Good morning, everyone, thanks for joining us for our Q1 results. It's been a volatile couple of months, before going into how BlueNord has performed over the last quarter, I want to start by giving some color upfront on what we think that means for us. If I look back to the turn of the year, we felt like we were well set. We were fully prepared to deliver on our return commitments based on $60 oil. That was ultimately the benefit of the design of our distribution policy. We'd be in good shape regardless of the commodity price environment. The whole point was to have something flexible and therefore resilient. I think it's fair to say that everybody who's going to be listening today is familiar with what's happened since.
The conflict in Iran has put energy security back at the top of the agenda and has pushed prices higher. The same structure that was set up to protect on the downside will now let shareholders fully capture the upside. Higher prices are going to translate directly into higher returns. You're going to be happy to hear that I'm not going to stand in front of you today and tell you that I know where prices go from here. Thankfully, that isn't our job. Our job is firstly, to make sure that BlueNord is positioned for all eventualities, and secondly, to make sure that we're getting everything we can out of this business, regardless of the commodity price environment. On both those points, I think that we're well set.
Firstly, the structure of the distribution policy means that 70% of operating cash flow goes back to you. When prices rise, shareholders feel it quickly. It's also important to note that the 30% that we keep also goes further in dollar terms, which means that the balance sheet keeps getting stronger in the background. Turning to the capital structure. We've always been proactive in making sure that it reflects both the strength of our balance sheet and the underlying strength of our business. Today, we're continuing that, in that vein. We announced that we intend to have meetings with fixed income investors this week with a view to a possible refinancing of BNOR16. That's the backdrop. If we turn to the next slide, we can start going through how we've performed over the last three months.
Before we get into the detail, I want to give a quick reminder of who we are for anyone that might be newer to the story. BlueNord is an independent E&P focused on Denmark. We're producing over 40,000 barrels of oil equivalent per day through our 36.8% non-operated interest in the DUC. That's operated by TotalEnergies. What this position gives us is exposure to four hubs, 14 producing fields, and resources of around 200 million barrels of oil equivalent. It's a high-quality, well-diversified portfolio. The base, Dan, Halfdan, and Gorm, has been producing for a long time. It's low decline, it's predictable, and it does what it's supposed to do quarter after quarter. Tyra remains the growth engine.
Even although we've already seen that step change in production and cash flow generation that we've been talking about come through, there is more room to run. You've got stability underneath and momentum on top. That combination, together with our tax loss position, drives not only our cash flow and distribution profiles, it's also what makes us particularly relevant to European energy security. If we turn to the next slide, we'll talk about that. If the last few months in particular have taught us anything, it's that where energy, and in this case oil and gas, comes from matters. Producing locally for local use has real benefits, not least less reliance on imports and therefore less geopolitical risk. The DUC sits right at the heart of that.
It's the bulk of Danish oil and gas production, and with Tyra back online, Denmark is once again a net exporter of natural gas, contributing directly to EU energy security. What's Denmark like as a place to operate? Well, the regulation is clear, the fiscal regime is steady, and there's an honest recognition from policymakers that domestic gas has a role to play in the transition. That last point in particular isn't always the case in Europe, we don't take it for granted. In that vein, it was genuinely encouraging to see the government signal recently that it would look at extending the DUC license from 2042 out to 2050. Landing that extension will be meaningful for us.
It gives more time to produce the volumes that we already have, more time to invest in the projects that we've already identified, and financially, pushing abandonment further out enhances the long-term profile of our business. Let's turn to the next slide and look at how we intend to make the most out of the position that we have to drive value. I'm happy to say that the story here is actually pretty simple, and we do like to keep it that way. We've got a stable, low-decline production base. We've got Tyra, which has already delivered a step change with more to come. We've got a clear plan to hold production at or around current levels through at least the end of the decade. That last point leads nicely to one thing that I want to be really clear about.
We're focused on value, not volume. Our plan is built on real projects, not the promise of new volumes that need to be found through exploration. Equally, we're not trying to maintain or grow production for the sake of it. Every project that we have has to be genuinely additive. It's our discipline here that feeds the cash flow story. Higher prices help in the near term, but the structural piece is that we've got a lower cost base and flexibility on CapEx. That's the model. We generate cash, we return as much of it as we sustainably can, and we keep deleveraging in the background. For the scorecard on that, let's turn to the next slide. Distributions are the core pillar of our equity story, returning capital to shareholders.
In early 2024, we set a distribution policy that would see us return between 50% and 70% of operating cash flow through to the end of 2026. Since then, we've consistently delivered at the top end of that range. So far, across 2024 and 2025, we've returned over $500 million. If I include the Q1 distribution that we're proposing today in that total, that takes us past $600 million. Looking forward, the position that we have in 2026 is significantly stronger than we expected it to be when we originally set our current distribution policy. Two reasons. The first is because the Tyra ramp-up took longer than we expected, our tax loss position is now set to shield us from hydrocarbon taxes well into 2027.
Under the existing policy and with higher prices in the near term, the cash we keep, that 30% of operating cash flow, is also bigger in absolute terms. The balance sheet gets stronger at the same time as returns get larger. It's not one or the other, you get both. That's also particularly relevant in the context of the potential BNOR16 refinancing that we announced this morning. As we keep de-leveraging, we want to make sure that we've got the flexibility to set distributions at a level that reflect the strength of the business and the cash flow that it generates. We'll set the distribution policy for 2027 onwards in due course, I hope the direction of travel is clear to everyone.
We'll continue to be a company that targets an attractive return to shareholders. In setting that policy, we'll continue to take into account four main things. First, our ability to manage our debt commitments, including the hybrid. Second, capital for our investment and operational plans. Third, maintaining a strong liquidity position. Fourth, making sure that we have a sustainable capital structure through the cycle. With that, let's turn to the next slide and the performance summary for the quarter. Miriam, Cathrine, and Jacqueline are going to take you through the detail in a moment, so I'm going to keep this as short as I can and just focus on the headlines. It was a good quarter for us, both on operations and financials. Production came in just over 43,000 barrels of oil equivalent per day, about 20 from the base and just under 23 from Tyra.
The base is doing what it always does, producing steadily, and Tyra has already delivered the step change growth that we expected. That said, Tyra does still have further to run, so we're absolutely not declaring victory yet. There's still work to do to get the full potential out of the hub, but the direction of travel is positive. We had fewer unplanned shutdowns this quarter. It's running more steadily. With the operator focused on fixing some of the identified constraints, we see a clear path to reaching peak production in the second half of the year. That's in line with the 2026 guidance that we set out last quarter. On the financial side, we delivered $318 million of revenue in Q1, just over $200 million of EBITDA, and $141 million of net operating cash flow.
Prices rose sharply in March, we did have a working capital build at the end of the quarter, but we'll see that start to come through in Q2. On the capital structure, leverage is down to around 1.7 times, liquidity sits at around $460 million. Finally, the message that I want to leave you here is straightforward. We're delivering, we're generating cash, we're returning it, the balance sheet is getting stronger. That's exactly what we plan to keep doing. With that, I'll hand over to Miriam. Thank you.
Thank you, Euan. As Euan said, I will now take you through the operational performance for the quarter. Overall, our Q1 performance was driven by three key things: the resilience of our base assets, continued momentum at Tyra, and disciplined execution across the portfolio. We delivered within guidance for the quarter, and importantly, we achieved our highest quarterly production since the restart of Tyra. Dan, Halfdan, and Gorm provided stable and reliable performance, while Tyra continues its progression from stabilization into growth. I will now show how this performance underpins our continued operational momentum and supports a clear pathway to further value creation through 2026. Let me start with an overview of the total production for the quarter. We have delivered consistent production growth over the past five quarters. This reflects both the resilience of our base assets and the continued progress on Tyra.
Q1 delivered the highest average quarterly production since Tyra restart at 43.1 thousand barrels of oil equivalent per day. This achievement underlines the progress on operational performance that the operator, TotalEnergies, has delivered. Looking ahead, Tyra continues to drive near-term production growth, while our base assets remain reliable contributors to overall DUC performance. Targeted maintenance through the year supports stable operations, and our focus remains on maximizing asset performance by reducing operating costs. During Q1, our base assets delivered resilience performance, with average production of 20.1 thousand barrels of oil equivalent per day. On Gorm, the benefits of lifetime extension program are now clearly materializing, with operational efficiency exceeding 95% in March. Early in the quarter, Gorm production was impacted by lift gas compressor issues and weather-related delays following a generator trip. Once resolved, production stabilized and exceeded expectations towards the end of the quarter.
On Dan, underlying production potential remained robust, although realized production was temporarily impacted by compressor-related trips and an internal multiphase flow line leak. These issues were resolved, and production recovered as the quarter progressed. Halfdan delivered stable production overall, with short-term reductions linked to vibration issues on a compressor from mid-February. Normal operations were fully restored from mid-March. ROM activities on Gorm will commence soon and continue through 2026. The work will be executed cost-effectively from the platform. Dan rightsizing activities have been initiated to reduce OpEx. Looking ahead, we expect stable contribution from the base assets through 2026. Planned maintenance will cause short-term production impacts, but this work is essential to maintain long-term integrity and high operational efficiency. Turning to Tyra, Q1 showed clear operational progress.
We delivered a quarter-on-quarter increase in both production and operational efficiency, with average production of 22.9 thousand BOE per day, the strongest quarterly performance since restart of Tyra. Tyra did experience operational issues during the quarter, each of them resolved within less than 24 hrs. Issues were mainly related to facility work, third party, and weather. In the stable periods, Tyra delivered around 25 thousand BOE per day. In Q4 2025, Tyra demonstrated that the facilities can operate with very high reliability, achieving 95% uptime in December. Overall, operational efficiency in the same quarter was 69%, reflecting that not all wells were online and capacity constraints remained.
An average operational efficiency of 80% was achieved in Q1, which marks a clear improvement since last quarter and provides a strong foundation for continued performance uplift, reflecting increase in available well potential and a reduction in capacity constraints. Our focus to unlock full Tyra potential is centered on three areas. Firstly, to increase available well potential. Secondly, to improve processing and export capacity. Thirdly, to rectify reliability issues. Processing conditions have improved, supported by several upgrades to liquids handling, and the operator continues to optimize processing and export. The planned October 25 shutdown materially improves stability, and a further shutdown in June will address key reliability upgrades to the surface system to support more stable operations going forward. The improvement in stability has supported bringing more wells on stream. The March walk-to-work campaign successfully brought five additional wells on stream, materially increasing available well potential.
A few operational steps remain to further increase production. I will provide more details on this on the next slide. Overall, we see consistent quarter-on-quarter improvement underpinning our confidence in Tyra's path to higher stable production and its role as a cornerstone asset. At full capacity, Tyra will also materially improve our cost base, which Jacqueline will cover in more detail later. As highlighted, operational reliability and stability continue to improve, enabling more wells to be brought on stream. A small number of operational impacts to production have been identified with clear steps defined to further increase production. The production from the Harald East Middle Jurassic well, HEMJ, is currently constrained by surface choke capacity. The reservoir is performing as expected, but the size of the existing choke limits the flow at surface. This was a known constraint, but we need a shutdown to replace the choke.
A larger choke will be installed during the already planned June shutdown. Oil and water challenges related to a small number of wells have been observed. To manage this, some of the wells have been choked or temporarily shut in. This was observed when a few particular wells came on stream. To mitigate this, water treatment optimization is currently underway to restore full capacity. As additional wells are brought online, well slugging has, at times, affected process stability, requiring wells to be temporarily choked or shut in. Work is ongoing to further strengthen separation robustness and operability. In summary, these impacts are temporary, operational, and surface related, not well or reservoir driven.
Mitigations are progressing according to plan. Resolving these is a key step in converting improved operational stability into higher, more sustained production. To summarize the current status, operational efficiency has improved more than 10% since Q4 2025. Whilst a few minor production impacts have been identified, there are mitigations underway. Both well and reservoir performance are maintaining robust levels. The operator continues to focus on process stability, reliability, and unlocking the full well potential to further drive sustained production growth at Tyra. The planned shutdown in June 2026 will deliver key reliability upgrades to enhance the operational stability. Tyra production has increased quarter on quarter since restart. Efforts in this second quarter are expected to further increase production output during the second half of 2026. Our strategy is to maintain momentum, maximize the value of our assets, and ensure long-term stability for Tyra.
With this overview of operational performance, I'll now hand over to Cathrine, our Chief Corporate Affairs Officer, who will take you through the long-term outlook for BlueNord. Thank you.
Thank you very much, Miriam, and good morning to everyone. BlueNord's current and future production is of great strategic importance, not only from an energy security perspective but also as a source of revenues to Danish economy. Oil and gas revenues support the Danish welfare society through tax revenues, both from the companies and its state-owned entity Nordsøfonden with a 20% working interest, and also through the skilled employment. Previous quarter, we announced that we had been invited by the Danish Ministry of Climate, Energy and Utilities to explore a potential extension of the DUC license to 2050. This is a proof that Denmark is taking a responsible and pragmatic position, recognizing its role in the European energy markets. Today, EU is highly dependent on imported energy.
Almost 60% of its current oil and gas consumption is imported from other countries. Of those volumes, only 30% of the imported gas and as little as 21% of the imported oil are from democratic countries. The current escalated geopolitical uncertainty, including the ongoing Iran conflict, underlines the strategic importance of reliable European energy supply. Danish oil and gas production continues to play a critical role in supporting regional energy security, providing stable, low emission, and domestically sourced volumes that reduce reliance on imported alternatives. An extension of our license to 50 makes more sense today than ever before. It would be something Denmark can be proud of, as it is a tangible contribution in reducing Europe's dependence on imported energy. Moving to the next page outlining our substantial discovered resource base.
The 2025 annual statement of reserves we published in March, and it's also reflected on this page. We have 173 million barrels of 2P reserves, of which 148 million sit in the producing assets and 25 million are approved and justified for development. In addition, 23 million barrels are defined as near-term 2C resources, meaning that they are progressed and are on a pathway to being converted into 2P reserves. Our clear focus is to maximize the economic recovery from the DUC, meaning moving 2C resources to 2P reserves, and also mature the longer-term resources and unlock what we define as additional potential. The non-producing reserves and resources from the previous page are here represented as high-graded projects. These are both development projects and infill wells. For development projects, we have started reworking two of them, Halfdan North and Valdemar South.
This is to simplify the complexity of each project and reduce CapEx significantly. This means that the volumes are slightly lower, but each barrel will be more profitable. This is also reflected in the improved CapEx outlook for the next four years, where value over volume has been the key criteria. The third project, and probably the one to expect first, is Tyra North. This is a tieback to the new Tyra facilities, further utilizing the efficient and new processing facilities, which we aim to backfill to the greatest extent possible. Tyra North is a material project in terms of value for us and is set to deliver almost 20 million barrels net to BlueNord. For all three projects, the unit technical cost is low at less than $20.
We also have several infill wells in the portfolio, and a jackup rig expected to commence work next year is going to carry out these activities for the DUC. Infill drilling is a very cost efficient, with a development CapEx of less than $13, and it's also a really quick way of adding additional production. As of today, we have planned two wells in Halfdan, one on Valdemar and two on Svend, together representing 11 million barrels. Infill wells typically reach peak production fast and have a relatively quick decline, but then flattens out with a long, nice production tail. What you want to do is drill them in sequence such that you have an impactful collective tail of production. Finally, we have the undefined wells we today call additional potential.
These are mostly wells on Tyra, where we see great potential for infill drilling. The redeveloped Tyra unlocked a gross potential of about 200 million barrels of resources, which means we have a high set of opportunities there. Finally, bringing the previous pages together in this updated production profile. This slide illustrates the materiality of existing business and the planned investment activities. With the reworked projects and phasing of activities, you will notice that the production looks a bit different now. We are expecting production to remain just shy of 50,000 a day this decade. You should expect this production to be more profitable than the previous profile did. You can clearly see that the volumes from 2031 and beyond are more material. The production is staying at a much more stable level for the next 10 plus years.
Not only is the production more predictable, the added barrels from the projects are more profitable as they have been reworked. This is where you see the value over volume take effect. We would rather execute a project delivering lower production if that production is more profitable per unit. While we have a very strong commodity price environment today, with this approach to CapEx, we can also sustain any future low price scenario. The production is only constrained by the expiry of the license in 2042. On this day, production would still be profitable for us at about 15,000 barrels per day. One thing we have not illustrated yet is how this production profile may look if we extend to 2050 and further investment opportunities are unlocked as a result of that.
value over volumes as a guiding principle, we believe that there's a strong upside in an extension such that BlueNord can play a longer term role in delivering into the energy needs of Europe. I'm now going to hand over to our CFO, Jacqueline, who will take you through the Q1 financials. Thank you.
Thank you, Cathrine. I'll now walk you through our financial performance and how the operational progress you've just heard about is translating directly into cash generation and importantly returns to shareholders. The key message for Q1 is still that Tyra has fundamentally changed the cash flow profile of the business, and we're now in a position where higher production, lower unit costs, and disciplined capital allocation are aligned to deliver significant free cash flow. This continues the delivery on what we said we would do and is translating into meaningful returns. With that foundation in place, let's turn to how this operational progress is showing up in our financial performance for the quarter. At a headline level, we delivered strong profitability and cash flow again in Q1, all significantly up year-on-year.
It is also a strong result quarter-on-quarter and has been supported by stable Tyra production and higher commodity prices. Revenue is $318 million for this quarter, EBITDA $201 million, and net cash flow from operating activities is $141 million. Cash flow generation shows some working capital build up this quarter. This is due in part to higher prices driven by the conflict in Iran starting late in the quarter, and volumes of oil sold in the last month of the quarter being higher than we’d usually see. From a balance sheet perspective, leverage has continued to trend down as we have been targeting. Liquidity remains strong with a continued positive outlook. This continued cash generation alongside a robust balance sheet creates meaningful capacity for returns.
Now let's look in more detail at how this performance is delivered and managed through our key areas of focus: hedging activity, cost management, and sensible capital allocation. Our hedging program continues to do what is intended, downside protection for cash flow and also visibility. A significant proportion of both oil and gas volumes are hedged through to the end of 2026. This is smoothing some of the impact of market volatility. We do continue to add volumes where it makes sense to do so. Now, we have not added a lot since we last showed this slide in late February and early March, but it is important to highlight that we continue to monitor the market for good opportunities, especially now further out on the curve in time.
We've hedged 67% of forecast oil volumes and 65% of forecast gas volumes through to the end of 2026. Much of the remaining unhedged 2026 exposure, we've added some downside protection through puts at $75 per barrel and EUR 40 per megawatt hour. The geopolitical situation remains uncertain and volatile. Where commodity prices will head and over what time horizon is unclear. This is why we see downside protection as valuable. It provides a floor and a level of certainty during times of significant uncertainty. With pricing volatility managed, the driver of cash flow growth is on volumes and cost efficiency, which brings us to the cost base. As Tyra production has stabilized, unit operating costs remain at the low end. Modern facilities at Tyra are significantly more efficient, and as volumes increase, the largely fixed costs of the DUC are spread over more volumes.
The Q126 unit OpEx is at $23 per BOE and lifting cost at $15 per BOE, tracking around the target level. We will benefit further when Tyra reaches her full potential. This cost trajectory is a key enabler of sustainable cash flow growth and underpins the resilience of our margins going forward. Lower unit costs combined with higher production drives the consistent step change we are now seeing in operating cash flow. This is the key metric that ultimately defines distributions, net operating cash flow. For this quarter, it remains consistent with the prior quarter, driven by three factors: consistent production and costs, hedging, and support from our tax loss position. As Tyra maintains stability, operating cash flow remains strong, and that directly drives our ability to distribute capital to shareholders.
This quarter ended with net operating cash flow of $141 million, before working capital, that is $186 million. This maintains our strong cash generation from the prior quarter. We also note that this quarter also had a higher tax payment than the prior quarter at $16 million compared with $3 million. As cash flow grows, it's equally important to look at how we continue to maximize the business in a focused way with capital intensity significantly lower post-Tyra. With the completion of Tyra redevelopment, capital expenditure has stepped down materially, we reiterate our guidance from the prior quarter. For 2026, we expect CapEx to be in the range of $40 million-$50 million, looking ahead, it remains in the $100 million-$150 million per year.
This is of course, subject to project sanction and timing. The future reinvestment though will be disciplined, value accretive, and carefully phased, which links with what you heard from Cathrine earlier. This combination of higher operating cash flow and lower CapEx creates real financial capacity to deleverage, to maintain balance sheet strength, and of course, to return capital. Now we can look at what strengthens our business with the liquidity, which underpins our financial flexibility. By the end of Q1, we maintained a strong liquidity position, closing the quarter with $460 million. This was supported by robust operating cash flow generation after capital investments, financing costs, and distributions. The $350 million of undrawn RBL capacity provides financial flexibility. With liquidity covered, we'll now touch on leverage and the long-term balance sheet resilience on the next slide.
Capital management remains disciplined and proactive. There are no near-term maturities, and leverage is declining as expected. Leverage at the end of this quarter was at 1.7 x. We extended the RBL in February, moving the maturity out to 2031. The next key financing activity this quarter is our launch today of fixed income meetings in contemplation of a potential bond issue. This would be used to repay our existing BNOR16 bond. We see this as a proactive step after finalizing extension of the RBL, given the balance sheet strength we have now to continue to ensure the capital structure is fit for purpose. With a resilient capital structure in place, we continue to focus on what this means for shareholder returns. Returning meaningful capital to shareholders remains core to our strategy.
Our policy of distributing 50%-70% of operating cash flow through to the end of 2026 is unchanged. The track record matters here. Distributions to date have been at the top end of the range, and the slide summarizes what has been paid to date and what is proposed for Q1. This quarter, we propose a distribution of $100 million. From 2027 onwards, we plan to maintain meaningful and sustainable distributions supported by cash generation. To close, the financial results demonstrate clear capacity to continue returning meaningful capital while maintaining balance sheet resilience. The combination of stable production and lower CapEx, growing free cash flow, combined with a resilient balance sheet underpins our ability to deliver meaningful and sustainable shareholder returns, in line with our stated distribution policy.
That, with that, I will hand back to Euan, who will take you through the final section on our strategy and our future.
Thank you very much, Jacqueline. Before we open up for questions, I'd like to just bring it briefly back to strategy. Again, hopefully a theme that you've heard quite a lot this morning, is that we like to keep it simple. We intend to keep doing exactly what we've been doing. Getting the most out of the assets that we have, and making sure that we've got the right setup on the financial side to allocate capital in a way that's right for us. Today, that's very much focused on the DUC, where we're a low-cost producer with long life assets. We're reviewing potential growth opportunities in Europe, as I've said clearly before, and to reiterate again, these need to be additive to our existing strategy and accretive to returns. We're highly selective, the bar is high, it's going to stay that way.
The reason why we're so fixed on that is because one of the core principles of our story has been a focus on producing cash-flowing assets. We have a clear view on what we do with the cash that we generate. We want to make sure that we maintain a resilient balance sheet, and we have a commitment to returning as much cash as we sustainably can to our shareholders. Those are the principles that we're gonna stick to. The test for any new opportunity then flows directly from that. Does what we're looking at strengthen or dilute our ability to deliver against those principles? If it's dilute, then we won't do it. With that, if we can turn to the final slide, we'll wrap up.
Irrespective of how long the current market environment lasts, we're in a very different position today than we were even just one quarter ago. Ongoing supply disruptions have pushed prices higher, yes, but they've also put the physical availability of energy back at the center of the conversation. That's a conversation that we think we're directly relevant to. We have a high-quality asset base in Europe producing into a market that increasingly values security of supply. Tyra's getting more stable, and there is more growth still to come. What that means for our shareholders is also straightforward. Higher distributions in the near term, and a stronger position to keep those distributions going for longer as the balance sheet continues to strengthen. Let me leave you with this. We delivered while prices were lower, and our approach in a higher price environment doesn't change.
We're just able to deliver more. Thank you. We'll now pause while any final questions come in, and then we'll come back to provide some answers. Thank you.
Thank you. The first question, what was the Q1 working capital investments related to, and when will it reverse?
The working capital buildup had two factors. Obviously prices started to increase at the back end of the quarter in March, that is a part of that increase. We also had higher than usual lifting of oil in March. It wasn't smooth across the quarter, rather, seeing it lower in February, but then higher in March, which then meant those volumes, we are receiving the cash in the following month, in April. In terms of the question of when will it reverse, obviously with high prices, some of that will be remaining in the working capital until prices go the other way. The lifting, that's more of a timing thing of when our liftings occur on oil. It can reverse next, but it is a timing thing.
What explains the increased production cost quarter-on-quarter?
A part of this is a phasing. You know, we have a number of things in the admin costs, there is also a part, of course, that we have a fairly fixed cost base. You know, with additional volumes that we expect from Tyra going forward, then of course the cost per BOE will then be lower going forward. One of the other things, there was some additional costs just on the production side with fuel and the like that was slightly higher in this quarter. Nothing that we expect to be sustained.
Can you shed some light on the $85 million unrealized derivative loss in Q1?
This is, we have some swaption in place, so this is the value of the option, so the, it's an option for a swap. That doesn't meet hedge accounting, which is why you see it in the P&L, and as highlighted is, it is non-cash. It's a fair value movement on that option that will then convert at the end of the year, either the swap being taken out, and then moves into hedge accounting at that point in time, and will become part of the hedge profile from thereon. We will probably see some more volatility, obviously, while commodity markets and prices are volatile.
Does the Iran war and current forward curves impact your thinking around hedging?
We do have our hedging policy, and obviously that's underpinned in the RBL. We do hedge still at the base level at 50% in the year ahead, and 40% in the second year. That will still form the basis for our hedging. Of course, we do look forward and are very cognizant of when is it attractive to then add more hedges, particularly where prices are high. We're being strategic about it. I wouldn't say that that's different, but obviously I made the comment as well that we haven't put any more volumes on or significant volumes on. I think that's an indicator that right now it's not as attractive to put in over and above the base policy.
Thank you. Regarding changes to proposed dividend covenants in the new bond, how is the support from existing bondholders on that change?
We are starting conversations today, but I think the principles are hopefully already well understood. What I can say already is that this isn't just about a relaxation of distribution covenants. It's mainly about having a capital structure that reflects the strength of our underlying business and the balance sheet that we now have. As is a sort of outcome of that, is having flexibility on the distribution side that's then reasonable in that context. It's not about taking advantage of higher prices today. It's about making changes to reflect a position that we've been building for a long time now.
If I just look back over the last 12 months, even with relatively lower prices and while making substantial distributions, we've already de-levered significantly, and we expect that to accelerate with higher prices, and even if the supply situation that we have at the moment is addressed today. Overall, the outlook for our business and our balance sheet is much stronger than it was when we originally placed the BNOR14, sorry, BNOR16 bond in 2024.
Thank you. That was the final question. Thank you for listening in.
Thank you.