Hello, everyone. Welcome to KAOS Fourth Quarter Results Presentation here in Oslo. Both welcome to you present here in Oslo, but also to you watching and following the webcast online. My name is Stolomira. I'm VP, Investor Relations in OKEA.
Please go in. And with me here today for present our results is our CEO, Eric Hargana our SVP, Accounting and Controlling, Kjeste Hordal, SVP, Operations, Thor, Bjarkestrainen. Following the presentation, there will be a Q and A session. And for those following online, there's also an opportunity to post question on the webcast. Okay, Erik?
Yes.
Thank you, and welcome. We had last year was extremely, not only important, but a year of big change for OKR. It was the year that we moved from a group of 40 people to 200, where we moved from being a company with a lot of aspiration of doing development and production to actually become one of the very few operating, field operating companies in Norway. And the most important thing we set out one year ago was that we needed to demonstrate a prudent, good, efficient and cost efficient and technically efficient, operations on Droggen. And that's why also Torbjorgyslann will hold most of this presentation to show you what we actually have done there and how we have basically through that, through the last year been qualifying ourselves to be in the Premier League of oil companies in Norway.
But we first, we which is very important is the first zero, work every day, every hour to make sure that management and the workers are very aware of the risk that is within this industry and that we actually work in a way that we, on behalf of the Norwegian government and the Norwegian people, to produce oil in a very secure manner. And we are really pleased about that result, but that is not something that we will come in itself, and we have to continue improvement on that field. We did produce almost 19,000 barrels a day in average throughout the year. And we have a decent cash flow of more than NOK 2,000,000,000 that kind of demonstrate the size of the company. The highlights was operational to a large extent.
And financially, Jesper will go through the figures, but the main figures are that we did also a refinancing of the OKR-one, the first bond we had, 120,000,000. What is also important with that bond is that, that bond is also very flexible in terms of how we're going to refinance the company in the future. We had, during the fourth quarter, a quarter of the NOK 2,000,000,000 that we earned did we earn in the fourth quarter. And our profit from operating activities was NOK 55,000,000. And the cash flow from operations in the quarter was NOK $238,000,000.
And as for new opportunities acquired through the work in 2019 was the annual licensing round for 2019, which was actually awarded in January. But we got five new licenses, all of them in areas that we have defined as key areas to for hubs, so to say, for OKEA. So we are not exploring doing wild cutting, so we are not collecting a lot of licenses around on the shelf, but in mature areas where we know there are discoveries. In at least one of these, there is a discovery that we hope we can develop also pretty fast. So that is the overall picture of what we have done in 2019.
I will return at the end of the presentation with the outlook, so what we plan to do going forward. But most of our key objectives for the first year is that we actually, in such a short time, if you compare it with other companies using both two and three years before they actually are up on full speed as operators, We managed that through 2019. So hereby, I leave the word to Thor, who is the boss of operations in OKA.
Please, Thor. Thank you, Erik. And hi, everyone, and to everyone looking at the live stream. I will take you through the fourth quarter results from operations, but I will also tell a bit of the story in NOKEA going from acquiring JEE and Draugen from Shell and then becoming what we are today. And I'm responsible for the operated assets.
It means Draugen, which we are an operating company. So we are then operating Draugen. And then you have licenses where we are not operating. So that's the non operated, which is Joa and Ivarosn for us. So for quarter four, we have a slightly lower production and mainly because of a valve at Draugen, where we have a safety valve in down, in the valve, which will not function as it should, and then we have to close it.
That's regulatory and it's, yes, so that was closed in the fourth quarter. Secondly, the gas from Joao and several other fields go through the Seagal system to UK. And on The UK side, they had problems with receiving the gas and then it affects the production. And secondly, at Joa, we had a compressor technical issue. So that was also the reason behind.
So there is no well potential reasons. There are technical reasons. When you come to Draven itself, where we are the operator, Fourth quarter was, as I said, a bit lower than expected because of that well. But looking at the operational efficiency, we are showing a 95% availability or uptime at Draugen in the fourth quarter, which is then compensating for some of the loss of that well, and that is very high for Draugen. And in the same period, we did also finalize the Skomnis and 0, the two wells that we drilled.
And those were plugged and abandoned with a lot of results coming out of those logs after doing the drilling. We are looking at how to restore the well, and we are planning to do an intervention now in Q2. I will mention Hasselmuss here, which is a small gas field. Discovered quite a number of years ago, closer Draugen inside the license, and that is like a gas tank. There are well defined volumes.
It's a relatively straightforward development, but we in NOKEA have made that commercially attractive, and we are now passing, we passed DG2 in NOKEA, and the Board, I guess, approved that development yesterday. So now that will be up for the license approval, and we will then kick off that project as the first tieback in NOKEA. It's a fantastic project. We're also looking at other prospects close to Draugen. I will come back to that a bit because it's interesting how much oil which is still there in that area.
The story of 2019 is quite interesting because at the point of at Ukea acquiring Draugen, the license, the whole concept of Draugan was to harvest. It was to take out the resources which are in place and, then keep it going. Changing that into a development mode, that is a significant change. That means that you're starting to invest, look for and then develop the assets, for more volumes. And more volumes creates a longer lifetime.
So the first thing we did was to set up in the license with Petoro and Neptun the agreement of 2035 and how to get there. Then we had to set up the organization to be able to speed up because we didn't have the budget, the plans for development. So in a couple of months, we had agreed targets for drilling. We have got the rig and we did the drilling. And that was done in eight, nine months.
And I think if you look into other drilling campaigns, that is quite a good story. And no serious incidents or spills from that part. If you go to the I can also mention the ambition for the license and for NOKEA and for Draugen is to keep Draugen producing until 02/1940. And we are close to showing you that is a concept that is possible. If you look at the operations itself, in addition to the drilling performance, we have had through the year 88% availability.
And that's a number. I think Equinor's efficiency is the same. How many days of the year are the factory up and running? And that is a quite high number. If you look back in the history of Draugen, there's only one year in the last ten years that have been better.
So going from the previous operator to OKEA, we have still maintained and improved the operations efficiency. And that has been instrumental in protecting the production and then the value and then the earnings. Being an operator is quite a complex organizational structure. It's not something you can develop just in a day or a week or a month. It's years and years of experience which now sits in no chaos organization, which are now operating Draugen and can take on more.
The other important part for an operator company is to execute projects. And in the start of 2019, we had two major projects ongoing. We had to change a significant part of the oil piping onboard Draugan, and that was done in a record a record schedule. I think the number of days from shutting in to being back in production, changing 190 meters of piping was ten days without any incidents and on cost. We also have done other projects during the year where we have done it according to plan and no incidents.
When it comes to the emissions part of Dargen, you have emissions to air, have emissions to water. And we have several projects ongoing which are attacking that. And let's say for one of them is the FLIR. We always have a FLIR, which is there just to protect when you have a shutdown. You need to get rid of the gas, and that goes to the FLIR.
And we have no project ongoing to close the FLIR, and that is about one megawatt reduction in energy. We also have projects ongoing to make the compressors more effective. And these are big machines, so it's if you do improvements, are significant reductions. Of course, the big change for all offshore installations is power from shore. And we are now ahead of competition, I would say, in the area for assessing the ability to do power from shore to Haltenbanken area and to Djerggen specific.
So we are a a pre DG one on on looking at that. Very interesting. And since we now have access to to, water power and hydropower and wind power in Trondelag, it's a real option to use that energy. The fourth thing I will talk about is digitalization and the projects we have, and I will mention especially one. Or I can take the drilling campaign first, where we, as the first ever livestreamed, the information that the driller have offshore, on our website.
And geologists around the world, they were looking at this stream because then you could actually see what happened 1,600 meters down there at the drill end every second. It was quite a change to be allowed to do that. But in the end, we made that happen. And I think sharing of data is an important thing in our industry. And by doing that on that drilling campaign, it was a change in how we do it.
I will mention briefly the work we are doing together with ABB. You know at an installation offshore, you have a control system. That is a system where you have hundreds, thousands of instruments logging data at any time. That data has been a kind of a protected source and used in specific programs and for specific activities. What we have done now and I should really stream the live screen for you, but I can't.
It's a presentation. But this is a snapshot. We can build pictures like this showing all that data on your mobile. And for those that, knows how that data is collected and being transported now, this is a significant change. And this change is so significant that if you go to Hewlett Packard in Houston, you will find this screen on their showroom.
And in difference from others, we will also share this data. So by sharing this data, you are then connecting up to the real time data which is collected by the instrumentation offshore. Okay. That was the story of 2019, a fantastic year for the organization and for all of us. I would just like to show you the how the license work.
There are three partners at Draugen license, which is TETURO, Neptune and OKEA. That license is the board of Draugen reserves and the values. And you need to have a quite clear strategy for how to develop. It's not like week by week or month by month or the one year. You need to look ahead.
We are looking ahead towards our vision, 40 plus So this is nothing just an OKEA vision and dream. This is Petoro, Nettin and OKEA together in the Draugen license saying, Our vision is 2,040 plus And how do we do that? This is the value drivers behind how you develop such a license forward. And we are updating this every year. In fact, that update is ongoing as we speak.
We're having two days now together with the license partners developing this for the next for the second time. Here, you see the change from harvest mode to development mode. I will mention a couple of elements here. Ultimate recovery, 70%. Compared to the existing plan, we are talking about 30,000,000, 40,000,000 barrels.
There is still a lot of value in the Draugen Reservoir. The challenge is how to get it out. To buy new technology, buy new ways of looking at the reservoir, we expect we have an ambition to get 70% recovery. You're even talking 75% recovery. Then you're talking 40,000,000 barrels more.
These are ambitions. These are the plans that we would like to chase and to deliver on. We are near field exploration where we have we did the drilling in Skubnissa, which and we are now looking at other prospects nearby. And of course, with the lifetime of 02/1935, 02/1940, Draugen as a hub is now an option. So nearby discoveries can be then transported to Draugen in the case they need that infrastructure.
Yeah. I think also the, the availability also the the ability to keep the the factory running every single day, year out, year in, that is our most important task because it's easy to look at those volumes that are in front of you that you have to discover and the new oil. But caring for and securing, safeguarding the existing production is all about availability. And by having that, we can deliver the volumes. I will just mentioned that we just got the January numbers for Draugen, 97% availability.
On cost, no incidents in January. And we will continue doing that. That's our ambition. So I'm looking forward to going on the plane back to Kristiansund this afternoon and sitting together with the license and look at the update we're going to do, today and tomorrow and even sharpen the ambitions. Just finally, a short look at Joao, where we are a partner and not an operator.
And as I said, the reasons for the lower production was Seagal export system and The U. K. Side, which could not receive the gas and the gas export compressor, which had a technical issue and has had to be changed. Yes. P1, interesting project for us.
First oil quarter one next year, on schedule, being managed well by the operator and looking forward to see that being completed. So thank you.
Thank you, Toor. I will take you through the highlights on the financial side this quarter. Toor already mentioned that oil and gas volumes were reduced this quarter, and the main reasons was the production issues on Dura with the turbine replacement and the Sagal restrictions, and also the shut in Well D 2 on Drugen. The sold volumes were reduced with 17%. And on Droogen, we lifted the same volumes in the third and the fourth quarter, but the reduction here on sales was a result of the reduced production on Joa.
And also, we went into the quarter with an overlift position on NGL on Joa, meaning that we had previously lifted more than our proportional share in the license. So that position was neutralized in the fourth quarter and causing reduced sales. The realized prices increased both for liquids and for gas. So a combination of the volumes and the prices resulted in revenues of $534,000,000 in the fourth quarter. Some more details on our income statement.
I already mentioned the revenues that goes into the operating income, but I will also talk about the production expenses and the exploration expenses, financial items and taxes. The production expenses were a bit higher than the average because we did some well maintenance work on three of the wells on Drogon in the fourth quarter. The exploration expenses, we had previously expensed the costs on Skomnis that had incurred until the third quarter, but the drilling continued into the fourth quarter and the remaining parts were expensed in the fourth quarter. And the same was, the case for the Catherine Well nearby, Ima. And we also had seismic costs related to future possibilities in the areas South Of Grebring and also in the Drogin area.
And the cost related to field evaluation is mainly on Grebring and Storskrimten. On the financial side, we had a favorable FX position at the end of the quarter that resulted in an FX gain. But we also did refinance the OKL zero one bond and replaced it with OKL zero three. And we had financial expenses that were expensed as a consequence of that. The profit before tax for the entire year was, 419,000,000.
The taxes ended at 491 and consists of two elements. It's taxes payable, and the amount of taxes payable are is, 430,000,000. And the other component is changes in deferred tax. So we normally, as a starting point, expect 78% taxes. But the fact that we had more than €100,000,000 of impairment that is nontax deductible, that causes, the relative tax percentage to be higher than 78%.
And in addition, we get an uplift on the CapEx investments we do. And finally, the financial items are partly allocated to the offshore tax regime. So that cost, in total, the tax percentage should be a 117% for OKIA for the entire year. The cash flow, we had very strong cash flow from the operating activities in the company. So before we deduct the taxes, we had 2,300,000,000.0 generated, and we paid, taxes of 172, both related to 2018 and prepayments for 02/2019.
And we had investments on EUR $847,000,000 related to EMEA and the P1 project on Joao and also some CapEx projects on Drugen. We had the share issue last summer as part of the IPO process that we had €283,000,000 from. And as mentioned, we repaid the bond OKAYO one and refinanced with OKAYO three, causing a repayment and additional net proceeds this quarter. And finally, we paid interest of EUR $232,000,000. So we ended the year with a cash position of €1,700,000,000 close to.
So that was the summary of the financials. So over to Eric for outlook and concluding remarks.
Thank you. We have, in addition to what we already talked about, we are involved in three development projects. One is Ime, which is Repsol operated. There is an offshore campaign going on to prepare for the hookup of Maske Inspire to start production. Aker Solutions has come up with a revised plan to complete complete the onshore modifications, and we trust that a reputable company and a reputable yard managed to actually do that.
And according to our own inspections and the operators' forecasts, The work is progressing very well right now in Egerjund. And we trust that they managed to complete all onshore modification and leave the yard in the second quarter. The operator will come back with an exact estimate of first oil, but the ongoing work offshore is meant to mitigate any time delay in the hookup process. So we expect production start up during the summer twenty twenty. With respect to Joao, another ongoing, which is also quite significant, gives more than 2,000 barrels a day to net to Ukea, is the P1 Joao project.
There, we can report good progress from Neptune. And there will be two more wells production wells drilled later this year. And the plan is an early start up production in early New Year. With respect to Graveling Sorsfjent, which is operated by OKEA, We have matured the project to the extent that it was a hugely negative value project when we took over to a positive value project. We are not fully satisfied with how positive it is.
And as you also may have noticed that we have employed a new Senior Vice President for development, Knut Jaksen, coming from Equinor, extremely reputable person in the industry in Norway. And one of his tasks will actually be to go and review the whole graveling development and see if our estimate seems to be right and see if there could be additional improvements. But also in the graveling strategy, the same partners are involved in two wildcats just south of Graveling. And of course, added reserves into that development will change the game totally. So the result of that drilling campaign, of course, has a major impact on the economy of Graveling.
We were we have as I said, we applied for licenses quite selectively. We applied for five licenses in the license round, and we got five. And as you may see on the map, they are all in close by existing licenses we have and close to fields we have. Jesm will mention one that is particularly important to us is together with Equinor, Equinor as operator, just Northwest of Drogan, where there is a gas discovery already. And we're quite sure that when we develop Hasselmooths, as you may see in just North of Drogan, the distance to that bit smaller gas discovery, that license is such that suddenly that become economic again.
It's kind of building on the previous investment. So we, of course, prepare the Alsinbras development so that it's easy to tie in another pipe into that system. And the volumes talked about here is also straightforward for Drogan to assimilate. How the Alsinbras discovery is going for a so called DG2 decision in the license right now. And the importance of that is that it both provide energy to Drogan because we don't have sufficient gas going forward to run the turbines on Drogan, but it also gives us quite a significant oil export capacity in the existing pipelines from Djoggen.
So we will continue to apply for licenses in the licensing rounds. We will look at all kind of all the wells, all the discoveries that has been made, some of them underestimated, etcetera. So there will be also applications from Mukea this autumn. So finally, the outlook going forward is, as Thore already mentioned, first thing you have to do is to maximize the value of things you already have in your household, and particularly Droggen. And to increase the recovery, it is an extremely, as you know, extremely good reservoir for kind of Johan Sverdrup is the kind of next that type of reservoir.
It's a big, big pile of sandstone reservoir. And we see that it produces extremely well, And we think it's absolutely possible. There are still 500,000,000 barrels left in Drogan. So how much of that can we extract? That is the key issue.
And as Tore mentioned, there are absolutely within reach to take out another 100,000,000 barrels out of Drogin. The two wells we drilled was extremely important. They gave us a lot of value in terms of now remodel and make a new reservoir model for Drogan. We were surprised by some of the information we got there, and that is now implemented in the new model to really understand what goes on in Drogan and also next to Drogan. With respect to next year, mainly because of a delay of Yuma, We expect to produce almost 6,000,000 barrels of oil throughout the year, which is a bit lower than we perhaps thought half a year ago.
We do also have a biannual maintenance project going on Droggen this year. But the financial flexibility is good. We have a very good cash flow. I think the estimate is that we will we might pay 1,000,000,000 in tax next year, so this year. So that will help some, I guess.
And we are also pleased with the structure of the OKL3 bond, which gives the company a lot more flexibility in the future financing of also additional projects. Already mentioned that we will be a partner in two wells on Sotto Grevling and also one well on Joao, in addition to the production wells going on in P1 project on Joao. But to grow the company organically is not sufficient. We want to make OKEA significantly bigger than we are today. And we are, of course, actively pursuing M and A opportunities that we see on the Norwegian shelf.
We think that the dynamics we have seen the last few years is just continuing, in restructuring and company pulling out. And being one of the few, which is our main asset, we are one of the very, very few field operators with a field operating competence on the Norwegian shelf, which is completely dominated by Equinor, of course. And that is something that we will capitalize on going forward with respect to M and A opportunities. So that concludes our presentation.
Then we move over to the Q and A session. So raise your hand and okay, Tildur.
You. Taylor Nielsen, Spalmer Gold Markets. First on the 2020 production guidance, how much contribution have you included from EMA?
Less than you
think. Have you included anything in have you included anything into Q3 at all? No. Okay. In the estimate.
In the estimate. Okay.
But we definitely expect production start in Q3. Okay. And then second question on Gerevering. As far as I understand, the two exploration wells in the South are very important for the economics. Let's assume that there won't be any discoveries there at all.
Is Grevilling commercial on a stand alone basis without any discoveries?
As we see it today, Grevilling is commercial on a stand alone basis, but it has inherited the risk in the P50, as I is definitely a commercial project. But that is with smaller projects like Grevling, we talk about less than 50,000,000 barrels, A lot depends on how the lease of the production unit, etcetera, is organized. But even in that case, the P90, well, the kind of the in the uncertainty level, the very certain part of what we have as a at oil prices, we look at as a negative value. And it's also a philosophical question, but will you spend another SEK 500 to 1,000,000,000 to do a test production and find out whether it is worthwhile doing or not? Because Gevlin contains 200,000,000 barrels of oil.
So it's a very low recovery rate in the way we plan to produce it. And but then you can find out, well, it is more than we thought, so we can actually develop it. But then you have lost that money. So so so we will come back to how we can improve the economy on graveling to make it even profitable at the low scenario reserves that we have. So we're working with Halliburton, and we are also will give Knut the challenge to really go through some of the cost estimates and the uncertainties on the development with that in that respect.
Okay. And then just final question for me. You talked about M and A. Could you just briefly discuss how you view the M and A market on NCS now and whether you will focus on M or A or both going forward? Thank you.
Yeah. Of course, we we look at both. But because buying assets is is is not straightforward and easy. Those who sell assets, you don't get any for free. So it's basically no one is a distressed asset.
But we think that in the market of late life fields, for example, as Dogen, as Odderfield, is a market that is interesting to OKR. And then, of course, have an ongoing production, which is also easier to finance than go in and buy asset directly. But we we look at all all kind of possibilities, on the shelf. Obviously, some deals, as you know, are too big for us. So there are some we don't even look at.
You.
Alvin Hugo from SEB. Returning a bit to Ijm. How confident are you on the summer twenty twenty start up targeted date? And what kind of time frame do you foresee from Sailway, which Maersk is saying modifications work will be done in late Q2? So the lead time from Sailway to start up with the Hookup and commissioning and also knowing and noticing that Maersk is saying they expect limited EBITDA contribution from Maersk Inspire in 2020?
Well, of course, Maersk, they don't get paid before we have produced a certain number of hours. So so, they must take their their, kind of precautions. But the original plan for the hookup process was, was three months work. But with rig out there now, which is actually Preston going to take the plugs out and prepare that, there's a lot of work done. So the operator said that we are mitigating a lot of the time that was supposed to be done by Maskingspira.
And but they have not submitted to the license a revised plan yet because it is not fully concluded how much offshore work will actually be completed before Maske Inspire leave the yard. So what we have been focusing on in the partnership in the licenses is actually to now finalize the work on Egerstrom in order to get the rig out before the summer so we could take advantage of the summer seasons in terms of the hookup work. But the operator will get back to how many weeks the actual hookup process will be planned for. And we have no we have no info information about that except that we expect it to be significantly less than the three months that was the plan when the PDO was submitted.
Okay. Thanks.
Any further questions? No. So, Ade, thank you all for for joining. And
Okay. Thank you very much, and have a good day.