Hello everyone, and welcome to the Vår Energi Q2 presentation of 2026. Today's call is being recorded. For the first part of this call, all participants will be in listen only. Afterward, there will be a question session. To ask a question, please press star one on your telephone keypad. I would like to introduce Head of IR, Ida Marie Fjellheim. Ida, please go ahead.
Thank you. Good morning, everyone, and welcome to Vår Energi's second quarter 2026 results webcast. Today, we will cover both our second quarter results and the announced BlueNord transaction. We will begin with a quarter results presentation, followed by a presentation of the proposed transaction. Following both presentations, we will open the line for questions. I'm also pleased to welcome Euan Shirlaw, CEO of BlueNord, who will be joining us for the Q&A session. With that, let me hand over to our CEO, Nick Walker.
Thank you, Ida, and good morning to you all, and I hope you're having a nice summer break. Thank you for taking time out for joining us today. We've had a very active quarter with lots to report on this morning. First, we'll cover our second quarter results, and then we'll review the BlueNord transaction details. Of course, I'm pleased to have Euan Shirlaw with us, who will make a few comments at the end and participate in the Q&A session. I'm pleased to report record financial results for the second quarter, supported by operational delivery as planned and high realized prices. We continue delivering strong momentum across Vår Energi, and I'm excited about the company's outlook. We're improving outcomes, increasing the pace of delivery, and optimizing the portfolio, which is increasing resilience and unlocking significant long-term value.
We're excited to announce today the combination of Vår Energi and BlueNord, creating the largest independent producer of oil and gas in Europe. The combined business will have increased production target of around 450,000 bbls of oil equivalent per day and reinforces our role as a reliable and secure supplier of energy to Europe. Together, we're creating a stronger, more diversified company with increased scale, resilience, and cash generation. The combination increases production, reserves and resources underpinning our ability to deliver long-term value to our shareholders. Now let us look at the highlights for the second quarter. Production is on track to meet full year guidance with production in the first half of the year at 391,000 bbls of oil equivalent per day.
This is supported by strong performance from our operated assets. We expect production in the second half to be higher as our major planned turnarounds are now complete and with new projects and wells coming on stream. As I said, we delivered record financial results in the quarter with significant CFFO post-tax of $2.1 billion. We have increased resilience with net debt reduced to $3.4 billion and our leverage ratio is down to 0.4 net debt to EBITDAX. We completed successful issuance of EUR 750 million hybrid bond in the quarter. We have high available liquidity of $5.3 billion. You can see we received a credit rating from Fitch of BBB with stable outlook to go with existing investment-grade ratings from S&P and Moody's. We continue to unlock long-term value.
Firstly, with the combination with BlueNord that we announced today, we are building the largest independent E&P in Europe. During the quarter, we sanctioned key projects in the Balder and Gjøa areas, developing 110 million bbls of net reserves. We see strong performance at the Breidablikk field. This will see reserves increased by 50% since the PDO and lead to the next phase of development. We've been actively managing our NCS portfolio with five transactions announced in the quarter, unlocking value creation and extending field life. Lastly, we continue to deliver long-term attractive shareholder returns. As a result of expected value creation from the BlueNord combination and our strong financial results, we're increasing shareholder returns. We confirm a dividend distribution for the second quarter of $350 million to be paid exclusively to existing Vår Energi shareholders.
This means we've paid stable or growing dividends for the last 18 quarters. We're providing dividend guidance of $350 million for the third quarter to the shareholders of the combined company. Delivering attractive and sustainable dividends over the cycle is a key priority for management. We remain committed to our long-term dividend policy of 25%-30% of cash flow from operations after tax over the cycles. Now looking at some of the details, starting with 2026 production. First half production came in at 391,000 bbls of oil equivalent per day. We're on track to meet the full year guidance range of 390,000-410,000 bpd . We continue to see strong performance out of operated assets with high production efficiency. As we advised at the start of the year, the second quarter was impacted by planned turnarounds.
When the Balder Jotun turnaround is completed during July, all of our major turnarounds for the year are behind us. Additionally, in late second quarter, Johan Castberg production was impacted by issues with the power generation system on the FPSO. A solution has been established and production was back to normal levels from mid-July. Looking forward, we're starting up four new projects during the year. Firstly, the Eldfisk North project in the Ekofisk area came on stream in the second quarter as planned, with production in line with expectations. In the second half, we're on track to start up three projects in the Balder area, the Jotun FPSO debottlenecking, the King development, and Balder Phase VI. We have a large portfolio of over 50 production wells that are planned to start up during this year.
Far, we're on target with around 50% already in production, meaning we will see higher production in the second half of the year as our major planned turnarounds are completed, and with new projects and wells coming on stream. I'm looking now at operational performance. You can see that we're continuing our strong trend of incrementally improving our deliveries. We've seen strong improvement in safety performance during the year across a range of metrics, and we've now had zero material incidents over the last two years. This takes hard work every day. We continue, as you can see, our trend of reducing carbon emissions intensity, and we're ranked in the top 15% of the industry globally, and our methane emissions continue at a near zero level.
We continue to be recognized for our ESG leadership and are ranked by both Sustainalytics and S&P Global in the top 15% of the global oil and gas industry. For production efficiency on our operated assets, you can see a strong improving trend. We achieved 94% in the first half of the year. This is inclusive of the impact of planned turnarounds, and was better than we expected. On production costs, we achieved $10.8 per bbl in the first half, compared to our guidance of $10 for the full year. The increase was primarily driven by strengthening Norwegian krone, and adjusting for this reduces the first half OpEx to $10.3 per bbl, in line with the guidance for the year. We have ambitious targets to deliver further operational improvements, which over time will create significant further value.
As I mentioned at the start, during the quarter, we announced a series of transactions high-grading our NCS portfolio to strengthen long-term value creation. Firstly, the acquisition of Pandion Energy's assets to secure long-term production growth in the Gjøa and Åsgard areas. Secondly, a swap agreement with DNO to align interests in the Ringhorn North development and consolidate positions in the Gjøa area. Thirdly, divestments in equity interest in the Goliat and Fenja fields to accelerate value creation from recent exploration success and reduce capital commitments without meaningful near-term production impact. Lastly, an asset exchange with Equinor strengthening the company's position around Gjøa by taking an interest in the, and operatorship in the large Pion gas discovery, with the plan to tie it back to the Gjøa facilities, extending the field lifetime. The strategic rationale for these transactions is multiple.
It's about high-grading in core areas, increasing ownership in key assets, expanding into high-value opportunities, extending field lifetime, accelerating value realization from exploration success, and flexibility in capital allocation. Combined, these transactions do not materially impact the company's short-term production target, but materially strengthen our long-term outlook. I think these are great examples of how we're continuously high-grading the portfolio to create long-term value. We're now looking at how we deliver on our long-term production targets. With recent project sanctions, we now have 16 high-value projects in execution. These are all subsea tiebacks or facility enhancement projects, and you can see are developing around 380 million bbls net, and with strong economics, where the average break even is around $30 per bbl and rates of return are around 35%.
Because these projects all leverage existing facilities, the average unit production cost is very low, at around $3 per bbl. All of these projects are progressing on track as communicated. During the quarter, we sanctioned two important new operated projects, Balder Next New Wells and Gjøa subsea projects. Which means so far this year, we've sanctioned four projects, developing total reserves of around 170 million bbls net, adjusted for the transactions that we announced in the quarter. This gives us high confidence that we will once again have an organic reserve replacement this year well above 100%. These project sanctions demonstrate our ability to mature and execute a portfolio of high-quality developments, supporting production growth and long-term value creation. Now I want to look at the two sanctioned projects in the quarter.
Firstly, the Balder Next New Wells project is the next phase of development in the Balder area and is enabled by existing infrastructure and available capacity. The project comprised the first phase of seven wells tied back to the Jotun FPSO with expected startup in Q4 2027. Provision is being made for future phases drilling, with the subsea facilities having capacity for an additional nine wells. The initial project is developing gross 2P reserves of 86 million bbls. Of course, we have a high working interest here with 90%, so it's material to us. You can see strong economics with a break even of around $30 per bbl and rates of return above 35%. This project also supports the planned consolidation of infrastructure, including decommissioning of the Balder FPU from 2028, which reduces operating costs and emissions.
We continue to see a significant resource upside in the Balder area, where we're deploying our subsurface expertise and technology to unlock this opportunity, such as newly acquired seismic and advanced horizontal drilling and completion technology. Our aim here is to keep the facilities full in the long term. The remaining Balder Phase V wells and the initial King well will start up this quarter, and Phase VI will come on stream in the fourth quarter. Then we have further Balder next drilling, full development of King, Ringhorn North, Ringhorn Vision, all being progressed towards sanction. We see a lifetime for Balder well beyond 2045, and we'll be drilling in this area for many years to come. Then on to the Gjøa subsea projects where Vår Energi is the operator.
This comprises the development of the Ofelia, Yme Nord, and Cerisa discoveries in three licenses as a coordinated subsea development tied back to the Gjøa hub. First production is expected from Cerisa already in the third quarter of 2027, followed by startup of Ofelia and Yme Nord in the second half of 2028. This project includes development of total gross 2P reserves of 76 million bbls of oil equivalent. As you can see, strong economics, again, with break even below $35 per bbl and a rate of return above 25%. This project is enabled by our project factory approach, combining standardized solutions, coordinated execution, and utilization of existing facilities to accelerate development. The project will be executed through a coordinated drilling and installation campaign, leveraging existing supplier partnerships, realizing synergies and efficient execution.
Gjøa is a core operated hub in Vår Energi's portfolio, and we've been working to extend field lifetime. The Gjøa subsea projects, combined with the planned development of the recently acquired Pion gas discovery through the hub, is expected to extend field lifetime beyond 2045. We also see material exploration prospectivity near to Gjøa, with six operated exploration wells to be drilled in the next 18 months. We see exciting opportunities to continue to create significant further value in the Gjøa hub area. We still have a large portfolio of around 30 high-return early phase projects that are moving towards sanction. All of these are subsea tie-backs to existing infrastructure or facility enhancement projects with low costs, short time to market, and high returns, with average break evens, as you can see, around $35 per bbl and rates of return above 25%.
We've built significant momentum with our project factory approach with the sanction of 10 projects in 2025 and a further four projects so far this year. You can see that we're working towards a further five potential project sanctions in 2026, which means we're on track to deliver on our target of up to eight project sanctions this year. While we've been moving projects forward into execution, we're continually replenishing the early phase project hopper as we further de-risk the potential of our exciting portfolio. We have the people, the equipment, the contracts in place to deliver the planned project program. Delivering on this project portfolio will develop around 500 million bbls of contingent resources and deliver on our long-term production target. Now turning to our exploration program, where you can see we have a strong track record of unlocking value.
We've continued this success in the first half of the year with three commercial infrastructure-led discoveries out of six wells drilled. One of these discoveries, Frida Kalu, is already in production, and the other two are being matured towards development. The majority of our exploration program in 2026 is in the second half of the year, and we have some exciting wells to come. Seven exploration wells remaining, with three in the Balder area, three important wells in the Gjøa area, and a high-impact well in the Åsgard area. It's going to be exciting to see these results come in. Looking ahead, we have a significant exploration position in all areas of the NCS, and we have an exciting program already lined up for 2027 with some important high-impact wells.
That rounds off my operational update, I'll now hand over to Carlo to review the financials. Thank you.
Thank you, Nick, and good morning, everyone. Our quarter presentation will be best today. Before we go into the details of the combination with BlueNord, let's look at our second quarter 2026, where we actually delivered record financial results. We achieved an average realized price of $101 per BOE and generated a significant cash flow from operation after tax of $2.1 billion. Our financial position continues to strengthen. We reduced net debt from $5.2 billion in Q1 to $3.6 billion in Q2, and further improved our leverage ratio to 0.4 with a record high level of available liquidity of $5.3 billion. During the quarter, we successfully issued a EUR 750 million hybrid bond, and we were assigned with a BBB rating by Fitch with a stable outlook, highlighting Vår Energi's strong credit profile. Free cash flow in the quarter was $1.4 billion.
We continue to deliver attractive returns to our shareholder. On the back of a solid operational performance, continuous project sanctioning, record financial results, and in conjunction with announced combination with BlueNord, which is expected to complete around end 2026, we raised the dividend level for Q2 at $350 million and also guide the same level for Q3. Our long-term dividend policy of 25%-30% of the CFFO after tax over the cycles remains intact. We generated record revenue of $3.7 billion in the quarter, more than doubling from the same quarter last year, driven by both higher production and higher prices. We realized an average price of $101 per bbl in the quarter, with average oil price at $110 per bbl, approximately $6 per bbl above dated Brent. The realized gas price of $91 per BOE was approximately $1 above the average spot market reference price.
A brief update also on our hedging position. With regards to oil, for the remainder of 2026, 23% of our post-tax adjusted oil production is protected with an average floor of $70 per bbl, ensuring at the same time continued and substantial exposure to the price upside. For approximately 8% of our post-tax adjusted oil production, we are using collar options, which provide market participation up to $140 per bbl with a floor of $75 per bbl. We also have in place three-way option structures with a cap loss potential of approximately $5 million. With regard to the gas, approximately 8% of the third and fourth quarter 2026, and 9% of the first quarter 2027 gas production has been hedged using collar options, ensuring a floor at around $85 per BOE, with a cap at around $175 per BOE.
Considering both our fixed price gas sales and our gas hedging, approximately 35% of our gas sales for the remainder of the year have a floor price at around $83 per BOE. Vår Energi generated material cash flow in the second quarter. Cash flow from operation after tax in the quarter was $2.1 billion, almost doubling from the previous quarter, driven by higher prices and higher lifted volumes. CapEx for the quarter, including exploration, was $645 million. The strong operating cash flow covered the CapEx with a solid margin, and CFFO to CapEx coverage was 3.2 in the quarter. Our full year 2026 development CapEx guidance remains unchanged at $2.5 billion-$2.7 billion. We expect activity levels to be somewhat higher in the second half of the year, reflecting higher drilling activity, more final investment decisions, and project startups.
Our liquidity and financial position has significantly strengthened during the quarter, with a healthy cash balance of around $2.5 billion and a record high total available liquidity of $5.3 billion. Looking at the development of our cash position in the quarter. We generated above $3 billion before tax and working capital movements, up nearly 50% compared to the previous quarter, driven by higher prices and higher sold volumes. Working capital impact has been slightly negative by $96 million, mainly due to a reduction in payables. Taxes paid amounted to $850 million, related to 2025 results, with a cash outflow of $681 million in investments into our high-value project portfolio. In April, we successfully issued a EUR 750 million hybrid bond, increasing our available liquidity. In June, we distributed as planned, $300 million in dividends related to our Q1 2026 results.
The company, as this quarter, with a very strong financial position. We continued to reduce our leverage ratio net interest bearing debt on EBITDAX to 0.4, significantly reduced from 0.7 in the previous quarter, and remaining well below our over the cycle target of below 1.3. We are committed to maintaining an investment-grade rating. In addition to our Baa3 rating from Moody's and BBB rating from Standard & Poor's, both with a stable outlook, we also obtained a BBB rating from Fitch, also with a stable outlook, strengthening our overall credit profile. Let's look at the tax guidance for the remainder of 2026 and first half 2027. In the second half of the year, we will pay taxes related to 2026 results, and we are expecting to pay approximately NOK 25 billion.
For the first half of the next year, we give sensitivities based on 2026 estimated profits at different price scenarios. In the second quarter, we paid approximately NOK 8 billion in taxes related to 2025 results, and we paid a total of approximately NOK 14 billion in the first half of this year. We continuously pursue value generation through our business model. We continue investing in our opportunity-rich portfolio. We capitalize on exploration successes, and we pursue accretive M&A opportunities as the deals we announced in the second quarter and the BlueNord transaction we are announcing today demonstrate. We remain committed to deliver long-term attractive dividends to our shareholder, as our third record demonstrates, with 18 quarters of stable or growing dividend.
On the back of a solid operational performance, continuous project sanctioning, record financial results, and in conjunction with the announced combination with BlueNord, which is expected to complete around end of 2026, we raised the second quarter dividend to $350 million, and we guide $350 million also for the third quarter. It's subject to audited financial results with sufficient equity and general meeting approval of dividend. We're in a volatile world, as the last few months have clearly shown to us. We continue to maintain a disciplined approach, and we will continue guiding dividend level on a quarterly basis, in line with our long-term dividend policy of 25%-30% of CFFO after tax over the cycle. We will continue assessing the situation towards year-end, as indicated during our previous quarterly call.
The company continues to strengthen and progress its growth plan, maintaining discipline and focus on value generation for longer. With that, I hand it back to Nick to go through the details of the combination with BlueNord. Thank you.
Well, thank you, Carlo. Moving on to now the details of the combination with Vår Energi and BlueNord, which we were excited to announce this morning. As Vår Energi continues to grow, its natural evolution of our strategy to step outside of Norway, and Denmark offers a low risk, stable operating and fiscal regime with similar offshore characteristics to the NCS. The combination increases our exposure to European gas markets and strengthens the company's position as a reliable and secure supplier of energy to Europe. This is a complementary transaction for both sets of shareholders, where the companies together are creating a stronger, more diversified company with increased scale, resilience, cash generation, and shareholder returns. It adds growth with strategic assets in the highly compatible Danish continental shelf. It adds value with a raised long-term production target of around 450,000 bbls per day.
It increases returns with limited near-term investments. We're leveraging Vår Energi's strong balance sheet to create significant financial synergies. Together, supporting resilient cash generation and strengthening Vår Energi's long-term dividend capacity. This transaction is accretive on a per-share basis to reserves production, cash flow from operations, free cash flow, and dividend capacity. The combination of Vår Energi with BlueNord builds the largest independent producer of oil and gas in Europe, and a fifth production hub area for the company and the Danish Underground Consortium, or DUC, further diversifying Vår Energi's portfolio. We're maintaining our balanced commodity mix at around 65% oil, 35% gas. It increased our exposure to European gas markets and expands access to European gas infrastructure and entry points, strengthening the company's position as a reliable and secure supplier of energy to Europe. Now summarizing the transaction details.
Vår Energi is to combine with BlueNord in a full share and cash transaction. The consideration is $248.4 million new shares in Vår Energi, representing a share issuance of 9.95%, and $204 million in cash. This equates to 9.7153 shares in Vår Energi, plus 76.83 Norwegian krone in cash for each share held in BlueNord. The BlueNord shareholders are to be compensated in cash for any dividend paid pre-completion from the third quarter 2026 onwards. The transaction is subject to approvals by BlueNord shareholders and relevant authorities and licensed partners, and we expect closing around the end of the year. Post-closing, the Vår Energi free float will increase to around 43%, which is posited towards higher liquidity and increased index weightings. Eni will remain the long-term strategic majority shareholder with approximately 57% ownership post-transaction.
This transaction represents another key step in our successful growth journey. We've built a high-quality portfolio through a series of transactions, then have successfully focused on exploiting the upside opportunities. Since the company's inception in 2018, we've increased production over two and a half times, and we've created significant shareholder value. Since the IPO just over four years ago, total shareholder return has been around 190%. You can see some of the metrics from the transaction here. Increases scale and value creation with an increased long-term production target of around 450,000 bbls per day. Reserves and resources grow to 2.4 billion bbls with a long reserve and resource life of 15 years. We maintain low operating costs of $10 to $11 per bbl, and we continue with top quartile emissions intensity. The BlueNord assets are high quality with long life.
The assets are part of the DUC consortium, located in close proximity to our existing assets in the southern part of the NCS and with similar geology. Reserves and resources stand at 195 million bbls net, and current production is around 45,000 bbls per day. These are de-risked assets with low near-term capital requirements and with low decline rates, which is complementary to our existing portfolio. The Danish offshore areas are low risk and stable operating and fiscal regime with similar characteristics to the NCS. The assets provide a strong strategic fit with our existing NCS portfolio. The BlueNord combination adds to our material resource base. The combined company's 2P reserves will stand at 1.5 billion bbls, which underpins current production levels. We're much more than that, with 2C contingent resources of around 900 million bbls, where development plans are being progressed.
We also have an exciting NCS exploration portfolio of around 700 million bbls of net risk prospective resources. Putting this together, the combined portfolio has over 3 billion bbls of resource potential, with over 50% of this yet to be developed. This opportunity-rich portfolio underpins our value creation. Developing our material resource base is how we will deliver our increased long-term production target for the combined company of around 450,000 bbls per day. The levers that drive this are maximizing production from our high-quality producing assets, delivering on our portfolio of projects in execution, progressing our significant portfolio of early-phase projects towards sanction, and unlocking more value with our focused NCS exploration program that is adding new projects all the time. Continuing to add to our portfolio with value accretive M&A, such as the BlueNord transaction that we announced today.
With that, I'll hand over to Carlo to provide more details on how we create value from the transaction.
Thank you, Nick. As Nick has said, the combination between Vår Energi and BlueNord is a complementary transaction for both sets of shareholders. The companies together are creating a stronger, more diversified company with increased scale, resilience, stronger cash generation, and shareholder returns. We expect to create material financial synergies. We expect to reduce the financial cost that BlueNord currently has, capitalizing on Vår Energi investment-grade balance sheet. We also see synergies from reduced overheads and strengthen our gas sales portfolio. We are expecting to realize $250 million-$300 million in synergies that will contribute to strengthen our balance sheet and enhance our dividend capacity. In addition to that, there is a material value generation potential upside from the maturation of the remaining 2C contingent resources in the DUC portfolio.
The combination will be accretive on all the key metrics on a per share basis after the capital increase. Production, reserves, CFF after tax, free cash flow, and dividend capacity. The deal structure with a combination of shares and cash is a proof of our commitment to maintain our investment-grade rating. We strengthen our balance sheet, thanks to the share issuance, while maintaining the pro forma definition at interest-bearing debt on EBITDAX well below our target of below 1.3 over the cycles, with a minimal impact on the current metric. Our attractive long-term dividend policy at 25%-30% of the CFF after tax over the cycles is maintained and underpinned by the increased dividend capacity post-combination. I will now summarize the key highlights of our strengthened investment proposal after combination with BlueNord.
We will increase our reserves and resource base to 2.4 billion BOE, which means a solid 15 years reserves and resource life. The long-term production outlook is raised by more than 10% to around 450,000 bbls per day long term. Our CapEx guidance remains unchanged at approximately $2.5 billion average per year. Our portfolio remains characterized by short-cycle investment with quick cash conversion, leveraging on limited near-term CapEx associated with the DUC portfolio. We maintain a very resilient cash flow generation capacity, being free cash flow neutral at $40 per BOE. Our dividend capacity increases, will give additional support to our attractive long-term dividend policy at 25%-30% of the CFF after tax over the cycles. Finally, our free float will go from about 37%-43%.
This will increase the liquidity of our stock and potentially increase the weight in the various stock exchange indexes where we are currently included. We look forward to expanding our shareholder base with BlueNord shareholders. With that, I hand it back to Nick for concluding remarks.
Thank you, Carlo. We're excited to announce the transaction today. We're excited to work towards BlueNord being part of the company and having the employees join us, and also excited to have some new shareholders join us. Before we go to questions, I'd like to ask Euan Shirlaw, I'm delighted that he's here today, to say a few remarks before we open up for your questions.
Fantastic. Thank you, Nick. I'll start by saying that one of the nice things about joining another company's results call, even if these will soon be our results, too, is that you get to bask in the glow of a strong quarter without having had to have done any of the work needed to deliver it. The least I can do is say congratulations to the Vår team. It's a really great set of results. I think importantly with this morning's announcement, today is about much more than just one quarter. It's a day that brings our two companies together, strengthens both of us, and opens up an exciting future. What I'll do is I'll come back to why I think the combination makes so much sense, but I would like to start just by briefly touching on the BlueNord story.
BlueNord became a partner in the Danish Underground Consortium in 2019. Since then, our team has been focused on two things that have really defined the company we are today. The first was delivering the Tyra redevelopment, giving one of Europe's most important gas fields a new lease of life, and also creating an asset that will continue producing strongly and at relatively stable levels well into the 2040s. The second, and above all, was that we focused on delivering for our shareholders. We built a capital returns policy with exactly that objective in mind. In just over a year, we've returned close to NOK 800 million to our shareholders. That brings us to today. For me, combining with Vår Energi feels like a very natural next step in our journey.
We've already shown what a focused company with one core area can do, and now when part of the enlarged Vår Energi, our shareholders will benefit from a business with a broader portfolio, a longer-term returns profile, and the support of an investment-grade balance sheet. I genuinely believe that this is a case of stronger together. The combination brings Vår into Denmark through a world-class asset, and it reinforces the role of both our companies have always played, providing reliable, responsibly produced energy to Europe. Whether you've been a Vår shareholder for many years or you'll become one through this transaction, from today, we're all invested in the same future. A larger, more diversified company with greater resilience and an even stronger ability to deliver through cycle. That's the thought I'd like to leave you with.
Even if it was already sunny, the future looks just that little bit brighter today than it did yesterday. Thank you.
Good. Thanks, Euan. I think with that, we'll open up for questions. I think the operator is going to run this process.
Thank you. Ladies and gentlemen, we'll now start the question and answer session. If you do wish to ask questions, please press star one on your telephone keypad. If you wish to withdraw, you may do so by pressing star two. Please respect only one question per participant, and afterward, you can reenter the queue for another one. There will be a brief pause while questions are being registered. Thank you. We'll now take our first question from Tianhong Bi of Citi. Your line is open. Please go ahead.
Hi. Morning, guys. Thanks for taking my questions and congrats on the transaction. The question is on the combined CapEx outlook. You are keeping your CapEx unchanged at $ 2.5 billion, while BlueNord had previously guided to around NOK 100 million to NOK 150 million of CapEx per year through 2030. Is that additional spend being fully offset by the synergies, or does keeping the overall CapEx unchanged require any of Vår's current projects to be delayed or deprioritized? Thank you.
Yes. Thanks for the question. When it comes to our average CapEx, as you for sure know, we guided an average CapEx over our plan, which is 2026, 2032, of an average of $ 2.5 billion. BlueNord has guided what you said for a shorter period. What we see is that on average, over this period, it is not really changing the $ 2.5 billion. You might have, again, one year when you have NOK 100 million more. As a matter of fact, the average over the plan period remains pretty much unchanged.
Reflecting that NOK 100 million is a small % of
Yep
$2.5 billion too.
Yeah
We're talking about small numbers.
The characteristic of the DCS portfolio is actually to have a relatively small amount of CapEx.
This is-
That's one of the beauties.
I think the point here is it's very complementary profile because the development CapEx is being spent.
Yep
On the Danish assets or the BlueNord assets. The decline rates were relatively low, and there's a relatively small capital has to go in. Whereas we as a company are, yes, our big projects are behind us, but as we've announced, we've almost 50 projects that we're moving forward to sustain long-term production, and that requires investment. When you put the two companies together, our cash flow profile is strengthened as a company because we have more cash flow and reduced capital with the combined company. I think there's a lot of synergies putting the two together.
Yep.
Thank you.
Thank you. Next question will be from the line of Lorraine Colluch of RBC. Your line is open. Please go ahead.
Thanks very much for your time. Can you just talk us through the strategic thinking on this expansion to the Danish continental shelf? Maybe in particular, in relation to this, Nick, you said it was a natural evolution of Vår's strategy to step outside of Norway. What other geographical areas do you see as a step outside of Norway that you're targeting as part of your wider M&A strategy for the longevity of the business? Given it's one question each, I'll leave it there.
Thanks for the question. I knew that question was coming. Look, we're a big company. We're producing 400,000 bbls a day. Really, there's been a lot of consolidation of activity in Norway. 10 years ago, there were 50 companies active in Norway. Now, there's half that number. Of course, we have been a big part of that consolidation. We've created a business before BlueNord of producing above 400,000 bbls a day long term. We shouldn't be satisfied with that. As a company, we want to continue to grow. We are still focused on trying to grow within Norway. I think there are opportunities to do that. You saw us announce, for example, five transactions in the quarter, one of which was the acquisition of the remaining assets of Pandion.
A relatively small deal. It's another good example of consolidation. I think there's still things to do here. I think we have to be realistic. There's a finite limit to this. We should not be satisfied as a company with just producing above 400,000 bbls a day or 400,000 bbls a day as long as we can and then declining. We have to continue to create growth and value long term. Where we go is not quite so easy because Norway is a low-risk regime, which is very supportive of investment into the industry. It is reflected in who we are as a company. What I said is a natural evolution for our strategy. I think stepping into Denmark is a very similar risk profile to us. It's very similar geology. It's not very far away. The fiscal regime is very similar.
I think it's a great fit with us. Now, it does say we were prepared to go outside of Norway. I think we would be prepared to go elsewhere. We have to find a place that's compatible with our risk profile as a company. That's not that easy. We will keep looking. I think the key thing about M&A is you have to be opportunistic about this. It has to fit our strategy. We have to be able to do it where we can create shareholder value. Those are how we look at this.
Thanks very much.
Thank you. The next question will be from Teodor Sveen-Nilsen of SB1M. Your line is open. Please go ahead.
Good morning, and thanks for taking my question, and also congrats on a deal which looks good for both parties, I believe. One question that is on 2C resources. Nick, what will you do with the 2C resources of BlueNord that the team in BlueNord has not been able to do this far?
Well, we took a perspective on that, thinking about the transaction, and we would hope that we could unlock these things. I think BlueNord has done a fantastic job in creating value, but I think there's an opportunity here for us to work with the operator to create value out of this. You've seen what we've been doing in Norway, and I think we've got the capability and push to try and create value out of those. We haven't valued it on this basis, but it is an upside in our transaction that we see as an opportunity to create further value. We should be looking to maximize production and value out of these assets, and I'm sure that's what will happen in due course.
Okay, thank you.
Is that helpful, Teodor?
Thank you. We'll now move on to our next question from Naish Cui of Barclays. Your line is open. Please go ahead.
Hi. Good morning, everyone. Congratulations for the deal. One question from me, please. Vår Energi paid limited premium on BlueNord shares. Could you comment on the bidding process or probably just how was the competition level in bidding resources in the wider North Sea region, please? Thank you.
Maybe I can start by taking that one. There wasn't a bidding process, so to speak. We had a bilateral engagement with Vår. I think we went through a very helpful diligence process where we both understood our asset bases better. I think from our perspective, the real point here is that we think there is a significant value uplift from being part of the combined Vår entity. We think it's a stronger combination. We think there is a much more resilient outlook for distributions. We think that with a production profile that is above 400,000 bbls a day into the 2030s, that there's really significant potential there that our shareholders will continue to benefit from. Particularly because the consideration is 80% stock. Our shareholders aren't really giving up upside.
They still get to participate in that, they get to participate that in a much stronger base. I would just echo the point that Nick made before in relation to the 2C question. There is a lot of potential that still remains within the BlueNord portfolio, it's really about making sure that you're able to deliver that. That's something where I think based on the experience that Vår has demonstrated in Norway, there will be some good operational synergies as well in terms of being able to take that experience and exercise it in Denmark.
Perfect. This is very helpful. Thank you so much, Euan.
Thank you.
Thank you. We'll now take our next question from John Olaisen of ABG. Your line is open. Please go ahead.
Hey, good morning. I wondered, do you have any pre-commitments from the BlueNord shareholders?
We have Sober AS who are represented on our board. They have supported the transaction, and they hold under 10%, but that is the commitments that we have so far.
Have you been in contact with BlueNord shareholders other than Sober?
We have since the transaction has been announced, obviously had a dialogue with our shareholders, and that will continue in the near term.
Are they positive to the transaction, and do you expect the deal to come through without having to adjust the bid offer, Vår?
It's difficult for me to comment on that in the way that I think you're looking for exactly. What I can say based on the conversations that we have had with Sober, who sit on our board, there's no reason to think that they aren't representative of the broader shareholder base. There has certainly been a strong recognition of the rationale for the transaction and participating as a shareholder in the combined and what the combined has the potential to deliver.
Okay, thank you.
Thank you.
Thank you. As a reminder, please press star one to ask questions. Kindly be reminded, you may ask a maximum of two questions. Thank you. We will now move on to our next question from Sasikanth Chilukuru of Jefferies. Your line is open. Please go ahead.
Hi. A question regarding through the appendix of the deal. It mentions that material Danish tax losses, year-end 2025 of NOK 336 million value post-tax. I was just wondering how that could be realized, and how quickly those tax losses could be monetized.
The tax loss position that we have is almost entirely chapter three tax losses. That is effectively the hydrocarbon tax regime that they have within Denmark. It depends on commodity prices, how quickly those are realized, but I think within the near term, within the next 12-24 months is a reasonable expectation.
Thank you. A question regarding gas volumes or sale of gas volumes from the deal. Is it fair to assume that this would form a part of the overall gas volumes that Vår markets? No distinction in terms of how the gas could be marketed post the combination?
When it comes to this, as you said, this gas, of course, will become part of our overall gas portfolio. Clearly, there are contracts in place that will be honored and maintained as they are, but there are flexibilities we can find in our own portfolio, optimizing the overall portfolio, because our approach, again, is on a portfolio basis. Having more volumes allow us to find opportunities directly or indirectly within the overall gas sales and gas production we have. I don't know if we answered your question, but this is the way we are looking at it when it comes to the opportunity side.
That's good. Thank you very much.
Thank you. We'll now take a follow-up question from Tianhong Bi of Citi. Your line is open. Please go ahead.
Thanks, guys, for taking my questions again. This one is on shareholder returns. You obviously have raised the Q2 and Q3 dividends, but your earnings release and presentation no longer mention a special dividend. Should we therefore assume that the higher base dividend has effectively replaced the special dividend previously expected in 4Q, or does that option remain open? Thank you.
Of course, we have lifted our dividends today, and this reflects also two things. It reflects the higher prices that we've seen recently since the start of the conflict in the Middle East in March, and also record financials and, of course, the deal that we've done today, which is value accretive. We have lifted the dividends and increased them. We remain open to the idea that if we see high prices going forward, that we will make a decision at the end of the year on a potential extraordinary dividend. It's all dependent on how we see the market going forward and what the results are when we get to February next year. As you'll appreciate, there's a lot of volatility, and I thought it was coming to an end a few weeks ago, and now it feels like it's not.
It's quite uncertain what the outlook is going to be, and let's see where we are in February and we'll decide then.
Thank you so much for the call. Thank you.
Thank you. We'll now take our next follow-up question from Victoria McCulloch of RBC. Please go ahead. Your line is open.
Hi. Thanks very much. A couple more from me. Could you help us to quantify the impact on 3Q production of the Johan Castberg production issues due to the power problems there? Then in relation to BlueNord, can you give us a bit more detail on the remaining bond with the facilities coming, I guess, from a financial perspective, are you required to wait until 2031 to redeem the remainder of this? Thanks very much.
On the operational issues at Johan Castberg, there were some problems with the power generation system. We've started in late June. We're now back at full production. We have a solution to manage this. It's obviously had an impact. What I said, we're not going to comment on the individual fields and details like that, but on an overall basis, our second half production is going to be higher than our first half because basically all of our shutdowns are behind us by now, and we're bringing on new projects as I listed, and we've got quite a lot of new, quite high impact wells to come on. Second half production is going to be higher, and we're on track to deliver our annual guidance outlook of 390 to 410,000 bbls a day. I don't know who wants to answer the bond question.
Maybe I can answer, and then I leave eventually. I will answer to you, Victoria, then if there is need for some more detail, probably you can actually take a follow-up. When it comes to the BlueNord outstanding bonds, it's clearly our intention at the due time, and of course, subject to market condition, to refinance those bonds. We will follow what the bonds, the contractual goods and the contractor tests provide for. This will be done as soon as practicable because we clearly see financial synergies coming from the refinancing of the existing capital structure of BlueNord. I don't know if there is any from your side if you need any more detail, but that's our intention post-closing.
Maybe, Victoria, I could just address one of the specific things which you said about the bonds having to be outstanding until 2031, which I think you were referring to the maturity of B N R18. That is an instrument that has the maturity in 2031, but it also has a call period before that. That will be something that will aid the refinancing process when Vår gets to that stage.
Super. Thanks for that color. It's really helpful.
Thank you. We'll now take our next follow-up question from Naish Cui of Barclays, please. Hi.
Yeah. Hi. Just two follow-up questions, if that's okay. The first one is, the deal increases exposure to European gas for Vår Energi, and we know that the market is worried about a warm winter, a wall of LNG coming next year. I want to ask perhaps to Nick that, what's your opinion on European gas and whether the BlueNord deal will change any of your gas hedging strategy? I have a second question, if that's okay. I wonder if the BlueNord shareholders have a lock-up period or can they sell post the deal closing? Thank you.
In terms of gas, I've been quite bullish on European gas for a long time, well before the war, actually. I was more of a view that not all of this gas is going to come, and of the fact that there could be disruptions in the world. I wasn't anticipating the war in the Middle East, but it's a big disruption, and it's very unclear how that's going to translate. If you look at the forward curve, it drops substantially the end of Q1 next year, but actually, we're starting to see that lift. I actually continue to be in a place where I'm looking, and we feel that we're going to see higher prices for longer because the world needs a lot of energy. That's one aspect to this.
The second piece is that we went into this conflict largely unhedged as a company in terms of financial hedges. We've put in place since then some policy to put in place, both on the oil side, as Carlo mentioned, but also on the gas side. Really what we're doing here is to try and protect the bottom of the market and keep ourselves exposed to the higher end of the market. At this present time, at the right prices, we're layering in some financial hedges. We also use our contractual mechanisms in our long-term gas sales contracts to also put in fixed prices. We've been doing that and layering that in as progressively as we've communicated. As I look out, I think we will see stronger prices. What I will also say is that the BlueNord portfolio is robust to variable prices.
Our business is robust to low prices, and we have to expect that this is a cyclical business, and we have to manage through highs and lows. Long term, we're positive towards the world demand for oil and gas looking out.
Maybe, Nick, if I can just add only one addition, because also I think it's worth to consider that if you look at the combined company, our mixed oil and gas portfolio combined basis remains pretty much the same because BlueNord is more or less 50/50. It represents approximately 10% of our current production level. If you look then on the combined company, the mix we have remains very much stable. The exposure to the European gas market with all the pros and potentially the cons does not really change in terms of overall profile.
Maybe I could just add, Carlo made very eloquently one of the points that I was about to say. I think just the other piece when we think about the continued exposure to BlueNord shareholders, I think anybody who was invested in BlueNord probably took a relatively constructive view or had a relatively constructive view on the outlook for the European gas market. I think just building on Carlo's point, I don't think that changes given the commodity mix is very consistent.
Okay.
Perfect. Thanks, Nick. How about the second question, please? Whether if the BlueNord shareholders have a lockup or can they just sell post the deal closing?
There's no lockup.
There's no lockup.
Perfect. Thanks for the confirmation. Very helpful.
Okay.
Thank you. We'll now take our next follow-up question from Teodor Sveen-Nilsen. Your line is open. Please go ahead.
Thank you. A few follow-ups from me. First, could you shed some light on the discussion that have been around the mix of new shares and cash payment in the deal? Second question, that is specifically on second quarter financials. Was it only cost-led issues that drove up the production cost this quarter, or are there any other factors you can highlight?
Okay. I'll capture the OpEx one first, Teodor. You saw that our OpEx for the first half was NOK 10.8. Of course, we discharged or completed a lot of turnarounds in the second quarter, that results in slightly lower production and also some costs associated with that. That's one aspect. Also we've seen the strengthening of the Norwegian krone. As I went through my discussion, if we recalibrate the NOK 10.8 with the exchange rate change, we go to NOK 10.3. That gives you the sense of that. In terms of mix of new shareholders, I think there's quite a few shareholders that have shares in both companies, which is obviously very positive to this.
I think, in terms of the mix of shares and cash in this deal, I think we looked at this and recognized that from a Vår perspective, we wanted to use shares as this deal. I think the only way this deal was ever going to get done is with shares, largely shares. I think what happens after this is that the BlueNord shareholders share in the broader company, which is very positive, but also get a cash component now. It's roughly 84/16 is the split. I think what we're doing is really trading high-value shares on both sides to create a win-win deal here. There's another side to this.
Okay. Thank you
It also, I think, broadens our free float, which is very important. We go to roughly 44% free float. That's very positive in terms of demand for the shares, but also from the index fund, passive index funds. I think there's a lot of benefits all around for this.
Also, if I can just add, this also structuring that, as you can imagine, is preserving the quality of the balance sheet and investment grade, as you can imagine, because the use of debt is fairly limited.
Understood. Then just a follow-up on that one. Of course, book value equity will increase by this deal. Is it correct that it will increase by around $1.1 billion or are there any other accounting technicalities that we should have in mind?
Yeah, I didn't get the-
The book equity.
Yeah, the book equity is going to increase, of course. I think you mentioned $1.1 billion. It's correct, I didn't get the question. Sorry.
Are there any other accounting effects to-
No. Not expecting so.
Okay. Book value equity, purely from the deal, will increase by $1.1 billion approximately.
Yeah. That's what I expect, yes.
Okay. Perfect. Thanks. Yeah. I hand it over there. Thank you.
Thank you.
Thank you. We'll now take our next follow-up from John Olaisen of ABG. John Olaisen?
Yeah. Thanks for the follow-up question, letting me take the follow-up question. I wonder a little bit on the synergies. $ 250 million-$300 million is quite a high amount in relation to the value of the deal. You mentioned three areas, three kinds of synergies, the lower financing cost, overheads, and gas sales optimization. Is it possible to split, give some indication of how those NOK 250 million, NOK 300 million will fall into those three categories, please?
Yeah, sure. That's fine. I think you can easily consider the financial synergies coming from a reduction of that cost and still financial synergies when it comes to the guarantee structures in place account for the 85%-90% of the total amount. Let's say maybe 80%-85%. It's absolutely the most important and material part. We see also, again, overhead and commercial upside from the gas portfolio. This is a split you can consider when it comes to the synergies we announced.
This is driven from our very strong balance sheet.
Yeah
We have that drives this opportunity. Yeah.
You can really appreciate the debt that is going to be refinanced with respect to refinance. If you look at the differential in the cost is around 300 basis points. It's somewhat intuitive to see this value.
Yeah. Makes sense. Thanks a lot for taking my question. I'd just like to add to all the other analysts, congratulate you with this creative deal. Have a good day.
Thank you so much. Thank you.
Thank you. As there are no more audio questions, I will hand it back to Ida for written questions. Over to you, Ida.
Thank you. We have got a couple more questions that has come in in writing. A follow-up on the synergies from Alejandro Demichelis at JP Morgan. The announced synergies are predominantly financing and overhead related. Looking beyond those, where do you see the greatest operational or commercial upside from combining the portfolios that is not yet reflected in the $ 250 million-$ 300 million guidance?
I will take this. As I was mentioning, when it comes to the commercial upside in the gas portfolio, an initial estimate is reflected. Of course, we will look more into the portfolio and see what we can combine. We are reflecting a relatively small portion of the total $ 250 million-$ 300 million. When it comes to the upside linked to the development of the 2C resources, it is actually not included in the $ 250 million-$ 300 million.
These are potential further upsides that of course will take a bit of time for us to mature together with the operator. Going to your point before, is where we believe as Vår Energi, we can bring experience, we can bring, of course, the willingness to invest in creating value. It is not in the $ 250 million, $300 million. It is eventually on top. We see some material possibility in there as well.
Good.
Thank you. Next question from Anders Ruderstam at SEB. You say the transaction is accretive on reserves per share, but you're incurring a material amount of debt as well. Could you talk about the debt you're incurring in terms of total amount, will it be refinanced, et cetera? Also, is the transaction also accretive on an enterprise value to reserve basis? Thank you.
Yes. When it comes to the debt, yes, we will take approximately $1.4 billion, which is the debt that we expect to refinance. This is not really impacting our, if not minimal, our current leverage ratio, our current debt ratio, so debt to EBITDA. We are currently 0.4 on a pro forma basis. We should be between 0.4 and 0.5, so pretty much immaterial, I would say. Very well within the 1.3, which is our long-term target of being below 1.3. This is when it comes to the debt that we intend to refinance. Also, of course, it goes together with the synergies we expect. I would say a pretty non-material impact. When it comes to the accretion on, what's it? EB?
EBIT to reserves.
Yes. This is also something that we see. I think you have to consider, we are talking about two different kind of portfolios. DCS is a portfolio where you have low near-term CapEx, year-end CapEx. It is basically mostly production and OpEx with a lower tax rate. If you look only at the volumes, you put together with EVs, where probably I think you have also to consider the lower tax rate, which is actually quite accretive in a context where CapEx are low. It's different, of course, from Norway where you invest a lot, a different tax system may provide for a better financial return. That's the way you should look at it.
It's also worth just saying that BlueNord has tax losses that will cover the hydrocarbon tax.
2026 at least, which will further enhance the accretion on a reserves basis.
Yeah. Good point. Yeah, absolutely.
It's very significantly accretive on a cash flow basis in 2027 and 2028.
It's very complementary because it's supporting the investment phase we have. That's very complementary.
Next question. The acquisition for BlueNord is stated as a cash and stock deal. For the cash aspect, how is this being funded, i.e., is there debt financing or will this be funded from existing liquidity or new borrowings? How might this transaction impact current credit ratings for the company and the outlook?
No, I think I would refer a bit to what I was saying before. The cash component of the deal is approximately $200 million, so I would say relatively low. We have available liquidity of $5.3 billion and cash balance of $2.5 billion. It goes without saying that this is absolutely manageable within the existing liquidity.
We sold some assets this quarter.
also-
which cover this-
It's called a business.
in its entirety. Yes.
Under this perspective, it is absolutely manageable within the existing framework. When it comes to the investment grade rating, we've done, of course, our own analysis, so we see no impact at all. Actually, the structuring with shares and cash, with the majority actually of shares, is, I would say, quite a friendly credit rating structuring because it reduce and limit the utilization of debt. I don't see any credit guidance.
Great. I'll finish off with a question for you, Nick. Can you throw some color on the pipeline of investment opportunities you evaluated before reaching a deal with BlueNord? Did you see asset portfolios in the Gulf of Mexico competing on operational cost and economics?
We continue to look opportunistically at opportunities that fit with our strategy and where we can create shareholder value. As I said earlier in answering a question, I think it's important that it has to fit with the risk profile that we have in Norway, and I think that's what people have invested into. Denmark fits very well with that, and that's how we see this. Where else and what else we might do, we'll have those considerations in mind. As I said, we look to continue to grow the business long term, creating shareholder value, and that's what we're about.
Thank you. That concludes the Q2 presentation call. We wish you all a good summer.