Ladies and gentlemen, welcome to the OKIA Q2 twenty twenty one Conference Call. For the first part of this call, all participants are in a listen only mode. Afterwards, there will be a question and answer session. I will now hand it over to the speakers. Please begin.
Good morning, and welcome to the OKEA's second quarter presentation for 2021. My name is Svendik Ness. I'm the CEO of OKEA, and I took over this role June when I took over from Erik Haugerane. As this is my first result presentation for Roker, I'm very pleased that we are able to announce a very good financial and operations performance during this quarter. With me today, I have have the OKA CFO, Burton Reim, that will take you through the financial results in more detail after my presentation.
And there will also be a Q and A session after this presentation, and there will also be a possibility for you to submit questions during this presentation using the link that you have on the screen in front of you. The highlights of the quarter and some of the details on the most important assets. OKIA have had a very good quarter during the 2021 with no serious incidents on Dreyogen or any other assets, and we've also managed the COVID-nineteen situation. So we had no incidents in that respect. Production reliability have been very high that I will get back to on some later slides in this presentation.
Production during the quarter was 13,210, which is down compared to the first quarter. This is a result of a thirty one day shutdown on The U. Asset due to planned maintenance and also tie in of the Nova and Duva fields. The operating income for $0.00 with an EBITDA of $311,000,000 We have expensed dry ilder well during this quarter of $78,000,000 and there's also been some nonrecurring costs associated with putting the well D2 back in production, which has been shut in since 2019 on Logan. We have reversed the impairments on EME of SEK730 million during this quarter, and this is mainly due to the major cost and cash flow improvements that we will see from the reorganization of ownership and operations of the Maersk and Spyro, in addition to a much stronger macro outlook for the future.
This means that all impairments on EMEA have now been reversed. This results in a net profit of $200,000,000 for NOKIA during the last quarter. The cash position has been increased by $368,000,000 during the quarter and are now in excess of $1,300,000,000 for the company. During the 2021, OKEA has improved the cash position by $475,000,000 at the same time at paying $91,000,000 in interest on our bond loans. So very sound and good financial performance.
Hasselmuss was sanctioned on the May 31. Hasselmuss is a tieback to the Drugen, and we will expect first gas on the Q4 in 2023 from this. Very important project for Drogin and OKEA as such, as this shows that we are able to realize the growth potential around the Drogin area with organic growth in addition to this being the first field development project for Rokea as an operator. We will also explore during the second half of the year as we are participating in the Equinor Ginnie well that will be spud in Q4 this year. This is also in the Drogin area and a potential tieback if there is a discovery for Drogin.
Last but not least, the EMEA start up of the '1 is something we are working very closely with the operator Vepsel on, and the work is there in accordance with the plan with the construction and commissioning activities. The production reliability, as I mentioned, has been very high. For Droggen, we've seen 99%. And also for Jura, we've had 100 availability. You can see on the volumes here that they are slightly down.
But as I just mentioned, that's due to a planned maintenance shutdown and tie in of fields on the Jura asset. Some of the deferred production due to the tie in of these assets will be compensated back to Ukea when we have first oil from these tie in fields. We've had a successful restart of the D2 subsea well on Droggen after after we have done some well maintenance work on it, and it's been shut since 2019. So that's a very good achievement. And we've also done other well maintenance work that has ensured that we are maximizing the well potential on Droggen.
So we will always be measured by what we deliver, but we're also focusing on how we deliver it. And in that respect, I'm very happy to announce that we've had zero incidents or any environmental issues on our operated assets for the last two point five years. As you can see on the total recordable incident frequency, we are trending very stable there as well. And this is a result of three individual incidents with cut and fingers and medical treatment cases, which obviously we are also focusing on, and we expect that to trend downwards. As you see on the CO2 emissions, it's on an upward trend, and this will be improved by the start up of the EMEA asset.
In addition to OKEA and the partners of Drogin and other licenses in the area, is also maturing Power From Shore Solutions for the Drogin asset with the potential to reduce the annual emissions by 200,000 tons of CO2. We expect to go through a decision gate too on this project during the second half of this year. So back to Dogen. Very high production reliability of 99%, very good quality in operations. Production during the 7128, slightly reduced due to the D2 work when we were tying in and doing maintenance on the D2 well.
Investment decision on the Haselnus. We have expected volume of 4,400 barrels of oil equivalents on the plateau. This is mainly gas for this tieback. And we do have a gross CapEx of $2,400,000,000 and a strong breakeven price of $28 per barrels of oil equivalent. 75% of the investments in this project is returned to the Norwegian supplier market, which shows that the tax relief scheme has been is working as intended.
And we have signed contracts for Subsea seven and OneSubsea and Arco Solutions to actually execute on this project. DG2 for the Droggen Power from Shorv in addition to other licenses in the area is planned for the second half. And as I mentioned, we have a potential there to reduce the CO2 emissions by 200,000 tons per year. And we do have an ambition to increase oil recovery to 70% in the Drogin asset and extend the field lifetime to beyond 2,035, which means a doubling of the remaining reserves. Cost efficient and reliable operations in addition to increasing oil recovery and realizing the growth potential in the assets around Drogin is obviously something that will enable Droogen to deliver value for many years to come.
Eur production
has been, as we have mentioned earlier, slightly reduced due to the planned shutdown of thirty one days. U. S. Is a very important contributor to The U. Results, and we are very happy to see that The U.
S. Asset is a very well managed asset with production reliability of 100%. And in addition, I would like to mention that we have an Ukea discovery of the Aurora that we plan to potentially drill an appraisal well in 2022 that also could be a tieback into year EMEA, we expect to see a plateau production of 7,500 barrels of oil per day when the EMEA is in operations. We have upgraded the first year average from previously announced 4,900 barrels of oil per day to 5,600 barrels of oil per day net to OKR due to a more steep production ramp up when they get first oil. The work on EMA is ongoing with the completions and construction activities, and we are heavily involved with the operator, Repsol, in progressing those plans.
And we expect first oil during the 2021. We also expect and see significant cost reductions and cash flow benefits from reorganizing the operations. So Repsol is taking over the operatorship and also operating the asset, which I think is a very good idea and the changes of ownership of the Merskine Spyro. And with that, I will then hand over to Berthe, who will then take you through the financial results in more detail for this quarter. Thank you.
Thank you, Svein. We'll start with looking at what drives the top line this quarter, and we are comparing the volumes and the realized prices compared to the last four quarters. And as Svein has outlined, the reliability on both of our key assets has been very good again this quarter. So the lower sold volumes is largely due to the maintenance of thirty one days at year. So sold volumes of 13,048 barrels of oil equivalent per day is 2,150 barrels lower than last quarter or 14% lower due to this effect.
We have seen market prices for both liquids and gas continuing to increase over recent months. And despite the early lifting of Drogin this quarter, the realized price of $63.8 per barrel is an increase of more than $14 compared to previous quarter. And if we look at the realized prices last year, it's more than a doubling of more than $40 a barrel increase. The realized price for natural gas were 34% higher than last quarter and nearly 7x as much as we realized in the second quarter last year. So despite the planned maintenance at Jura, the high petroleum prices drives the revenue to $594,000,000 for the quarter, an increase of $58,000,000 or 11% compared to last quarter and an increase of $335,000,000 or 130% compared to the same quarter last year.
In addition to illustrate the timing of our listings over the last six quarters, we're also providing a forecast on what we expect in the coming quarter. And that is represented by the light blue bars on your screen here. And in volatile markets, this timing can have a significant effect on the realized prices. In the graph to the left, over the last three quarters, we've had very early listings from Blogen, which means that the realized prices for OKEA has been somewhat lower than the average market prices for those quarters as we have continued to see an upward going curve on the oil price. As for the graph to the left to the right, I'm sorry, we are seeing that the average prices in the market in this quarter was nearly $69 per barrel, whereas we were able to realize about $64 a barrel.
And that difference is mainly explained by the timing difference, which explains $3.8 of the $5 difference. We're also providing a new graph this quarter, which illustrates the average volumes of gas from OKA and also the market prices since January. And following the different prices that we experienced in summer last year, European prices have soared and are currently at record high seasonal levels and are trading at parity with oil. You will see that the low prices the low production in April and May, that is due to the downtime at Jura. And on average, about one third of our production is gas.
So of course, gas prices are important, even if we see the tendency to mostly focus on the price of oil. Overall, we delivered a solid quarter with EBITDA increasing to $311,000,000 compared to $240,000,000 in the previous quarter. We deliver a net profit of $200,000,000 which is largely driven by the reversal of impairments on EMEA with a value of $730,000,000 gross and $161,000,000 net after tax. But let's start on the top with the revenue of $6.00 $7,000,000 mainly comprising the petroleum revenue, but also with the addition of tariff revenue from JEO. Production expense is high this quarter of SEK213 million or SEK159 per barrel compared to SEK102 quarter.
And this is mainly due to the lower volumes at Jura, but also on additional costs related to the D2 intervention work that was executed at Jura during the quarter. On EMEA, as mentioned, we are reversing the previous impairments in full, million. And this is due to the expected synergies from the reorganization at the EMEA license, including the change of ownership and also the change and improve in macro conditions for oil in particular. And under the new structure, OKEA will be considered tax owner for our proportional share of the Mas Inspire contract. And at the time of closing of the rig purchase, IFRS requires that the deferred tax effect uplift is this ignored or is ignored from the impairment assessment.
So that means that all else equal, we expect a new impairment upon confirmation of the rig purchase. The offsetting line entry will be in income taxes, which means that the net effect on our P and L will be zero. But the positive cash effect following this tax treatment is a benefit of about SEK300 million, which we expect to receive over the next twelve months. But in addition to this and the changing macro conditions, we should expect to see some disturbances on the impairment accounting line also in the future quarters. Exploration and operating expense mainly consists of 109 exploration expense.
Most of that relates to Ilda Well, which was concluded dry in May as well as field evaluation activities on Aurora, Vekta and Gvelling. In addition, we have an SG and A cost of $12,000,000 which is low, partly due to a high activity level, which means that more cost is allocated to the licenses, but also we have lower non allocatable cost at OKEA in this quarter. Net financial items is the cost of $34,000,000 that mainly relates to expense interest of $18,000,000 and also a net foreign exchange loss of $12,000,000 as the NOK has weakened slightly compared to the dollars during the quarter. Income tax amounted to $663,000,000 which is an effective tax rate of 77%. And net profit amounted to SEK200 million, which reflects the good operating results as well as the improved macro conditions.
As for the balance sheet, worth noting is the very strong cash position at the end of the quarter in excess of $1,300,000,000 and we will revert to further details on that of the later slide. Oil and gas properties of SEK4.6 billion has increased mainly due to the reversal of impairment on EMEA. Current tax refund of SEK9 million consists of SEK84 million exploration refund, which is receivable at the end of the year and offset by $75,000,000 in the residual tax payable for 2020, which is also payable at the end of the year. The reduction in the balance is due to the fact that two tax installments for 2020 have been received during the quarter. Interest bearing debt amounts to $2,400,000,000 and the asset retirement obligation of $4,200,000,000 is partly offset by the non current receivable of $3,100,000 from Shell, as Shell will bear the ultimate cost for removal of Droggen and Juhr.
And note that we expect a one off adjustments in working capital in the next quarter. That relates to payment to Shell in relation to the May cargo from Drogin last year. And you may recall that we made an announcement last year of an unusually large non price adjustments relating to the May cargo from Drogin. And this bear in mind, this was when the markets were at its most volatile last year, which resulted in the invoicing to Shell, which is based on the spot price being larger than the actual payment from Shell, which is based on the known price and results in $18,000,000 being payable to Shell now in July. That will reduce our cash and also our accounts payable.
Our cash balance increased by SEK $368,000,000 this quarter and ending at SEK 1,346,000,000.000. The cash flows from operations of SEK $440,000,000 represents the improved margins following the increased prices for both liquids and gas. The taxes received of $194,000,000 relates to the two last installments for 2020 and the investments of $197,000,000 largely relates to IMA and the exploration well at Ildal and also some investments made at Stroggen. The interest paid of 68,000,000 relates to the OKR02 bond, which is payable quarterly and the OKR03 bond, which is payable semiannually. For the first half overall, the cash position increased by €475,000,000 and the significant increase was mainly due to the improved margins, with the remaining half of the tax losses for 2020 being paid in total SEK $291,000,000 for the first half and offset by the interest paid as well as the investments made on, in particular P1 and EMA as well as the two wells being drilled at Yarov and Ildo.
And please note that expenditure relating to the drilling of non commercial wells have previously been classified as an operating activity. And we are changing this practice now from second quarter to align with industry practice, and we are now classifying that as investment activities. So that means that $88,000,000 relating to the drilling of the Yav well in Q1, which was previously classified as operating activity, has been reclassified to an investment activity for the first half numbers here. There's no change in our guiding for 2021. Nearly all of the planned shutdown at Jura has already been completed, and we expect EMA to come on stream in the second half of the year.
So we keep our guiding of 15,500 to 16,500 barrels of oil equivalent per day for 2021 and the outlook of 17,000 to 18,000 barrels per day for 2022. And in addition to our own produced volumes, we are expecting additional sold volumes due to the compensation of the deferred volumes from and Nova. And the timing of those volumes will depend on when the respective fields come into production. And with the exception of an interest element of 8%, those volumes will be redelivered to Duva Nova over the lifetime of Jura, but we do expect an additional 1,200 to 1,800 barrels per day in 2022, which will improve our cash and our revenues. As for CapEx guiding, we also keep the SEK600 to SEK700 million, which is significantly lower than last year as our two projects, the P1 project has already been completed and INA nearing completion.
And note also that, that guiding also includes the CapEx expected for Hasselmooth in 2021, which was sanctioned now in May. And as a final note, we intend to start with providing trading updates from next quarter onwards, where we will provide some of the key financial and operational data sometime prior to the quarterly presentation itself. And we do this to increase transparency further and to align expectations as early as possible. And we hope that this will be well received by the market. And on that note, thank you, and I'll give the floor back to you, Svein.
Thank you, Bitte. A very good summary. Before we now go to the question and answers, I would like to summarize some of the main points as part of this quarterly presentation. Ukea has delivered a very strong operational and financial results during this quarter and have a very solid cash position. We have demonstrated reliable operations where we are focusing on value creation, and we are very well positioned for future growth.
EMA startup will further strengthen this position, and we are working closely with the operator of Ebsol in the final stages of putting EMA in production during the second half of this year. We will continue to explore as we are spudding the Gini well together with Equinor during the second half in the Drugen area, and we are still maturing our value accretive projects, both in the Drugen area and also on Vesta and Graveling in the Southern part of the North Sea. In addition to initiating the execute phase on the important Hasselmooth project for Droogen and OKR. We have also initiated a strategic review for OKR to position OKR for the next growth phase that obviously will contain both inorganic and organic growth opportunities. This will be a strategy that will focus on both long and short term value creation for OKR.
So with that, I will say thank you for your attention. And we are now moving over to the questions and answers section. Thank
The first question comes from the line of Karl Pedersen from ABG Sundal Collier.
Guys. Congrats on a solid quarter and looks to be very interesting times ahead. A question to Slide number 11 with the lifting and the realized oil prices. Could you elaborate on the first or the current lifting from Draugen? Has that been concluded?
And what was the price realization on that sale?
Yes. Thank you for your question. Yes, this offloading was completed in earlier this week or this weekend. And how this works is that you invoice the price for the following five days, the average for the following five days, the spot price. But the actual to be realized price will be the norm price, which is announced typically the quarter following the actual lifting.
Okay. And then over to IMI, of course, being the key trigger in the near term. What are the outstanding activities in the 2021? Would that mean or do you expect it to be in the first part or in the second part of H1 H2 twenty twenty one?
Thank you. The EMEA, the remaining activities on EMEA is obviously both the hookup and construction and the commissioning of systems. In the EMEA license, we will execute a readiness review in the July. And obviously, that will give us a further insight into the actual start up date. We are maintaining our second half start up date because of the potential that things can happen.
But so far, the work has progressed in accordance with plans, and we are just maintaining our guidance for the second half. So it will be somewhere in the middle.
Yes. Okay. Sounds good. And then lastly, in terms of strategic review, of course, it's given that you're transforming from having a significant cash outlay related to Lima into that asset being cash flow generative,
What
do you expect in terms of balance sheet activities in the medium term?
Yes. I think we're also getting quite a few question on dividend policy and so on. So I think, to be honest, we are restricted to pay any dividends before the end of this year, which is related to the terms in the bond loans. But I think it's important for us to underline that dividend policy as well as the financial structure overall will be important parts of our strategy discussions to take place this fall. So I think I should restrict myself from saying anything more at this stage, but it will be a part of our strategy discussions later this year.
Thank you. The next question comes from the line of Theodor Stoe Nielsen from Sverabank. Please go ahead. Your line will now be unmuted.
Good morning and thanks for taking my questions and also congrats on a strong quarter. Three questions from me. First, on tax payments or actually income tax income. What should we expect of tax income for the second half of the year? Second question is on the Ginne exploration well.
Is it possible to provide a pre drilled resource estimate? And finally, on 2022 CapEx, I know it's early days, of course, compared to 2021, the CapEx will certainly go down, while you also have a few other projects ongoing. So just wondering how will the net net effect be year on year? Should we expect increased CapEx in 2022 compared to 2021? That's all for me.
Yes. Just to clarify, Teodo, when you say tax payments and income, are you referring to the P and L or the cash?
The cash. Cash or cash income, actually. Cash tax income.
Yes. So what following the reorganizations at Ime, our estimate for 2021, which was done in May, changed from a payment to a receivable. So our estimate from May, which was based on the prevailing petroleum prices at that time, was an expectation of a receipt in excess of $100,000,000 for the income year 2021. And as you know, half of that will be payable this year and the remaining half in the beginning of next year. However, petroleum prices have increased since we made our estimates, and we will make a revised estimate later this year to submit to the authorities.
And you also asked about 2022 CapEx, and I think it's outside of our guiding. As you are aware, we have sanctioned the Haseluz project. And it obviously, it will also be a part of our it will the CapEx for 2022 will also be related to the outcome of our strategy discussions this fall. But we only guide for CapEx for the current year. And Gimi?
Yes. The question on Gimi, we expect that to be spudded in Q4 of this year. And our predrill estimates is around €30,000,000 currently, but that is obviously continuously being evaluated. What's interesting about the Ginnie as well is that it has resources in the vicinity of Drogin and has the growth potential, again, same as with
the customers, to add more volumes to Drogin for the future.
So we look very much forward to that one.
So those 30,000,000 barrels, I guess, that's on a gross basis, right?
Yes, of course.
Okay. Okay. Thank you.
Thank you. Okay. As there are no further questions, I will hand the word back to the speakers.
Thank you. This is Trond Amdahl, Vice President, Investor Relations. We have some questions from the web. Some of them have been taken before. But one question.
Given the improved macro situation and cash position, could you please comment on your dividend policy? Note that even with an improved Q2 results, there are 20x more sellers than buyers of the share. And as a follow-up, same from the same person, as a follow-up to my last question, could you please comment on potentially renegotiating and improving terms on bonds given the improved performance and expected stable macro conditions going forward?
Yes. I think we responded to this more or less in the previous statement, where both our dividend policy and our financial structure will be part of our strategy discussions. And with respect to the comments on the number of sellers, I note that at least a large portion of those sellers are in an are asking for a price significantly higher than the current share price. Yes.
Okay. Two more questions on that one. We have €346,000,000 of cash minus debt. When will you start paying dividend? Or will everything go into investment?
And another similar, Heiko, could you please indicate when you plan to start paying dividends?
Yes. I think we have responded to that. Just to clarify, the cash balance is $1,346,000,000,000 and our debt is $300,000,000
means we register there is interest in our future dividend policy. Another question, can you say more about possible M and A opportunities? Yes.
Well, we are obviously
in
the same market as everyone else. What's important though is that our M and A strategy will be based on the strategy refresh that we are planning now in August, and that will position U. R. For the future in the more long term. And then an M and A strategy will then be a product of that strategy review.
So we obviously want to use our position to grow as a company. And then M and A and inorganic growth is a natural part of that strategy. Okay.
Thank you, Sven. Another question on EMEA. Will EMEA go online early second half or towards Christmas? Yes. Again, I still think we just want
to say it will start during the 2021. There is no indications plans and the activities that there is any delays to the plants that the operator are working in accordance with. What we are doing when we are working closely with Epsilon is to ensuring that the quality and the work which is actually being performed will enable IMA to be a reliable performer when first oil is achieved later on this year. So that is our main focus. So we will get back to a more precise date on the start up later on this year when of the activities are behind us.
Next question. From the web, do you have projects that you expect to take FID on before the end of next year to take advantage of tax breaks?
So we are looking at we are well, we have just done FID on the Hasselmo project, but we are also working on the power from shore solution for Droggen together with other licenses in the area, where we expect to pass decision gate two later on this year and obviously take it through your financial or investment decision next year within this time limit. Yes. And that the Gravelen is still being matured. Again, we are planning a DG2 later on this year as well for the Western Kreblin. We are currently reviewing that area and the serial production, of course, two areas also seen in context of the results from the Jaw and Ilda wells.
So we are firming that up during this fall for DG2 decision.
And one final question. After the Q1, you guided one month shutdown on Jura in Q2 and fifteen days in Q3. What are the current plans? The current plans and the forecast now is that
we have no planned shutdowns for Q3. And the previously announced fifteen day has been reduced to something like two days for the fourth quarter on year. So no scheduled deferments or shutdowns in the third quarter.
That's all. Back to the moderator.
Thank As there are no further questions from the phone, I'll hand over back to the speakers for any closing remarks.
Thank you, and thank you for your participation. And both Svein, Berthte and myself are available both for questions both via e mail and on telephone, and the contact details are on our website and on our press release this morning. Thank you.