Hello. I'm Kjetil Bakken, the head of investor relations at Aker BP. It's my pleasure to welcome you all to the Q&A session of our 2021 Capital Markets Update. Since COVID prevents us from hosting a physical event this year, we have chosen a different approach, and I really hope that you liked it. With me in the room today, I have our CEO, Calle Hersvik, and CFO, David Tønne. We also have our head of operations, Ine Dolve, and our head of NOAKA, Lars Høier, on the line from separate locations. This Q&A session is scheduled to last for one hour. If you have any follow-up questions, please do not hesitate to contact us in the investor relations team. With that, we hand it over to the operator to open up for questions.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that's star one to ask a question. We will now take our first question from Yoann Charenton from Société Générale. Please go ahead. Your line is open.
Good morning, everyone. Thanks again for the presentation this morning. I would like to thank you as well again for the transparency of projections you share with us, I would have three questions if you don't mind. The first two questions are on production profiles. The first one will be about the Valhall area. I understand that there is a certain degree of certainty that is associated with this newly unveiled production profile for the Valhall area, I would like to get a better understanding of how strong it is. How confident were you with your prior production outlook when it was presented last year, what has changed since then? The second question on production profiles, again, will be more focused on the Ivar Aasen area. This is clearly your most recent production hub; you have invested NOK billions in the platform.
If we look at these projections that you are showing today, it appears that this platform, unfortunately, does not have the right postcodes. The field is depleting quite quickly. I would like to get some color on how much surprise there is for this production profile to be reassessed in the future. My third and last question will be on a different topic, which is carbon capture and storage. This appears to be of great importance to Norway's government. Do you have a mandate to play a role in the development of carbon storage within the Aker group? Thank you.
Thank you, Yoann. Maybe I can answer your questions. First, on the Valhall production profile. First, let's remind everybody that Valhall is a pretty big field. It's a gigantic field. We're expecting to produce more, 300 million barrels now, but we're expecting about 1 billion more out of this field. It's also a highly complex field. It's a field where we have historically, that is after 2016, been testing a lot of technologies to support that long-term ambition. Some of these technologies have not proven entirely successful, and we've been working on rectifying that, as we've discussed in this forum before. For example, the single-trip multifrac, which is now working. My view on this is that the Valhall production is pretty much in line with our internal expectations, and we may have been a bit optimistic previously.
There is a lot of work ongoing to rectify the current issues, and I'm confident that we will be back on track soon. Of course, all these technologies are actually really value creative for a long-term development of the ambition on the Valhall field. While we have been working quite ambitiously on discovering new technologies, single-trip multifrac, new lower completions, multilaterals in chalk, digitalizing chalk influx, et cetera. I think this will prove crucial when we look at the longer-term ambition on the Valhall field. Your comment on Ivar Aasen. If you look at the presentation that we have put out there on slide 26, you will see the production profile, and you're right, there is a certain decline from 2020, which is all planned and pretty much following the original plan as communicated also in the PDO.
We have recently approved the drilling of two IOR wells in 2021, which will increase production in 2022, 2023, and 2024 compared to the existing decline, which will offset decline at this field significantly. Your comment on CCS. Our strategy when it comes to climate change and, let's say, renewables and also accounting for CCS is that we will support these developments, but we do not necessarily attempt to participate or directly invest. As you may have observed, Aker has recently launched the Aker Carbon Capture this summer, or last summer, and is now expanding that portfolio. There might be investment opportunities, particularly related to storage in either existing Aker BP fields or Aker BP fields in the future. In that case, we will come back to that.
When it comes to the broader CCS picture, I see CCS as an important technology, particularly related to electricity production from hydrocarbons in the future, and we're highly supportive of that trend. However, at this point in time, we see that there are other CO2 reduction mechanism that gives a higher yield, and is more important to the Aker BP investment.
This is very clear. Thank you.
We will now move to our next question from Teodor Sveen-Nilsen from SB1 Markets. Please go ahead. Your line is open.
Good morning, and thanks for taking my questions. Thank you for a very good presentation. Two questions from me. First one on the dividends, which I guess has been a hot topic ahead of the capital markets day. You said that you expect dividend to grow by value creation, which of course is nice, but how should we interpret that? Will future dividend be a function of EPS or free cash flow or some kind of internal NAV estimate? Second question is on NCS M&A markets. I guess you will still only be on NCS, so that will be important for you. Is it still fair to say that it's a buyer's market out there? Any comments on that would be very helpful. Thank you.
Thank you, Teodor. I think I'll hand over to David on the dividend, and then I'll reflect a bit on the M&A question, both in regards to the current market and also Aker BP strategy. David, if you want to expand on the dividend question.
Sure. I'll do that, Calle. Thank you, Teodor. On the dividend, we have put forward a pretty clear framework for how we're thinking about dividends going forward. As stated, the underlying goal of Aker BP is to maximize long-term value creation and the three capital allocation priorities remains the same. When we talk about following the underlying value creation, we're talking about the value creation through the cycle as we are growing production, and thereby also free cash flow. We haven't linked the term value creation to any specific financial metric. As indicated with the different oil price scenarios in the presentation, we expect, or have an ambition for dividends to grow by at least 5% in an oil price environment between $40 and $65 Brent.
Yeah. Then on the M&A. Well, of course, after the temporary changes to the tax system, I think most of the CapEx projects in Norway changed appreciation. Of course, that relates primarily to the project inside the temporary tax system. That is, for those with a PDO to be delivered by the end of 2022. Our strategy when it comes to M&A remain unchanged, Teodor. We haven't really made any modifications to this, essentially from 2015 and onwards, and we're still predominantly are only focused on value creation, and how we can maximize value for our shareholders using M&A as the vehicle. Historically, we've been extremely active, as you know. That has also resulted in a large hopper of highly value accretive organic projects, which we are now in the process of executing, as communicated previously today.
I think the main driver right now is that most of the M&A we look at has a much lower value creation potential on the inorganic side than it has on the organic side. If you look at this as a kind of a use of cash to generate value right now, it's much higher value to be generated by investing in organic CapEx, which we, by the way, mostly expanded through an M&A strategy. That doesn't mean that we are not revisiting or looking at opportunities. If the NCS is a buyer's or seller's market, I think at least prices, particularly on CapEx, has gone up significantly following the temporary change of the tax system, particularly for those players who can utilize those tax positions. I think right now, at least NCS is a highly competitive M&A market, where we are going to be cautious.
Okay. Thank you. Could I just follow up with one on the dividend question? What's the specific reason for preferring cash dividends and not buyback?
Sure. I can do that, Teodor. As you stated, we're pretty clear that our main distribution mechanism will be cash dividends. The way we think about this is basically that it doesn't exclude buybacks in the future, but as sort of a policy statement, we believe that's what creates or is the best way of returning value, given also the fact that if you were to include buybacks as a mechanism at various oil prices, you would probably be buying back shares when the oil price is higher and the share price would be higher. For us, buybacks would not be viewed as a distribution mechanism, but more an investment opportunity if that appears to be value accretive for us as a company.
Okay, thank you. Thank you again for a good presentation.
We will now move to our next question from Anders Holte from Kepler Cheuvreux. Please go ahead. Your line is open.
Thank you, guys. Thank you for taking my questions. I'd like to secondly say, congratulations on a well-held presentation. Obviously, the effect on the tax changes is going to have a pretty substantial impact on the net free cash flow going forwards as we look at your investment plans. I guess that all the CapEx this year is going to be covered by the tax changes in place. The key question becomes how much of your future guided CapEx that you see on your long-term guidance will be covered by the tax amendments that's now available for projects that are ready for plan and development and operations handled in next year? Just to simplify, to know how much going forward is related to projects that are eligible for the tax change. Thank you.
Thank you, Anders. I'll hand that question over to David.
Thank you, Calle. Hi, Anders. The way to look at this is that 80%-90% of our CapEx that's included in this plan is either related to already sanctioned projects or projects that are going to be sanctioned with FID before end 2022. That means that most of this CapEx will be eligible for the temporary fiscal regime. Then we've also done you the favor of actually calculating the post-tax cash outflow on page 53 in the presentation. There you definitely see the effects of this.
Okay, thank you. That's very clear.
We'll just pause here to ask the speakers whether any questions have come in over the web.
Yes, there is. We have one question here from Mark Wilson of Jefferies, and he has a question on the longer-term production ambitions. It would appear that around 50,000 barrels per day has disappeared from the underlying plan, and particularly the non-sanctioned part. At the same time, NOAKA has got larger. The second question, I'm not sure if that was a question, but we'll see. The second question would be details on the appraisal of Liatårnet. What is the current range of resources? What does success look like? Is a flow test included, and do you expect to farm down ahead of that? I guess that's a question you can start off, Calle.
Yeah, I can certainly try, Kjetil. Thank you. Let's start with the production, Mark. No barrels have disappeared, but what we have done is an optimization of the production of the project in the hopper, where we've basically focused on maximizing value, but also on making sure that the project we do execute have a sufficient maturity as we reach the end of 2022. Most of these barrels are directly linked to King Lear, which is a high-pressure, high-temperature project which will require maturity and time before we reach a PDO. Our assessment was that there were better investment opportunities generating higher returns in that portfolio, and we have therefore delayed the King Lear project to maximize both value, but also to minimize risk in the portfolio.
That does not mean that the King Lear has disappeared, but it means that it's been pushed out, and we have delayed that project. I think from my perspective, this is about making the execution plan more robust as we're now speeding up a lot of the early phase project to put them inside the 2022 hopper. Let's just remember that the key to robust and successful project execution is a good early phase. The groundwork we're doing now is the basis for a solid execution post-2022. On Liatårnet, the resource estimates are largely unchanged. This is a rather shallow reservoir, and it means that the seismic response is quite good. We understand fairly well the size of the container. The big questions are now related to oil quality and how we can design the PQ at the NOAKA field to receive this oil.
What we're looking for is not necessarily a flow test, but we are looking for a sample of sufficient size to update our design profile on the NOAKA project. Then, of course, or not necessarily of course, but we don't plan any changes to ownership on NOAKA.
Yes, I guess that's a good answer to Mark's question. Then operator, we pass the word back to you.
Thank you. We'll now take our next question from Al Stanton from RBC. Please go ahead. Your line is open.
Yes, good morning, guys. Well done for a very polished presentation where every word, I think, was chosen with consideration. It's interesting that you never used the phrase net zero. I would have bet my house that senior management, even in an elevator pitch, would use the phrase net zero in any discussion about their strategy going forward. I'm wondering, have you deliberately not mentioned it? More generally, what is your strategy towards achieving net zero?
Thanks, Al. I love your comments about my trainers, by the way. I think our strategy when it comes to the transition and the energy change is quite clear. We will remain an oil and gas company. We will focus on optimizing our portfolio and reducing our emissions, and we will contribute to the energy transition by, I would say, participating in value creation in these value chains. Net zero is essentially a way of optimizing your cash portfolio. To me, the most value to be had right now is to minimize emissions, and that's what we're doing. If you look at our portfolio, we will reach net zero, as a matter of fact. We will reduce our CO2 emissions by about 50% in the 2030s, and by 2050, we will be virtually net zero, as a matter of fact.
My view on this is that we invest where we can maximize efficiency of those investments when it comes to amount of CO2 reduced per dollar or per NOK. Right now, that is not necessarily on the, I would say, offset side of that equation. It's simple as that, Al.
I suppose my concern then is whether you think the audience accepts virtually net zero in 2050 is good enough given the amount of pressure that I'm seeing on your peers who are embracing offsetting and other initiatives to achieve net zero much more quickly.
I think that's a good question. I think so far we've had a lot of positive feedback on the clarity and direct strategy. Then, of course, there are opportunities to reach net zero more quickly if that is believed to be a value later on. It doesn't necessarily mean that we can't do it. It just means that there are better ways of investing those money rather than reducing CO2 emissions in Aker BP.
Okay. Thank you.
We will now take our next question from Matthew Smith from Bank of America. Please go ahead. Your line is open.
Hi, yes, morning everyone. I think the key questions have already been asked, to be fair. I'll just go for a quick clarification on the dividend, if I can. Just to be clear, the 5% minimum annual increase, that minimum phrase, that applies to oil prices between the $40 and $65. Is that right? There could be upside to that 5%, even without oil prices above $ 65. Am I reading that right?
Yeah. The way to read it is that we have an ambition to grow dividends by minimum 5% at oil prices at or above $40 Brent. We are also indicating in our framework that above $65 Brent, you could consider also extraordinary dividends on top of that. It's basically lifting the floor by a minimum of 5% as an ambition of oil prices above $40. I think just to make it very clear, what we have done here is basically put in plan a financial framework which is robust down to at least $40 Brent, including the investment plan that we have. What we're solving for is the number one priority in our pecking order, which is the financial robustness and our investment-grade credit rating.
Secondly, of course, then investing in profitable growth, which makes a lot of sense given the opportunity set that we have available.
Sure. Thanks. That's clear.
We'll now move to our next question from Chris Wheaton from Stifel. Please go ahead. Your line is open.
Thank you. Gentlemen, thank you very much indeed for an excellent presentation from you this morning. I would have expected nothing less. Two questions, if I may please. Firstly, can I come back to Mark Wilson's point on NOAKA? Your future production slide shows quite a substantially bigger project than I thought. Pre-production in excess of 150,000 a day in 2028. If the ownership of NOAKA hasn't changed, which I don't think it has, could you talk about what's driving that bigger project upside versus before? Secondly, a question about managing all the CapEx and the projects you've got to sanction before the end of 2022.
A lot of the strategy today you've outlined is because the Norwegian tax changes have enabled a really very attractive window of growth opportunities to open up for you, but you've got to deliver a lot of project definition and a lot of project scope work before the end of next year to get things sanctioned, to get access to that advantageous tax structure. Could you talk about the capacity in your organization to deliver that number of projects in that compressed timescale? Also, once you've delivered them, you can't all execute them at once. Is there an issue, could there be an issue that there could be quite a delay between sanctioning the project in the next 18 months and then actually finally spending the money, let's say, 2025, 2026?
Is the Norwegian government going to be okay with that kind of extended delay between taking advantage of the tax break and actually spending the money? Thank you.
Thanks, Chris. Maybe Lars, I'll hand the NOAKA question over to you since you are the guy actually running that show.
Thank you, Calle. We are working full time with our alliance partners and also in the license together with Equinor and LOTOS to find the right concept. We're in the middle of the concept development phase now. That's really interesting to see how we can optimize the production. We are in the middle, and we are also working with the right number of months, so it's too early to say too much on the production level. We will work hard to optimize it, and we will take a final investment decision end by 2022, Q4 . We'll come back to it in more detail when we have the right solution and the optimal solution.
Yeah.
Can I just have one follow-up at that point, please? What is the scenario that's represented in the disclosure you've made today? Is that a base case? Is that the most likely case for that 160,000 a day net to you in 2028?
Yeah. Thanks, Chris. Just to be clear, what we have done up to now is optimizing the concept as Lars was just discussing. The case represented in the material released today is what we believe to be most likely at this point in time. Of course, as Lars also pointed out, we're in the middle of the project development phase, so we can't exclude that there will be any changes, but this is the most likely case as we see it today.
Al, just to add one point from my side as well. I think it's important to note also where we were back in 2020 at our previous Capital Markets Update with regards to discussing also commercial arrangements also with our partners. What was assumed in the business plan in 2020 was roughly a 50% ownership share in the NOAKA project. While what we are including here now, as stated on the slides, is basically our share of the different licenses, which is included in NOAKA, which then accumulates to around or above 60%. That's also a part of why there is a bit of a difference in the size of NOAKA on the slides.
Thank you, David. Your last question.
Thanks. Thank you
was the crucial one, which is about capacity. Let me guide your attention to our previous discussion in several of these Capital Market days around alliances, where we spent a considerable amount of time explaining why and with whom and how we set up these alliances. Just a very short recap. We have now established seven alliances across the value chains, from projects to drilling and into brownfield modifications and well maintenance, now topside maintenance work. I must admit that once we established these alliances, the primary driver was to optimize cost and reduce error and time. As we're now growing the portfolio, we also see that these alliances allow us a far higher execution capacity than would otherwise have been possible.
The simple fact is that by these alliances, where we worked with a lot of these partners over quite a few years now, we have established an execution mechanism that doesn't necessarily rely on a growing Aker BP organization. In many ways, this alliance has actually been a foundation for the execution strategy, which then proves far more scalable now than the previous execution strategy we had before the alliances. It also allows us direct access and priority to resources in the market. It means that even if the market is heating up, particularly on, I would say, engineering, drilling, and well related services, et cetera, that doesn't necessarily impact our execution strategy.
In many ways, you could probably say that this was luck, Chris, but I think we actually ended up in a really good position when it comes to the execution, both in terms of scale, risk, and also management of fluctuations in capacity. Finally, your comment about plans. The current plans does not necessarily mean that there will be a delay in terms of project execution. It's not like we're ramping up delivering the PDO and then cooling down again. These projects are scheduled and optimized such that they will actually follow a pretty normal execution schedule. The questions that was asked a bit earlier today about optimization of that schedule is exactly to minimize that, I would say, delay or possibility of delay so that we can actually follow our continued schedule.
The reason is very simple, Chris, and that's if we ended up in a situation where you would deliver the PDO and scale up the organization to make a financial investment decision with all the associated engineering and technical studies and then cool off again, these people would have gone elsewhere and the project would have been at risk. In reality, that is a very complicated strategy to execute, and we do not plan to do that.
Great. Thank you very much indeed.
We pause here again just to check with our speakers if there are any more questions that have come in over the web.
Yes, there are. The next question comes from James Hosie of Barclays. In the future CapEx profile on slide 52, NOAKA is clearly the largest part of the 2022 - 2028 spending plans. How wide is the range of uncertainty in the budget for that project today? Second question, in the free cash flow outlook, slide 60, we see it declining in 2023 - 2025, such that the $50 per barrel, the dividend would not be covered by free cash flow. Is that a constraint on your capacity to raise the payout by more than the 5% minimum in 2022 - 2023, regardless of the oil price? I guess that last question goes to you, David. The first question, I guess, Calle could take.
Yeah. If you take the last point, and I can comment on the NOAKA expenditure later, David.
Yes, I can do that. I think the quick answer to that is that the dividends that we will pay will reflect the distribution capacity through the cycle. Considering the financial outlook of that. Our plan now is robust at $40 Brent. We have an ambition as already stated several times today to grow that by at least 5% if the oil price is above. Of course we will take a holistic view on what that increase will be in any given year. The investment period with NOAKA in 2024, 2025 and that impact on cash flow in such a scenario will not have a significant impact on our ability to pay the planned dividend.
When it comes to uncertainty in CapEx, of course, as we are progressing these studies and getting more market information about the cost of each of these elements the uncertainty range will decrease. I think it's a bit immature to state explicitly what kind of ranges we're looking at the moment as the project components are in a bit of a different stage. We'll come back to that a bit later on. Just to remind everybody that we're delivering the DG2 in September this year. At that point in time, we will provide much more clarity both in terms of cost and uncertainty and estimates.
Thank you. While we are on this line there is another question here from Anne Gjøen of Handelsbanken. With focus on your peak production level in 2028 above 350,000 barrels per day, can you comment on the range of CO2 emissions among your main fields? How much you expect to pay in CO2 tax when you reach peak production compared to the level of today? I guess, David, this is one of your favorite topics, so I'll pass the word to you.
I think that's one for you, David. Everything that related to tax is probably your field of profession.
Yeah. Thank you for that, Calle, and thank you, Anna. Just to recap a bit, of course. Valhall is of course already electrified with power from shore. Ivar Aasen will be electrified with power from shore as part of phase II of the Johan Sverdrup field development. The NOAKA project will be powered from shore. If you take that as a starting point it's basically Alvheim, Ula and Skarv, sorry which are the three assets which has the highest CO2 emissions per barrel since they are not powered from shore. They will stand for most of the CO2 emissions at peak production. When it comes to the CO2 taxes that will be paid, we have outlined that in our presentation when we're talking about production costs. What you can see there is that in absolute amounts it's relatively flat over the period.
One of the reasons for that, of course, is that we are working to reduce CO2 emissions as we also increase production at the same time over that period. You're talking roughly $1, $1.50 maybe in production cost per barrel at peak production in terms of environmental taxes. Remember, this includes both the CO2 taxes that we pay to the Norwegian authorities and the quotas that we pay. The assumption is aligned with the Norwegian government's updated target of paying NOK 2,000 per ton in 2030.
That being said, Anna, there are studies ongoing, both related to electrification on Skarv and other, I would say, large-scale CO2 mechanism. The key issue for us is to assess whether that is the best use of capital when it comes to minimizing CO2 footprint.
On behalf of Anne, I thank you very much for those fantastically good questions, and leave the word back to the operator.
Thank you. We will now take our next question from Sasikanth Chilukuru from Morgan Stanley. Please go ahead. Your line is open.
Hi. Thanks for taking my questions. I had two related ones, please. I just wanted to go back to the production outlook, and your production ambition. You have pretty much the peak production coming in at 2028. I was just wondering, is that the ambition for the company now for that production level to be at going beyond 2028? What is the ambition now of a sustainable production level that the company is looking at? Related to this, do you have the resources available right now to support that sustainable production level? Should we expect CapEx to increase over the next few years, especially for 2027, 2028, over the next few years as we have more clarity on how you would actually get to that production level?
Yeah. Okay. I think it was breaking up a little bit, Sasikanth. I think what you asked is if the production level we're now guiding for around 350,000 barrels, do we have the resources to sustain that for a long period of time? Of course then the associated CapEx with that production profile. Would that be correct?
Yes. Also, what is the ambition of the sustainable production level? Is 350 the benchmark or is it lower?
Thanks. Let's take those in sequence. I think if you look at the production slide on page 32 in the capital market presentation, that will demonstrate, as we usually do, the outlook up to this point in time, 2028. You see the growth up to about 350 and a little bit above in 2028 with NOAKA coming on stream. Of course, this represents a little bit more than 500 million barrels of the 2C hopper. There is a healthy amount of reserves that are not included in that production profile. Right? There are several discoveries we have not put into the 2C reserves either because it's immature. There was a previous question around Liatårnet, which is not included. There might be other discoveries that are in the early phase that are not reached to 2C.
Going back to our previous statements a couple of years ago, that we only included project in this portfolio that we can name. Of course, that is also the clue to the second question. If you're reaching 350,000 barrels or more, there's a significant resource replacement challenge, particularly in the long term. Right now there are about 900 million barrels in total in the 2C, so the math is pretty simple. Of course, there is a gap as you're approaching 2030 or mid-2030s if you are going to sustain 350,000 barrels. The math of that is actually quite simple. The CapEx profile is also outlined in the material.
Of course, with that CapEx profile, which is directly associated to the project we are now planning to execute, it's also a decline, significant decline in CapEx as you're maturing this project and then executing them associated with a production profile. Right now, I think we have a very healthy outlook. I don't think there are many companies out there with roughly 200,000 barrels of production, or a little bit more, and then 900 million barrels of opportunity set already in the hopper. At the moment, my primary focus is not necessarily on what happens post-2028 or 2029 or mid-2030s, but it's making sure that the value is maximized inside that existing hopper. There was another question related to M&A. Historically, we've been growing our asset base significantly through M&A.
You can also see from the material that there is sufficient and significant cash flow generation as we're maturing this project and CapEx is dropping off. Right now, I would say I'm comfortable with the position. Of course you can calculate out there is a reserve replacement issue post, I would say mid-2030s.
Thank you.
We'll now move to our next question from James Carmichael from Berenberg. Please go ahead. Your line is open.
Oh, hi. Thanks, guys. It was actually asked earlier mainly on the carbon taxing issue, but I guess just as a quick follow-up, just I'm interested to get your ability to hedge against any of that carbon price rise that you've outlined in the presentation. Is that something you can do? Something you plan to do? That would be helpful. Thanks.
I think the simple answer to that is currently no. The way that we think about this, that it's an incentive to reduce emissions, and that's how we plan to cater for that. Ine talked a lot about, during her presentation, around the initiatives that we have for energy optimization. That's the general thinking around it. Then, of course, the projects that Calle referred to, for example, larger scale investments in power from shore to a Skarv would of course, also significantly reduce those taxes. I think the taxes that the Norwegian authorities are putting in place on CO2 emissions are not necessarily something that we've looked into hedging. I'm not sure how we would do that.
I'm not really sure you could hedge the tax position. You could maybe buy quotas, if you expect that price to go up and create some sort of derivative around that. I think our primary driver to this is to react to the incentives that are being put into the financial framework on the Norwegian Continental Shelf. Rather than speculating how we could hedge out of these incentives, we're working on minimizing the impact by reducing CO2 emissions.
Great. That's very clear. Thanks.
We'll now move to our next question from James Thompson from JP Morgan. Please go ahead. Your line is open.
Great. Thank you very much. Good morning. Calle, David, thanks very much for the presentation. Very creative. I have three questions, if I may. I'll just start the first one. Obviously, NOAKA is a crucial part of the medium-term investment case. The project itself is complex. The timeline of the project has slipped over the last four or five years as it's kind of changed form. You're looking to sanction it right inside the deadline on the tax issue. Given it's so important to the outlook, would you still sanction the project if you don't make Q4 2022? Obviously, questions have been asked about capacity, but if this PDO can't be taken before the end of 2022 and you don't get the tax benefits, will you still sanction NOAKA to keep to that 2027 timeline? That's my first question.
Yeah. Just ask all your questions, and I can answer them in sequel. I think that's probably best, James.
Yeah, sure, Calle. The second question, just on the liquidity position, we got NOK 4.5 billion of available liquidity. Looking at the medium-term CapEx outlook and the dividend that you've committed to, and your comments really on inorganic being not really the flavor of the month from your perspective, I just wondered what the rationale was to maintaining that level of liquidity. Only 2025 is a point in time where it might not be twice covered on your investment plans and your capital return plan. What's the rationale there, and should we expect you to shrink the RCF over time? Would be the second question. The third one really is really a math's question. When I look at your reserves and resources you reported end 2020 versus end 2019, you got 2P reserves down 64 million barrels, 2C reserves down 36 million barrels. There's a total of 100.
You produced 76 million barrels in the year. Could you tell me what's changed in your reserves reporting? Where's the 24 million barrels lost from? Thanks very much.
Sure. Thanks. Really good. NOAKA. I think the fact of the matter is that we've been working on this for a long time. Finally, as we were exiting the summer last year, we got significant momentum and traction. That means that a lot of the groundwork in terms of subsurface, et cetera, is already being done. In the movie today, Lars also demonstrated that well planning is far advanced, supported by digital tools. Right now, I think what I'm looking at right now is a rather robust plan when it comes to executing up to the PDO. Right now, my primary risk associated with NOAKA is not related to not delivering the PDO. Would we still do NOAKA if we could not deliver? I think that's a bit of a hypothetical question.
I can assure you that we are going to do everything we possibly can to deliver the project inside that tax regime. That's where all our focus is at the moment. To your liquidity, I'll hand that over to David. When it comes to the 2P and 2C, we have about 13 million barrels in increase in 2P related to revisions. There are, as we discussed previously, some optimization that has been done on the 2C reserves as we've been pushing some of them out in time associated with the execution of these early phase projects. If you remember back in March, we pretty much stopped everything that was associated with the CapEx outlay and prioritized the financial stability and the financial health of the company. That basically meant that we prioritized cash flow over reserves generation.
That means we stopped a lot of these projects that would normally have been associated with increase in 2P and 2C reserves. Then if you start looking at that over time, this will even out, particularly as we end 2021 and end 2022, you will see a lot of these volumes coming back into the plan and into the survey and resource equation. It is a direct result of both the stop in project back in March and also the optimization of the plan associated with execution following the temporary changes to the tax system.
Yeah. On the liquidity question, I think it's a good question. Of course, reflecting over what's happened the past year, I think it's clear that having a large liquidity headroom has really served us well. That being said, of course, we have the $4 billion RCF now undrawn, and in addition, we have more than $500 million of cash at hand. That's something that we're continuously evaluating how to optimize the balance sheet. It's worth noting that we have a couple of bonds which are callable this year. Of course, half of the $4 billion RCF is a working capital facility that we can choose to draw on or not. Of course, we can also downsize that if we may. Our policy is to have at least $2 billion of liquidity available at any point in time.
There's quite some headroom related to that. Of course, also remember that we are moving into an investment period, where we're going to invest quite heavily in profitable growth. Having liquidity is always a good thing. We've learned that through the period of very high volatility this year.
I think the last point is important to stress. We previously said that maintaining a pretty high liquidity reserve is, I would say, a cheap way of creating insurance around our financial position. All the way back to 2015, we've had as a strategy that we should maintain sufficient liquidity to do what we needed to do, not what we were forced to do. You might see some optimization to the liquidity position going forward, but the main strategy is unchanged.
Okay. Thanks for all the answers. Just in terms of following up on your NOAKA comment there, is there a scenario where the southern part or the northern part of NOAKA is sanctioned at a different time to the other one? Your operated bit could be sanctioned before the end of 2022, and the Equinor one might be later or vice versa, given that they are independently operated under one development plan?
It's one coordinated field development. There might be sequences in terms of actual execution of the project, but I don't foresee a situation where the investment decision or the delivery of PDO is done independently, no.
Okay. Thanks very much, Calle. Appreciate that. Annabelle?
I'm going to just pause here again just to check with the speakers whether any web questions have come in.
No further questions on the email that have not already been answered.
Thank you. In that case, we'll now move to our next question from Michael Alsford from Citi. Please go ahead. Your line is open.
Yeah, hi there. Just wanted to follow up on the Barents Sea comments earlier in terms of exploration. I guess one specific project or prospect you're drilling in 2021 in the PL 858 out in the southeastern Barents Sea, it looks pretty small from the headline pre-drill estimate. I just wanted to understand a little bit more about the route to commerciality if it is successful. Secondly, I guess more broadly, are we thinking this is going to be an end to the Barents Sea exploration program over the medium term after the next two wells have been drilled?
Yeah. That's a good question. The two remaining commitment wells we have in the Barents Sea is in PL 858, which is the Stangnestinden well operated by Aker BP, which is probably what you refer to as the east Barents Sea. We have the Shenzhou in 722, operated by Equinor. The Stangnestinden was one of three areas which were considered highly attractive back in the 23rd round, where Aker BP won operatorship. After that, we've reassessed both the migration, the reservoir quality, and the potential for volume. As you can see, downgraded the pre-drill volumes quite significantly. It is a commitment well, and as I stated in the video previously today, we have that and Shenzhou left, and then we'll reassess the entire Barents strategy. It's also quite clear that the results so far in the Barents Sea have been disappointing.
Also that there's quite a lot of momentum, I would say, in the stakeholder picture around Arctic oil and all of those discussions, which have led us to reassess. I don't think you'll see us very active in the Barents Sea going forward. Of course, if we are lucky, and there's a small probability that one of these wells will turn out to be a standalone field development, then you might end up with a commercial project. Right now, I probably see this more as a commitment to drill something that we committed to in the 23rd round.
Thanks, Calle. A follow-up if I could. Just a quick question on the portfolio. You obviously did a strategic review and the business plan is what we see today. I'm just wondering if there's any non-core assets in the portfolio that you've identified that perhaps you could see early monetization of. Thanks.
When I alluded to optimization in terms of execution, that of course begs the question if there are other operators with capacity or desire to execute the project that we have not prioritized, which is one of the topics we will explore going forward.
Okay. Understood. Many thanks for the presentation.
We'll now move to our next question from Karl Fredrik Schjøtt-Pedersen from ABG. Please go ahead. Your line is open.
Hi, guys. It was a question referring back to potentially beyond what you have identified in your 2C plans and what you are planning as being core investments in the near term and into the 2022 tax program. Is it so to understand that Liatårnet is the one to follow? Are there any other sizable or meaningful projects that you have not included in your 2C resource base? If so, what is the work required in order to assess the economics on these, call it, almost 2C resources?
That's a good term. I'll start quoting that, Karl Fredrik, almost 2C. Liatårnet is, of course, in the appraisal stage and therefore hasn't reached the 2C qualifications. Then there are quite a lot of, I say, Valhall upside in the so-called diatomite, if that's the right English term, which is above the main reservoir at Valhall. This is a tight field where we plan a production test. Since the flow capacity of those reservoirs are untested, we know there is oil, quite a large portion of oil, as we've drilled through this quite a lot of times. We are not qualifying that as 2C. There is a significant upside. Then there is Rondeslottet, which is a tight oil discovery, again, where we know there is oil, but the flow capacity of that field is also uncertain.
All of these are going through our normal appraisal stages. That is, we are assessing their capacity, and we are, of course, doing technical studies to move those into the hopper. Again, let me be very clear. Apart from the necessity of appraising Liatårnet in terms of understanding what kind of changes is needed on the NOAKA project to produce Liatårnet, we are prioritizing what is already in the early phase hopper that needs to be delivered by end of 2022. There are, as you alluded to, quite a significant hopper of resources that is not now in the 2C hopper.
Okay. Thank you. That's very clear.
There are currently no further questions in the queue. I'd like to hand the call back to our speakers for any additional or closing remarks.
Thank you. I would like to say thank you to all of those who have been on the call today and thank you guys for supporting us back in 2020. It's been quite a year. Now moving into 2021, we're shifting gears and we're accelerating. We're grateful for your support also in 2021. As I have the chance, I gave my IR team quite a challenge and told them that we were not going to do an ordinary CMU. What we are going to do was a production that we could show and deliver. I think they delivered a really good result here today. I'd also like to say thank you to my IR team and the comms department who have, I think, delivered an outstanding product. Kjetil doesn't always get a lot of praise, so I think he'll be happy about that.
Thank you, guys, and have a good day.