get back to this in a minute. We have also made a couple of changes to our project list at this time. At Valhall, we have been working on the new central platform, also called NCP, for some time. In parallel, we have been evaluating alternatives for the King Lear gas discovery, and we have now selected a tie-back to Valhall NCP as the best solution.
This will contribute to making the NCP project more economically robust and at the same time unlock significant resources in the King Lear area. We are targeting concept select before year-end and a final investment decision by the end of 2022. Finally, we have decided to postpone the Garantiana development. This has been done to optimize the tie-in to host platforms Snorre B and to provide some more time to explore for additional resources in the area. The new timeline includes an FID in 2026 and production start in 2029. At NOAKA, I am pleased to announce that we have passed the DG2 milestone for the NOA Fulla, where Aker BP is an operator, and we expect to do the same for Krafla within a few days.
On these slides, we have now on a preliminary basis included the key financial metrics for the project. Compared to the previous estimate, the project has grown in size. The resource base has been upgraded to around 600 million bbl , as we have optimized the design and placement of wells, as well as updated reservoir models. Gross investments are expected to be approximately $10 billion. The break-even price meets our hurdle of $30 per barrel. The concept is based on a flexible design, which allows for efficient tie-in of additional discoveries in the future. While 600 million bbl leaves a very robust project, we see further upside potential in several of the surrounding structures.
We have now mobilized our alliance partner across the value chain and have already placed FEED contracts of approximately $80 million. The regulatory process, including environmental impact assessments, has been initiated. Finally, we are on track to deliver PDO on this project by the end of 2022. The bottom line, NOAKA is a project that will deliver substantial value to Aker BP and the other partners. It will create significant positive ripple effects for the industry, as well as for the Norwegian society at large. With power from shore, it will also contribute to further improving the environmental footprint of the Norwegian oil and gas. Before I leave the floor to David, let me briefly comment on exploration in this quarter. Q3 was our most active quarter this year on the exploration side.
The Stangnestind well was completed early in the quarter and came in as a minor gas discovery, which is not considered to be commercial. This actually marks the end of our exploration campaign in the Barents Sea, and we have currently no plans for further activity in the area. The Liatårnet appraisal did not give us the clear answers we have hoped for, and the volume estimate for the discovery is expected to go down, although it's too early to disregard Liatårnet completely. At Lilleprinsen, the exploration and appraisal programs was successful and confirmed the resource range in the range of 12-60 million bbl . The operator, Lundin, is now maturing the development plan with Ivar Aasen as one of the potential host platforms and are aiming for an investment decision in 2022.
On the last two wells, Gomez came in as an oil discovery, but there's uncertainty related to the mobility of the oil, so it's a bit early to conclude, while the Merckx Ty well was dry. We have two more exploration wells coming up in Q4, including the Mugnetind, which is currently drilling. This concludes the operational update, and I leave the floor to our CFO, David Tønne.
Thank you, Karl, and good morning to all of you. It is a pleasure to present another quarter with record high revenues and strong financial results. Aker BP's revenues increased by almost 40% from the second quarter and is up nearly 130% from the third quarter of 2020. Net production in the quarter was 210,000 bbl per day, and the increase from Q2 was mainly driven by the planned maintenance activities that we had in the second quarter. In the third quarter, we also overlifted and sold volumes ended at 225,000 bbl per day, or 20.7 million bbl in total. The realized crude price was $72.7 per barrel, and adjusting for NGL, our average liquids price was $71.5 per barrel, up 7% from Q2.
Including gas, where prices increased by over 100%, the realized average hydrocarbon price was $75.2 per barrel of oil equivalents, up approximately 19%. Consequently, we report a record high total income of $1,563 million for the third quarter. Although it benefits us as producers in the short term, the rapid increase in European gas prices should give us all some concern. To me, it illustrates the gentle balance between supply and demand in the energy markets and the need to ensure that we also invest in low cost, low carbon oil and gas assets at a sufficiently high level in the years to come. Now moving on to the development in cost. Production cost per barrel produced were stable at $9 quarter- on- quarter.
Underlying addressable costs were slightly down, while we experienced an increase in costs related to power on Valhall and tariffs and environmental taxes on Skarv as production increased after the maintenance slowdown this summer. Production costs related to oil and gas sold amounted to $209 million. The increase from Q2 is mainly driven by the mentioned overlift. As these barrels also carry an element of depreciation, this gives them, accounting-wise, a relatively high cost per barrel. For the first nine months, the average production cost per barrel produced were $8.9, in line with the full year guidance of $8.5-$9. We now expect production cost per barrel to end towards the higher end of our guided range for the full year.
Absolute costs are pretty much in line with plan, but as production is expected in the lower end of the guided range, production cost per barrel converges to the high end. Taking a look at the other main P&L items and subtract both production cost of $209 million and other operating expenses of $7 million from total income, we get an EBITDAX of $1,347 million. Exploration expenses amounted to $97 million, of which $43 million was field evaluation cost, with almost 60% related to the NOAKA project. As the project is now formally passing concept select and DG2, costs related to the project will be categorized as CapEx going forward. We had $38 million in dry well costs in the quarter, mainly related to the Stangnestind well. Depreciation was $247 million or $12.8 per barrel.
This is slightly down from Q2 and is driven by the change in mix of production from the various fields. In the third quarter, we recorded an impairment of $154 million, and the main reasons is the revisions of future costs and production profiles for the Ula area. Net financial expenses were $47 million and included net losses and reduction in fair value of currency derivatives of approximately $22 million. These losses were offset by $30 million in net currency gains in the quarter, where $21 million was related to our EUR 750 million euro bond. Interest expenses decreased $7 million quarter-on-quarter, which is the result of our continuous efforts to drive down funding costs by replacing old bonds carrying higher coupons with new bonds with lower interest rates.
In sum, this gives a profit before tax of $802 million, up 45% from the second quarter. Tax expenses amounted to $596 million, which means an effective tax rate for the quarter of approximately 74%. Net profit in the third quarter then ended at $206 million, or $0.57 per share, up 34% from the second quarter. Moving on to cash flow. Operating cash flow in the third quarter ended at $1,063 million. This is slightly down from the second quarter, as it includes a negative effect of working capital changes of roughly $150 million, mainly due to increased receivables related to oil and gas sales late in the quarter.
In addition, after receiving tax refunds in the first half of 2021, we in the third quarter again started paying taxes with one installment of $94 million. Investments, including payments on lease debt, amounted to $453 million, with CapEx being over 80%. This is slightly down from 511 in the second quarter. Thus, free cash flow before financing ended at $610 million, slightly up from Q2, and free cash flow generated for the first nine months of the year stands at almost $1.8 billion or $4.9 per share. Dividends paid in the quarter was $112.5 million, and interest paid and other finance items were $51 million.
We then ended the quarter with a cash balance of $1.421 billion, an increase of $447 million from the end of Q2. It is, however, worth noting that with the current oil and gas prices, we are currently paying too little cash taxes as the installments for the second half of the year were set in June. This has a positive impact on cash balances now in Q3 and Q4, but it will be balanced with higher tax payments in the first half of next year. I will come back to tax shortly. In addition to the increase in cash and cash equivalents, there is a few other things worth highlighting in the balance sheet. On the left-hand side, other intangible assets decreased by $94 million.
The decrease is mainly related to reclassification of the NOA Fulla part of the NOAKA project from exploration to asset under construction. This is a direct consequence of the project formally passing concept selection and DG2 during the quarter, as already mentioned. Receivables and other assets increased by $129 million. The increase is mainly due to larger receivables related to oil and gas sales, as mentioned when I talked about our working capital changes. On the right-hand side, the main changes are related to an increase in deferred tax and tax payables. In addition, it's also worth noting that other provisions for liabilities, including P&A, has decreased with $41 million. The decrease is related to asset retirement obligations, where we've had a downward revision of the estimate.
This is mainly driven by discounting effects after the approval of the lifetime extension of the Alvheim area, which was triggered by the PDO submission of the Kobra East & Gekko project. The number one capital allocation priority for Aker BP is to maintain a strong financial capacity and with it a high financial flexibility. This is the foundation for our ability to invest in profitable growth and distributing value back to our stakeholders. Over the years, we have worked to optimize the capital structure, and in 2021 we have continued the journey. With the strong cash flow generation in the third quarter, we have further fortified our unique financial position with a balance sheet that's never been more robust. Net debt excluding leases now stand below $2.2 billion, and our leverage ratio is below 0.6x EBITDA.
Liquidity is high, with a combination of an undrawn credit facility of $3.4 billion and $1.4 billion in cash. Currently, we have no debt maturities before 2025. The third element in our capital allocation framework is how we think about returning value creation. In February, we presented our updated dividend policy developed together with our board of directors. The policy's purpose is to support our goal of maximizing long-term value creation, and a key principle is that dividends shall reflect the distribution capacity through the cycle, considering the long-term financial outlook and the credit profile of the company.
In line with this policy, and based on a holistic assessment of our financial capacity and future investment plans, the board of directors has decided to increase the annualized dividend level from $450 million- $600 million, starting with the payment in the fourth quarter this year. This means that the total dividend paid in 2021 will increase from $450 million to $487.5 million. Furthermore, this implies a planned dividend of $600 million to be paid in four quarterly installments in 2022. In addition to distributing value back to our shareholders, we are also glad to distribute value back to the society. We do this in many ways, but perhaps the most important is through tax payments.
In September, the then sitting, now former government of Norway, presented a proposal for an adjusted tax system for the oil and gas industry. This proposal is now on hearing and is expected to go through parliament during the first half of 2022. The proposal appears to have broad political support, also from the new government. At Aker BP, we support the main principles behind the proposal and welcome the effort to provide transparency and longer term stability around the fiscal framework post the temporary tax system. Stability in the fiscal framework has always been the key strength of the Norwegian continental shelf and is especially important now when investing in an industry in transition in a volatile macro environment. Now, if I zoom in on the next three quarters, there is a few things to note.
At the end of the second quarter, we fixed the tax installments to be paid in Q3 and Q4 based on an assumed oil and gas price of roughly $65 per barrel for the full year. We paid $94 million in Q3 and expect to pay twice that in the fourth quarter. However, as oil prices, and in particular gas prices, have rallied significantly higher since the end of Q2, the tax installments paid in Q3 and Q4 are too low compared to the financial results generated for the full fiscal year 2021. We therefore adjust the forecasted payments due in Q1 and Q2 of 2022 accordingly. To round off my presentation, I would like to provide an update on our key guiding parameters for 2021. We have already covered production and production cost per barrel thoroughly in today's presentation.
On production, we now expect to end in the lower end of the range, in particular due to the lower than expected production on Ula and the issues with power supply from Edvard Grieg impacting Ivar Aasen production in the second half of the year. As we keep our absolute production costs in line with the original plan, the direct consequence from forecasting production in the lower end of the range is that we expect to end in the higher end of the range on production cost per barrel. Total capital spend across the three categories is roughly $1.5 billion year-to-date. Of this, CapEx is $985 million. The original guidance for CapEx for the full year was $1.6 billion.
All projects are progressing according to plan, but due to a strong performance, in particular on the drilling side, and phasing of spend, we reduce our guidance for the full year to $1.5 billion. With abandonment and exploration spend in line with the original plan, the total capital spend guidance is therefore adjusted down $100 million to $2.1-$2.2 billion. Lastly, as mentioned, the board of directors has resolved to increase the annualized dividend level from $450 million to $600 million, effective from Q4 this year. This means that the board of directors also has resolved to pay a quarterly dividend of $150 million in November, bringing the total dividends paid in 2021 to $487.5 million.
That concludes the third quarter financial review, and I will leave the word back to Karl for some concluding remarks before the Q&A session starts. Thank you.
Thank you, David. I can assure you, he was actually smiling the whole time. Today's presentation has been structured around three main dimensions. The first one is the operational side of our business, and this is where we convert values in the ground into money in the bank. Our key priorities here are pretty simple. We want to maximize production efficiency, which basically means to maximize value creation from our assets with high safety performance, low cost, and low emissions. Done properly, this will be a huge source of capital for Aker BP. The second dimension is our organic growth agenda. We have a unique resource hopper that we want to develop and produce, and our goal is to sanction projects with around 600 million bbl of resources before the end of next year.
This, of course, is no small challenge, and it will once again put our project execution capabilities to the test. Including alliances with key suppliers, we have developed a strong execution capability over the last five years. Obviously, this plan also means that we are going to invest a lot of capital in the years to come. Which brings me to the third and final point. We are now in a historically strong financial position with high liquidity, low leverage and strong cash flow from our producing assets. This does not only put us in a favorable position towards funding our growth ambitions, but it also leaves headroom for increasing the dividend levels as we have announced today. With that, I would like to thank you all for your attention and we'll now open for questions. Operator,
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Speakers, we have our first question. It's from Mr. Anders Holte of Kepler Cheuvreux. Please go ahead, sir. Your line is open.
Good morning, guys, and thank you for taking my questions. Congrats on a strong quarter and, of course, a very strong position of the balance sheet. Now, I think you probably know what I'm gonna ask, and that is, I'm not gonna press you about dividend increases, but I am going to try to see if I can get something out of you on what we should expect Aker BP to hold in terms of cash on its balance sheet going forward. As you mentioned, David, you are now in a historically strong position balance sheet-wise. I'm just wondering, you know, where should we keep the cash position of Aker BP for the foreseeable future? Thank you.
Thank you for that, Anders. I think it's a fair question to be asking. We're in a bit of a unique situation now with the increase in oil and gas prices, meaning that we're also paying too little cash taxes in the second half of this year, which is obviously then bringing the cash balance a bit unnaturally high in the third and the fourth quarter this year. Going forward, we will of course work to optimize the cash at hand, but keep in mind also that we are investing heavily going forward in our project portfolio, which means that we would probably have more cash on the balance sheet now than what we've had in the past.
Okay. Thank you. That's clear.
Thank you, sir. If you find that your question has been answered, you may remove yourself from the queue by pressing star two. We have our next question from Teodor Sveen-Nilsen from SB1 Markets. Please go ahead.
Good morning, and thanks for taking my questions and also congrats on strong results. Two questions from me, if I may. Karl, you mentioned that you probably have to build your [Audio distortion]
Thank you, Teodor. Excellent questions as always. When it comes to the Barents Sea, yeah. That's a pretty long question. I think in reality, we have proven that there are two or three play models that actually work. Subsequently, there are, I think we've tested seven, maybe eight, that does not work. The western margin, of course, we are in Castberg, in Goliat, and yeah, all of these, that works. Then the northern parts with Wisting, et cetera, also works. The eastern parts have proven very, yeah, unreliable. The tertiary is pretty dense and with low expected, call it productivity.
That does not necessarily mean that it would never be produced, but it certainly means that there is a lot of infrastructure that needs to be invested prior to such production. Will the industry leave the Barents Sea? I don't think so. If you are positioned in the western margin or in the northern parts of the Barents Sea, you're likely to keep that position and execute on that exploration model. The industry is likely to keep innovating to try to discover new exploration models and test those as time goes by. From an Aker BP perspective, even though we're trying to learn from the 20-odd wells we've drilled or participated in in the Barents Sea, we have no plans to continue drilling in the Barents Sea.
Second, on your question on the bottlenecks, I think that's also a bit of a sophisticated question. There are probably two types of bottlenecks or maybe three types of bottlenecks. The first one is basically deliverability, and I don't think we've ended up in a situation anywhere, neither Aker BP nor the industry, where things can't be delivered. It's obvious that the industry is now catering for that event by booking production slots, et cetera, to ensure that they have a deliverability on the line of sight in their projects.
Second is about prices, which I'm sure you have noticed as many others have gone up, driven by underlying fundamentals such as steel prices and other material prices, but also by the rather large increase in investment, particularly in North Sea, but also in Brazil and Gulf of Mexico. Aker BP is of course exposed to these underlying price changes as everybody else, but the alliance mechanisms allows us to counter that to a certain degree. The third one, which is the quality of the products to be delivered. As consumption is going up and production capacity needs to rise, it's quite common that the quality is also challenged.
This is where the execution model that Aker BP has been developed for a lot of years, 2016, is really coming into play. We feel that we're getting priority with our vendors. We've been working with these guys since 2016. We know them well. We know that they are delivering equipment and services from well-established value chains, so I don't see that much of a challenge in that third category. It is something that we are, of course, keenly aware of and working to mitigate every day.
Thank you, Karl. Just a quick follow-up on the number two, you mentioned prices. I'm just curious of the high electricity prices we now see in Norway. Will that impact your fourth quarter OpEx? David, you mentioned some power costs at Valhall during third quarter.
Yeah, to a minor degree. Because remember, a lot of what we're now consuming was acquired six to nine months ago, and prices locked in at that point in time. When it comes to power prices, these are basically following the spot prices in Norway. A way of thinking about this is to follow the spot prices and then use, let's say, around 100 MW as continued capacity on Valhall. That should give you a rough idea of the effect on OpEx. It's not significant.
Okay. Thank you.
Thank you. Our next question comes from Karl Pedersen at ABG. Please go ahead. Your line is open.
Hi, guys. Thank you for taking my question, and thank you for the presentation. With regards to the revised CapEx guidance, you said, David, that it's a function of a combination of more effective joint, but also to some extent timing. I expect that the timing will be then that CapEx is pushed into 2022. How much of the $100 million in reduction can be ascribed to timing, and how much is actual cost savings?
Yeah. I think the short answer to that is roughly 50/50. We've had strong drilling performance on several of the wells that we've been drilling, in particular on Ula and also some on the Alvheim area, which has brought costs down. Then there are some phasing of costs into 2022. We've seen some, for example, on the Johan Sverdrup Phase 2 project, which is phasing and no progress on the project per se.
Okay, thank you. The reserve increase or the resource increase on NOAKA. Can you elaborate a bit more on what has driven that increase, and is there more potential, especially in your part of the NOAKA areas?
Yeah. To answer that question, when we're doing the feasibility phase, we're usually just using the assessment that was made as a result of the exploration phase. When we're then progressing to DG 2, we actually work all of this data bottom up once again to get consistent models, the same type of modeling across consistent seismic processing, et cetera. The first part of the increase is actually that we work the models up again from in a consistent manner, and that has resulted in larger volumes across several of these fields. Second, as we're progressing into DG 2, we're also optimizing drainage strategy and well placement, which has also added volumes to this mix.
Thirdly, we have identified significant upsides, which have also meant that we are now investing in roughly double the well slots that is needed to drill out the 600 million bbl.
While it may be too early to indicate what such upside potential would be, I think you understand that we would not have invested in this amount of well slots if we did not believe in the further upside in the reservoirs.
Thank you. Any indications on how that upside would play out in terms of timing?
That upside will probably be played out as we get towards the DG2. It will indicate the so-called IOR potential in the fields in the PDO. Of course, this will be drilled out once we start production, whenever that may be, let's say in 2026, 2027. It will, of course, come after that original drilling program that is now planned.
Okay. Thank you.
Thank you, sir. Our next question comes from Chris Wheaton at Stifel. Please go ahead.
Thank you. Good morning, guys. Thank you very much indeed for the third quarter results, showing what happens when you run an oil company properly. You know, very well done to you and your team, I think. Two questions from me, if I may, please. Firstly, on CapEx. Despite the slight reduction in full-year CapEx, it looks like there is quite a, there's a reasonable step-up in CapEx in Q4 vs the rest of the year. I'm interested in, is that a precursor to 2022 running at slightly higher levels of CapEx than you indicated at your CMD back at beginning of this year? Secondly, on tax. David, could you help me understand on slide 22, how much of that first half 2022 tax payment is actually related to catch-up payments for 2021?
What I'm trying to do is understand what the sort of normalized level of tax payments ought to be. Actually get your underlying free cash flow number better calculated, please. Thank you very much.
Hi, Chris. Thank you for that, those kind introductory words. Pleasure to talk to you always. When it comes to CapEx, you're correct. We are expecting an increase in the fourth quarter, partly driven by the fact that, NOAKA will now be categorized as CapEx going forward. In addition, we're also expecting long-lead items, some of the projects that we have, PDO'd, during the last couple of months, including the Kobra East & Gekko project. When it comes to CapEx guidance for next year, I don't want to be too precise on that because I want to save something for our capital markets update in February. We are still expecting CapEx to go down year-on-year compared to our 2021 updated guidance.
When it comes to tax and the guidance on tax per quarters, I think the easiest way to look at it is that if we knew the outcome at the start when we set the installments, you would have equal payments in each of the quarters. That gives you an indication of how much of the increase in Q1 and Q2, which then should have been paid already in Q3 and Q4 of this year. Some of my tax specialists would probably have thrown out a number similar to maybe $300, but I think it's best for you to calculate that yourself.
That's great. I'll see how close to 300 I can get myself. Thank you very much indeed.
Thank you. Our next question comes from James Carmichael at Berenberg. Please go ahead, sir.
Hi. Morning, guys. Just a couple of quick ones. Just on the strong overlift position in Q3, I'm just wondering how quickly or whether we should expect that to sort of unwind during Q4? Again, just on tax, I guess if we add up all those quarters, we can come to an annual cash tax number for 2021. If, or as it stands, sort of $75 through 2022, is there any reason that the 2022 number should be materially different than from 2021? Thanks.
On overlift in general, I think, you know, we shouldn't expect either overlift or underlift over time. I do expect that to perhaps level out over time. When it comes to cash taxes for the fiscal year 2022, that's something that we will provide an update on at the Capital Markets Update together with an update on, of course, production and investment level and so forth. We provide now a guidance based on the payments for the fiscal year 2021.
Okay. Thanks.
Thank you, sir. Our next question comes from Al Stanton at RBC. Please go ahead.
Yes. Good morning, folks. Can I ask two questions, please? First of all, starting with exploration. The budget for this year is $4,500 million. Can you take out the NOAKA spend from that and tell us what the figure is? Is that the starting point for next year's budget, or do you think the results of this year's exploration campaign justify a lower spend going forward?
Give me a second on the NOAKA spend. If my memory serves me correct, I think we're talking well costs in terms of expenditure of roughly $300. Maybe I'll have to revert back to a more precise number on that. When it comes to exploration spend for next year, I think again we will guide on spend for that at our Capital Markets Update in February. I think the best estimate would be to use what we've provided in terms of guidance at the Capital Markets Update in February.
On the 2021 program, a lot of the wells that are now being drilled in the 2021 program is remaining commitment wells, amongst other, the wells in the Barents Sea. Which of course has not necessarily led to 2021 being a normalized exploration year. We'll release the 2022 program at the capital markets day. As a little bit of a pre-warning, it looks a lot better.
Right. Are there many outstanding commitment wells?
At the moment, I think we have two, but both of those two commitment wells are wells that I used to say that we actually want to drill. You may not consider them commitment wells.
Okay. My second question was about NOAKA. You gave the interest for the three areas. I was wondering if you can give the distribution of the resources across the three areas or better still, just tell us what your stake is.
I think we'll revert to that a bit later on. We are still in the process of doing the DG2 at the Askja/Krafla area, which I think Equinor as an operator will issue in a few weeks. Subsequent to that, which will probably lead us back to the CMU, we can give you a more detailed breakdown of the distribution of results.
Thanks, guys.
Just to follow up on your question, I just checked my numbers. I want to be precise. I think field evaluation expenditure in total in plan is roughly $150 million-$200 million out of the total exploration spend. I think you can use roughly $150 million on NOAKA.
Thank you.
Thank you very much. Our next question comes from Michael Elson of Citi. Please go ahead, sir.
Good morning. Thanks for taking my questions. I've got a couple. Just to follow up on NOAKA, actually. Clearly a fantastic project. Could you just confirm whether there are any plans going forward to farm down your equity interest before project sanction? My first question. Then just secondly, a broader industry question. I guess you saw that Vår Energi is looking to initiate a strategic review process. I just wondered whether you could maybe elaborate on whether you have the appetite to seek broader industrial combinations on the NCS, or whether it would be more smaller deals within your portfolio. Thanks.
Yeah. When it comes to farm down, we're of course not commenting on commercial processes. I think I'll go as far as to say that we really like this project. We like our position in it, and we like the resources and we like the upside. I think you can from that love statement, probably extract that there's no plans for farm down at the present time. When it comes to Vår Energi, we wish them all the best and hope they're successful in whatever avenue of commercialization that they may pursue. We are always looking for interesting combination that are value creative to Aker BP shareholders. Apart from that, I'm not going to comment on business development processes.
Thanks. I thought I'd give it a go.
Worth trying.
Thank you, sir. Next question comes from Anders Holte of Kepler Cheuvreux. Please go ahead. Your line is open.
Yeah. Sorry, guys. Just a quick follow-up from me to you, David, on the page 22 in your presentation slide deck. Just what natural gas price do you use behind those sensitivities?
Yeah. That's also a good question. I, you know, when we've typically made these, they've been, you know, a fixed price, which has been linked to the oil price. Of course, given the significant increase in gas prices, that assumption has not really been valid anymore. For the updated figures that you see here, we are between $15 and $20 per MMBtu, which of course is a bit too low when comparing against what you see in the market currently.
If assuming that the current price that you can look outside the window continues for the rest of the fourth quarter, I think you need to take the average Brent a bit higher for the full year compared to what you would see if you are only looking at the Brent price. My best guesstimate would then be that you would probably end around the $60-$75 mark. You can increase it a bit based on the gas price is a bit too low in the assumption here compared to the Brent price.
Okay, thanks. That's it. Thank you. Thank you. Our next question comes from Yoann Charenton of Société Générale. Please go ahead.
Yes, good morning, everyone, and apologies if this question have already been raised. I'm just willing to understand if you can provide a bit more color on this NOAKA resource upgrades, and if it's possible at this stage to say, basically, what are the drivers behind the resource upgrades, and what are the subsections of the area that accounts for the highest share of these upgrades. I got the second question, which is about the transition to the new tax regime. Assuming the proposal that was made in September is approved by parliament, is it possible to understand if this could trigger a liquidity boost in 2022?
I'm really thinking about the transition which is supposed to pay out the uplift and the CapEx that has not been offset against a tax payment. Of course, this is what comes outside of the temporary tax scheme. Maybe last question would be more generic and just to understand if you have seen some you know change in terms of interest for asset swaps in this higher oil and gas price environment. Thank you.
Yeah. On NOAKA, I think this is more the way the process works, right? When you go into a feasibility, you usually have a little bit of a more coarse understanding of the reservoir, more generic, simplified models, et cetera. As you're progressing towards DG2, we mature the reservoir models, we rework the data foundation, new geological model, new seismic interpretations, et cetera, to make sure they're all consistent. In addition to that, we also plan the drainage strategy for each of these reservoirs and optimize the connection between the reservoirs. Thirdly, we plan and engineer the wells and the well placement. In doing so, we have increased the resource estimate from roughly 500- roughly 600.
As I also said previously in this Q&A session, we identified significant upside, which has also led us to invest in roughly double the number of well slots that are needed to develop the original 600 reserves. As we progress the project, and probably back in the capital markets day, we'll provide a bit more, let's say, breakdown of the technical details on this reservoir. There are some interesting traits. We can do the tax later. On the asset swaps, I would say that in general, there is quite a lot of, let's say, BD type of activity ongoing at the moment.
Not only driven by the high oil and gas prices, but also driven by the structural changes in the energy transition, and how that has changed the players' appetite for investing in oil and gas. Whether that's directly linked to asset swaps or other, also other types of business development, well, that's probably a question more of payment mechanism than anything else. I haven't seen a singular activity in terms of asset swaps, if we were thinking about swapping gas assets vs oil assets. But of course, there is some sort of optimization on drainage strategies in most of these reservoirs at the moment. David, when it comes to tax, I'll leave that one to you, even if I do think I know the answer.
No, thank you, Yoann. Short answer is that we do not expect a liquidity boost in 2022, assuming that the proposal is approved as is. The main reason for that is that the way we understand the proposal is that it's tax losses carried forward that are being paid out, and not the tax balances per se. I'm happy to follow up with you separately on more details around this if you would like.
That's great. Thank you.
Thank you very much. Speakers, we have no further questions at this time. Please go ahead.
Okay, that's good. I hope that everybody is happy with the answers that we have provided. If they're not, the IR department is, of course, as always available for follow-up. With that, I think we close the call and wish you all a great day.