Hello and welcome to the Vår Energi Q3 2022 Results Call. My name is Lauren, and I'll be coordinating your call today. If you would like to ask a question during the presentation, you may do so by pressing star followed by one on your telephone keypad. I will now hand you over to your host, Ida Fjellheim, Head of Investor Relations, to begin. Ida, please go ahead.
Thank you very much. It's my pleasure to welcome you to Vår Energi's Q3 2022 results webcast and conference call. Joining us today is, as usual, our CEO, Torger Rød, and our CFO, Stefano Pujatti. Torger and Stefano will present the results and afterwards we will have a Q&A session. I will now give the word to Torger.
Thank you, Ida, and good morning to everyone listening in on the call today. I want to start today's presentation by saying that we have extraordinary times for the NCS and the European energy landscape in general. The leakage which occur in the Nord Stream gas pipeline in the end of September are stark reminder of the importance of energy reliability and energy security. Following the situation, there is overall a heightened security level on NCS, including onshore facilities, logistics spaces, and increased awareness and attention on all office facilities. The Norwegian authorities have the main responsibility for the security of the infrastructure and facilities, and we are working in close collaboration with all relevant authorities and partners in general. Given such a special situation, our main focus is on safe and secure operations to maintain a reliable supply of oil and gas to Europe and UK.
Turning to the Q3, we deliver another quarter with strong cash flow generation and a continued supportive market environment. We have maintained safe and reliable supply of oil and gas with Q3 production at 2% from the previous quarter to 215,000 barrels per day on the back of reduced turnaround and maintenance activity, including a material gas share of 37% in the quarter. As communicated in the production update earlier this month, various operational issues at partner-operated and operated fields have led to a revised guidance for the full year. Now expected to come in at between 220,000 and 225,000 barrels a day. Our operations continue to deliver strong cash generation. The realized price was on average $139 per barrel in the quarter.
This provides a cash flow from operations at the same level as previous quarter, amounting to $1.5 billion. We can also confirm the 2022 CapEx guidance at a low level between $2.3 billion and $2.6 billion. Our dividend guidance is increased to $300 million for the Q4. The strong cash flow generation has further improved the financial position, now standing at nearly $5.1 billion in available liquidity, including undrawn facilities, and the leverage ratio, net interest-bearing debt to EBITDA, is further reduced to 0.2. Our production target of more than 350,000 barrels in production by end 2025 remains firm.
Our cornerstone project, Balder X, saw our revised schedule and cost estimate in September, leading to an impairment of $573 million with an after-tax impact of $308 million reflected in net income. For the remaining public portfolio, we see that it's progressing according to plan. Combined with high exploration activity towards year-end, we are set to deliver long-term production growth. Here you see a summary of key performance indicators in the quarter. We maintain a sharp focus on the safety of our employees, and Q3 saw no serious incidents. Our target is always zero serious incidents and injuries, and our ambition is to be the safest operator on the NCS.
Estimated emission intensity of 10.4 kilo per barrel for operated fields reflects our planned turnaround on Balder/Ringhorne while production cost per barrel is down from the previous quarter due to higher production following completed turnarounds and maintenance in the Q2. We deliver another quarter with strong cash flow generation, and we will distribute $290 million in dividends for the quarter as communicated in Q2. We move on to an operational review of the quarter. Safety is about people. Vår Energi's highest priority is to operate without causing harm to the people and the environment. The company's strong focus on implementation of our safety initiative continues through the Q3. Per first half of 2022, an overall positive trend on the Serious Incident Frequency, SIF, has been observed.
The twelve-month rolling average for Total Recordable Injury Frequency, TRIF, was 3.7 in the Q3, an increase compared to 2.7 in the Q2. None of the incidents had a high potential consequence. The trend is primarily driven by incidents related to yard activities in the ongoing development projects. Initiatives have been implemented and learnings are shared to turn the negative trend. As mentioned on previous slide, the estimated emission intensity of 10.4 kilo per barrel for operated fields are reflecting the planned turnaround. We are committed to continuous reduce the emissions, and in the quarter, we joined the Global Joint Industry aiming for zero methane emissions initiative, headed up by the Oil and Gas Climate Initiative, OGCI. By taking individual and collective actions, the OGCI members will accelerate the energy transition to deep reductions in greenhouse gas emissions.
The production of 215,000 barrels is up 2% from previous quarter, mainly due to less turnaround activity in the Q3. We maintain a high gas share of 37%. To enhance value, the company continued to reduce NGL recovery to increase gas volumes and gas sales due to favorable market conditions. This led to a net production decrease of 2,000 barrels per day in the quarter, but as said, higher value realization for the company. We have planned maintenance Balder/Ringhorne in the quarter, which was executed successfully according to plan, cost, and with a high safety standard.
As communicated, we have revised our production guidance for the full year to 220-225 thousand barrels per day, and this is due to various operational issues at partner-operated fields, including the continued compressor failure at Sleipner, which is expected to last until November. Also Snorre, Statfjord, and Grane, including extended turnarounds on some of them, have significant impact. We have also seen challenging well operations on our operated assets. This includes low performance on the new Ringhorne wells, as well as riser issues at Balder, which has continued into Q3. Also, on average, we have a 10% natural decline in the portfolio. Now on to our operated assets. Goliat was back to full production after a successful turnaround in Q2, and we have seen a strong operational performance in the quarter.
The production efficiency in the quarter was 88% impacted by shutting wells. Work on restoring production is ongoing. At Balder/Ringhorne, the previous mentioned turnaround combined with well challenges at Ringhorne impacted production and production efficiency. We are continuously working to optimize well performance to improve efficiency and arrest the natural decline. Ringhorne well performance and Balder riser and flowline integrity issues, including the flowline incident in Q1, is impacting our volume outlook for 2022. Turning to unit production cost, it was a reduction from $14.7 to $13.4 per barrel in the quarter. The improvement is driven by less turnaround and maintenance activities and the Forex effects. For the first nine months of 2022, we stand at $13.3 per barrel, which is in line with our full year guidance.
Stefano will come back to more details on production cost later in the presentation. As earlier communicated, the Balder X project is a challenging project for us and has not developed as well as we would like. Current market conditions with supply chain disturbances arising from the pandemic and the war in Ukraine have led to tighter markets and resource constraints. This has, like other projects in our industry, influenced the progress of the project. In addition, the highly complex refurbishment of the Jotun FPSO has experienced growth in scope and needed more engineering and construction hours than expected. Following a comprehensive basis review in the Q3, the project has revised cost estimate by an increase of $1.2 billion and an adjusted schedule. Key focus is to ensure cost control and progress to meet targeted first oil in Q3 2024.
These adjustments has led to the impairment charge as mentioned earlier. When the FPSO is installed at the Balder field in 2024, more production wells will be ready at startup compared to previous plan, which means a relative faster ramp-up of production. It is important to be clear. Balder X remains a valuable project for us and is set to extend the great value creation from the Balder hub for more than 20 years. From our Balder field, which has already produced more than 500 million barrels since the startup in 1999. We have a long-term growth strategy and are actively pursuing further development of the Balder hub, such as the adjacent licenses acquired in August. Next year, 2023, we plan to drill up to three exploration and appraisal wells in the area.
Furthermore, with Balder X on stream in 2024, it will enable tie-ins of the King and Prince discoveries. We work to realize a potential to produce another 500 million barrels towards 2024 and beyond. In addition to Balder X, we have a robust development portfolio of 15 projects well into execution, which are generally progressing in accordance with plan. However, as mentioned before, we see inflationary pressure and increased CapEx on some projects, and to achieve planned productivity going forward will be key. These developments support our high-value growth towards the production target of more than 350,000 barrels per day by end 2025. Going more into detail. Johan Castberg is progressing in accordance with schedule, with some CapEx increase as communicated by their operator. An important milestone was reached in August with the completion of the heavy lift campaign at Jotun.
Furthermore, the subsea and marine campaign is substantially complete. For Breidablikk, a subsea tieback to Grane is progressing according to plan, with the 2022 subsea and marine campaign completed and drilling operations ahead of schedule. The project targets startup in Q1 2024. In the short term, we expect the Bøyla subsea tieback project to come on stream once the new host is fully operational, followed by the Fenja subsea development. In total, these two projects are expected to contribute with above 10,000 barrels per day in early 2023. In Q3, exploration activity has been low as planned. Going forward, we continue to target high-margin barrels. In the Q4, the activity will be high, with five planned wells, all located close to our key hubs, in line with our hub strategy.
Two of these wells will be Vår Energi operated and will be spudded in mid-November, which brings a lot of excitement towards the end of the year. By this, I will round off the operational update and hand over the work to Stefano, who will dive deeper into the financial performance in the quarter. Thanks a lot.
Thank you, Torger, and good morning, everybody. Let's go straight into some of the key financials for the Q3. We achieved strong revenue and cash flow generation on the back of continued high oil and gas prices. EBIT DA and profit before taxes are at high levels, but reduced from the previous quarter due to an impairment of $573 million related to the Balder X project revision and an unrealized Forex loss of $287 million, as the dollar has further strengthened compared to NOK. With operating cash flow before tax at more than $2 billion, we have reduced leverage ratio to 0.2 from 0.4 in the previous quarter.
Due to the significant cash build in the quarter, our financial position is further improved, and we stand on a very strong position of $5.1 billion of cash and undrawn facilities available at the end of Q3. Production cost is at $13.4 per barrel, compared to 14.7 in the previous quarter. I will now go into more detail of our Q3 financial performance. In terms of revenues, we generated record high $2.5 billion for the quarter, representing more than 50% growth from the same quarter last year. Compared to the previous quarter, revenues was up $97 million, driven by higher gas prices, which accounted for a positive contribution of $269 million, whereas lower sold volumes negatively impacted by $172 million.
For the first nine months of the year, we are now at $7.4 billion of revenues, nearly twice as much as year to date 2021. These strong figures are a result of a continued favorable market conditions and our large and diversified portfolio with the material gas production, which for the Q3 represented 53% of the revenues. During the quarter, we continued to divert gas from injection and to minimize sales of methanol and ethane in order to maximize gas sales. The average realized gas price was $204 per barrel, a strong increase from $151 per barrel in the Q2. This is equivalent to $34 MMBtu or EUR 116 MWh. I will soon cover our gas sales in more detail.
Realized oil price was slightly down from the previous quarter to $108 per barrel. Altogether, average weighted realized price in the quarter was $139 per barrel, an increase of 12% from the previous quarter. Sold volumes were 18.1 million barrels, down by 1.4 million barrels from the Q2, but produced volumes were 19.7 million barrels, up from 19.1 million barrels of the previous quarter. Going deeper into the gas sales in the quarter, the average price was, as mentioned, $204 per barrel. This consisted of around 34% of the sales sold on day ahead basis at $250 per barrel. Around 38% was sold on a month ahead basis at roughly $235 per barrel.
Both month ahead and day ahead were weighted toward the French and the German market. The remaining volumes were delivered under contracts with fixed pricing, realizing an average of around $100 per barrel. This included a one-year gas sales agreement that ended now in September, as well as a forward sales agreement that was entered in January 2022. Going forward, we have a robust sale portfolio with access to several markets, with sales references to both TTF, THE, PEG, and NBP. As you can see from the chart of indicated future gas sales, the month ahead and day ahead will be weighted toward the French and German market, and we will have flexibility in the contracts to decide the split between month ahead and day ahead.
For Q4 2022 and Q1 2023, we will have fixed price sales representing 30-35% of the gas sales. The price for these sales are around $150 per barrel in Q4 2022, and around $255 per barrel in Q1 2023. For Q2 and Q3 2023, the fixed price is approximately $170 per barrel, representing roughly 20% of the sales in such quarter. We are also exploring the use of financial derivatives for hedging as an added instrument to manage risk in the current market situation. Total production cost for sold volumes amounted to $114 million, a reduction of $264 million compared to the Q2.
The decrease is mainly driven by a significant reduction of overlift, summarizing to $165 million in the Q3. In Q2, the adjustment was $82 million in the opposite direction. We thus end up with a change of $246 million compared to the previous quarter, as seen in the chart. Over and under lifting adjustments are done per field and are therefore impacted by allocation and timing of liftings, which can result in significant effects with volatile market prices. In addition, overlift positions are valued at market prices, while underlift positions are valued at unit production cost per field. This give stronger effects in higher market prices, such as the market environment we are in now. Cost of operations were lower by $15 million versus Q2, mainly due to less maintenance and turnaround activities.
We had continued strong cash generation from operations in the quarter, amounting to $1.5 billion. This is in line with the high level from Q2, driven by positive contribution from higher product prices, offset by working capital changes and higher taxes paid. For the first nine months, we have now generated more than $5.2 billion in cash flow from operations, an increase of more than 40% from 2021. CapEx increased to $599 million in the quarter, up from $573 million in Q2 due to phasing and higher activity, where CapEx on Balder and Johan Castberg remain the largest share, accounting for 52%. CapEx for the quarter was well covered by generated cash, with CapEx coverage of 2.5.
Year to date, CapEx amounts to nearly $1.8 billion, and projections for the Q4 are in line with the guidance for the full year at between $2.3 billion and $2.6 billion. Tax payments for the Q3 ended at $524 million, up from $329 million in the previous quarter. For Q4, we have significant planned tax payments, estimated to be around $1.8 billion, converted from approximately NOK 17 billion. This has been revised up since Q2 due to stronger commodity prices. Here we see the development in our cash position from the second to the end of the Q3. As you see, the CFFO of $2.3 billion before taxes and changes to working capital has contributed to a significant cash build.
We further had limited cash outflows from financing activities in the quarter and distributed, as planned, $260 million in dividends to our shareholders. Summarized, the cash position at the end of the Q3 stood at $1.5 billion, an increase of $607 million from end of Q2. Combined with undrawn credit facilities, our available liquidity increased from $4.5 billion to $5.1 billion. With the strong cash generation, we have further improved our financial position and the leverage ratio, net interest bearing debt on EBITDAX, which ended at 0.2 at the end of the quarter. We remain committed to maintaining our investment grade credit rating, while we are heavily investing in developments, continued strong shareholder distribution, and strengthening our balance sheet.
The strong financial position lies as a solid foundation for continued material shareholder distribution and growth. Vår Energi's material cash flow generation supports attractive and resilient distributions. The dividend guidance for the Q4 is $300 million, which implies a full-year expectation of $1.075 billion. We further confirm $290 million in dividend for the Q3, which is equal to 0.12 per share, to be paid on the 9th of November. From 2023 and onwards, our dividend policy is to distribute between 20%-30% of the cash flow from operations after tax. Finally, I will round off the financial review with our forward-looking guidance for the remaining part of the year. I want to highlight the following.
Production for the full year is expected to come in between 220-225 thousand barrels a day, as communicated in our production update earlier in October. Our long-term target of more than 350 thousand barrels a day by end of 2025 remains firm. OpEx is maintained at $12.5-$13.5 per barrel, where the ambition is a reduction toward $8 as new projects come on stream and we progress improvement programs. CapEx guidance is maintained at $2.3-$2.6 billion for the full year. Worth to mention is that in the Q4 we will also have the final payment to Exxon of $340 million as part of the 2019 acquisition. On the dividends, we propose a Q4 dividend of $300 million.
That concludes the financial sections, and I will give the word to Torger for some concluding remarks. Thank you.
Thanks a lot, Stefano. In times influenced by a complex macro and security situation, Vår Energi has maintained safe and reliable operations, supplying Europe with oil and gas. We continued to generate strong cash flow from operations on the back of high oil and gas prices, and we have an improved financial position. Finally, we are progressing towards our long-term production target. With that, I thank you all for listening in and give the word back to the operator. Thanks a lot.
Thank you. If you would like to ask a question, then please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure that your phone is unmuted locally. As a reminder, that is star followed by one to ask a question. Our first question comes from James Hosie from Barclays. James, please go ahead.
Yeah, good morning. Thanks for the call. Yeah, just on operations, you mentioned that the wells have been shut at Goliat to ensure safe operations, and also that Balder had some flow line riser integrity challenges. Could you elaborate on what these issues are, the production impact, just the pathway to resolving them, please? A second question, just about the refinancing plans. You've got the bridge facility maturing next November, but you obviously have got a lot of headroom. You're generating a lot of cash flow. Are you still looking at further bond issues, or do you have alternative plans to deal with that debt maturity?
Good morning, James, and thanks for your questions. I think Stefano and I will split this in two. I will answer the operational part, and Stefano will take the refinancing question here. To your question about both the operational and the impacts and issues as we talked about in our presentation, you are right. You know, we have had some operational issues that are impacting our production and then also our guidance. When it comes to Balder, here we are, you know, working with a fix that is really to replace a riser. As we are speaking, you know, the work is ongoing. So we are aiming to have that, you know, in place and fixed during November.
The same is a bit the situation on Goliat. Here you heard we talked about well integrity and there. We are also there having a fix. We are working with it. We aim to have it in place by end year. That means these two items should be what you call one-offs, that we fix them, and then you know we will have a stable production following after that. That is the short status on this. Of course, this assumption is incorporated as part of you know establishing the new guidance. Then Stefano the refinancing and the question from James there.
Yes. Thank you. Let me say, related to the recent market volatility and refinancing, we are keeping all the options open. We have the possibility to issue notes offering in the U.S. capital market, but also euro. We have a quite supportive group of 12 banks, international banks. Refinancing of the bank debt is also an option. A third option is also a potentially partial repayment from the significant cash flow that we are able to generate. Let me also add the fact that we have utilized the extension of the bridge to bond. This has brought a limited financial impact on the rates. Current interest rates are around 3.7%. Overall, Vår is an attractive credit.
We have diversified production. We have a high gas share. We have a robust cash flow. We are an investment grade company, and we have a robust balance sheet. Overall, my comment is really, we will adapt to the market situation, which we know is very volatile. We will listen to investors, consider tenors, which we see are in demand and are aligned with the company financial requirements. We are not in a hurry. We are not lacking optionalities.
Very clear on that. Thank you very much.
Thank you. Our next question comes from Teodor Sveen-Nilsen from SpareBank 1 Markets. Teodor, please go ahead.
Good morning, Torger and Stefano. Thanks for taking my questions. I have two questions from me. First on the outlook for 2023 production. I guess several investors are ready at this point to know that 2022 production is flat, but just wonder what they should expect for 2023. You are talking about 10% underlying the current portfolio, while you also will have some new production from fields coming on stream towards the year and also early 2023. Should we expect higher production year-over-year or flattish? Second question, just to confirm something you said on slide 18, Stefano. Is it correct that you have sold around 25% of the gas volumes in Q4 at prices corresponding to $150 per barrel, and the remaining 75% of the volumes will be sold in the spot market? Thank you.
Thanks. Good morning, Teodor, and thanks a lot for your questions here. We do as you know, we continue splitting it, the gas, as Stefano will. I will start a bit on the outlook for 2023, Teodor. It is up, you know, I will not be very, what to say, specific on any numbers for 2023 at this point. You know, what we are doing now is, of course, we are assessing our own portfolio, we are assessing our partner's portfolio. What do I say? We are digesting all of this. Also we have mentioned, you know, of course you know about the Balder adjustment and so on. Just a few reflections from my side here.
You know, we also based on the question from James, you know, I gave some reflections. You know, we have had this year some, what I call, one-off situation. You know, we talk about on Goliat, Balder, we have also seen that in the portfolio, specifically related to Sleipner and the compressor there, and also turnarounds that are taking significant more time. These are things that, you know, we are of course taking learnings and experiences from. We are working hard to avoid that kind of impact for 2023. That is important for us. Also as you mentioned, you know, there will be coming some fresh production from starting up fields. You know that specifically it's Fenja, it's Bøyla.
It's also some Oseberg-related projects and Frosk. All in all, this will be scattered during the year as also you alluded to. All in all, that they will represent about 17,000 barrels. In addition to that, we are also doing our infield activities in particular the Goliat area. Of course, our partners are doing the same. When all this is, let's say, matured and massaged into our work program, we are ready to be more specific on the guidance for 2023. These elements are what we are putting into that equation I just mentioned. Then I think we move to the gas and the question to. It was very specific on slide 18 and the distribution there, Stefano.
Yes. Let me clarify. You are absolutely correct, Teodor . For Q4 2022, we have, let's say we will be averaging $150 per barrel in terms of gas sales, and that is comprising fixed price and gas year-ahead contracts. The remaining 75% is not only spot, but is actually a mix of day-ahead and month-ahead.
If I could add one element to my answer, which I forgot, Teodor, is also the, as part of that input I've talked about, we will also get the full overview on the turnarounds for the next year. That will also, of course, be in, let's say, impacting the production. When all this is there, then we will be ready to be very, let's say, specific on our guidance. Stop there.
Sure. Thank you. Just to follow up on, you said 17,000 barrels, most are from Fenja, Bøyla, Frosk, or did that number include anything from Oseberg?
That was also some Oseberg-related projects there that is coming. You know, the Oseberg subsea compression and phase two and so on. Yeah. All the specifics there, we can follow up with and you. Yeah. It's all good.
Sure. Thank you very much.
Thank you. Our next question comes from James Thompson from J.P. Morgan. James, please go ahead.
Great. Good morning, James. Thanks very much for the presentation so far. Just on the security situation in the North Sea, could you maybe just talk us a little bit there about, you know, a bit more detail around the cost. You know, how long do you sort of expect to keep things going for from that perspective? Just to understand some of the sort of cost implications there. Secondly, I mean, there's obviously been a few questions in terms of production performance this year. Torger , where do you think you should be aiming in terms of sort of production efficiency for the portfolio in terms of, you know, taking into account kind of asset maturity and things like that? It'd be useful to kind of get an indication about where you think it's kind of operating at your highest level.
Thanks for your question, James. Starting on the security part, you know, here I will really, well, say you know emphasize that this is really a very good and close collaboration in Norway on the Norwegian Continental Shelf when it comes to security. I sometimes, you know, I like to talk about the Norwegian model, which is, you know, the close collaboration partnership we have between both the regulators, the authorities, and also the industry and operators. That is also the case here. We are working very closely together to let's say enhance the security both you know offshore and also onshore related here. That is the case.
We are very aligned in what we are doing, the measures we are putting in place. When it comes to the duration, it's you know, I can't give any end date on this. Of course, we are monitoring the situation, you know, as we go. Cost impact, I think we all see this as value protection there and also you know, our utmost focus is safe and secure delivery to Europe in a very reliable way. I think both Norwegian Continental Shelf and Vår Energi have been very successful on that so far. That is our focus. You know, we are going to provide as much energy as we can to Europe in this situation.
That is the focus, the high-value protection here. Then a bit to the production efficiency as you talked to. Also here a little bit, as I said to Teodor , you know, we are working continuously to improve our production efficiency. We have, you know, set improvement agendas there. We talked quite a bit about that. I think it was in the Q2 presentation, specifically about Goliat. We have seen, you know, a good uptime there. Of course, that have been impacted by the plant turnaround and also a bit about the integrity items we talked about. But of course, for Goliat, we would like to be, you know, up in the mid-90s and a little bit more even.
That was also what we achieved in Q1. That goes also, of course, when we get the Balder Future in place, you know, that we should be high up there. Balder FPU is a little bit different there, and it requires some more and also more of, say, maintenance and so on, so that is there. But we should be highly competitive also on the production efficiency going forward. We have, we'll say, a high focus and working hard to achieve that. On that note, you know, I'm very happy and pleased that we concluded the turnarounds both on Goliat and on Balder FPU in accordance to the set plan and the set budget.
Because that is very important. We saw that on some of the non-operated that we when you are having extension on the turnarounds, then it's hard to have a high production efficiency. That is our focus going forward, James.
Right. That's very helpful. Maybe if I could just change gears a little bit quickly. You've flagged sort of some changes to your thinking about changes to your hedging strategy going forward. It'd be interesting to know what you've learned about the current policy that you've had through the extreme price movement that we've seen in 2022. What's your sort of takeaways about how robust that policy has been? And then, secondly, Stefano, Q4 has obviously got some fairly big cash costs in terms of tax, and the Exxon sale Exxon payment as well.
Um.
Talk us through.
Yeah, sorry.
Any cash coming back in?
I lost you on the last part of the question. You know, I got you on the price policy, but I lost you on the second part, question. Could you repeat that, please?
Yeah, sure, Tor. Just interested to know if there's any kind of cash tailwinds in the Q4, you know. Should we see a reversal in the working capital, for example, because obviously you've got some big cash out coming this quarter.
Yeah. No, good. I will start on the pricing policy, and I'm also Stefano was talking about our policies quite a bit in his presentation, so I'm sure he's keen to take. But in general, I think our pricing policy has worked very well, you know, and you know, and then I'm specifically talking about the gas, you know. I think we have a robust strategy when it comes to gas, you know, and you know how the split is between 30% in the spot market, about 70% then in the, based on long-term gas sales agreement.
We have the indexes that, you know, we kind of adjust the timing of it and also the exit points. I think all in all, you know, and I'm not talking, you know, necessarily day to day and quarter to quarter, but on a longer term, this is a clear, let's say a strength for Vår Energi combined with a significant gas sales we have. And that also I think we see and Stefano explained a bit about that in his presentation.
When we look into also what is happening for Q4 and so far in October, where we see that these policies and this utilization indexes and exit points have, you know, giving us higher realized prices and also above what they are seeing in the spot market. I think we have a good foundation there. Stefano.
Yes. Let me maybe clarify also a little bit the point you were asking. On the hedging strategy. You see in the slide we have shown we are showing how much of the gas sales, of the volumes would be firm or and target fixed price, which is comprising the gas year ahead and fixed price transactions, which currently these would be actually available and embedded in the current contract. Would be based on physical quantities, right?
On top of that, and that is a little bit the new thing that we are bringing here is the fact that we are exploring to use, in addition, the use of financial derivatives for hedging up to 10% of the post-tax gas production from Q4 2022 until Q1 of 2024, which basically is covering the winter of 2023, using zero-cost collars. This will have no direct cost to Vår, but, as you know, will cap the upside but also provide a floor and protect the downside. This will represent, let's say, an additional instrument to manage risk in addition, as I was mentioning, to the fixed price contracts for physical delivery.
Overall, if the previous instrument was covering up to roughly 30%, then we will be adding this 10%. You will have roughly 40% of the gas, let's say hedged with different instruments. Now going on the cash tax, you are right. We have reviewed upwards compared to what we were estimating in Q2, the tax bill. Actually, it was made on the basis of the very, very strong gas prices. That was really the trigger. In October, in Norway, you have the possibility to actually revise upwards if needed, the tax payments.
We actually reviewed it, and we will be paying NOK 5 billion of additional taxes compared to what was the previous guidance. That is an increase of roughly $500 million. That is, of course, on the back of the much better gas prices that we are seeing. Let me just also comment about the fact that the remaining tax bill, as you know, will be paid related to this year, will be paid in the first semester of 2023. There is a possibility in February, if needed, that's the second option we have, to revise the tax bill upwards or downwards according to where we will see price going.
Okay. Thank you very much, Torger. Thanks, Stefano and the rest.
Thank you. As a reminder, if you would like to ask any further questions, then please press star followed by one on your telephone keypad. Our next question comes from Anders Rosenlund from SEB. Anders, please go ahead.
Thank you. I'd like to revert to the 2023 production outlook, which I appreciate that you won't be detailed about. You previously showed some indications on production growing in 2023. From the presentation today, I picked up you said 10% decline, which is around 20,000 barrels a day down and 17,000 barrels up on the four projects you mentioned or the four assets. It seems like a risk of having production decline in 2023. Can we still expect production to increase in 2023? That was my first question. My second question is, I appreciate that pre-float is not that significant here, but you're paying 15% dividend, and which is quite generous.
Have you made any contemplations on whether some of that distribution of liquidity to shareholders should be in the form of share buybacks and potentially structured share buybacks, allowing the two largest shareholders also to participate in such transactions?
Yeah. Anders, thanks a lot for your questions here. Back to production. I know, my answer is quite similar to what I have already expressed to Teodor. You know, as I said, we are working constantly to maximize production. Also based on what they said, you know, there, I think the decline, that is nothing new. That has been there. You know, that's been a topic that we have, you know, communicated always.
Of course, what's really new, it's not very much new compared to what we said on Balder, and we know that some of the production will be, let's say, pushed out because we had our plan of Q4 2023 startup. Of course, now we know that that will be coming later. As I said, you know, the things that we have to be getting a better insight and grip on is the activities we are doing to enhance the production efficiency, the infill drilling, and then of course also the turnaround activities for 2023.
All these have to be put together before we can in a way give any clear guidance there. But when we're ready, you know, we will for sure share it with you. Also, of course, the timing of the new poll is coming. We'll have some contribution here. As I said, we are working hard to maximize that and I would say accelerate what we can accelerate and so on. That is the current status there, understand. A bit on distribution to our shareholders. Yes, we are contemplating, and this is a question we're getting quite a bit, you know, what should we do?
You know, should we do a buyback or a dividend? As of now, we feel that it's a more, you know, dividend is a more efficient way. Also, as you alluded to it, given the free float, that to utilize that as our distribution to our shareholders. You know, I'm not saying that will always be like that, but it is something that we, as I said, we think. We also think that is the best way of doing it. Yeah.
Okay, thank you.
Thank you. I will now hand over to Ida Fjellheim to take you through the webcast questions.
Thank you. Two project-related questions. What is the new and old NPV break-even oil price for the Balder X project? The second one, is it possible to give some indications of the NPV break-even oil price for the projects on slide 13? Thank you.
Yeah, thanks a lot, Ida. You know, really what I will say about Balder, you know, I think, you know, it's important in a way to remind each other what Balder really is about. Of course, you know, Balder is a very important for Vår Energi, and again, it's, you know, we also very, you know, we are proud of Balder. As you know, it is the PL 001 and really the beginning of the oil and gas history in Norway. Why it's so important also for Vår in the future is that, you know, in the Balder era, we see a significant upside. That is so Balder and Utsira is really more than Balder Future.
What we have seen, we have been producing half a billion barrels or 500 million barrels there. You know, and by extending the lifetime of Balder is really going to be the host for this area. Also we see significant, I would say, prospects in the area. Of course, also the King and Prince. Really what has happened since we made a FID, yes, it is the updates on the projects, but also we have done important discoveries. You know, that is just emphasizing, amplifying the importance of Balder. You know, the King and Prince discoveries, which we communicated last year, between 65 and 135 million barrels.
We also acquired four licenses in the area in August this year, which is adjacent to the prospects where we have done discoveries. We are planning to drill up to three exploration appraisal wells in that area next year in the Balder area. That's really what Balder is all about. Of course, looking into the crystal ball and talking what will that look like beyond 2045, then we are also seeing a potential of maybe 500 additional million barrels here. That is what Balder is about. It's much more than the specifics on Balder Future.
I will, once I go into the specific details on the break-even and the NPV for Balder. I will in a way use that to bridge to slide 13. I have to. I guess that is the project slide. I don't have that in front of me now. Ida is nodding, so that is good. I'm also answering in a way on the Balder question because we, in Vår Energi, w e have a high threshold. You know, we would like to sanction project. You know, then we should see a break-even of 30 or lower and our internal rate of 20 or above.
That is also, you know, when we summarize that type of portfolio, that is what we see, you know, rough numbers, you know, to be in that range. That is also what we are pursuing going forward, you know, and keeping that discipline also in times like this. We are building margins into our portfolio.
Thank you. Next question is also related to Balder. Can you elaborate how the delay on Balder X is affecting a potential development and tie-in of the King Prince discovery? In December 2021, you expected an FID in second half of 2022 and first oil in 2025. Thank you. You are muted.
Yeah, Ida, thanks a lot. Sorry for being muted, but here I am. You are right. You know, as I said on my previous question or answer, here is that, of course, King and Prince is one of the really exciting prospects that we have in the area. We are now working to mature that. You know, we are not planning an FID this year, but we are really looking into how we can, you know, mature and find the best possible solution. As part of that is our potential appraisal well next year, as I also just talked to. Then of course, what our plan is to for the prospects this year in the area is really to build plateau on the Utsira.
We are in a way maintaining our longest and highest possible plateau. Then that means that we will time that in, so we have both building a robust production profile and also our long plateau. That will also give the timing, you know, when King Prince is coming into the to Utsira or to the Balder Future. Of course, this is. I think that is the reasoning we have there.
Thank you. A question for Stefano on cash tax guidance. Could you please outline the commodity price assumptions embedded within the latest cash tax guidance?
On cash taxes, let me say that what we are actually or a good assumption to use is actually a cash tax rate of around 70%. That is something that can be used, let's say, which should help in projecting the total cash tax for the year. That is including the new changes in the tax legislation.
Thank you. There is another question here on production cost. Your production cost guidance of $12.5-$30.5 per barrel was set at an environment of a stronger NOK. With the US dollar now strengthening compared to the NOK, how would cost have been if the currency was at the level you had expected at the beginning of the year? Thank you.
Yeah, thanks a lot for the question here. I think, you know, Stefano is the Forex expert here. Stefano, have you assessed that, what it would have been if he had a different strength or different ratio between the NOK and US dollar?
Yes. I think the impact is roughly it has been with the weakening of the NOK around $1 per barrel. That is more or less the range.
Thank you. A last question before we have to end the call. You mentioned that you see inflation and bottlenecks that could impact the projects on slide 13. Would it be possible to give some indication of if there are any projects in particular that are at risk in addition to Balder X, and how big the impact could potentially be in terms of NPV break-even oil price? Thank you.
Yeah, thanks for the question. That is really a big one. I think, you know, just to be clear on that, you know, we are in a good position with our project portfolio because they are sanctioned, the main contracts are awarded, and the main assets are in place, and then I mean rigs. Also, you know, when it comes to, for instance, Balder, if I use a few words on that first, you know, there we are in a, I would say, in a good position when it comes to the exposure for inflation, because we have done and we have placed the POs, you know, there, and we have got the equipment on site, and so that is there.
In general, we are ahead of the biggest wave when it comes to and well into execution of our projects. This is our safeguarding on this. For me to be very clear what this can lead to when it comes to NPV and break-even that is difficult. Though, where I expect the biggest exposure is those projects that, you know, is closest to FID or just have been FID, because it's, you know, it's more runway, so to speak, there.
Again, for us, you know, we have done quite work to let's say at least impact that we can influence, and that is, as I said, securing assets, securing contract awards, and also the way of working. Then I'm thinking about our strategic collaboration and the long-term relation to the suppliers that ensures predictability, ensures also priority. That also goes towards what you also mentioned in our presentation, you know, also that you are able to get the right productivity, you know, and that means that we are able to get good people and efficient people, and then let's say are able to do the work as planned.
Thank you. That concludes the Q3 2022 results call for Vår Energi. We wish you a continued good day, and thank you very much.