Good morning, and welcome to Noreco's first quarter 2022 presentation. I'm Euan Shirlaw, the acting managing director and CFO of Noreco, and together with Marianne and Cathrine, we will today walk you through Noreco's recent performance and outlook. As always, if you have any Q&A, please feel free to submit throughout the presentation via the online portal.
Skipping first to the end, the message you'll hear today is that we are performing operationally, performing financially, and well-positioned for the long term. Going back to the beginning, while it feels like not long has passed since we delivered our Q4 2021 results in February of this year, it certainly also feels like a lot has changed. Energy security was very much a topic on the agenda at the time, but it certainly wasn't at the top.
That's developed in a significant way since then, and it's both relevant and important for us. With Tyra on stream, Noreco will become one of the largest producers of gas in the EU, and we're therefore well-positioned to offer a significant contribution from an energy security perspective. As you'll hear today, that has three main impacts for us.
The near, medium, and long-term higher expectations of gas prices has an impact on the value of our existing production and also on the value of assets that will come on stream shortly, such as Tyra. It also unlocks incremental volumes.
That's high-value short cycle projects, like the roughly 21 million barrels of infill drilling that we will discuss today that has been highlighted by the operator, and it also unlocks mature projects that were already in the process of being worked up.
The final impact is that this development and movement forward that we have is against a supportive stakeholder backdrop. We have the opportunity to work with those stakeholders to help them to achieve their strategic goals, like increased gas volumes to offset the reduction of reduced Russian imports, but we have a way to do that that works for Noreco, so that may lead to a higher value and/or a lower risk.
Turning over to the first slide. Against a tragic backdrop, energy security has certainly come to the fore. There's been a structural change in the EU supply markets, and while not forecasting what the outcome of that is, it is difficult to see Russian import volumes coming back in the same way as they were before.
That challenge that is presented by the loss of Russian import volumes accentuates a position that was already one of tight gas markets through winter 2021 and 2022. The problem is not just not enough gas. That issue existed before. The incremental challenge and the one that needs to be addressed is effectively the EU's commitment to significantly reduce imports.
What that has done is make energy security and the role of oil and gas as part of that a more acceptable topic politically. It's clear now that a tangible solution is required, and that the status quo is no longer an option. Denmark has always been at the forefront of the energy transition, setting 2050 as the end date for fossil fuel production and having a focused direction of reinvestment towards renewable power generation. That hasn't changed.
What has developed is a position where there's a recognition that there's a need for gas in Denmark and the EU for the time to come. That also impacts how Denmark sees its role, both on a standalone basis and importantly as part of the European Union. With Tyra on stream, Denmark will become the second-largest oil and gas producer in the European Union. That focus on energy security positions us well.
We will have indigenous supply within the EU, and that will come with a strategic premium. We have a supportive backdrop and the potential to do more, and that allows us to support energy security and create value. Moving on to the next slide, that backdrop is entirely consistent with the strategic focus that we've communicated previously. We're delivering operationally, and here we're maximizing production, minimizing costs, and reducing emissions.
We're delivering Tyra, which unlocks significant gas resources, and once on stream, the project will drive significant production and cash flow growth for us. As already mentioned, it also strongly supports long-term energy security in Denmark and in the EU. Here, we're progressing to the final stages of the project to safely achieve startup as scheduled in mid-2023 on a fully funded basis.
It also means delivering our potential. We have a wide set of long-term value additive opportunities, and that can come in the form of accelerating near-term infill, looking at progressing gas-weighted mature projects, and also assessing the potential for further growth with Danish stakeholder support. Against that, potential value creation, we will also have a very disciplined approach to capital allocation.
We'll continue to focus on prioritizing shareholder returns and measuring future investments against the extent to which they support our objective of maximizing value and delivering a strong and robust capital structure. In short, the potential for Noreco's business is great, and it continues to grow.
We're making significant progress against the objectives that we've outlined, and this will continue over the next 12 months and beyond. The Noreco of tomorrow that we deliver will be derived from this strong position.
Where we have both a strategic and shareholder addition from a contribution from ourselves. Turning over to look at our operational delivery. Marianne will take you shortly through this in a little bit more detail, but the key messages are simple.
We delivered strong production of 28,500 barrels a day in Q1, and based on that performance and also our near-term outlook, we've raised our annual guidance by 1,000 barrels a day to 24,500-26,500 barrels a day for the full year 2022. That has translated into a strong financial result for the quarter. We generated EBITDA of $107 million, and that was driven by strong operational performance and also strong commodity prices in the period.
Combined with our clear operating methodology, this will ensure our current strong performance continues into 2022. Sorry, continues in 2022 and beyond. Moving over to focus on the impact of Tyra. Tyra was already hugely important to the Noreco story. It's been core to our growth trajectory since we closed the Shell acquisition in 2019.
The current landscape, however, has also added a strategic element to the project. From a Danish and EU perspective, the importance of bringing the redevelopment on stream on schedule has been strongly emphasized, and we remain strongly confident in the Q2 2023 start-up. The project is making significant progress, and we are consistently moving towards first gas. As a reminder, it's a topside redevelopment, so relatively low risk.
The reservoir is well understood. It has a long history of previous production, and the wells are already drilled. Significant milestones have been achieved, with seven of the eight platforms now already in place following the completion of April's offshore campaign. The remaining platform, TEG, which is the processing module, will sail away and be installed in Q3 2022.
The hookup and commissioning campaign, which is already underway, will then conclude in Q2 2023, at which point we'll have new state-of-the-art facilities that will both contribute materially to energy security, but also lead to a significant improvement in our emissions profile. It will give us an outlook for Tyra to 2042 that is only constrained by our current license expiry.
For Noreco specifically, it results in an almost doubling of production to roughly 50,000 barrels a day and materially increases our gas weighting. It will lead to a significant reduction in operating costs and in emissions, and also material free cash flow generation of over $2.6 billion at current forward curve prices. Tyra is a game changer for us, for Denmark, and for the European Union.
The progress made to date continues to increase confidence in the Q2 2023 startup and brings us closer to delivering the finished project, the finished product. Moving on to our potential. It's important to recognize that Noreco contribution doesn't end with Tyra. As we'll cover in more detail throughout the presentation, the current landscape presents a significant opportunity for us.
We have a strategically important portfolio that offers significant potential to both meet the energy security objectives of our key Danish stakeholders and create value for our shareholders. As we've been clear throughout, once Tyra is on stream, we'll prioritize shareholder returns, and this will be delivered through a material and sustainable distribution profile. Through cycle, we'll naturally de-lever once Tyra is on stream, given the significant EBITDA contribution from the asset, but we also have an eye to the future.
We will look where it makes sense to do more, and this will be delivered against our capital allocation framework. What we'll focus on is those projects and opportunities that enhance shareholder value and our long-term free cash flow profile. The value that we look to create through further oil and gas production must also be protected through our participation in the energy transition and behavior that is consistent with those goals.
Cathrine will take you through the balance that we have at the moment between energy security and the energy transition, but the main message is that to ensure our continued long-term relevance, both topics are equally important. By developing Tyra at a time when few other E&Ps have progressed a project of this scale, we've already helped safeguard access to reliable and affordable energy in Denmark.
It's important because, as I mentioned at the start, as we look to move down the energy transition pathway, we must recognize that the need for gas is not going away anytime soon. Tyra is the first step, as we've mentioned, but the potential of our existing portfolio within the DUC from a resources perspective provides the opportunity for future growth.
We're also actively considering longer-term sustainability-linked opportunities. There is, as we've communicated before, a concept study ongoing for CCS in the DUC. That's Project Bifrost.
While it's still at an early stage, it has the potential to be an important part of Noreco's story in the future. All in all, as I hand over to Marianne, I'd like to leave you with a message that we are delivering operationally. Current performance is strong. We are delivering Tyra.
The project remains on schedule for first gas in Q2 2023, and we are delivering our potential with the progression of near-term infill drilling opportunities and longer-term development of our mature projects, all of which is supportive of Noreco's transition into a material cash flow generator from 2023.
Okay, thank you, Euan, and I will now talk you through the operations, status and our performance in the first quarter. Taking a look at the Noreco asset portfolio, we hold a 36.8% working interest in the Danish Underground Consortium, which is producing around 85% of the oil and gas in Denmark.
This is the majority of Danish production. What we're looking at is a total of 15 fields producing from three hubs at the moment with Dan, Gorm, and Halfdan. We started production in the DUC from Dan in July. Okay. I'm really sorry about that interruption.
We lost our internet connection, but we should be up and running now. Going back to Tyra. Tyra will materially change and transform the DUC asset. It will go from mature oil fields to state-of-the-art gas fields. We will add significant processing capacity that will also unlock a large amount of reserves.
We believe that we can produce at least 200 million barrels of oil through the Tyra facilities. We are also looking at a significant reduction in the unit operating cost and also in the emissions intensity.
Looking at 2P reserves year-end 2021, we are at around 200 with Tyra as the most significant hub followed by Halfdan, Dan, and Gorm. Moving on to the next slide. We've had a fantastic first quarter production in 2022.
We have been producing at an operational effectiveness of more than 90%, which is a world-class performance for fields of this age. In particular, on Dan and Gorm, we have also done successful workovers and stimulation work, and that has also increased the well potential from those two fields.
While Halfdan production has also been going well and we are also planning new workovers on Halfdan later in this year. Again, an operating efficiency of 92.6% has led to an increase in the production level compared with all of last year. We have also increased our production guidance for this year with 1,000 barrels of oil equivalents.
Our guidance is now between 24,500 and 26,500. You could ask, "Why could we not continue producing at more than 28,000 for the rest of the year?" We do have some planned shutdowns.
The most significant is our gas export pipeline NOGAT shutdown scheduled for Q3 this year. In addition, we will also shut down selected wells for well interventions. Again, a really good quarter, and I'm really impressed with our operator, TotalEnergies, how they manage the day-to-day production and safety and optimization of this asset.
Moving on to the next slide, what we're seeing for the remainder of 2022 is we will continue with well interventions, and we are seeing excellent payback and gains from these interventions.
We are using the rig Noble Sam Turner, and on top of that, we will also get the Maersk Reacher on contract from June, which will provide additional capacity to do both further well interventions and also the focus on maintenance and integrity work.
We are planning the intervention activities like water shutoff, additional perforations in order to optimize our water flooding process to make sure that the water we inject is hitting the right parts of the reservoir to maximize recovery and to make sure that we do not spend more fuel than necessary on the water injection.
We feel that we have a very efficient recovery process right now. We want to remain at more than 90% for the rest of the year as well. TotalEnergies, they are working in a very systematic way to achieve a stable more than 90% availability number.
What we have done is that we have been looking at the losses for the last two years and then addressing the root causes for the losses in a systematic way and making the necessary changes to the operations. We see that this approach is giving excellent results. We are continuing to invest to increase production with the Maersk Reacher.
We also have contracted a stimulation vessel to do more stimulations after the very good results we had on the Gorm stimulations. We are also working hard to mature further investment projects that is both infill drilling campaigns in addition to maturation of field and development projects.
In Noreco, we have a lot of expertise, in-house experts on the subsurface and the reservoirs and also experts on the DUC facilities. We're working closely together with the operator in order to identify the highest value opportunities and also to now prioritize the acceleration of the gas opportunities. Next slide.
I mentioned the reserves and we are around 221, 2021 year-end, and that's where we started in 2021 as well. We produced 9.8 MMBOE, but we managed to add 9.5 MMBOE through the very good performance on the Dan wells and the Gorm wells following well interventions. That gives us a reserves replacement ratio of 97%, which is a very good outcome given that we have not done any infill drilling this year.
I hope to be able to tell you next year that we have a similar reserves replacement ratio as we are going to mature several infill wells over the next year, which will hopefully convert 2C resources into 2P reserves.
Moving on to the next slide and Tyra, we cannot overestimate the importance of Tyra. Tyra is important for Noreco, but it's also very important for Denmark for supplying energy to Danish households and industries. With Tyra on stream, Denmark will go from being a gas importer to a gas exporter, so supplying very needed gas to Europe.
Again, we are looking at a 45% weighting on gas with Tyra on stream. We will significantly lower the unit emissions on DUC as well with Tyra on stream. This is an area where we are working more also on the other parts of our operations to achieve even lower emissions.
Tyra will extend the lifetime of the DUC as well, and it will enable a high number of additional projects to be executed. Tyra, we started back in 2017 with FID. We shut in production in 2019. 2020 was a busy year with construction all over the world.
What we're seeing now is that we are getting close to first gas. As Euan said, we will now have seven out of eight installations installed at the offshore location. We will get the eighth one, the processing facility next quarter.
We are now on track to deliver first gas in Q2 next year. This time next year, we could actually be producing from Tyra. We had a really efficient offshore installation campaign with the Sleipnir, which is the world's largest crane vessel, back in April. We managed to lift the three Tyra west wellhead and riser modules in less than six hours.
We then lifted the TAH, the accommodation module, a few days later. I visited the yard in Ravenna for the sail away back in March. It is a really impressive site with eighty single cabins. It is really a home away from home for the offshore workers, and it is supplying all of Tyra with water and emergency power, and it's also got the control room, the offshore control room as well. The majority of the CapEx we have already incurred. The Noreco cost estimate is DKK 22 billion.
We have now incurred DKK 17 billion, and we have a DKK 5 billion remaining at the end of 2021. Again, we're working hard on the processing module, which is being constructed in Indonesia. It's more than 90% complete, and we are ready to sail in the next quarter, Q3 2022.
What happens after that is really that we will then install and hook up and commission, making sure that everything is working on our new facilities. We have already drilled the wells. The wells they were suspended when we suspended production.
We will now connect those wells, and we will also connect to the existing in-field pipelines and connect to the gas export as well. It will be busy offshore when the TEG module is arriving. We have very good plans in place to manage the scope of work in order to deliver first gas second quarter as promised. I'll now hand over to Cathrine, who will take you through our next slide talking about our potential and ESG.
Thank you for that, Marianne. Last quarter, I presented to you our approach to the energy transition and also explained how Noreco as a gas producer is an important key to safeguarding access to reliable and affordable energy in Denmark. Energy prices, and gas in particular, began to rise last fall, and especially during the winter period.
A significant underinvestment in gas supply for almost a decade was one of the main drivers at the time. For the past two and a half months, a devastating backdrop has added significant geopolitical strain on the energy balance in Europe. Energy security is critical, and today we're no longer only concerned about the environmental impact of the energy sources we consume, but we also would like to know where they come from.
Until the day we get the first gas output from Tyra, the reality is that for the past couple of years, 75% of Denmark's gas consumption is imported from Germany, which again imports gas from Russia. We all agree that in Europe we will need to meet the natural gas demand in a more responsible way than what has been in the past.
Denmark is a country but also member of the European Union acknowledges its responsibility to contribute to these objectives and has set several wheels in motion as a response. In parallel, Denmark remains at the forefront of the energy transition and continues to increase its efforts towards reaching aggressive climate targets at the same time.
As the second-largest oil and gas producer in Denmark, we have an important role to play in supporting the Danish contribution to the energy security in Europe, and Europe needs gas. Besides delivering Tyra next year, we continue to have a pragmatic approach to future strategic initiatives, and we believe that with a constructive approach there is great potential for value creation while supporting the objectives of Denmark and of Europe.
Incremental volumes can further support the European demand, and Noreco is currently assessing opportunities to increase gas production in an economic way. With the right approach, you can contribute to the energy transition while at the same time support energy security. Getting Tyra on stream is a very good example.
The delivery of Tyra does not only mean that we will increase our output dramatically, it also means that we will produce what equates to the power supply of approximately 1.5 million Danish homes.
With Tyra on stream, we will also see a significant reduction in our emissions, and the Tyra field itself will have a 30% lower emissions compared to the old Tyra. At the same time, for the three other hubs, we have an everyday focus on improving efficiency and reducing emissions. This is done through flare reduction initiatives, emissions monitoring, and the phase out of chemicals.
Through our continuous efforts to reduce emissions on Tyra and the three producing hubs, and with funding costs directly linked to the delivery of ambitious ESG objectives, we're well-positioned to do just that, support the critical need for energy security while at the same time contribute to the energy transition. On that note, I will pass back the word to Marianne.
Okay. Thank you, Cathrine. What I'm really excited about right now is the growth opportunities that we have inside the DUC. With Europe's need for gas, the DUC has also changed its approach, and we are focusing on gas. We have now identified seven infill drilling opportunities that we're looking to take investment decision on this year and next year. We will start that seven-well infill drilling campaign in the middle of next year. That is very tangible short-term growth opportunities giving Noreco around 19 MMBOE of net reserves weighted towards gas.
In addition to that, we also have the well intervention opportunities, and we're seeing a potential of at least additional 2 MMBOEs in additional production in addition to the acceleration as well.
Looking at the cost levels, because we have the processing facilities in place already, we're looking at very affordable projects between $10-$15 per BOE. In addition to that, we are obviously looking at the larger development projects.
We have been talking a lot about the Halfdan North and the Valdemar Bo South opportunities, two very significant oil-weighted opportunities that can be developed through simple unmanned four-leg jackets tied back either to the Halfdan or the Tyra processing facilities with low unit CapEx per barrel.
These two projects, they are already fully matured, so they are ready to go when we want to phase these in. What's really exciting is Ada. Ada is a significantly sized gas discovery inside the DUC in a very easy tieback distance, 11 kilometers of Tyra. We need a bit more maturation of Ada before we can make a final investment decision.
We are working together with our operator, TotalEnergies, to accelerate the Ada development as much as possible. In addition, we also have other development opportunities inside the DUC. What we want to do is to continue to mature development opportunities so we can have a continuous string of development drilling going forward in order to maximize the recovery from the DUC within the 2025 timeline that Denmark has decided on. I think that was everything I had on the operational update, so I'm handing back to Euan.
Thank you. The strong operational performance that Marianne has just walked you through in the first quarter has also translated into a similarly strong financial result. Even with an underlift of roughly 2.6 thousand barrels a day in Q1, which is a timing effect that will be reversed, revenue of $179 million and EBITDA of $107 million in the quarter are both up from Q4, and again, represent the strongest quarter that we've had since taking control of our interest in the DUC.
This allowed us to generate roughly $25 million of free cash flow in Q1 while still investing materially in Tyra. Setting aside the short-term underlift impact, this performance gives an insight into the potential that we have once Tyra's on stream. It also strengthens our already robust capital structure, where we continue to be fully funded.
At the end of Q1, our total liquidity position was $247 million, and the outlook from our perspective is further strengthened by both the strong operational forecasts and the current commodity price environment. Turning over to the hedge portfolio, the primary purpose of the price hedging that we've put in place is to provide visibility over future cash flow. We've achieved that goal.
We believe that we are strongly positioned to continue to deliver the Tyra project, and ultimately, our hedging has supported us through lower commodity price times. As we now find ourselves in a more positive price environment, we expect to have more spot price exposure as we move through 2022 and beyond.
However, our hedges will always be in line with the minimum level set by our RBL hedge policy, which is 50, 40, and 30% of 1-, 2-, and 3-year forward production. Based on our production guidance for the year, in the remainder of 2022, we expect to be roughly 55% hedged on oil at, again, roughly $56 per barrel, and roughly 25% hedged on gas at average prices ranging from EUR 60-EUR 124 per megawatt hour.
Turning over to look at our balance sheet and capital structure. In short, our capital structure remains robust, the balance sheet stable. There are no principal maturities prior to Tyra II first gas.
Net debt on an accounting basis at the end of Q1 2022 was $1,146 million, and excluding NOR13, it was at $954 million. Our forecast leverage position has also improved materially given the higher prices experienced to date, the strong operational performance, and also the improved outlook.
Turning to our liquidity position. With cash on balance sheet of $147 million and undrawn, but available RBL capacity of $100 million, we are fully funded to deliver Tyra. Again, the outlook is further supported by the commodity price environment and our spot price exposure.
Finally, we also announced this morning that given the strengthening of our financial position and outlook, combined with further progress on Tyra and strong share price performance during Q1, that we intend to engage with stakeholders to investigate measures to simplify and enhance our capital structure.
This process will focus on potential alternatives or amendments that may exist to reduce the dilutive impact of NOR13. In this regard, we've engaged Arctic Securities and Pareto Securities, and that's a process that will commence shortly.
In short, our balance sheet is set to enable us to deliver operationally, and as we've used as a principle throughout, we'll continue to actively look to take value accretive steps that support our long-term capital structure when it makes sense to do so. Turning to our closing remarks. Where are we? We're delivering, and we'll continue to do so.
We have a very exciting outlook with Tyra just around the corner. We're focused on optimizing our near-term production, delivering Tyra, and maximizing the long-term value of our portfolio and contribution to energy security. The outlook continues to be bright. We're closing in on first production from Tyra, and that's gonna lead to a step change in performance, both from an operational and financial perspective.
Beyond Tyra, our focus is on delivering on our commitments to delever, to establish a meaningful and sustainable shareholder returns profile, but also looking to make sure that we contribute where we can to create value and support the energy security position. We look forward to you continuing with us on that journey, and with that, I'll hand over for any Q&A.
If anyone has any final questions, please submit them now.
Okay. The first question is for you, Marianne. You mentioned infill drilling a few times. Can you please give some more color on, one, whether this has already been approved or when it potentially will be approved? How many wells are planned? Roughly when they might be drilled? How much incremental CapEx, and how much incremental production, including the mix of oil and gas?
Okay. No, thanks a lot for that question. Did you see we have just turned around and looked for the gas opportunities, so we are still maturing these infill wells. We feel that we come quite a good way on assessing potential. We will start to FID these infill wells from second half of 2022 and in 2023. We're looking at 7 wells in total. We then have 1 well which is gas-rich, 4 wells which are 30% gas and 2 oil wells. We're looking at a development cost around $10-$15 per barrel.
Again, we are looking at an addition of 19 MMBOE. That is our current estimate. Supply chain constraints is a really good point as well. What we're seeing is that we are in a good position to already have the Noble Sam Turner on contract.
That is the well that will be used. We also have the Maersk Reacher which we are currently using to support well intervention. That's another rig that we have at our disposal. Due to the maturation still going on, we have not started ordering the long lead items, but it is high up on the agenda.
Thank you. Next question is for you, Euan. Do you want to refinance the convertible, or would you just like to force conversion?
Thank you. We're actively considering a number of potential options in regard to the convertible. I think we are looking to understand what the potential exists for a solution. What I would say is that given our focus on reducing the dilutive impact of NOR13, I think we will aim towards finding a structure that looks more at a refinancing rather than a forced conversion.
I'd also say that I think the forced conversion point is best managed where we have also looked at our trading dynamics and improved the liquidity that we have in the share. I think a forced conversion at the current time is not on the agenda.
Next question. As your market cap has increased so much over the last year and your shareholder base expanding within the U.S., have you or do you intend to increase your roster of advisors, such as larger investment banks, in regards to your corporate activity going forward?
When thinking about what advisors to use for specific engagements, we choose the ones that we believe are right for those engagements. That said, we do have discussions with a number of parties, including some of the larger institutions that I think you're referring to. If we move to a place where they are the right people to engage for a specific action, then we will use them.
Thank you. That concludes the Q&A session. Thank you all for listening in, and we look forward to engaging with you going forward.