Good morning, and welcome to this presentation of Lundin Energy Renewables. This is the business that will remain after the combination of Lundin Energy's oil and gas assets with Aker BP, and we hope that that deal will be done by June, and we can then see this new entity starting to trade. We're very excited about the opportunities within renewables and the portfolio we have here to start with. My name is Robert Eriksson. I'm the Director of Media and Corporate Affairs for Lundin Energy. I also wanted to remind you, I think most of you by now have been in Zoom presentations before, but there is a Q&A function at the bottom of the screen, not the chat function. Don't use that, but the Q&A function.
You just write your questions and we will make sure that they are brought forward to our presenters of today. The presenters, of course, are Daniel Fitzgerald, the proposed new CEO of Lundin Energy Renewables. We will have a new name for the company eventually, but we need to think hard about that first, so we'll get back to you on that one. The second presenter for tonight is Espen Hennie, the proposed CFO of Lundin Energy Renewables. With that, I would like to hand over to Dan.
Thank you, Robert, and it's a pleasure to be here today, morning or afternoon, depending on where you are, to take a presentation and give a bit more of an outlook on the renewables business. Together with Espen, share a little bit more about what we're trying to do with this business and where we see opportunities in the market for growth. It really is an exciting time in Europe and in the renewables sector with an industry that still is very much in its infancy and providing plenty of opportunity, rich opportunity for growth across many jurisdictions and many challenges. Firstly, we should start with a little bit on where we start our journey as a renewables business.
I think the premise of our company's birth sits in the value creation story that's come out of Lundin Energy. If you roll back to the start of Lundin Energy back in 2001, it started at around SEK 3 a share and at the time of the announcement of the deal with Aker BP early into this year, the company has grown to over SEK 370 a share, representing just shy of 30% compound annual growth rate for 20 years. That's a phenomenal achievement for the teams that have built Lundin Energy. Along the way, we've seen many versions of shareholder distributions, whether it's spin-out of companies, and that's happened a few times or through dividends, and ultimately culminating in the proposed transaction with Aker BP.
What shareholders get to retain and receive at the end of this transaction is a share in the renewables vehicle, which, as we'll discuss today, is a platform for growth. Not only that, they'll receive a share in Aker BP or a number of shares in Aker BP, which will become the leading independent E&P in Europe and potentially broader. Aker BP is going to have 400,000 bbl production in 2022 and growing to over 500,000 bbl by the end of the decade with new projects coming on stream. It's doing that with low cost, low carbon emissions and really is an industry-leading company. Our shareholders today will get the opportunity to participate in what is going to be a leading E&P company in this sector.
Then finally, they get a cash consideration on top of that. So all in all, we take the value that's been created over many years through Lundin Energy. We give the opportunity to continue value creation through Aker BP. We take a portion of value in cash, sorry, and we also get the opportunity to participate in the new renewables vehicle of the Lundin Group. Looking at the Lundin Group quickly, this really is a special set of companies and it represents 12 publicly listed entities, all independent with a market cap of around $30 billion. The single common thread through all of this is a strong shareholding from the Lundin family.
I think as you look around the circle and look at some of the names here, you can see the tremendous growth and shareholder value that has been created through many of these entities over decades. This track record, I think, of growth is a tenacious entrepreneurial drive that comes from the Lundin family itself all the way through the management teams, boards, and individuals in these companies. I think all of the companies have their own version of organic-led and M&A-led growth, and then growing and working the assets to deliver more and more value. The Lundin family will retain their support of this renewables vehicle and will retain nearly 1/3 of the company, as we move into first trading in the second part of this year.
It really is a special group to be a part of, and I think that entrepreneurial focus will be very much alive in this renewables vehicle as we move forward. Before we jump into the company itself, I wanted to spend a couple of minutes on the market and macroeconomic outlook and where we see opportunities across Europe before we dive into how we can best exploit these opportunities. I think the first one is that we really are in the infancy of this energy transition in Europe, and we expect to see exponential growth in renewables and in technology to decarbonize the power energy systems and grids in Europe.
If you look in the top right of this slide, you see a chart which is in Nordics alone over the next 30 years, and we're gonna see growth of over 7x in renewable energy generation in the Nordics alone. Arguably, this is one of the regions that's already leading Europe in terms of renewable energy deployment, and it still has significant running room. As we step across many of the other jurisdictions in Europe, I think you'll see similar trends, if not greater trends in terms of renewable energy penetration. My first point is that we really are at the start of the energy transition in Europe.
The second one is around power pricing and I think whether you roll back to the end of last year, some of the gas shortages or where we sit today in a market environment which has really high CO2 pricing, shortage of fossil fuels and oil and gas to power the energy system and a reliance on baseload generation out of thermal. I think at the front end of this period, you see all of the fundamentals pointing towards a strong power price, and we've seen that even today or end of last year with record high pricing. If you roll forward in the medium to long- term, I think you're going to see that continue. We've got structural underinvestment in oil and gas and the commodity space, and that will drive shortage of natural resources. Excuse me.
We see a market where exposure to that strong power pricing in the medium- term is really important. Moving to the third point is around the levelized cost of energy, and onshore renewables certainly has the lowest levelized cost of energy. We see the three projects we have among the lowest. In a market environment where there's strong pricing, you have the biggest differential between your capital and running costs and the actual power price in the market. That's certainly one area where we'll continue to see focus from the company. The final one is around emerging technology, and I think the front end of this transition will be driven largely by the technologies we know and understand today, and you see most of them represented on the graph in the bottom right.
Emerging technologies, whether it's short, long-term storage or even the costs of some of the costs and innovation around some of the fixed and floating wind and larger scale generation, I think this emerging technology is an important point to keep right in the forefront of our minds as we go through this transition. Although we may start with renewable generation projects, I think we need to keep track of this emerging technology to ensure that we have the opportunity to invest and be a leader in some of the investment as this technology becomes more commercialized and penetrates into the market more. Those four key themes I think you'll see through the course of this presentation.
Huge growth in Europe, strong pricing, low costs, which is important to generate returns, and then an eye on emerging technology once we've built the scale of the business. We then spend some time on the company as it gets spun out of or as it exists once we launch in the third quarter of this year. The company will have three high-quality assets in the Nordics. So we have one hydropower plant in Leikanger in Norway. We have MLK Wind Farm, which is in Finland, and a third renewable generation asset, which is a wind farm in southern Sweden. Those three assets are new build high-quality assets.
The company will have $130 million of cash, and that'll be sufficient to build out the remaining capital in the Karskruv project and cover all costs for the next 18 months to two years and beyond. Espen will touch a little bit more later on the capital outlook and the cash generation of the business. The company will be debt-free, and so we have all of these assets, cash to build out the projects and zero debt on day one. We have capacity to raise significant capital for growth, and that is absolutely the intention of this business is to grow and to participate in the energy transition, whether that's through existing or emerging technologies.
We'll be cash flow positive from day one on the assets which are online now and as a business post CapEx, we'll be generating free cash flow from the end of next year once Karskruv has been fully built out. On day one, we are a pure play Nordic renewables company. Very quickly, we need to move into the M&A space, and I think you'll see us trying to build the scale and growth that sets us up for geographical diversification, technology diversification, and a real platform for cash generation over the medium to long- term. The three assets we hold, we have Leikanger hydropower. We own 50% of that. The other 50% is held by Sognekraft. They completed all of the construction and build-out of the project.
It came online in March of last year, and they will operate this project going forward. It was the first renewable asset that Lundin Energy stepped into, followed very quickly by MLK, which is the Finnish wind farm up in the top right. Similar to Leikanger, we have a 50% working interest in this with Sval, which is a HitecVision portfolio company holding the other 50%. The third project we have, which we acquired in the early part of last year, is the Karskruv Wind Farm in Sweden. It's due to be online at the end of 2023. We've started all the civil work at the moment, preparing the area for the renewable generation facility to go in, which will be installed turbines, towers, et cetera, through most of 2023.
Leikanger is fully operational today, generating cash. MLK is expected to come online at the end of this quarter, and then Karskruv at the end of next year. All of these assets are modern facilities, newest technology and low cost. With the lifespan of these assets between 30-60 years, I think you have the ability to generate significant long-term cash flow out of this business, and it provides a great platform for raising some debt and growing the business. I wanted to spend a tiny bit of time on where we go next. I think we've already touched on the first point here around a focus in the Nordics, but expanding very quickly through Europe.
I think the Nordic market, we've spent a lot of time over the last few years understanding and stepping into the Nordic market. The projects that we've acquired have been built and put online in some of the highest priced regions in the Nordics, and we've seen appreciation through those projects. Espen will touch a little bit more on returns and expectations for the projects we've stepped into. I don't think the Nordics is finished. You've seen the chart in the early slide on how much growth we expect to see in the Nordics. I think there's still opportunities and significant opportunities for companies like us and others to participate in the growth. We wanna keep an eye on free cash flow, and I think that's a key differentiator for this business compared to some of our peer group.
A lot of the emerging technologies, although they're very exciting today and I think they have a huge role to play, our focus initially needs to be on cash generation and needs to preserve that cash generation. We'll be looking at proven technologies initially and growing the scale in the proven technologies that add cash to the bottom line. We've touched on the market exposure. I strongly believe that power pricing in Europe in the medium to long- term is going to be strong. Whether that's today because of the fossil fuel element of the grid, or long-term when you need some form of base load and long-term storage to optimize and manage the grids efficiently. I think we see a medium to long-term outlook for power pricing in Europe to remain strong.
We don't want to lock in a significant portion of our pricing into fixed contracts today because I think we're leaving too much value on the table. The final point here is around acquisition organic growth, and we really need to build scale in this company. We need to step into assets and transactions that have the ability to grow our asset base, to grow our expertise and knowledge, and then to create the organic growth that's been a huge success factor for many of the Lundin Group companies over many years. I think that focus needs to come from each of the geographies in which we operate. It also allows us to increase returns and to build a project pipeline that has an earlier exposure to projects.
Espen will touch a little bit more on what we expect to do in that domain. Our goal really is to create value through the energy transition. We see many emerging technologies and we see many opportunities for investment where if we can be one of those front runners in the investment, it gives an opportunity to participate in the growth of the sector in the long term. I think we need to be both on the generation side and the technology side to really profit from the expansion in this energy transition. It's safe to say we will be a sustainable investment opportunity as you look at this company.
From day one, we will be taxonomy aligned with the green taxonomy framework in the EU, where our revenues, CapEx and OpEx will all be aligned to the taxonomy framework and aligned with the UN Sustainable Development Goals, especially around affordable and clean energy and climate action. We're gonna share a bit more detail around our sustainability framework as we give more of a market update in Q2 of this year, where we're going to spend more time on the outlook for the business, the cash generation, CapEx, OpEx and cost base. We plan to do that in and around our EGM, which will be in late in the second quarter this year, and certainly before we start trading as a standalone entity. Our sustainability framework is made up of five key themes.
The first being climate change and a strong view on climate change, and already by providing renewable energy into the grid, we make a significant impact in that front. Biodiversity and communities are two other strong pillars, and then finally, safe operations and strong governance. You'll see the framework from Lundin Energy will be lifted, fitted to what is appropriate for this business, and then laid out in a way that makes sense for the renewed business going forwards. The position of Lundin Energy towards their ESG and sustainability framework, I think you can see that same theme coming through what we're planning to do within this business.
Before I pass to Espen, I wanted to spend a small amount of time on the competence and experience of the Board and Management team as we move into this new venture. Suffice to say, I think we take some of the strong experience both broad industry experience and culture and competence from Lundin Energy as we look to build the board and management team of this new vehicle. Grace Skaugen is proposed to be Chair of the Board of Directors and brings with her a wealth of industry and public company experience from the Nordic region. We also bring Jakob Thomasen and Ashley from the Board of Lundin Energy.
Aksel Azrac joins us, who's heading up the family office investments and is the representative from the family on the Board. We bring many years of experience, but also the competence and knowledge of building public entities and turning small public entities into vehicles that create enormous shareholder value creation. That is the purpose of this vehicle. From the Lundin Energy management team, I think we will focus on slimming it down to being fit for purpose for the renewables business, but at the same time retaining the competence and culture from Lundin Energy, the entrepreneurial spirit from the Lundin Group and a company and a management team and board that are fully aligned with a view to growing this business into something that is an industry-leading business longer- term.
From myself, from Lundin Energy, I've been running the renewable assets for the period of time I've been back in here and Espen's been heavily involved in that process as well. I'll pass over to Espen Hennie, who's intended to be our CFO on launch, and he's gonna run through a few of the financials and liquidity for the company. Espen.
Thank you very much, Daniel, and good afternoon to everyone. I'll spend some time on our solid liquidity position and also provide some more details on our cash flow generation potential and asset returns. When it comes to liquidity, I guess the key message is that we are fully funded for all our capital commitments through the cash balance we will have at hand at closing of the Aker BP transaction. In addition to the ongoing cash flow we are receiving from our two operational renewable assets in Norway and Finland. The remaining capital commitment that we will have from this summer is approximately $110 million, which will bring our Swedish onshore wind park to completion, the Karskruv project. This will also be our most significant cash flow contribution from 2023 onwards.
We have zero capital commitments beyond 2023, which means that the company is set up for, you know, stable and strong cash flows for the long- term from 2024 onwards. Currently, there is no debt at the first day of trading, which is something that Daniel mentioned we will explore to add on, given the stable and long-term high-quality cash flow our assets represent. As Daniel already has mentioned, there is a clear ambition to increase both scale and returns through organic and inorganic growth, and we are actively screening targets that fit strategically, but also obviously create value for our shareholders. If you turn to the next slide and focus then a bit more on the revenue and margin potential for our renewable assets.
It is important to note that all three of our projects are located in regions with a significant premium price compared to the average Nordic system price. You can have a look at the chart on the slide here. You can see that the regions for our three assets have realized a price premium of between 10%-30% during the period from 2019- 2021. Actually, if you look at continental Europe and U.K., this is even higher. Going forward, we expect then, on the back of increase interconnectivity, that you will see a stronger correlation between continental Europe and U.K. and the Nordic price, which also will support the regional pricing in the southern part of Scandinavia.
Currently, we have full spot exposure to power pricing, which we believe is what will create most value, given our constructive view on power price for the coming years. As Daniel mentioned, all our three assets are of high quality, and modern, and we have an estimated all-in running costs of approximately EUR 10 per megawatt hour when these three projects are up and running from late 2023. Finally, due to historical CapEx spend, bringing our assets to completion, we are enjoying tax shields, which means that, especially for Sweden and Finland, there will be several years with zero payable taxes, meaning that we will generate very high margin after tax cash flows from these three assets, like I said, from 2023 onwards.
I mean, the sum of all these characteristics, premium pricing, high spot price exposure, low asset operating costs, and tax shields, is setting the company up for high future operational cash flow margins as we go forward. If we turn to the next slide, please. We clearly believe that the market fragmentation creates opportunities for both growth and increased returns. We see a clear potential to achieve improved overall economics through entering some projects earlier in the value chain and thereby managing more of the development risk ourselves. This will be coupled also with an opportunistic approach to partial farm-downs in order to monetize value at different stages through the project cycle.
As displayed in the chart here, you can see that our current projects already screen very attractively, and especially taking into account the low risk, which is partly helped by improved electricity pricing since acquisitions. As mentioned, we are aiming to add more early-stage project risk into the mix, which is then setting up the company for further return enhancements combined with our solid long-term cash flow potential. With that, I will hand over back to Daniel for some concluding remarks.
Thank you, Espen. I think on the fragmentation in the market, there really is opportunity still, I think, for a company such as ours to add value through this transition. I think focusing on where value exists in the opportunity space will add a lot for us. I wanted to spend a few minutes on the establishment of the renewables business before we move into concluding remarks and then on to Q&A. We announced at the end of last year the proposed transaction with Aker BP, and that will go to the AGMs of both Lundin Energy and Aker BP for approval towards the end of Q1 and early Q2. All of those materials have been put forward from our side and will be released by Aker BP later this week.
That will be the first step where the shareholders approve the transaction. Later in Q2, we're expecting to have the EGM of Lundin Energy Renewables, and this will be for all of the elements that relate to the new renewables company going forwards. The proposed Board will be put forward for approval at the EGM, as will a rebranding and a change of the company name as we move out of Lundin Energy into a standalone renewables business. I think it's important to reflect that Renewables business with a new persona and new identity compared to what exists today in Lundin Energy. The governance framework will be a key part of what comes forward at that EGM for approval.
Around the same time, we're expecting to come to the market with more details on what our 2022 guidance looks like. That goes for everything from the assets and OpEx and cash flows of the assets for the year, with an outlook on pricing and all the way through to the G&A and the Sudan legal costs, which are a key part of this business going forward as well. We intend to share all of the detail around that with more information before we start trading as a standalone renewables company.
At this point in time, the deal is expected to close at the end of Q2, and that puts us into the first of July running as a standalone renewables company with a much smaller portfolio than what we have today, and all of the existing oil and gas assets spun off to Aker BP. This moves us into the final slide, and I think this company really is a platform for growth. We start our lives as such a clean investment vehicle, a Nordic pure-play renewables company with three high-quality assets. We're fully funded, generating long-term free cash flows and with the financial firepower for M&A. That is really the best starter pack we could have hoped for as we step out into the renewables space.
We bring with us an experienced board and management team and the full support of the Lundin family and the entrepreneurial spirit of the Lundin Group. I really think this company can be a huge platform for creating value through the energy transition. The energy transition has only just begun. There's so many emerging technologies and so much exciting opportunities for the future, where we move Europe from a a fossil fuel driven and carbon generating power platform into a decarbonized grid that has a lot more connectivity and a lot more opportunity in the future. I really think this vehicle with this approach and the fundamentals that we have as we spin out really is going to create significant value over the medium to long- term.
With that, I'll pass back to Robert to lead us through the Q&A.
Thank you, Dan, and thank you, Espen, for a very inspiring presentation. I think it's clear that this is, as Dan says, a very good platform and the Lundin Group vehicle for renewables investments. This is really the next chapter in the Lundin saga. We have got quite a few questions, but I remind you, if you would have more questions, please use the Q&A function at the bottom of the screen. I think without any further ado, I will turn the camera on for Dan and Espen, and we'll start with the questions. Thank you. If we start with a question on the dividend policy. If you look at the dividend policy for Lundin Energy, it has been really attractive for shareholders.
Would you be able to pay dividends with this new entity? This shareholder asking the question assumes that this will not be in focus when shifting towards renewables. Any comments on that?
Yeah, I think you're right. The renewables business is a completely different business initially to Lundin Energy. As part of the transaction, what you will get as a shareholder today is a cash consideration and a share in Aker BP, which will continue to pay a dividend. That dividend stream out of oil and gas will continue if you continue to hold the Aker BP shares. However, for the renewables vehicle, we're in a different stage of life as a company. You're absolutely right. The dividend policy will stop once we move out and trade as a standalone business, and I think we'll be using our cash generation for growth initially. In the longer- term, this is a business that has longevity over 30+ years, so there's many decades of free cash flow to come out of the business.
I think you should expect us revisiting this topic, but not today and not on spin-out, but certainly in the future.
Thank you, Dan. The next question is on growth and M&A activity. How do you foresee the growth in M&A over the coming years in terms of size, scale, and also technological diversity in power generation? There is a tag-on question to that. What level of gearing will you aim for to drive this growth, and do you foresee the need for equity raise at some point?
I think let's start with the M&A targets and opportunities and then come into the capital side. I think initially the size and scale really depends on the value creation element. If we sit here in two, three years time with a business the same size as it is today, I don't think we've done a good job as a management team and leadership team of the company. From day one and already we're screening acquisition targets, we will use debt certainly initially as the platform for growth. Because we come out debt-free, we can lever up on the assets we have and on the targets that we have. I think that's where we start our growth is on the debt side.
Size and scale, well, that depends on the ambition level and at this point in time, I think there's a very high ambition level to grow this business significantly.
Thank you, Dan. We have a shareholder here asking if you would ever consider moving back into oil and gas, given that gas is an important part of the energy transition.
I think upstream oil and gas is probably not where we're going to go with a pure renewables vehicle, and I think there's other companies within the Lundin Group that have that oil and gas exposure. That said, though, I think you need. In the energy transition, gas will be a key part of it. We're not moving into the upstream element, but there may be some technologies and opportunities linked to gas that we may consider in the future. It needs to link to our equity story and around the energy transition elements, whether it's technology on the side of gas, whether it's CCS, et cetera. There's nothing today that sets our direction in that context. I think we need to consider gas as a transition, but certainly not in the upstream space.
Thank you, Dan. The next question is about the tree planting projects that we have in Lundin Energy currently. Will Lundin, the new Lundin Energy Renewables, retain the tree planting projects, or does that move over to Aker BP?
The current tree planting projects will move across to Aker BP, and as part of the transaction, they will move across. We won't have any exposure to the natural carbon capture projects in the renewables vehicle. I think Aker BP will share more detail in their Capital Markets Day later in Q2 around their goals and forecasts for decarbonization, and I think these renewable projects play a key part in that for them.
Thank you. The next question, can you talk about the competitive landscape for the regions which you intend to expand into? How do you see the best returns in terms of technology and regions, and what rates of return will Lundin Renewables be pursuing?
Maybe I'll take the first pass, then I'll pass over to Espen for the rates of return. I think the technology piece, we need to diversify a little bit in terms of technology, and we also need to diversify in geography. You saw on Espen's slide where we had the different opportunities to increase that return. I think someone of our size and scale with access to fairly low cost of capital, but understanding the development and permitting risks around projects, I think you should expect us to take some appetite in some of that domain where others may not take that same appetite that we have.
I think where the projects we've invested in today have already appreciated in terms of their rates of return, as you see power pricing remain strong or increase, you'll see some more growth in that regard on the projects we have. There's lots of opportunities earlier.
It is. Yeah. Thanks, Dan. Just to add to that, and the three projects that we have already in our portfolio, when we acquired those projects, they were hovering around, you know, high single digits returns on the prevailing price forecast back then. Today, on the back of improved market conditions that are high single digit to low double digit, that's where they sit today as we also shown in our chart. And as we mentioned, we are targeting to increase and enhance overall portfolio returns and company returns through taking on more early risk, early project risk and more development risk going forward. We will have that mix of very strong and stable, high margin operating cash flow.
we can add more, like I said, early stage and development risk to that to increase overall returns.
Thank you both Dan and Espen. We have a question about what really is a renewable energy. Does Lundin Energy see nuclear energy as renewable? If so, is that an area of future interest?
I think it's quite hard for us to compete against some of the majors in nuclear power plants. It's not on our radar today to take an interest in a nuclear power plant. I think we'll stay in the energy transition technology piece looking at renewable and maybe potentially into storage and other options going forwards. Potentially on the edge of it with some of the gas in the transition. I don't think you'll see us stepping into the nuclear space.
There is a question on Lundin family representation. What is the reason that no one from Lundin family will be included in the Board or Management team?
I think the Lundin family representation on the board comes through Aksel Azrac and he's a key member of the Lundin family office and is responsible for their investments and so you'll see Aksel as a key member on the board and the Lundin family support there. If I look at the broader Lundin family within management, I think we start small and most of the rest of the family are gainfully employed in other vehicles across the group. That said, there's a very strong interest and involvement from the Lundin family, not necessarily in the Board, but certainly in the discussions in terms of where we go and what we do. There's a huge amount of support from the family sitting behind us.
Thank you, Dan. I think that was actually the concluding question. I would like to thank everyone calling in, listening in today so much. We had a great number of participants, and we will certainly make sure to come back to you on a regular basis with these kind of presentations. We also look forward to see you face-to-face as that is again possible. As you all know, the AGM of Lundin Energy will be on the 31st of March in Stockholm. With that, thank you to all of you in the audience, and thank you Dan and Espen.
Thank you, Robert. We're planning to share a little bit more detail in Q2 with updated market guidance and to share exactly what we think we're going to be doing in the second half of the year in terms of costs and revenues going forward. That will allow you to get a further understanding of the business and the shape and size of what we're planning to do. The final point for me is that this really is a platform for growth. I think it's a unique opportunity where we plant a renewable seed with the characteristics of high cash generation, no debt, into a sector which is only really just beginning.
I think the landscape and opportunity for growing returns and creating value over the next coming 10, 20, 30 years is really high with a company such as this and the support and drive from the board management and the Lundin family behind it. Thanks for taking the time to listen in today, and we look forward to coming back and speaking to you later in Q2 with some more details. Thank you.