Earnings Call: Q2 2021

Jul 15, 2021

Good morning and welcome to Aker BP's Second Quarter 2021 Conference Call. My name is Sjertil Bakken and I am Head of Investor Relations. Today's presentation will be given by our CEO, Karl Hajjveig and our CFO, David Tunne. After the presentation, we will open for questions. And if you have any further follow-up questions, feel free contact us after the call. And now without further ado, I give the word to our CEO, Karl Hajjvik. Thank you, Kjetil, and good morning to all of you listening in. Let us start with a high level summary of the Aker BP's performance in the Q2. On the operational side, the quarter were characterized by planned maintenance and modification activity. And as expected, this resulted in somewhat lower production compared to the previous quarter. Still, our revenues were stable I'm due to increased oil and gas prices. And maybe more importantly, we delivered the significant maintenance and modification scope with safety, efficiency and I have a few questions. One of the key features I'll take a look at the next slide. The work to mature this project progressed well in the Q2, and we ticked off the first item on the list when we submitted the PDO with a plan for development of our operations of Hukobra East Gecko, or KEGG will be short in June. This is a subsea tieback to Alfheim. We also made good progress I'll take a look at the rest of the portfolio, including Nuaka, which we will come back to in a few minutes. On the financial side, we delivered a record high operating cash flow in this quarter. We also issued our 1st bond in the euro market, which opened up an additional funding source I'll take a look at the strong support for Aker BP in the Capital Markets. David will, of course, come back to this in his financial review. I will now take a look at the operational performance in the quarter. The Q2 production ended at 199,000 I have a question on the balance sheet. I have a question on the balance sheet. I have a question on the balance sheet. I have a question on the balance sheet. I have a question on the I Smart maintenance is one of the key elements of the Aker BP new operating model, and we have made several changes to our maintenance strategy over the I will now hand over to the next few slides. One element in this strategy is to bundle I have a few more details on the maintenance activities together in campaigns, which are planned in detail to ensure high precision and high quality. This way, we aim to minimize the overall downtime of our assets and hence, drive production efficiency up. I have a very strong balance sheet. We have established specialized maintenance teams to lead this work, which enable us to build competence and ensure sharing of expertise across our asset I'm happy to take your questions. In Q2, the planned maintenance accounted for more than twothree of the gap in gross production efficiency. I will now hand over to the operator. In volume terms, net to Aker BP, this amounts to a reduction of roughly 20,000 barrels per day. I have a question. Half of this was driven by Skav, where we, in addition to the normal testing and inspection activities, performed a major upgrade of the processing capacity I'm going to be happy to cater for start up of Afl Phase 2 as well as other future tie ins. We also had maintenance campaigns at the rest of our operated hubs in Q2, which included mandatory emergency shutdown tests, repairs and upgrades of equipment I have a few questions. All of these activities were successfully completed on schedule and in line with our high safety standards. Our overall safety performance continues to be very good. I have a question. In the Q2, we recorded 1 personal injury of moderate severity. This is, of course, one too many, I will now take a look at the outlook. But the trend is good, and the absolute level compares favorably to the industry average. I Our CO2 emissions is also showing a good trend and currently stands at 4.2 kilos per barrel for the last 12 months. I will now turn the call back to the operator. This is less than onethree of the global industry average and puts us firmly among the cleanest oil producers worldwide. I As the cost of emitting CO2 is likely to increase over time, this is a competitive advantage for Aker BP also from a cost perspective. And we are not less resting on our laurels. We continue to work systematically to improve our CO2 footprint, I'm focusing on process improvements and energy optimization. So far this year, our operations team have identified a combined have the potential to cut annual emissions from our operated assets by more than 40,000 tonnes of CO2 equivalents. I will now hand over to the operator for the Q1. This would represent roughly 5% of our global total greenhouse gas emissions, I'm far exceeding our own targets and would be a significant achievement. Before we leave the topic of operational performance, let's zoom out and take a look at where we stand after the first half of the year. As we have discussed, we have continued the positive trends for safety and emissions. The production efficiency has been lower than normal, I'm currently in the Q1, mainly driven by significant maintenance and modification programs in the quarter, which is now behind us. This will enable our asset base will take on higher production volumes in the future. And we are within our guiding range for both production and cost at the half year I'm not sure if you can speak to the Q4 of 2020. In that sense, I would go as far as to say that the Alkabib operational performance so far in 2021 has been strong. I Now let's move on to the things that will shape the future of Aker BP, namely our field development projects. I have a few questions. We currently have 3 major projects ongoing, and the overall message is that we are on schedule. I'll take a look at the details. On this picture, you can see the jacket for the new HOT platform, which was recently installed in the field. The top side module will follow in Q3, and then the drilling campaign will start. In parallel, we are also on track with the subsea scope and the tie in preparations at Valhall. I have a question. In the Skov area, the main activity is the completion of the Afulf Phase 2 project, where offshore preparations are underway. I'll be happy to take the questions. Drilling was completed in Q1, and we remain on track to start production from the last 2 Aflal wells in Q4 this year. In the meantime, we have also completed the Grosel project, which is a small but highly profitable tieback I will now begin with a breakeven price of around $15 Gross Air started production in June 6 I'll be happy to report that in June, only 6 months after the investment decision and 4 months ahead of the original plan. And Johan Sverdrup Phase 2 is also progressing as planned. The jacket for the 2nd processing platform was installed in the field in June, and the 3 topside modules have arrived at the yard in Haugesund and are being prepared for offshore installation in the first half of twenty twenty two. And I will now hand over to Kjetil Bakken. And as I mentioned in the introduction, we are now moving into another project into the category of ongoing projects. I 2 weeks ago, we submitted the PDO for Kuba East Gekko, or KEGG for short, to the Norwegian authorities, and this is quite an interesting project. Recoverable resources are estimated to around 40,000,000 barrels. I'll be happy to report that we will be able to drill 4 multi branch wells in the reservoir. The wells will be drilled from 2 different I have the right locations and tied back to the Alvheim FPSO. And as usual, the Subsea work will be executed by the Subsea Alliance with Aker Solutions and Subsea 7 and a significant drilling scope by the I have a few questions on Subsea 7 and a significant drilling scope by the Drilling and Well Alliance with Odfjell and Halliburton. I Total CapEx is estimated to $1,000,000,000 and the breakeven price on an NPV10 basis is below $30 I will now hand over to the operator for the Q1. When production starts in 2024, it will boost the Alvheim area production and contribute to significantly lower unit I have the question. And the project is also an important enabler for extending the economic life of the Alvheim FPSO and hence unlock other opportunities in the area. With Cobre's Gekko, we are writing a new chapter in the a proud history of Alfheim and there is more to come. We are also closing in on the next PDO in the Alfheim area, as the Frosk development is scheduled for final investment decision during the Q3. I For Tral and Trina, we are targeting a Concept Select by the end of 'twenty one and an FID approximately 1 year from now. I have a question on the concept select decision for Hans was taken in the quarter, and we are now aiming for a final investment decision in Q4 I'll take a look at the next slide. At Valhall, we are moving forward with concept studies for a new central platform where we are targeting a concept select decision I'll be conducting a few questions in Q3. And for those who now believe that I forgot to talk about Norka and Skav, I will, of course, cover these but separately. I'll start with Norka. During the Q2, we have completed the concept evaluation for Norka and Fuller, I'm Bjorgen BP as the operator, and we are now ready for a formal concept selection decision in Q3 in line with the original plan. I will now turn the call over to the operator. The development concept includes a fixed platform at Trigama Delta Fields operated by Aker BP. I will now turn the call over to the operator. This platform will function as an area hub with processing, drilling and living quarters, and we have already secured installation I will now hand the call over to the operator. The Fruhfield will be redeveloped by a normally non manned installation, I'll be happy to take a copy in fact of the Waalal Flank West and Hard platforms, which will be the 3rd time we're actually doing the same platform. I'll While Fola, Langfjaller and Rinfjals will be developed as subsea tiebacks to the area hub. The oil will be exported via the I'm the Uesberg transport system and the gas will be exported through Stat Pipe, and we are planning for power from shore to ensure minimal carbon footprint. I have a very strong understanding of the potential of the company. We have designed this concept with flexibility to tie in additional discoveries and IR targets in the future. And one such potential discovery is Liatorna, where we are planning to drill an appraisal well during the Q3. I have already started planning for the next phase and will hit the ground running as soon as the formal concept select decision has been made. I will now hand over to the next big milestone will be the final investment decision in the Q4 next year. I'll take a look at the details. The other area I would like to cover separately is the exciting development at Skav, where we are following what we would like to call the Alvheim blueprint, I'm going to turn the call back to the operator. We have already talked about the comprehensive maintenance I'm on modification activity during the Q2. This involved a significant capacity upgrade for the SKOV FPSO to cater for both existing and new discoveries in the area. The airfield development is getting close to completion. I'll take a look at the numbers. Four of the 6 wells are now in production, and the last 2 wells were completed in Q1 and will start production in Q4, I'm 2 years ahead of the original plan. In parallel, we have also completed the Groesel development in record time I will now begin with First Oil only 6 months after the investment decision was made and 4 months ahead of schedule. I will now turn the call over to the operator. This was made possible by early access to a drilling rig combined to a very agile project team that quickly turned around and seized the opportunity when it arose. We have several commercial discoveries in the Skav area, which we have grouped together am under the name Skav Satellites. One of these discoveries are OON, which was originally operated by Equinor. During the Q2, the partnership chose Skav as the preferred host installation, and Aker BP will now take over as operator of the license. I will now turn the call over to Kvaer. We are targeting concept select for the Skav satellite during the first half of next year and FID before the end of 2022. And production from these projects will be phased in gradually starting in 2024. I The Skov FPSO is a modern production unit with high capacity located in a very prospective area. I will now take a look at the next slide. Therefore, we are now planning a new multi well exploration campaign in this area next year. The goal I will now provide additional resources, which can contribute to a sustained high capacity utilization will discuss the next I'm going to take a look at the current program. We have completed 2 wells in the Q2. The Garntjana well the Garntjana West well came in as a discovery with volumes in line with the predrill estimate, which means that it will most likely be included in the Garantiana field development operated by Equinor. I In the Barents Sea, the Shenzhou well was dry, and we are currently drilling Stagnerstind, which is the final well in our exploration I'll be happy to take the questions. We have 5 more exploration wells coming up in Q3 and Q4, including the Lillepens I will now hand the call over to the operator for the Q1. And as indicated, we have started to firm up new targets for next year's I will now hand the call over to the operator for the Thank you, Carla, and good morning, everyone. The second quarter has been a quarter of high activity and strong performance, I am not only operationally, but also financially. Increasing realized prices, cost discipline and low cash taxes contributed to a high operational cash flow. With project execution and I am now in line with our plans. This translated into a strong free cash flow and a further deleveraging of our balance sheet. In parallel, this quarter we have taken several proactive steps to further strengthen our financial position I will now hand over to our next question. In combination, This further improves our ability to continue delivering on all our 3 capital allocation priorities as a pure play E and P company am now in a market environment with high volatility and uncertainty. Now if I zoom in on the second quarter results, our net production in the quarter was 199,000 barrels of oil equivalents per day. The reduction from Q1 was mainly driven by the planned maintenance activities that Karl has already covered. Then due to a small underlift, sold volumes I have a question on the slide. The The realized crude price ended at $68.7 per barrel, in line with the average Brent dated in the period. I'm Adjusting for NGL, our average liquids price was $66.9 per barrel, up 11% from Q1. Including gas, the realized average hydrocarbon price was 63.4 I am now up approximately 13%. And consequently, we report a total income of SEK1.124 1,000,000,000 will now begin the Q2. Given the high activity level across several assets in the quarter, I'm glad to see that we were able to maintain productivity and cost discipline. I Production cost related to oil and gas sold in the quarter amounted to $158,000,000 down 10% from Q1. I have a question on the slide. The increase from Q1 was driven by lower production as the underlying cost of operations was actually down quarter on quarter by 6,000,000 or roughly 5%. I have a question. For the first half of twenty twenty one, the average production cost per barrel was $8.8 I'm in line with the full year guidance of 8.5% to 9%. If we take a look at the other main P and I will now hand the call back to the operator. And subtract both production cost of SEK158 1,000,000 and other operating expenses of SEK9 1,000,000 from total income, I will discuss the EBITDAX of SEK 957,000,000. Exploration expenses amounted to SEK 102,000,000, of which €62,000,000 was field evaluation costs, with almost 2 thirds being the NOAACA project. I'm now in its final stages before concept selection and once it has been formally passed this key milestone, Cost related to the project will be mostly categorized as CapEx. We had $16,000,000 in dry well costs in the quarter, I am currently in the Barents Sea. Depreciation was $240,000,000 or $13.3 per barrel. The small increase in depreciation rate from Q1 I will now turn the call over to the operator. Net financial expenses were SEK 62,000,000 and included $24,000,000 in costs related to an early redemption of a $750,000,000 bond. I have a question. Furthermore, net currency gains in the quarter were 37,000,000, where 22,000,000 was related to a newly issued Eurobond have a strong balance sheet of €750,000,000. I will come back to both these transactions later in my presentation. I have a question. Summing this, this gives us a profit before tax of 552,000,000, up 10% from the 1st quarter. Tax expenses amounted to SEK 399,000,000, which means an effective tax rate for the quarter of approximately 72%. I will now turn the call over to the operator. Net profit in the quarter then ended at $154,000,000 or $0.43 per share, I am now up 21% from Q1. With stronger prices, cost discipline, no cash taxes and a positive contribution from working capital changes, the growth in operating cash flow was even higher than the growth I will now turn the call over to the operator. Operating cash flow in the second quarter ended at EUR 1,108,000,000, I am now up 23% from Q1. Then investments, including payments on lease debt amounted to SEK 511,000,000 I will now turn the call over to the operator. Thank you, Investments increased with roughly 50% quarter on quarter, in line with our spending plan for the full year. Free cash flow before financing was $597,000,000 an increase of 7% compared to Q1. I have a few questions. As already mentioned, during the quarter, we redeemed our last callable bond and issued a new bond in euros with a lower coupon. I will now turn the call over to the operator. Thank you, sir. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Dividends paid in the quarter was €112,500,000 and interest paid and other finance items was €33,000,000 We then ended the quarter with a cash balance of NOK975,000,000, an increase of NOK583,000,000 In addition to the fairly large change in cash on the balance sheet, I have a few questions. There are 2 other things worth highlighting. On the left hand side, property, plant and equipment increased by 238,000,000. I have a question. We had additions of 4.57 where investments at Walhalla and Hod made up roughly 45% and I will now turn the call over to the operator. And the 4 assets, Alvheim, Skariv, Ulla and Johan Sverdrup made up roughly 50%, with between 10% and 15% I am the right of the investments each. On the right hand side, other current liabilities increased with 245,000,000. Key driver for this is the higher license related liabilities, which is typically caused by accruals for project work I have a question that has not yet been invoiced. An increase like this is something that we typically see when we increase project activity and investment spend, I will now turn the call over to the second quarter. Thank you, sir. Thank you, sir. Thank you, sir. Thank you, sir. Thank you, sir. Thank you, sir. We would then typically see the opposite effect if activity is reduced. Although there is only a minor change in bonds and bank debt on the balance sheet, the underlying changes are quite material I will now turn the call over to the operator for the Q2. The specific activities executed can be summarized in 3 main elements. Firstly, I will now turn the call over to the operator. As I noted in our Q1 presentation, in April we amended and extended the maturity of our working capital facility I will now turn the call back to the operator for the Q1. In addition, we utilize the remaining option on the liquidity facility to extend the maturity from 2025 to 2026. I have a question. Both facilities are currently undrawn with a commitment fee of 35% of the applicable margin. I have a question. With a weighted margin of 1.1%, the commitment fee today that we pay is less than 0.4%. These debt facilities provide significant financial flexibility supporting both our organic investment program and enable us to react quickly to potential inorganic opportunities that may arise. The second activity is that we in May issued an inaugural Eurobond of €750,000,000 This has now opened up a new source of capital for us, providing additional funding optionalities for the years to come. The bond issue attracted high demand and was significantly oversubscribed. This allowed us to price inside I have a record low coupon of 1.125%. The third activity is that we have redeemed our last outstanding corbel U. S. High yield bond. I will now turn the call over to the operator. This $750,000,000 bond was issued back in 2019 and was originally maturing in 2024 I will now begin with a coupon of 4.75%. By amending our bank facilities, Retiring all debt and issuing new longer dated bonds in euros, we have added optionality through new sources of funding, reduced our financing costs and extended our debt maturity profile. Following these transactions, our average drawn debt maturity is over 7 years. Our first maturity is EUR 500,000,000 am now in 2025 and we only have SEK1 1,000,000,000 of debt in total maturing before 2029. I will now begin with the results of the very strong cash flow generation and the refinancing activities are that at the end of the second quarter, I have a question. Net interest bearing debt excluding IFRS 16 leasing have been reduced from Q1 with roughly $500,000,000 down to SEK2.6 billion. Leverage has been reduced down to 0.85x EBITDAX and our available liquidity remains industry leading, ending the quarter at SEK4.4 billion. On financial capacity while we invest in profitable growth and continuously return value back to our shareholders I will now discuss the progress of the company. I am also happy to see that the strong operational performance, I combined with a more constructive price realization means that we are now again moving into a tax paying position. I have a question. For the fiscal year 2021, we have now fixed the first three tax installments am now payable in Q3 and Q4 at $100,000,000 $200,000,000 respectively. As you can see from this slide, the size of installments in the second half of twenty twenty one corresponds roughly to the $65 scenario I will now provide an update on our financial results. This indicates that the assumed I am very pleased with the average Brent price for the full year 2021 used at fixing the first three installments in the second half of twenty twenty one I will now turn the call over to the operator for the Q1. I will now turn the call over to the operator. This also means that if we end up in the $70 scenario for the full year 2021 indicated on the slide, I will now turn the call over to the operator. The first three installments are a bit too low and will result in a catch up effect in the Q1 and Q2 next year. I will now turn the call over to the operator. Thank you, sir. Thank you, sir. Now to round off my presentation, I will, as always, walk you through the key guiding parameters for 2021. I will now turn the call over to the operator. In short, we keep all our guiding parameters unchanged from our capital markets update in February and as also reiterated I will now begin our Q1 presentation. Production in the second quarter was as expected lower than the guided full year average due to planned maintenance. I have a question. The large planned maintenance program impacting production in 2021 is now behind us. I will now turn the call over to the operator. Year to date production is 210.4 and we expect production for the full year to end somewhere between 210 and 220,000 barrels of oil equivalents per day. Capital spend year to date is roughly 1,000,000,000 and our project activity is progressing as planned. Abandonment activity is mostly done for the year, I will now turn the call over to the operator for the Q1. But CapEx activity will still be ramping up with, for example, several production wells being drilled at Alvheim and Hod towards the end of the year. In addition, spending on Nuaka will be categorized as CapEx after the concept selection in late Q3. I have a question. Production cost of $8.8 per barrel year to date is, as already mentioned, in line with plan and we keep the guidance between €8,500,000,000 Lastly, our proposed dividends of €450,000,000 for 2021 I remain unchanged and the Board of Directors has resolved to pay a quarterly dividend of SEK112.5 million later in July. I will now leave the word back to Karl for some concluding remarks before we move on to the Q and A session. Thank you. Thank you, David. Farrer as always. So to conclude on the quarter, and may I first guide your direction to the illustration on this page. This is an illustration by a technology project that Aker BP has been executing with BRI Nuhl, I have a project called the RoboCoat. And what you're seeing here is an illustration from a test executed in April. I can also share with you that we have recently executed a test offshore at Alvheim, where Robocoat has been working on the I'm all. So this is one of the illustration of our quite comprehensive digitalization and innovation agenda and it's certainly a world's first. So where are we after the second quarter? I Well, in my mind, I think this report says everything. We have strong safety records, I'm going to be happy to take the questions. The production and cost is on schedule. The ongoing projects are on track. I will now turn the call over to Mr. Kjetil Bakken. We are maturing our project portfolio as we planned and as outlined in the Capital Market Update, and we aim to sanction roughly 500,000,000 barrels of oil equivalents by end 2022. I will now hand over to the operator. And we have very strong support from our Lions partners in this area of high activity. I As David has already walked you through, we have significant financial flexibility with a very high cash flow and extremely strong financial position, and we're continuing to return value to our shareholders, I So all in all, I think we can conclude the first half of twenty twenty one I'll be happy to announce that Aker BP is following the strategy and the plan we laid out and lately communicated to the market at the Capital Market Update. I will now turn the call over to Kjetil Bakken. We are continuing to build stone on stone to become the leading independent E and P company by progressing our projects, delivering I'll take a look at the next question. We truly believe that this will create superior value to the shareholders of Aker BP. So with that, I conclude the Q1 presentation, and we will now open up for questions. Thank you. We will take our first question from Sasikanth Chilukuru from Morgan Stanley. Your line is open. Please go ahead. Hi, good morning, everyone. I had two questions, please. The first one was related to this production guidance, which you have kept I have a question on the balance sheet. Unchanged at 210,000 to 220,000 barrels per day for 2021. With first production already averaging 210,000,000. I was just wondering if it was possible to narrow down this full year guidance. Also related to this, it appears that I There's not much material planned maintenance activity in 3rd quarter. Is it possible to confirm that? The second question was I'm just wondering if you could just comment on the cash flow. Yes, it's related to the $1,100,000,000 of operating cash flow generated in 2Q. You've highlighted I have a positive working capital impact this quarter. I was just wondering if it was possible to quantify that and also isolate this positive benefit from accruals due to higher activity. Do you expect this benefit of accruals to reverse in the second half of this year? Thank you. So starting with the first question, I can confirm that there are no significant maintenance activities left in our schedule for the remaining part of 2021. When it comes to narrowing of the schedule, the remaining part of 2021 is primarily driven by phase in of new wells, and we have therefore kept the original guidance unchanged. When it comes to the working capital changes, David? I Yes, I can take that. So the impact of working capital changes is roughly $200,000,000 and I And the isolated effect of the change in current liabilities is probably roughly around 150. So just to recap a bit, the main drivers for working capital changes in Aker BP. So I think you can look at it from 2 different areas. 1 is when we increase investments, you typically also increase I'm and current liabilities, which has a positive effect. And then if you I realize higher prices combined with liftings late in the quarter, then that could have a negative effect on working capital as you've lifted volumes, but not received payments for them yet. In the second half of the year, we don't see investments reducing I'm in accordance with our guided investment plan. So that gives an indication on the isolated effect of I have the current liabilities. Great. Thank you very much. We will take our next question from Karl Friedrich from ABG. Your line is open. Please go ahead. Thank you guys and thank you for taking my questions. First question is regarding capital allocation in the current commodity price environment. Given the steep rally that we've had also in gas prices, should we Has the internal discussions regarding capital allocation changed? And the second question is regarding M and A and As you say, you hold a fairly substantial capital buffer in order to be able to act quickly. I How has asset prices moved during 2021? And I Does this to you now feel like a way to go or is it organic growth, which is I'll take the path for at least the next couple of years. Thank you. Thank you, Karl Horaeck. So on your first question of capital allocation, I can't remember whether or not that's changed as a result of the higher price so far in 2021. I would like to remind you that a lot of our capital allocation and principles are spanning more than 1 quarter. And while we are, I'm of course thankful for the high oil prices so far in 2021. We make these decisions based on strategic assumptions and beliefs and not necessarily on how oil prices changes from quarter to quarter. So that in short means that we have made no change I'm very pleased to our capital allocation policy as a result of the current prices. 2nd, your question on M and A. I would say that as I usually say, there hasn't been a day that I've been employed in Aker BP where we haven't had an ongoing M and A I'll discuss the discussion and that stands that still is the case. That being said, we have also been extremely disciplined I'll take the next question. As to what kind of M and A project we are in fact executing. And with the current price environment, there are will, of of course, in our M and A opportunities, but they will have to be significantly better than our organic growth it is for us to execute on them. So I think that's what I will say on that subject. Thank you and glad to hear that you're not keeping after oil price. Thanks. I We will take our next question from Theodor Nilsen from SVB1 Markets. Your line is open. Please go ahead. Good morning, guys, and thanks for taking my questions. First one, a little bit follow-up on Karl Friedrich's questions on M and A. We know that at this call you had comment on that you are looking to projects in I have a small license in U. K. So are you now spending more time on M and A outside Norway than before? I have a question. And second question is just very specifically on the Lille de Hoon exploration. Well, pretty I have a question on the commercial threshold for that well. Thank you. So your first question regarding whether we're spending time on M and A outside Norway, Let me be atypically clear. We're not spending time on M and A activity outside Norway. On Lederhorn, This is these pre drill estimates are notoriously hard to I'm pinned down as these are injectite reservoirs into the Heimdal sand, into the Heimdal shale. And as a result, the pre drill estimates are one of the realizations of the current geo model. That being said, we know that we can develop these kind of resources. Our FOSK now will be developed with a tie back to Berla using the Berla infrastructure. And Lidarhorn is a little bit further south, but can probably utilize the same kind of infrastructure. So the pre drill estimates is well within the economic thresholds. We will take our next question from Ewan Charrington from Societe Generale. I have three questions, if you don't mind. The first one will be I'm basically following the completion of this quite extensive optimization of the debt structure. I'm just wondering if that may lead to a change in your aging policy. So we'll be happy to hear about this. Second question is on the tieback, which is kinglier. I understand it's clearly not a priority as we speak, but that would be great if you could touch upon that one, please, I Given you spent some $250,000,000 a few years ago acquiring interest in King Lear. And the last question will be in relation to the climate change questionnaire that you recently filed I'm with the CDP few days ago, and it looks like you provided a bit more color I'm on the target that you have set, which is which has to do with covering basically company wide energy consumption I'm from non renewable source and you are looking at reducing basically your energy consumption. Can you touch a bit I Can you please touch upon this, please? That will be great. Yes, sure. So I suggest, David, you start with the optimization of the debt structure, and I can do King Lear and Energy Optimization and ESG topics. Yes. So short answer to that I Jan is no, we have not changed the hedging policies due to the changes in debt structure. I So moving on to King Lear. Yes, you're absolutely right. We did acquire King Lear and the operators from Equinor a couple of years back. The original idea was then to develop it back to Ula, inject the gas into Ula have to utilize the visible lag following the heavy gas from the high pressure Kuglja field. Since then, the Ula model has been updated and the residual gas at Ula field turned out to be lower than we expected. So Ula is no longer a tieback candidate. Currently, we are assessing development opportunities for King Lear. And I think I'll stop by saying that we come back with the field development opportunity on King Lear sometime in the second half of twenty twenty one. I When it comes to reducing emissions, there is quite a lot of activities ongoing I'm in the assets with the focus on reducing emissions. So roughly, there is about, if Memory serves me right, a little bit more than 20 projects with a total possibility of around 40,000 I have a few questions. I have a few questions. I have a few questions. I have a few questions. I have a few questions. I have a few questions. And I And if you remember back to our capital market update, we are addressing this by attacking our primary emissions, that is emissions that are I'm also spending most of our time and energy doing that. I will also, of course, reduce our CO2 intensity and also increased oil production, for example from Keg and Fosk and other type tie in projects will also reduce CO2 intensity. And I think the 3rd element is that new field developments will almost exclusively be powered from shore with very low or minimal CO2 footprint. So those are the 3 key elements in our carbon reduction strategy. Thank you. I We will take our next question from Chris Wheaton from Stifel. I'll take your questions. Thank you. Good morning, gentlemen. Thank you very much indeed for the call this morning and well done on another excellent I have a question on the Q1. Two questions, if I 3 questions, if I may. Karl, Tony, first to you. You said at the very end of the presentation you're looking to sanction 500,000,000 barrels of resource by the end of 2022. I If that includes Novakka, that seems quite a low number to me. Could you help me understand please that €500,000,000, how that breaks down? Because I would have thought So if we go back to I The projects that are was illustrated in this presentation. I So they account for, I would say, Daka probably accounts for I 2 thirds of the total volume, something in that kind of range. And this is similar I'll turn the volume we illustrated at the Capital Market Update. That being said, we are of course working with the resource estimates to all of these projects and we'll come back with an updated resource estimate as we are progressing and entering into the formal concept select on Wacker as well. I have a couple of questions. Firstly, on cost control. You talked about normalizing operations I have a question. After the period of coronavirus and the extra restrictions you've had to put in place, could you talk about I The potential impact on costs from that because you've been quite clear, you really want to use this opportunity to permanently change the way the business works. And so I'm interested in how you're thinking about making sure costs don't creep back in as we sort of go back to the new normal. And then a question to David on I If I look at Note 8 in the report, it suggests that your tax payables for the rest of the year are down I have a question on where they were in 1Q, but you haven't paid any tax and you're guiding to €300,000,000 in the second half of the year, which seems different to the number I'm Could you help me understand how all those numbers stick together, please? Excellent. Thanks, Chris. So first of all, thanks I For the positive remark on operational performance, I, of course, do concur. When it comes to cost associated to the COVID, There's about NOK 1,000,000 a day that is directly associated to COVID measures that will, of course, be I'm removing these measures. When it comes to cost creeping back in, that is mostly related to activities. So we've done 2 major changes, which are now being implemented actually in July offshore. So the first one is to implement a new standardized operation model across our assets, which is has an effect of reducing manning by approximately 50 individuals or 10%. I That is predominantly covered by in sourcing of activities from foreign or I have external vendors, which is as a result increasing our range time, so to speak, I'll take a look at the next slide. And also, of course, positively impacting our secondary cost curve. So when we are looking at our prognosis that now includes all the activity that we have so far postponed, I We do in fact not see a significant increase either in activity nor in cost as we're normalizing, I Which means that we have been able to quite positively impact the productivity curve across our assets even if we are increasing activity. So I would say I'm actually quite comfortable and rather proud of the operational team that has been able to both execute so well during these 15 months of COVID-nineteen, but also have been able to increase productivity quite significantly in the same period of time, which are now I'm very pleased with the results. And then on I And then on payable taxes, David. Yes, Chris. I think we can also follow-up a bit separately on your specific question in detail if you'd like a walk through of it. But I think the short answer is that in the First half of the year, we have received tax refund and we expect to pay taxes of around 300,000,000 have dollars in the second half of the year in cash taxes. And then there might be some confusion with regards to Note 8 if it's I have a balance items or the change in quarter on quarter, but we can follow-up on that. We'll do that. Thank you very much indeed. Thanks guys. We will take our next question from Endelst Holt from Kepler. Your line is open. Please go ahead. Good morning, guys, and thank you for taking my questions. And thanks for a good quarter. I know there's been asked a few questions about this before. I'm going to try at it another way. And given the fact that you're closing up on $1,000,000,000 of cash sitting on your balance sheet and you moved out to maturity of all of your cobalt bonds. If I'm not mistaken, there are no cobalt bonds actually left in your structure. At what point in time does the cash position just become simply too large? And what will you then prefer to do with it? I Are you looking at extraordinary a potential extraordinary dividends or is this more kind of where you look into the broader I have the dividend structure of the company in terms of increasing the guided dividend policy going forward. Thank you. I Thank you, Anders. Good question. So I think the short answer with regards to capital allocation priorities, that has not changed. Of course that we have a very robust balance sheet and we have accumulated cash on the balance sheet and then at the same time also reduced I'll take the RCF facility somewhat, so the liquidity position of the company remains the same quarter on quarter from Q1 to Q2. I Reminding also that we're not paying taxes in the first half of twenty twenty one, which of course boosts the position. So I think what you should infer from what we're doing on the balance sheet is that we're optimizing for the future. I have a very strong cash flow. As Karl has walked through, we have a heavy investment program going forward and we would like the company to maintain financial robustness and flexibility I'm So I think that's the long and short answer to that question. Okay. Thanks. We will take our next question from Mark Wilson from Jefferies. I have a question. My question is that this year you've accelerated a lot of I'm in fill drilling and CapEx taking advantage of the temporary fiscal regime. I was just wondering if the profile of forward CapEx I'll now work 6 months through the year. For 2022 and beyond still looks roughly the same. You'd expect I have a question on the development CapEx to fall off some in 2022 before building obviously contingent on I have a question on sanction of Nowakka. But certainly relative to this year, would you still expect development CapEx next year to fall lower? I Thanks, Mark. So to give exact guidance on 2022 CapEx is a bit too premature, but I think our base case still stands as we laid out on the capital markets update with somewhat smaller CapEx in 20 I compared to what we have had in 2021. So I would use the guidance that we gave at the Capital Markets update for the CapEx profile. We will take our next question from Al Stanton from RBC. Your line is open. Please go ahead. Yes. Good morning, Just a quick question. I hear what you say about being a pure play E and P company. But I'm just wondering I Whether that could change if you are looking to hedge your electricity price exposure and just what are you doing with respect to hedging electricity prices? I So far, we've actually chosen to do a mix between spot and longer term contracts on electricity prices, most of it consumed through Valhall, of course. And we're currently we are always surveilling this market and evaluating different ways of hedging that oil price not that electricity price. Currently, this is a very liquid market. So it's not a big topic with us. There's more I'm not a matter of optimization and anything else. And then of course, you are right. We are a pure play oil and gas company. And if we do see that there are movements I'm happy to report that in electricity prices both longer and shorter term there are sufficient opportunities to hedge those should we choose that that is and I'm going to take a look at the way to deploy capital. So it will always be financial, not asset based hedging? I will always be financial hedging with the current strategy, yes. Cool. Thank you. It appears there are no further questions at this time. Thank you. Operator, we have one question that we've received by e mail, so which I can read. And then I guess this is a question that David can answer. It's from James Hose of Barclays and he asks on the Keg project, can you say what peak production rates are expected to be on that development. And he also had a question on the cash balance, which I guess has already been answered. I So on Keg, that will depend on the back out as this is being produced through the Wollen development. We are estimating a net impact in the range of 15,000 to 20,000 of barrel equivalents I would have might have a slightly higher impact on the 1st year, but again that is dependent on the back out and which will be a function of the our performance at the Molen reservoir that current year. So as always, we are optimizing the utilization the infrastructure at Alvheim, but those are the assumptions that went into the calculations where we made the decision on Keg. I Good. Operator, do we have any more questions on the line? It appears there are no further questions at this time. Thank you. Thank you. And I guess from all of us here in Oslo, we wish you all a great summer. And as always if you have any follow-up questions please contact us in the IR team at Aker BP. I thank you. Thank you. Have a good summer.