Annual Report (ESEF) • Mar 30, 2022
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Download Source FileUntitled 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Next generation oil and gas operator 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Committed to deliver a better future and attractive sustainable shareholder returns Track record operations with heritage from world-class operators Scale and focus independent on the attractive NCS with material gas production Excellence portfolio focused on hub Growth High value growth class exploration and development capabilities Environment Low-carbon barrels from Transition Returns generation from low-cost, low-carbon barrels with full upside exposure to Vår Energi in brief GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Vår Energi 4 5 6 7 2021 highlights 8 9 Value creation 11 Strategic beliefs 12 Business model and strategic priorities 13 Be the safest operator 14 Robust portfolio 16 19 20 High-performing organisation 22 25 Sustainability 33 Leadership 35 36 Board of Directors 39 Directors’ report 41 42 Development projects 43 43 44 44 45 45 48 52 Payments to governments report 53 Corporate governance 54 Financial statements 60 61 103 125 130 Appendix 131 131 132 Financial Calendar 2022 133 Contents 3 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 3 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Vår Energi at a glance Licenses Production kboepd CFFO USD million Free cash flow USD million Dividends USD million 20212020 246 265 20212020 4 438 1 744 20212020 1 854 -68 20212020 950 450 4 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 4 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 We are Vår Energi The Company has an ambition to increase pro- duction to 350 kboepd by end 2025 while reducing production cost to USD 8 per boe from USD 12 per boe in 2021 as new projects come onstream and effects from improvement measures are achieved. Material cash flow generation and an investment grade balance sheet enable attractive and resilient dividend distributions. The Company distributed USD 950 million in dividend in 2021.For 2022, Vår Energi targets a minimum dividend of USD 800 million. From 2023 and onwards, the Company plans to distribute 20–30% of cash flow from operations after tax (CFFO) as dividend. On 16 February 2022, Vår Energi listed on Oslo Stock Exchange (OSE) under the ticker “VAR”. The initial public offering (IPO) provides access to Norwegian and international capital markets, a diversification of the Company’s ownership struc- ture and supports employee participation. Vår Energi is committed to deliver a better future. The Company’s ambition is to be the safest oper- ator on the NCS, the partner of choice, an ESG leader and a net zero producer (Scope 1 and 2) at operated fields by 2030. 5 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 5 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 A 50-year success story continues Creation of the largest NCS pure-play independent Established in Norway since 1965 Actively involved in Norwegian offshore oil & gas since 1963 First license awarded (PL 001) Point Resources established¹ 2016 Acquisition of ExxonMobil’s operated NCS business 2017 Ekofisk production 1971 2016 1965 Goliat first Barents Sea oil field in production 2018 Merger between Point Resources and Eni Norge 2019 Aquisition of ExxonMobil’s non-operated NCS portfolio 2022 Listed on Oslo Stock Exchange Production from Balder 1999 2003 Production from Ringhorne 1 Established through a three-way merger between Core Energy, Spike exploration and Pure E&P, all of which were fully owned by HitechVision The Group’s heritage is built on over 50 years of operations on the NCS, including the very first license issued on the NCS in 1965 (PL001). Vår Energi AS was established in 2018 through the merger of Eni Norge AS and Point Resources. Eni Norge AS was founded in 1965, while Point Resources was created through the merger of the HitecVision portfolio companies in 2016, which then acquired the Norwegian operated business of ExxonMobil in 2017. In 2019, the Group’s senior management further proved its ability to execute complex transactions, with the acquisition of substantially all of ExxonMobil’s partner-operated assets on the NCS. Vår Energi’s strengths, competencies and best practices have been developed over time, combining the capabilities of two supermajors to harness ExxonMobil’s and Eni’s operational resources and technical expertise. The Company also leverages on HitecVision’s NCS expertise with a demonstrated history of value creation. 6 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 6 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Key figures Actual serious injury frequency Zero (2020: Zero) CO 2 emissions (operated licenses) kg/boe (2020: 8.5) EBITDAX USD million (2020: 1 689) Adjusted net interest bearing debt/EBITDAX (excl. leasing) USD million (2020: 3.1) Crude oil Gas NGL 55% 37% 8% Åsgard area Tampen area Balder/Grane area Barents sea area Other 33% 17% 13% 11% 26% 20212020 6 043 2 869 Revenue from crude oil sales Revenue from gas sales Revenue from NGL sales Gain from realized crude put options 20212020 12 9.9 Production split Q4 2021, percentage based on kboepd Production split by hubs Q4 2021, percentage based on kboepd Petroleum revenues split by product type USD million Production cost USD/boe 7 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 7 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Operations • • completed • • • • Joined a research project aiming at 2 value chain • and automate HR activities and people processes • Further optimised contract portfolio - • supplier collaboration • supplier collaboration Project execution • • • • submission • • • • • • • the Balder X project Exploration • • Corporate • • • • for 2022 • • th • awards • Joined a research project aiming at 2 value chain Delivering the strategy – key achievements 2021 8 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 8 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 CEO message Committed to deliver a better future Vår Energi’s role as a safe and reliable supplier of oil and gas to Europe is evident in a time where we see energy shortages and unstable supply. This has been underlined by recent geopolitical events, which make it clear that we face a new reality when it comes to energy availability and the impact it has on people and industry all over the world. The Russian invasion in Ukraine is contrary to international law. Like everyone else, we are deeply concerned by the recent developments and give our heartfelt support to the Ukrainian people and all of those affected by the crisis. For Vår Energi, a new chapter opened with our initial public offering (IPO) and listing on Oslo Stock Exchange (OSE) 16 February. This was a significant milestone in the continued develop- ment of Vår Energi as a leading oil and gas company on the Norwegian continental shelf (NCS). Committed to deliver a better future The listing was the largest upstream oil and gas IPO in Europe in the past 15 years and was a natural next step in realising our full potential. We are honoured to welcome more than 19 000 new shareholders to our company, including significant participation by employees, and by the continued support from our two main owners Eni S.p.A. and HitecVision. 9 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 9 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Our shareholders have invested in a company with clear strategic priorities and a strong commitment to delivering a better future. This commitment is reflected in our strategic beliefs that: 1) ESG and climate are global and national priorities, and that a pathway to net zero will be required, 2) oil and gas will continue to be a part of the long-term energy mix, with gas to increase its share of NCS production and 3) the NCS will continue to be an attractive region driven by cost competitiveness, low emissions, reliability and long-term oriented governments and regulators. Strong operational performance and record cash flow We delivered strong operational and record financial performance in 2021. Safety is about people and is our number one priority, and we are pleased to report that we had no actual serious incidents during the year. We maintained efficient management of the Covid-19 pandemic, leveraging well-established procedures and industry collaboration, as well as the use of digital solutions and home office when required. Oil and gas production averaged 246 kboepd, a decrease of 7% from 2020. This was mainly due to maintenance postponed from 2020 to 2021 due to the pandemic. Natural gas represented 35% of 2021 pro- duction. The value creation from our activities is significant. Increased pro- duction volumes late in the year and rising oil and gas prices led to a record cash flow from operations (CFFO) of USD 4.4 billion and USD 950 million of dividend distributed in 2021. We have a minimum dividend expectation of USD 800 million for 2022, with USD 225 million expected for the first quarter. From 2023 and onwards, we plan to dis- tribute 20%-30% of our cashflow from operations (CFFO) as dividend. Our commitment to attractive shareholder returns over time is sup- ported by our solid financial position. We refinanced our reserve-based lending facility with a new USD 6 billion unsecured debt facility in October and obtained investment grade ratings from Moody’s and S&P. The refinancing and strong operational cashflow for 2021 led to a significant reduction in our leverage ratio to 1.1x at year end. Sustainable and high value growth We are well positioned to execute our growth plan delivering a pro- duction of over 350 kboepd by the end of 2025. In 2021, we had record high project activity supporting our growth, investing around USD 2.6 billion in assets and exploration. With execution of some projects affected by Covid-19 restrictions, plans were revised during 2021. All the main developments, including Johan Castberg, Balder X and Breidablikk, saw good progress towards the end of the year. Our growth and focus on operational efficiencies will help drive down production cost per boe and realise our climate ambitions. This was further supported by strong exploration results which generated 135 mmboe in net new contingent resources. Six of eight exploration wells were discoveries, yielding an industry-leading success rate of 75%. Our 2022 campaign targets additional high-value barrels near our operating hubs. We believe decarbonisation of oil and gas production is the right thing to do and we want Vår Energi to lead the way. It will also make us more competitive in the future and build a resilient business model fit for long-term value creation. We have clear targets to actively reduce and minimise our environmen- tal impact by becoming a net zero producer (Scope 1 and 2) by 2030 through electrification, portfolio optimisation and energy management, supported by carbon offsets and R&D. We work on this every day, and in January 2022 we received an indicative ESG assessment from Sustainalytics, which places Vår Energi among the top 10% of Oil & Gas Exploration and Production companies assessed, ranking Vår Energi as number 14 out of 155 E&P companies assessed. Realising our full potential The assessment is another confirmation of Vår Energi’s leading posi- tion on the NCS which is founded on a unique 50-year track record, scale, operational excellence and strong partnerships. I am confident that this provides a great starting point for continued sustainable growth and improvements. Since joining the company as CEO in June 2021, I have had the pleasure of working with a motivated and high-performing organisation and a supportive Board of Directors. I would like to extend my gratitude to everyone for your dedication and hard work in making 2021 a record year for Vår Energi. You all live up to our commitment to delivering a better future. For Vår Energi, this is the foundation from which we will realise our full potential and deliver long-term value to all our stakeholders. Stay safe! Torger Rød CEO, Vår Energi ASA 10 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 10 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Long-term value creation 11 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 11 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Strategic beliefs prerequisite for ensuring a resilient business model and driving long-term reduce and minimise its environmental impact, with a target of net zero There is a trilemma of available, reliable and sustainable access to energy. Vår Energi plays an important role in supplying energy. Global energy demand is projected to increase by 4.5% through 2030, with oil and gas to account for over 50% of the global energy mix in 2030. Hence, oil and gas will remain a critical energy source for many years to come. In February 2022, natural gas was included in the EU Taxonomy. Gas is argued to be in line with EU’s climate and environmental objec- tives and will allow acceleration of the shift from more polluting activities, such as coal generation, towards a climate-neutral future. The Company believes the NCS is one of the most attractive E&P regions globally, with proven development potential, significant remaining reserves and resources, high quality exploration prospects, well-understood geology, existing infrastructure, low production costs and a stable regulatory environment and tax regime. The NCS exhibits low CO 2 emissions relative to other regions within the global oil and gas sector, with an average of 7 kg CO 2 per boe as compared to the global average which exceeds 18 kg per boe. The region is a global leader in electrification, with 40% of the NCS targeted to be electrified by 2025. Other large- scale NCS sustainability initiatives include a strong focus on carbon capture and storage and utilisation offshore wind as source of energy. ESG and climate are global and national priorities, a pathway to net zero will be required Growing forecast production Positive long-term outlook for the NCS mmboepd Investment in sustainable projects Continued exploration Supportive and stable environment Oil & Gas will continue to be a part of the energy mix long term; gas to increase share of NCS production The NCS will continue to be attractive driven by cost competitiveness, low emissions, and long-term oriented regulators Our strategic foundation 2030202920282027202620252024202320222021202020192018201720162015 0 1 2 3 4 5 2030202920282027202620252024202320222021202020192018201720162015 Historic Forecast NPD 2030 Forecast (as of 2020) NPD 2030 Forecast (as of 2016) 12 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 12 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Value creationValue creation GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Business model and strategic priorities The Vår Energi organisation is high performing, flexible and collab- orative. The Company leverages its extensive capabilities across operations and aspires to be the partner of choice for field operators, suppliers, regulators and other stakeholders. The Company has a clear ambition to reduce costs and increase effi- ciency. This includes portfolio and reservoir optimisation, efficiency improvements and technology implementation. Vår Energi has a hub-focused approach to further develop and focus the portfolio both organically and inorganically, creating opportunities through scale and diversification. Vår Energi’s values Integrity Growth Will to win Inspiring Team player Be the safest operator with leading ESG performance Cultivate a robust portfolio positioned for further growth Drive operational excellence across our portfolio Be the partner of choice Foster a high-performing organisation Clear strategic priorities for value creation 13 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 13 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Value creationValue creation GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Safety is the #1 priority Vår Energi collaborates with Equinor, ConocoPhillips and Aker BP on the Always Safe annual wheel. The purpose of Always Safe is to strengthen the industry’s safety behaviour and culture. Through this joint effort Vår Energi utilises the strength of standardisation, increasing the impact in the industry with partners, suppliers, contractors and the Company. Vår Energi believes Always Safe is a key enabler in becoming the safest operator on the NCS. Vår Energi has incorporated the nine Life-Saving Rules as stated by the International Association of Oil & Gas producers (IOGP). These rules provide workers with a simple set of actions to protect themselves and others from incidents and fatalities. Other ongoing initiatives include MARI (Major Accident Risk Indicator) tracking operated fields and new digital tools to ensure technical integrity, support proactiveness, facilitate standardisation of safety initia- tives across our operations and ensure compliance. Ambition to be the safest operator on the NCS Life-Saving Rules environment prevent falling objects accidents injuries Always safe Q4 Q3 Q1 Q2 0 Be the safest operator Image: www.alwayssafe.no 14 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 14 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Value creationValue creation GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Clearly defined ESG agenda and sustainable solutions for both operations and suppliers, including the use of the best available technologies and methods to reduce emissions to air, discharges to The Company also contributes to large joint-industry research and development projects to find solutions to create a more sustainable future. This includes a low emissions research centre aimed at reducing Scope 1 emissions, the Norwegian Carbon Capture and Storage Research Centre aimed at reducing Scope 3 emissions and a circular economy project aimed at developing green and sustainable solutions. Vår Energi believes that achieving a lower carbon footprint will make the Company more competitive in the future and help to maintain an efficient and resilient business model fit for long-term value creation. Vår Energi has announced operational targets to actively reduce and minimise its environmental impact, with a target of net zero emissions for Scope 1 (direct) and 2 (indirect) emissions by 2030. Long-term target of net zero emissions by 2030 Be the safest operator Net zero emissions from 2, 3 and employee 3 Net zero emissions from offshore 2 and offshore 3 50% reduction in scope 1 GHG emissions from operated assets and 1 from operated assets and equity share of partner operated assets Near zero emissions from operated assets 1 Scope 1 2 Scope 2 3 Scope 3 2021 2025 2030 2050 15 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 15 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Value creationValue creation GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Unlocking value through a proven hub strategy diverse portfolio provides insights into assets and licenses across the entire NCS, Robust portfolio Long-term target of net zero emissions by 2030 Åsgard area Tampen area Balder/Grane area Barents sea area Other 33% 17% 13% 11% 26% Åsgard area Tampen area Balder/Grane area Barents sea area Other 29% 20% 16% 13% 23% Production split FY 2021 Reserves split 1 Stavanger Hammerfest Balder/Grane Area Vår Energi operated: Balder & Ringhorne Equinor operated: Grane, Breidablikk Barents Sea Area Vår Energi operated: Goliat Equinor operated: Johan Castberg Tampen Area Equinor operated: Snorre, Statfjord, Vigdis, Tordis Åsgard Area Equinor operated: Åsgard, Mikkel, Lavrans, Halten East Diverse and robust portfolio positioned for value-adding growth Oslo 16 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 16 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Value creationValue creation GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Vår Energi has a strong production outlook and intends to capture the upside of its robust asset portfolio by investing in high-value barrels. The Company is targeting above 350 kboepd of production volume by end 2025 through organic growth in the current portfolio. After 2025, key growth levers include the Company’s exploration capabili- ties and new commercial discoveries, new projects and drilling in existing fields, as well as capitalising on strategic M&A opportunities in hub areas. Vår Energi intends to have a disciplined approach to M&A that strengthens positions in core areas, utilises operational synergies, capitalises on assets with significant upside and acquires more operatorships for the Company. Vår Energi ensures efficiency in growth plans and capital expenditures by taking a disciplined approach to field development. The Company’s explo- ration strategy is focused on identifying additional in- and near-field drilling prospects at established assets and core hubs. The Company pursues collaboration with other operators and key sup- pliers, particularly those with longstanding expertise and a proven-track record, to further facilitate efficiency in field development. Vår Energi has an annual exploration budget of approximately USD 140 million per year and subjects development opportunities to conservative investment hurdles by targeting a break-even price of less than USD 30 per boe and an internal rate of return of greater than 20% for new projects. In 2021, the Company’s exploration campaign achieved a 75% success rate adding 135 mmboe of contingent resources with an average unit exploration cost of USD 0.2 per boe after tax. Resilient and low risk growth projects Vår Energi’s development pipeline and exploration track record have positioned the Company for growth in the coming years. Sanctioned developments include Balder X , Breidablikk, Johan Castberg and the Snorre Expansion Project. The Company’s development projects, such as Johan Castberg, generally exhibit high reserve quantities and low break even prices. In addition, Vår Energi has several attractive projects in the development pipeline which are being matured toward an investment decision, including In the medium term, the Company is targeting production of more than 350 kboepd by end 2025. In addition, there are a number of opportunities within Vår Energi’s existing production base to add reserves and extend - A significant part of Vår Energi’s capital expenditure programme is targeted at subsea tie-back projects, which are typically low risk with relatively small-scale capital requirements and significant potential for Ambition for >350 kboepd by end 2025 kboepd Target beyond 20252025E2024E2023E2022E20212020 246 +350 265 Existing production and sanctioned developments Unsanctioned developments Exploration & M&A 50% Historic production 17 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 17 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Value creationValue creation GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Resilient and low risk growth projects Robust portfolio Key Areas Åsgard Tampen Grane Balder 2P mmboe 178 222 102 2021 2022 2023 2024 2025 Operator Compression Balder X First oil – field extension First oil – new field development Åsgard SMBN Johan Castberg Bauge Fenja Kristin South 18 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 18 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Value creationValue creation GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Ambition to continue driving down production cost per barrel The Company is targeting a further reduction of production costs to USD 8.0 per boe in the medi- um-term. Vår Energi intends to achieve this target through the execution of ongoing projects, including the Balder X and major partner-operated asset developments at Johan Castberg and Breidablikk. Additional cost reductions are to be realised through active portfolio management, uptime improvements, strategic supplier partnerships, cost sharing with other operators, digitalisation and new technologies. Operational excellence 1 – mid-term ambition USD/boe Mid-term ambition20212018 12 8 14 19 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 19 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Value creationValue creation GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Working actively with key partners and suppliers The Company leverages its strong partnership with Equinor to seek cost and energy efficiencies, most recently by entering a five-year helicopter-sharing agreement to support operations in the North Sea. Other ongoing partnerships include the Hywind Tampen engagement, to provide renew- able energy to Snorre by use of floating wind, a joint power from shore project for the Balder/Grane area and the Barents Blue Ammonia study with Equinor and Horisont Energi, which is aiming to establish Europe’s first large-scale production facility for blue ammonia. In addition to close dialogue with Equinor, Vår Energi is engaged in strong collaboration with Eni S.p.A. in order to leverage on Eni’s capabilities in the areas of exploration, asset operation and drilling expertise. Vår Energi engages in commercial offtake agreements with Eni (through Eni Trade & Biofuels S.p.A) to provide offtake security and reduce the costs of hedging activity. As part of developing new ways of working, enhancing performance and actively using the suppliers capabilities, Vår Energi also seeks more strategic partnerships and collab- oration models as part of tendering and contract awards. Partner of choice Equinor’s largest partner on NCS 1 2 Vår Energi Equinor Shell Conoco Phillips Other Equinor operates ~2/3 of Vår Energi’s production… Vår Energi Total Lundin Aker BP ConocoPhillips Other … and Vår Energi is Equinor’s largest partner on the NCS 1 2020, kboepd 2 Excluding Petoro, 2021, kboepd 20 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 20 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Value creationValue creation GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Partner collaboration examples Decarbonisation collaboration Barents Blue Ammonia and Polaris Developing offshore gas to ammonia, and 2 Helicopter-sharing agreement environmental footprint of crew transport 21 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 21 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Value creationValue creation GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 World-class operating capabilities Vår Energi values local community engagement and in addition to awarding long term HSSEQ contracts to local suppliers, funds local scholarships for educa- tional institutions and collaborates with municipal schools. High-performing organisation People-centred organisation 950 employees People Talent engine and Competence of competence Diversity Diverse organisation and equal opportunities 40% gender diversity target by 2025 Low employee turnover Strong focus on health and work environment 22 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 22 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Value creationValue creation GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Key digital initiatives adopter of technological opportunities to ensure safe operations These include the installation of the Grayloc connector at Balder, which is believed to be the world’s first remotely operated vehicle (ROV) installation and eliminated the need for a diving vessel and divers, and the world’s first retrofit multilateral completion on the Goliat field, which allowed for the development of new production wells while significantly reduc- ing development costs. The Company intends to build on this track record through similar innovative solutions and strategic collaboration with partners across the NCS. High-performing organisation 23 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 23 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Value creationValue creation GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Mobile field worker Optimised drilling performance operations and minimise non- productive time Maintenance optimisation and integrity Maximise asset utilisation Digitalisation by design Production optimisation levels Inventory optimisation Secure stable operations while reducing operating costs Data driven safety and sustainability Leverage real-time 24 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 24 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Value creationValue creation GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Finance policy The Company believes its investment grade balance sheet and capital structure provide flexibility and a strong long-term outlook. Vår Energi has obtained BBB and Baa3 credit ratings from S&P and Moody’s, respectively, and is committed to maintaining an investment grade rating. Vår Energi targets a net lever- age through-the-cycle of 1.3x, where the NIBD to EBITDAX ratio was 1.1x at the end of 2021. The Company also delivers value to shareholders through an attractive dividend policy and has distrib- uted a total dividend of USD 3.1 billion since 2019, of which USD 950 million was paid in 2021. Vår Energi targets paying a dividend of USD 800 million for 2022 and 20% to 30% of cash flow from operations (CFFO) from 2023. As a reflection of the strong commodity price environment, especially with respect to European gas prices and the Company’s cash generation, Vår Energi anticipates paying a dividend of USD 225 million in May based on the first quarter 2022 performance. Vår Energi’s conservative financial risk policy aims to secure full funding for all committed and planned activities, a sufficient liquidity buffer with headroom to manage market fluctuations and a diversified debt structure. The Company further maintains a conservative risk profile through hedging, extensive insur- ance coverage and investment flexibility. Waterfall of capital allocation priorities Sustain production of existing portfolio Fund capex of existing developments Maintain a strong investment grade credit profile Pay dividends for new projects, additional shareholder distributions and debt repayment 25 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 25 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Value creationValue creation GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Balder/Grane AreaTampen Area Barents Sea AreaÅsgard Area Goliat Johan Castberg Morvin Åsgard Kristin Tyrihans Trestakk Lavrans Strategy into action opportunities, maximising the use of resources and optimising value creation The Company’s core assets are located around four strategic hubs: the Balder/Grane Area, the Barents Sea Area, the Åsgard Area and the Tampen Area. No single area accounted for more than 30% of the total 2P reserves at the end of 2021. RinghorneSygna Snorre Vigdis Gullfaks Statfjord North Statfjord East Breidablikk Grane Balder Åsgard Area Tampen Area Balder/Grane Area Barents Sea Area Other 31% 17% 15% 9% 28% Production 2021 kboepd (%) Morvin Åsgard Kristin Tyrihans Trestakk Lavrans 26 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 26 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Value creationValue creation GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Balder Jotun Ringhorne The Balder/Grane Area 1 kboepd 0 20 40 60 80 2021 203020202019 2P 2C 1 According to revised national budget 27 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 27 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Value creationValue creation GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Balder/Grane Area infrastructure following redevelopment The Balder X Project is enabling further development in the Balder and Ringhorne area and consists of two sub-projects: the Balder Future Project and Ringhorne Phase IV. In total, the Balder X project features 143 mmboe net recoverable reserves. The Balder Future Project consists of the refurbishment and relocation of Jotun FPSO from Jotun to Balder to accommodate tie-ins of 14 new production wells and one new water injection well, with future expansion capacity to accommodate tie-in in the area. The project will extend the technical lifetime of the Jotun FPSO beyond 2045. First oil from the Balder Future Project is planned for the fourth quarter of 2023. Ringhorne Phase IV is a continuation of the Ringhorne Platform drilling activities, following the Ringhorne Phase III drilling campaign and the drilling of five platform production wells. past five years with estimated contingent resources of 85 mmboe. Vår Energi plans a phased approach to secure early revenue while acquiring data to optimise the full field development. The Company has to the Jotun FPSO. In addition, Vår Energi holds a 34% working interest in Breidablikk, one of the largest undeveloped dis- coveries on the NCS. It will be developed as a subsea tie-back to the Equinor operated Grane field, with planned first oil in first quarter 2024. Vår Energi holds a 28% working interest in the Grane field. Discovery 1999 Balder start-up 2003 Ringhorne start-up 2019 Balder X FID 2021 Balder X Project execution 2023 First Oil 2045+ 28 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 28 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Value creationValue creation GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 The Barents Sea Area Another key asset in the Barents Sea Area is Johan Castberg, a sanctioned and substantially de-risked project with first oil planned for the fourth quarter of 2024.Vår Energi holds a 30% working interest in Johan Castberg. 1 kboepd 0 20 40 60 202120202019 2P 2C 2030 1 2P production as per preliminary DeGolyer and MacNaughton CPR estimates Image: Equinor Johan Castberg 29 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 29 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Value creationValue creation GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 The Johan Castberg field holds 583 mmboe of gross recoverable reserves (175 mmboe net to Vår). Equinor is the operator of the Johan Castberg development, which consists of 30 wells, 10 subsea templates and 2 satel- lites tied back to a fully winterised FPSO. The field is expected to have a peak gross production once on stream of approximately 190 kboepd, with an expected lifting cost of as low as approximately USD 3.2 per boe during the first year of full production. The start-up of the Johan Castberg field has been delayed by the Covid-19 pandemic that resulted in extended stop of all yard activities. Weld quality deviations and the limited availability of manpower due to Singapore access restrictions also contributed to the delays. Progress since mid-2021 has been per plan, and on 5 January 2022 the Johan Castberg FPSO was towed out of dry dock in Singapore. The journey to Norway, on board the heavy-lift ship Boka Vanguard, started in February, and the FPSO will arrive at Aker Stord in Norway during the second quarter of 2022. Ten of the production wells have been drilled by the end of 2021 and subsea templates, flowlines and mooring systems were successfully installed. The oil will be transferred to shuttle tankers before being shipped to the market. A firm decision for a future gas export solution has not been taken and the gas is currently not included in the reserves. In March 2021, an oil discovery was made in the Isflak prospect in PL532. Isflak is located about 10 km southwest of the Skrugard discovery, with an oil column of over 100 meters with a preliminary estimated discovery size between 31 and 50 mmboe of hydrocarbons. This discovery underpins the prospectivity in the Johan Castberg license. 535 mmboe ~3 USD/boe (real) ~190 kboepd ~5 kg/boe Johan Castberg 1 OPEX and CO 2 30 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 30 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Value creationValue creation GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Åsgard C Åsgard B Morvin Smørbukk Smørbukk sør Trestakk Kristin Tyrihans Mikkel Midgard Åsgard A The Åsgard Area 31 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 31 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Value creationValue creation GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 The Tampen Area The Snorre expansion project started production in December 2020 and Sygna Snorre Vigdis Gullfaks Visund Statfjord North Statfjord East Statfjord Tordis 32 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 32 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Value creationValue creation GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Sustainability 33 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 33 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Sustainability Becoming an ESG leader Vår Energi is committed to manage the Company’s resources responsibly, creating long-term value for stakeholders and the related communities. Sustainability is at the core of Vår Energi’s business activities and one of the Company’s main strategic priorities is to be the safest operator on the NCS with leading ESG performance. Being leading on ESG performance requires a broad sustainability focus, with equal importance of environmental, social and governance factors. The Company continuously works to improve its performance within these areas. To clearly communicate its sustainability efforts to stakeholders and to measure progress, The Company has an ambition to become best-in-class on ESG reporting, with a focus on the areas: planet, people and prosperity. Planet Vår Energi seeks to minimise the impact of its operations on the climate and the environment. Through the HSSEQ Policy, the Company commits to safeguard the environment in accordance with the principles of precaution, prevention, protection, and continuous improvement. All Vår Energi employees are committed to safeguard the environment, and the Company builds environmental awareness in the organisation through training, participation in joint industry projects and R&D, and through involvement in industrial forums and committees. The decarbonisation of Vår Energi’s activities is a key topic for the main stakeholders. It is considered by the Company as a part of its license to operate and an investment in future growth towards a low carbon society. Vår Energi has committed to achieve net zero Scope 1 emis- 1 2 emissions by 2025. The ambitious decarbonisation strategy ensures that the Company takes urgent action to contribute to tackle the ongoing climate challenge and its impacts. Emissions that the Company is unable to eliminate due to technical or economic feasibility, will be offset through carbon offset mechanisms in the voluntary carbon market. The target for 2050 is to achieve near zero emissions from operated assets. People Vår Energi is run by people. The safety of employees and contractors will always be the Company’s number one priority. The ambition is to be the safest operator on the NCS, and the Company promotes a good working environment and HSE culture at the core of all operations. Diversity and non-discrimination are key elements in building a robust organisation and the Company has a long-term goal of 40% female employees in the entire organisation. Vår Energi strives to use local suppliers wherever material and feasible to create value for the com- munities in which the Company has operations. Prosperity Vår Energi conducts its operations in a transparent, honest and fair way, in compliance with laws and regulations, internal rules, ethical integrity and fairness. The Company interacts with a wide range of local and global suppliers. By assessing sustainability in the supply chain, the Company can create value for the local communities and support the shift towards more sustainable business models. To create further value for society, Vår Energi cooperates with others to develop and implement new technological solutions aimed at reducing the industry’s carbon footprint. The Company acknowledges and adheres to the recommendations set forth by the Task Force on Climate Related Financial Disclosures (TCFD) and take climate risks and opportunities into account when developing strategies and financial plans. Please see Vår Energi’s separate Sustainability report for more infor- mation, available on www.varenergi.no. 1 Net zero Scope 2 emissions; office buildings by 2021 and offshore assets by 2025. 2 Net zero Scope 3 emissions; categories #6 Business travels and #7 Employee commuting by 2021 and #4 and #9 up- and downstream transportation and distribution. 34 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 34 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Leadership 35 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Leadership GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Executive management Torger Rød CEO Joined Vår Energi from the position as Head of Safety and Security at Equinor. 20+ years at Equinor both in Norway and internationally, including his role as SVP Project Development where he was responsible for all development projects globally. Holds a Master’s degree in Industrial Economics from Norwegian University of Science and Technology. Stefano Pulatti CFO Joined Vår Energi from Eni, where he served as VP Planning & Control of African sub-Saharan region. 20+ years of international financial and O&G experience. At Eni he also held the position of Finance Director in major oil and gas subsidiaries like Angola, Nigeria and Mozambique. auditor, obtaining the CPA qualification. Rune Oldervoll VP Operations Joined Vår Energi from ExxonMobil in 2018. 20+ years of experience in O&G industry with several technical and managerial positions at ExxonMobil, both globally and in Norway. Holds a Master’s degree in Mechanical Engineering from the Norwegian University of Science and Technology. Ove André Årdal VP Commercial Joined Vår Energi from Eni Norge, where he served as Commercial Manager for 12 years 25+ years of experience in O&G industry with prior experince at Mobil and ExxonMobil. Holds a Master’s degree in Business and Administration from the Norwegian School of Economics. Alessandro Berberis VP Exploration Joined Vår Energi in 2021 from the position of Managing Director of Eni Cyprus. 30+ years of experience in O&G industry, served as Director and Chair on the boards of Eni International and Italy. Honours degree in Geological Sciences from University of Milano. 36 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 36 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS LeadershipLeadership GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Executive Management cont. Ørjan Jentoft VP Partner Operated Assets Joined Vår Energi in 2020 from the position of Technical Manager for ExxonMobil in Norway, 30+ years of experience in O&G industry both globally and in Norway. Holds a Master’s degree in Petroleum Engineering from the Norwegian University of Science and Technology. Annethe Gjerde VP Contracts and Procurement Annethe Gjerde has 20+ years of experience in the O&G industry in Norway. Experienced in both the contractor and operator side of the industry with former experience at Norsk Hydro, Statoil, Pure E&P and Point Resources. Alumnus of Norwegian School of Economics. Bjørn Thore Ribesen VP Field Dev. and Projects as SVP Drilling & Wells. Schlumberger. Holds an Engineering degree w/hon in Offshore Technology from University of Newcastle upon Economics. Aksel Luhr General Counsel Aksel Luhr has 40+ years of experience in O&G industry. Previously held various managerial positions in Eni Norge and Elf (Total). Currently also the Honorary Vice Consul of Italy in Stavanger. Law degree from the University of Oslo and licensed advocate and member of the Norwegian Bar Association. VP Corporate Services Charlotte V. Saunders has 20+ years of experi- ence in the O&G industry. Previously worked in-house for Aker, Esso and BP and as an external business lawyer before joining Eni Norge in 2013. Law degree from the University of Oslo and licensed advocate and member of the Norwegian Bar Association. 37 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 37 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS LeadershipLeadership GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Executive Management cont. VP Safety and Sustainability Ove M. Helle has 13+ years of experience in the O&G industry. Previous experience with ExxonMobil and point Resources, after 19 years in the Norwegian Air Force. Alumnus of Norwegian Air Force Flying School, US NAVY Naval Flight Officer School and Norwegian Air Force Academy. VP Internal Audit Tor B. Tangvald has 34+ years of experience in the O&G industry, from oil service to exploration and production companies. Previous experience with Norsk Agip and Eni Norge, on the Goliat development. Master’s degree in Naval Architecture and Marine Engineering from Norwegian University of Science and Technology. Tone Rognstad VP People and Organisation Tone Rognstad joined the company in 2022 from the role as VP for Project management and control in Equinor. 15+ years of experience from various mana- gerial positions with Equinor and 16+ years from various executive leadership positions in General Electric, both in Norway and interna- tionally, within the areas of marketing, risk and operations. Bachelor’s degree in Banking and finance from the BI Norwegian business school. 38 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 38 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS LeadershipLeadership GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Ove Gusevik Director Senior Partner at HitecVision, which he joined in 2021 from his role as Head of Investment Banking at SpareBank1 Markets. Brings more than 30 years of investment banking experience, including being one of the founders of First Securities and serving as CEO Norway and Nordic Head of Energy at Alfred Berg ABN AMRO. Leading role in many of the largest energy industry transactions in Scandinavia. Thorhild Widvey Chair Over 15 years of experience in the Norwegian public and private sectors, with a focus on the energy industry. Former Minister of Petroleum and Energy, and State secretary in the Ministry of Foreign Affairs. Chairperson of Statkraft since 2016; member of the Board at Aker Solutions and Solstad Offshore since 2020. Former Minister of Petroleum and Energy Senior Partner Chief Financial Officer Upstream Director Francesco Gattei Director Over 25 years of experience in the Oil & Gas industry across various senior roles at Eni and its subsidiaries. Chief Financial Officer for Eni since 2020. Previously served as Upstream Director of the Americas, Head of Investor Relations, Secretary to Eni’s Advisory Board, Senior VP of Market Scenarios and Strategic Options, and Head of Upstream M&A. Guido Brusco Director More than 20 years of experience in the upstream Oil & Gas sector for Eni. Upstream Director for Eni since 2020. Previously served as Executive Vice President for the Sub-Saharan Region, Managing Director of Eni Angola, and Operations Manager for Clara Andreoletti Director Clara Andreoletti serves as Head of Natural Resources Business Support Services and has previously served as Head of Geosciences & Subsurface Operations Data Management, Vice President Prospect and Exploration Projects Validation and Head of West Africa Exploration. She has over 20 years of experience in the Oil & Gas exploration and development sector at Eni. Clara holds a degree (Laurea) in Telecommunications engineering from Politecnico di Milano. Head of Geosiences and Subsurface Operations Management Board of Directors 39 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 39 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS LeadershipLeadership GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Marica Calabrese Director Over 18 years of experience in the Energy sector at Eni across various roles in Reservoir Department and M&A. Currently serves as Head of Reservoir Studies and Area Reference North Africa & Middle East at Eni. Holds a degree in Environmental Engineering (with Honours) from Politecnico di Milano and a Masters’ in Petroleum Engineering (with Honours) from London Imperial College. Reservoir EngineerOman Cables Chair Selmer Partner Fabio Romeo Director Chair for Oman Cables. Holds an undergraduate degree from Politecnico di Milano, and a graduate degree and doctorate from the University of California, Berkeley. Liv Monica Stubholt Deputy Chair Partner at Selmer, a Norwegian corporate law firm, with a focus on the Energy sector. Serves as a Director of the Norwegian German Chamber of Commerce since 2010. Previously served as an Executive at Aker ASA, and State Secretary at the Norwegian Ministry of Foreign Affairs and the Ministry of Petroleum and Energy. Board of Directors cont. Kjersti Selvik Director, Employee representatives Laurits Hosar Director, Employee representatives Jan Inge Nesheim Director, Employee representatives Christine Vorland Director, Employee representatives 40 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 40 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS LeadershipLeadership GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Board of Directors’ report 41 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 41 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Board of Directors’ report Vår Energi was founded in 2018 following the merger of Eni Norge AS and Point Resources AS. On 16 February 2022, the Company listed on Oslo Stock Exchange (OSE) under the ticker “VAR”. The initial public offering (IPO) provides access to Norwegian and international capital markets, a diversification of the Company’s ownership structure and supports employee-engagement. Vår Energi expects that oil and gas will continue to play a fundamental role in the global energy mix for decades to come and is committed to delivering sustainable growth opportunities on the NCS. This is reflected in Vår Energi’s vision statement: “committed to deliver a better future”. To deliver on the Company’s main business objectives, the Board of Directors and management have defined the following strategic priorities going forward: 1) Be the safest operator with leading ESG performance, 2) Cultivate a robust portfolio positioned for further growth, 3) Drive operational excellence across our portfolio, 4) Be the partner of choice in everything we do and 5) Foster a high performing organisation. The Company has also updated its climate ambition with a target of becoming a net zero producer measured by Scope 1 and 2 activities by 2030. The combination of good operational performance and rising com- modity prices towards the end of the year led to a strong financial performance for Vår Energi reflected in record cash flow from opera- tions and increased dividend payment to the Company’s shareholders in 2021. Late in the year, the Company refinanced its reserved-based lending facility with a USD 6 billion unsecured corporate credit facility with 12 international banks and obtained investment grade credit ratings of BBB from S&P Global and Baa3 from Moody’s Investors Service. The Company maintained focus on safe operations with zero serious accidents recorded in 2021. Vår Energi continued to leverage well-es- tablished procedures and industry collaboration to manage the Covid-19 pandemic, including the use of digital solutions and home office when required. Focused remined on reducing the risk of the virus spreading in the operations and safeguarding the Company’s employ- ees and contractors, whilst at the same time minimising the potential business impact. To date there have been no significant interruptions due to the pandemic within Vår Energi’s own operations. In 2021, Covid-19 restrictions impacted progress on development projects, in particular on Johan Castberg and Balder X , which caused a delay to the planned start-up of production. During 2021, commodity prices increased as energy demand rebounded in line with higher global activity following the dissemination of vaccines combined with the emergence of milder mutations of the Covid-19 virus. The supportive commodity price environment contin- ued into 2022, before geopolitical tensions were exacerbated with the late February escalation of the conflict between Ukraine and Russia. The recent events underline Vår Energi’s role as a safe and reliable supplier of oil and gas to Europe and the world amid energy shortages and supply uncertainty. The Company is deeply concerned by the developments, and gives a heartfelt support to the Ukrainian people and all of those affected by the crisis. Operational review The Company’s production of oil, liquids and natural gas averaged 246 kboepd in 2021, a decrease of 7% compared to 265 kboepd produced in 2020, partly reflecting that some maintenance projects originally planned for 2020 were postponed to 2021 due to the Covid-19 pan- demic. 42 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 42 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Total volumes produced in 2021 (including fuel and flare) were 90 mmboe whereas total volumes sold were 85 mmboe. Oil represented 56% of the production in 2021, with gas and NGL making up 35% and 9%, respectively. As of 31 December 2021, Vår Energi had production from 36 fields. The Company’s operated fields, which comprise Balder, Ringhorne, Ringhorne East, Goliat and Marulk, delivered 20% of the production and the remainder came from partner-operated fields. Production efficiency for the operated fields was 87% in 2021, a decrease from 92% in 2020 due to scheduled maintenance at Balder, Ringhorne and Goliat. For 2022, the Company is guiding towards a production in the range of 230-245 kboepd. Production cost per boe was USD 12.0 in 2021 compared to USD 9.9 per boe in 2020. Total production cost (produced volumes) in 2021 The increase was mainly due to foreign exchange rate effects, higher CO 2 quota prices and the shift of turnarounds and maintenance activ- ities from 2020 to 2021. Transportation, processing and insurance costs were lower year over year. The Company expects production cost in 2022 of USD 12.5 to 13.5 per boe. Over the medium term, the production cost per boe is expected to decline towards USD 8.0/boe as new projects come onstream and cost savings are achieved. Development projects Vår Energi is participating in several significant development projects on the NCS which support the Company’s ambition of producing more than 350 kboepd by end 2025. Development activity was high with record expenditures on property, plant and equipment (PP&E) of approximately USD 2.5 billion in 2021 (USD 1.8 billion in 2020). Investments in the Balder area and Johan Castberg represented 59% of PP&E expenditures for the year. During the year, Covid-19 restrictions impacted progress on certain projects including Johan Castberg and Balder X projects through a delay to the planned start-up. This was reflected in an impairment recorded in the fourth quarter. Towards the end of 2021, the main development projects Johan Castberg, Balder X and Breidablikk saw steady progress according to revised plans. On Balder X , the inspection programme on Jotun FPSO was completed by the end of the fourth quarter, marking an important achievement in reducing uncertainty of the scope of work required. The 2021 offshore subsea installation campaign also completed in the quarter with a majority of the subsea scope of work having been performed by the end of 2021. On Johan Castberg, the turret modules departed from Singapore in December for integration with the FPSO in 2022. In February 2022, the FPSO hull and living quarter was loaded onto a semi-submersible heavy transportation vessel for transportation to Stord, Norway. The Breidablikk PDO was delivered in September 2020 by the operator Equinor and approved in June 2021. The field is being developed with four subsea templates with six slots each, tied-back to the Grane platform. Production start is planned for first quarter 2024. Fenja was discovered in 2014 and the PDO was approved in 2018. Fenja will be developed as a subsea tie-back to Njord A, operated by Equinor. The Fenja development project is currently in execution phase and development drilling commenced in 2021. Production start-up has been delayed (due to the Njord Future project, in which Vår Energi has no working interest) and is now planned for the first quarter of 2023. In September, Vår Energi entered into a cooperation agreement with Equinor and Horisont Energi to explore the possibilities of producing carbon neutral blue ammonia from natural gas, with CO 2 capture and storage, in Hammerfest. The Barents Blue cooperation was in December expanded to include Polaris CO 2 transportation and storage project, aiming to transport captured CO 2 from the ammonia plant and store it in an underground reservoir in the Barents Sea. The agreement enables Vår Energi to deploy its capital towards upstream projects rather than infrastructure development, while retaining the same gas off-take rights. Ammonia is used at scale by the chemical industry, and in the produc- tion of fertiliser. Carbon neutral ammonia is seen as a potential future fuel for maritime transportation. Carbon Capture and Storage (CCS) is expected to play a fundamental role in reaching the targets set in the Paris agreement. Exploration During 2021, Vår Energi engaged in exploration drilling across all sectors of the NCS. The main objective for the exploration activities is to deliver accretive reserve replacement through active near field explo- ration in close proximity to producing assets to optimise the use of existing infrastructure combined with selective high-risk / high-reward exploration in frontier areas. 43 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 43 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 The 2021 exploration campaign included eight wells (Isflak, Blasto, and Halbera). Six of the wells were discoveries and two were dry (Apodida and Halbera), equal to a success rate of 75% for the year. The drilling campaign provided 135 mmboe of contingent resources, equal to 1.5x full-year production. combined estimated contingent resources of 85 mmboe. The dis- coveries are considered commercial, likely as a tie-in to existing infrastructure in the Balder area, and a development project is under- Lupa and Countach wells adjacent to the Goliat field in the Barents Sea and the partner-operated potential high-impact well Ormen Lange Deep, and follow-up of other partner-operated wells. All planned explo- ration wells in 2022 are located close to the Company’s key hubs (near field exploration for high margin barrels) and in case of a discovery, they will be considered for rapid development. 2021 was also an active year with regards to licensing activity. A total of 16 new exploration licenses were acquired, 10 in the APA license round (five operated) and six from business development activity and portfolio optimisation. The Company relinquished 14 licenses during the year. At year end, the Vår Energi portfolio totalled 138 licenses of which 36 are operated. Following the APA 2021 license award in January 2022, the number of licenses increased to 148 of which 41 are operated. Reserves and resources (SEC) AS of 31 December 2021, total proved and probable reserves (2P) net to Vår Energi were 1 119 mmboe, slightly down from 1 147 mmboe at year-end 2020. The decrease from 2020 to 2021 is mainly a function of high production (90 mmboe) in 2021, partially offset by additional reserves maturation and upward revision of reserves due to the increase in commodity prices during the year. Total proved and probable reserves are distributed with 56% in the North Sea, 25% in the Norwegian Sea and 19% in the Barents Sea. The Company’s proved and probable reserves were 71% oil, 24% gas and 5% NGL. Total contingent resources (3C) at year-end 2021 were 562 mmboe, an increase of 141 mmboe when compared with year-end 2020. The Company’s five largest fields, Balder, Ringhorne, Goliat, Johan Castberg and Snorre combined, amounted to approximately 47% of total proved and probable reserves year-end 2021. The Company’s reserve life index (RLI) at year-end 2021, calculated on the basis of proved and probable reserves, was 12.5 years (11.8 years in 2020). Sustainability Vår Energi is committed to developing sustainable growth opportu- nities on the NCS. Energy plays a fundamental role in meeting the primary needs of society and securing international stability and prosperity. Sustainability is essential to how Vår Energi conducts its operations and creates value over time. The health and safety of its employees, contractors, and other partners is the top priority for Vår Energi. The Company’s ambition is to be the safest operator on the NCS, which is a corporate value integrated into company culture and business plans. In 2021, no serious injuries were recorded despite high levels of activity both offshore and onshore. In 2021, Vår Energi set new climate goals with the ambition of becom- ing climate neutral in Scope 1 and 2 activities by 2030. This implies net zero greenhouse gas emissions from all producing oil and gas fields where Vår Energi is an operator or a partner. In addition, emissions from all emergency response and supply vessels and oil tankers will be sought reduced to net zero by 2025 (Scope 3). Additional information on environmental, social and governance (ESG) topics is provided in the separate sustainability summary of this annual report and in the 2021 Sustainability Report available on www.varenergi.no. Health, Safety, Security, Environment and Quality (HSSEQ) It is the Company’s expressed goal to carry out all activities without causing harm to people or the environment. Vår Energi uses certain key measures to monitor and learn from experiences in our operations to achieve transparency in the way we work. By requiring the use of high-quality and sustainable solutions in our own operations and by our suppliers, emissions to air, discharges to sea, as well as waste genera- tion are reduced as much as possible. 2021 was characterised by a significant increase in activity, driven by the Balder Future development project, large turn-arounds and drill- ing operations. The company’s key performance indicators Serious Incidents Frequency (SIF) and Total Recordable Injury Frequency (TRIF) developed positively in 2021 compared to 2020. In 2021, there were no incidents with serious actual consequences (SIF Actual). 44 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 44 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 However there has been an increase in the total number of incidents with a serious potential, as well as recordable injuries, particularly during the fourth quarter 2021. For 2021, the SIF rate was 1.3, a decrease from 1.7 in 2020. The recorded incidents were classified as serious due to their potential rather than actual consequence. The majority of the incidents were related to dropped objects. For 2021, the TRIF was 3.2 compared to 3.5 in 2020. In 2021, Vår Energi had several events with higher potential, however no personnel were actually injured during these events. The incidents have been managed according to the Company’s management system, improvements have been implemented and learnings are shared to enable continuous improvement. Further, Vår Energi focuses on technical integrity and monitors major accident risk items and key indicators through the Company’s Major Accident Risk Indicator system (MARI). To further strengthen the culture and focus on safety, Vår Energi will, together with its contractors, continuously monitor key measures, such as the Always Safe Annual Wheel, the Life Saving Rules and the Company’s internal TIR tool (Take Time, Involve, Report). Vår Energi considers the decarbonisation of oil and gas production a prerequisite to ensuring a resilient business model and driving long- term value creation. The Company has announced operational targets to actively reduce and minimise its environmental impact, with a target of net zero emissions (which includes Scope 1 and 2 emissions) by 2030. In 2021, the CO 2 emissions intensity for the Company’s operated licenses was 8.7 kg per boe, compared to 8.5 kg in 2020, mainly due to lower production year-over-year. The Company seeks to minimise impact on the climate and the envi- ronment. The HSSEQ policy is based on the principles of precaution, prevention, protection, and continuous improvement. The environmen- tal management system is an integral part of the Group management system and certified according to ISO 14 001. The Company has set monthly and quarterly reports and management meetings. Vår Energi also cooperates with local communities, other operators, and national authorities to ensure that operations are conducted in a safe and responsible manner. People, organisation and working environment Vår Energi firmly believes that the people are the Company’s greatest asset. Therefore, the safety of employees and contractors will always be the number one priority. The ambition is to be the safest operator on the NCS, and to promote a good working environment and HSE culture at the core of all operations. Vår Energi works actively to promote diversity and non-discrimination as they are key elements in building a robust organisation. At year-end 2021, Vår Energi employed a total of 950 personnel, split on 938 full-time employees and 12 part time employees. The majority of employees (514) work at the Company’s headquarters at Forus. An additional 31 employees are located in the Oslo office, while 58 employees are located in the Hammerfest office. The Company has a total of 347 employees working offshore. Vår Energi promotes equal opportunities and rights for all based on qualifications, and aims to prevent discrimination due to gender, ethnicity, country of origin, age, sexual orientation, language, disabil- ity or religion. The Company’s Code of Ethics and procedures have regulations to prevent discrimination related to salary, career promo- tion and recruiting. The proportion of women employed at Vår Energi at year-end 2021 was 26%. At year end, one of the eight members of the Company’s Board of Directors was female. The current Board, established in con- nection with the listing in February 2022, has four women out of eight shareholder-elected members. Women held 17% of the executive man- agement team positions and 25% of remaining leadership positions in the Company. During the year, the Company’s Gender Balance Task Force, established in 2020, continued to work actively to deliver on the Company’s target to reach 40% female employees onshore and 15% female employees offshore and a ratio of female leaders reflecting the gender balance onshore and offshore. At year-end 2021, more than 33 nationalities were represented among Vår Energi’s employees. A comprehensive report of equality status as required by the Norwegian Equality and Anti-Discrimination Act, is included in the Diversity and Inclusion statement section of the 2021 Sustainability report available on www.varenergi.no. The sick leave in 2021 was 3.8% (3.7% in 2020). The Company has a positive and healthy working environment. R&D Vår Energi’s research and development (R&D) activities seek to provide advanced technical solutions supporting the Company’s ambitions of reducing environmental impacts and improving production efficiency. In 2020, Vår Energi established a new R&D strategy focused on the contribution to emission reduction targets and to promote develop- ment of technology that supports future energy transition business 45 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 45 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 development. The R&D strategy is defined to meet the Company’s technology objectives in the following key areas: • Safety and environmental protection • Decarbonisation • Successful exploration • Operational excellence • Maximise recovery The Company is engaged in large-scale national projects which aim to develop and demonstrate GHG emission reduction capabilities. They include supporting the Low Emission Centre, which develops concepts for offshore energy systems and integration with renewable power production technologies, and the Norwegian CCS Research Centre (NCCS), run by the independent research organisation SINTEF, which seeks to develop cost-efficient carbon capture and storage (CCS), which is required to meet global climate targets while maintaining security of energy supply. In 2021, Vår Energi entered a joint industry project to develop a more environmentally friendly method for seismic data collection, the BASS project. The Company is also engaged in a feasibility study for Norway which may use gas from the Alke and Goliat fields for decar- bonisation and conversion into ammonia via hydrogen. The Company also joined the LINNCS project (Linking Carbon Capture and Storage) aimed at optimising the CO 2 value chain and reducing the cost for new carbon storage facilities by 70%. Financial review Declaration regarding the financial statements The Board of Directors believes that the financial statements provide a true and fair view of the Group’s result for 2021 and the financial posi- tion at year end. Total income in 2021 was USD 6 073 million (+110%) compared to USD 2 894 million in 2020. Petroleum revenues in 2021 amounted to USD 6 043 million, up from USD 2 869 million in 2020. The increase in petroleum revenues was mainly due to higher oil and gas prices real- ised in 2021, continuing the trend of increasing commodity prices that began at the end of 2020. The Company booked a USD 168.6 million gain on cash flow hedges in 2020 related to exercised put options during the year. There were no such gains in 2021. Total other operat- ing income in 2021 was USD 29.4 million (USD 25.2 million). Total volumes sold were 85.2 mmboe, compared with 92.1 mmboe in 2020. Realised average price per boe amounted to USD 70.9 in 2021, an increase from USD 31.1 in 2020. Total 2021 production cost (sold volumes) was USD 1 290 million, a 25% increase from 2020. The increase was mainly due to foreign prices, higher environmental taxes due to higher CO 2 quota prices, the shift of turnaround and maintenance activities from 2020 to 2021, a higher over lift position and higher costs related to crude put option premiums. Transportation and processing costs and insurance costs were lower year over year. 2021 exploration expenses were USD 57 million due to high capitalisa- tion following the successful 2021 drilling campaign and equal to the 2020 level. Depreciation and amortisation amounted to USD 1 705 million in 2021, little changed from USD 1 707 million in 2020. Impairment loss in 2021 amounted to net USD 1 million. In 2020, impairment loss amounted to USD 2 178 million, mainly due to lower commodity prices. Impairment is recognised when the book value of an asset or a cash-generating unit exceeds the recoverable amount. Impairment is correspondingly reversed if the conditions for the impairment are no longer present. Other operating expenses were USD 110.5 million in 2021 (USD 176.2 million). Operating profit for 2021 was USD 2 910 million compared to an oper- ating loss of USD 2 253 million in 2020. 2021 net financial expenses were USD 269 million, an increase from USD 238 million in 2020. The Group recognised a net foreign exchange loss of 142 million, compared to a gain of USD 287 million in 2020. The 2021 tax expense was USD 1 876 million, compared to a tax income of USD 577 million in 2020 due to the temporary tax regime introduced in 2020. Profit for 2021 totalled USD 622 million compared to a loss of USD 1 627 million recorded in 2020. 46 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 46 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Financial position Total assets as of 31 December 2021 amounted to USD 19 878 million, compared with USD 20 260 million a year earlier. Total non-current assets were USD 18 326 million, down from USD 18 773 million at end of 2020. Net additions in tangible assets in 2021 amounted to USD 924 million and related mainly to the Company’s investments in its portfolio of discoveries (wells and production facilities and facilities under construction) net of changes to estimates of asset retirement costs and currency translation effects. Total depreciation and impairment charges amounted to USD 1 329 million. Total current assets increased to USD 1 552 million from USD 1 486 million in 2020. The increase was mainly caused by higher trade receiv- ables. This was partly offset by a decrease in tax receivable to zero at year-end 2021, compared with a tax receivable of USD 523 million in 2020. The cash position at year-end 2021 was USD 224 million, down from USD 272 million in 2020. In addition, at year-end 2021, the Company had USD 2 080 million in undrawn credit facilities bringing total availa- ble liquidity to USD 2 304 million. Total equity at 31 December 2021 was USD 1 472 million, down from USD 1 784 million at end of 2020. This corresponds to an equity ratio of 7% compared to 9% a year earlier. Total non-current liabilities at year-end 2021 were USD 15 908 million (USD 17 467 million at year-end 2020), reflecting a reduction of inter- est-bearing loans and borrowings due to the refinancing and strong cash flow from operations in 2021. Total current liabilities were USD 2 498 million at year-end 2021 (USD 938 million at year-end 2020), reflecting an increase in accounts payable, taxes payable and current interest-bearing loans. Total interest-bearing debt (including leasing) was USD 5 152 million at year-end 2021, a decrease from USD 5 748 million in 2020. EBITDAX was USD 4 672 million in 2021 and free cash flow (FCF) amounted to USD 1 854 million. Due to the strong cash flow generated in 2021, the Company reduced its leverage ratio (NIBD/EBITDAX) to 1.1x at year- end 2021 from 3.2x a year earlier. Cash flow Cash flow from operating activities (CFFO) was USD 4 438 million (+154%) compared to USD 1 744 million in 2020. The increase in operating cash flow was mainly due to higher product prices. The difference between CFFO and operating profit is mainly explained by depreciation and amortisation in the period and working capital move- ments. Net cash used in investment activities was 2 633 million in 2021 com- pared to USD 1 947 million in 2020. Expenditures on property, plant and equipment were USD 2 480 million in 2021, an increase from USD 1 771 million in 2020 due to high activity on the Company’s main devel- opment projects. Net cash used in financing activities was USD 1 835 million in 2021, compared to net cash from financing of USD 273 million in 2020. The year-over-year change reflects the net effect of refinancing of the reserve-based lending facility and the draw-down on the new unse- cured loan facility as dividends paid of USD 950 million in 2021, up from USD 450 million in 2020. The Group cash position was USD 224 million at 31 December 2021 compared to USD 272 million a year earlier. Vår Energi AS, the parent company of the Vår Energi Group, reported end 2021 (USD 5 252 million at year-end 2020). Operating profit was million in 2020. Net profit for the year was USD 694 million compared 31 December 2020). Dividend Vår Energi’s material cash flow generation and investment grade balance sheet support attractive and resilient distributions. In 2021, the Company paid a total dividend of USD 950 million. The dividend was paid in quarterly instalments. Going concern statement A key objective of the Company is to have sufficient equity and liquidity to be able to finance its operations and investments in accordance with the company’s business plan and portfolio commitments. The Board of Directors confirms that the financial statements of the Company have been prepared under the going concern assumption in accord- ance with the Norwegian Accounting Act, section 3-3a. The Board of 47 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 47 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Directors considers Vår Energi as well positioned to continue its oper- ations, based on the current balance sheet, production and cash flow forecasts and projected investments and expenses. As described in note 2, the accounting policies used in the Consolidated IFRS Financial Statements for 2021 are consistent with those used in the 2020 Consolidated Financial Statements. Vår Energi will prepare reporting required under the EU Taxonomy Regulation, pending the final processing of the regulation by the EEA Joint Committee and its implementation into Norwegian law. The preliminary analysis indicates that a material share of the Company’s revenue and investments are outside the scope of the taxonomy in its current form, but that the activities related to gas production and sales and investments in low-carbon and zero emission activities may qualify as sustainable investments. Corporate governance Vår Energi is committed to providing information in an open, trans- parent, and timely manner to our shareholders and stakeholders. At 31 December 2021, the Company was privately held with all shares outstanding owned by Eni International B.V. and Point Resources Holding AS. In connection with the listing on Oslo Stock Exchange (OSE) in February 2022, The Company adopted and implemented a corporate governance regime which in all material respects complies with the Norwegian Code of Practice for Corporate Governance dated 14 October 2021 (the “Corporate Governance Code”). Please see the separate corporate governance section of this annual report for further information. Vår Energi has implemented a Director and Officer’s (D&O) insurance scheme for the Board of Directors and key managers. The insurance covers personal legal liabilities including defence- and legal costs and also includes employees in managerial positions or employees who become named in a claim or investigation. The director and officers of the parent company and all subsidiaries (owned more than 50%) are covered by the insurance. Vår Energi has prepared a report on government payments in accordance with the Norwegian Accounting Act section 3-3d) and the Norwegian Securities Trading Act section 5-5a. It states that companies engaged in activities within the extractive industries shall annually prepare and publish a report containing information about their payments to governments at country and project level. The report is provided in a separate section of the annual report and on the Company’s website. Risks and risk management Vår Energi is exposed to a variety of risks associated with oil and gas operations. Risk management is an integral part of the Company’s business activities, and the business areas consequently have the main responsibility for managing risks arising from its business activities. Vår Energi’s operational, financial and external risks and mitigation of those risks through risk management are also described in the pro- spectus published in February 2022, available on www.varenergi.no. Vår Energi recognises that effectively managing risks and opportunities is essential to the Company’s long-term success and a key enabler in achieving Vår Energi’s strategic objectives. The Board of Directors is responsible for risk management as part of its role in providing strategic oversight and stewardship of the Company. This includes approving the annual budget and four-year business plan, evaluating risks to the delivery of the plan and deciding financial and operational - terly by the Risk and Compliance Committee and on a regular basis by the Board. Vår Energi’s Risk Management System provides a systematic approach for the identification, assessment and management of the key risks and opportunities that may impact the achievement of strate- gic objectives. The framework promotes a bottom-up approach to risk management with a top-down support and challenge. Vår Energi is subject to various controllable and uncontrollable risks associated with the nature of the oil and gas business operations. Companies operating in the oil and gas industry are exposed to a variety of operational, financial and external risks that may not be entirely possible to eliminate even with robust risk management rou- tines and experiences. The Board of Directors recognises the risks associated with the Company’s operational assets. The regulation of activities on the NCS provides a sound framework for handling these risks, and the Company takes an active and responsible approach as a partner. Future produc- tion of oil and gas is dependent on the Company’s ability to find, or acquire, and develop reserves. 48 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 48 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 There is always a risk that a major operational incident could occur as drilling, production and decommissioning activities will never be completely risk-free. Further, there are risks related to the integrity of the Company’s assets, risks associated with the reported reserves and resources, risks associated with inability to expand reserves or find replacement reserves and risks associated with third-party contractors or operators, as a large share of the Company’s assets are operated by others. Costs of development projects or exploration efforts are also uncer- tain. As a result of these risks, the Company may incur costs that could adversely affect the Company’s financial position or its reputation as a player on the NCS. The Company intends to act as a sound, respon- sible and technically competent partner across the whole spectrum of activities in all its operations. Vår Energi works actively with its partners and has established mitigating actions to reduce the possibility of operational incidents occurring. In addition, the Company’s risk man- agement includes contingency plans to minimise the potential impact if an operational incident should occur. Vår Energi operates in the crude oil and natural gas market and fluctu- ations in hydrocarbon prices may therefore impact revenues, reserve estimates, profitability and the rate of growth. Commodity price risks represent the Company’s most important market risk. Vår Energi uses commodity price hedging to manage this risk and secure cash flow from the sale of crude oil and gas. At the end of 2021, the Company had established a hedging pro- gramme for 2022 with 100% of planned after-tax volumes for oil covered by monthly settled oil price put options with a strike price of USD 47 per barrel. To align after-tax cash flows and adjust for different tax treatment of financial derivatives and the underlying oil production, 28.2% of the planned production volume is hedged. In 2022, Vår Energi has entered into forward gas sales contracts. As of 18 February 2022 Vår Energi has sold 9% of its estimated 2022 gas production at a fixed price, generating a sales income of USD 393 million. The Company is exposed to market fluctuations in foreign exchange rates and interest rates. These fluctuations could impact the Company directly or indirectly as they may influence credit-institutions’ and inves- tors’ appetite to provide loans to, or invest in, the Company. The Company considers its credit risk or financial risk of partners to be low, as its license partners are considered creditworthy oil companies and procedures are in place to assess financial risk related to existing and new suppliers. The Company is highly focused on active risk man- agement through hedging, liquidity focus and insurance. The Company has insured its pro-rata liability on the NCS in line with the best industry practices and has offshore insurance programmes covering the following risks (non-exhaustive list): • Loss of production income • Physical damage to assets • Control of well • Third party liability Vår Energi is exposed to market fluctuations in foreign exchange rates, as the Company’s expenses to a large degree are denominated may consequently have impact on the Group’s cash flow and financial condition. The Company had no active currency hedges as of year-end 2021. The Company’s financing arrangements have floating interest rates. Vår Energi has currently not entered any arrangements to hedge the interest rate exposure and is therefore exposed to interest rate fluctua- tions. The Company’s future capital requirements depend on many factors, and the Company may need additional funds to fulfil its commitments and further develop exploration and development programmes to support the strategic direction of the Company. Liquidity risk is the risk that the Company will not be able to meet the obligations of financial liabilities when they are due. Vår Energi’s liquidity planning is based on short-term (12 months) and long-term forecasts. These are updated regularly, for various scenarios, and form part of the basis for the decision-making by the Company’s leadership team and the Board of Directors. The business landscape in which the Company operates can change rapidly. The risks of fluctuations in commodity prices are addressed under financial risks, but the Company also faces other external risks that could affect its financial position over time. For instance, there can be no assurance that legislation, including tax regulations, will not be changed in a manner that could adversely affect the Company. There is also a potential exposure from the response to climate change. 49 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 49 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 The Company aims to develop and maintain a portfolio of assets that remains resilient as the government’s response to climate change evolves. Vår Energi acknowledges and adheres to the recommendations set forth by the Task Force on Climate Related Financial Disclosures (TCFD) and takes climate risks and opportunities into account when developing strategies and financial plans. Climate risk can be defined as the combination of transitional risk and physical risk. Transitional risks comprise market, reputational and policy risks, whereas physical risks arise through changes in weather patterns, temperature increases and other physical effects of climate change. The Company provides a detailed analysis of climate risks and opportunities, the financial impacts of climate change, and measures that have been implemented to ensure long-term value creation in the Sustainability Report available at www.varenergi.no. Vår Energi’s business and results of operations could be adversely affected by climate change and the adoption of new climate change laws, policies and regulations. Growing concerns about climate change and greenhouse gas emissions have led to the adoption of various regulations and policies and future global policy may be further influ- enced by climate-related action from both government and third-party organisations. Environmental challenges and new climate change regu- lation, rapid increases to supply of renewable energy, social changes, and national commitments to international climate targets such as the Paris Agreement could result in stranded assets in the energy sector. The Company may face increased expectations from stakeholders to take actions beyond existing regulatory requirements and the Company’s own stated targets to minimise external impact and miti- gate climate change. This may require Vår Energi to apply additional measures and incur additional costs with potentially material adverse effect on the Company’s business, financial results and position. In addition, if Vår Energi fails to meet these expectations, or to foster additional sustainability initiatives, the Company may experience reputational risk which could impact the ability to attract and retain customers, employees, lenders and investors. On 24 February 2022, Russia invaded Ukraine. Since then, military actions have continued on Ukrainian soil with a significant negative impact on people and local infrastructure, and with wide-ranging consequences for the global political and economic environment. The invasion is widely condemned in the international community and sanctions have been imposed on the Russian businesses, certain Russian nationals, and the Russian state. The war has caused widespread business disruptions, impacted the global economy and commodity prices, and led to significant short-term volatility in inter- national debt and equity markets. There is significant uncertainty with regards to the extent and duration of military conflict and how it will affect the global economy and markets, as well as Company’s perfor- mance over time. The invasion and subsequent sanctions have had a material impact on global energy markets. Oil and gas prices have increased from already high levels before the invasion. Russia is a leading exporter of gas, oil and coal to Europe. Export volumes may be affected by damages to infrastructure, sanctions limiting trade, and the potential for Russia to halt its exports as a response to sanctions. There is significant uncer- tainty regarding the potential impact on safe and reliable energy supply, as well as to the market prices of oil, gas and other commodities which may impact the Company’s future operations and results. Other risks actively monitored by the Company include the Covid-19 pandemic and cyber security. The risk for cyber-attacks is considered higher following the start of conflict in Ukraine and the sanctions imposed on Russia. Risk management and identification and assessment of opportuni- ties is also an integrated objective of Vår Energi’s Risk Management System. The process seeks to not only identify risks and how they can be mitigated, but also identify opportunities and actions required to deliver above expectations and realise upside potential. Opportunities may include more efficient drilling, portfolio optimisation, collaboration with strategic partners, cost reductions, performance improvements, selection of proved design solutions, digitalisation, etc. Vår Energi has established internal control functions to prevent mis- takes and fraud related to financial reporting. The internal controls are periodically assessed and modified to comply with changes in the organisation and business activities. A compliance function has been established to monitor internal controls with respect to compliance with internal guidelines and external laws and regulations. Any material deviations from the established internal control design will be reported to the management, the Risk and Compliance Committee and the Audit Committee. 50 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 50 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Vår Energi has established an internal audit department that inde- pendently provides assurance on the effectiveness of governance, risk management and compliance, including how the first and second lines of control achieve risk management and control objectives. Internal Audit is also responsible for the whistleblowing function within the Company. Vår Energi’s governance and corporate risk management approach is based on the Company’s integrated Management System. Vår Energi’s Management System (VEMS) is an interactive web-based system available to all personnel working in or for the Company. VEMS is process-oriented, developed around a set of business process maps with supportive links to governing and key documentation including Norwegian regulatory requirements, Company requirements and international standards and procedures. VEMS sets out all mandatory policies, standards and controls necessary to manage key activities and associated risks and thereby ensure that stakeholder’s needs and expectations are met or exceeded. VEMS also shows how Vår Energi manages its business through its assets, its processes and its people (organisation) and thereby creates a sound basis for the achievement of the Company’s objectives and value creation for stakeholders. Furthermore, VEMS works as a management tool to communicate company requirements and demonstrate compliance with both Norwegian regulatory and corporate requirements. VEMS is a vital part of the Company culture and essential for facilitat- ing Vår Energi in reaching its objectives. It provides a set of tools for strategic planning and tactical implementation of policies, practices, guidelines, processes and procedures, and common direction and On 16 February 2022, Vår Energi was listed on Oslo Stock Exchange (OSE) under the ticker “VAR”. The intention of the IPO was to provide the Company with access to the Norwegian and international capital markets and to allow the Company to diversify its ownership structure and create a strong long-term shareholder base, including employee oversubscribed as it attracted strong interest from institutional inves- tors in Europe, the US and Asia, as well as from the general public in the Nordic region and employees of Vår Energi. Following the transac- tion, Vår Energi welcomed approximately 19 000 new shareholders. On 2 February 2022, the Company announced an update to its previ- ously communicated dividend policy for 2022. In late 2021, Vår Energi determined a dividend of minimum USD 700 million for 2022. In addi- tion, the Company had communicated a dividend of USD 200 million for first quarter 2022. Considering the current and a continued support- ive commodity price environment and Vår Energi’s strong cash flow generation, the Company decided to increase its dividend for the full year 2022 to a minimum of USD 800 million and announced a dividend for the first quarter of USD 225 million. On 26 January 2022, following an Extraordinary General Meeting, Vår Energi was converted to a public limited company (ASA - Allmennaksjeselskap) and a new Board of Directors was elected. On 18 January 2022, Vår Energi was awarded 10 new production licenses in the 2021 Awards in Predefined Areas (APA) covering mature areas on the NCS, five as operator, increasing the total of licenses to 148. The licenses awarded are considered to have a good strategic fit with Vår Energi’s existing license portfolio, strengthening the Company’s presence in strategic hubs while also offering attractive opportunities to potentially expand into new prospective sectors on the NCS. 51 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 51 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Outlook Vår Energi has an ambition to deliver value-driven growth to support attractive and resilient long-term dividend distributions. The Company targets production of more than 350 kboepd by end 2025, correspond- ing to over 50% growth compared to the midpoint of the guided 2022 range of 230–245 kboepd. The end 2025 ambition is based on: • Material long-lived reserves and resources • Improved recovery, utilising leading reservoir technology and infill drilling to enhance and drive facilities and reservoir outperformance • Development of a robust pipeline of sanctioned projects centred around strategic hubs, including Balder X , Johan Castberg and Breidablikk Growth levers beyond 2025 include maturing and developing unsanc- tioned projects, continuing to leverage best-in-class NCS exploration capabilities to deliver new potential commercial discoveries and exe- cuting on accretive M&A in hub areas driving value and synergies. Based on the potential for improving operations in currently producing fields and the attractive cost profile in sanctioned developments, Vår Energi has an ambition to reduce the production cost per boe to USD 8 in the medium term from USD 12 in 2021. This represents a reduction of close to 40%. For 2022, the Company maintains its guidance for USD 2 300–2 600 million in development capex and USD 200 million in exploration and abandonment capex. Vår Energi’s material cash flow generation and investment grade balance sheet support attractive and resilient distributions. For 2022, the Company targets a minimum dividend of USD 800 million to be paid quarterly. For the first quarter of 2022, Vår Energi has commu- nicated a dividend of USD 225 million. From 2023 and onwards, the Company plans to distribute 20–30% of cash flow from operations after tax. To ensure continuous access to capital at competitive cost, retaining Investment Grade credit ratings is a priority for Vår Energi. As such, the Company targets a NIBD/EBITDAX of 1.3x through the cycle. Sandnes, 29 March 2022 The Board of Directors of Vår Energi ASA Thorhild Widvey Chair Liv Monica Bargem Stubholt Deputy Chair Francesco Gattei Director Guido Brusco Director Clara Andreoletti Director Marica Calabrese Director Fabio Romeo Director Ove Gusevik Director Kjersti Selvik Director, employee representative Laurits Hosar Director employee representative Jan Inge Nesheim Director, employee representative Christine Vorland Director, employee representative Torger Rød Chief Executive Officer 52 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 52 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Payments to governments report Payments to governments is prepared in accordance with the Norwegian Accounting Act Section section 3-3d) and Securities Trading Act section 5-5a). It states that companies in the extractive industry are required annually to disclose payments to governments per country and project. Vår Energi was net refunded USD 164 million (excluding interest) in corporate tax from the Norwegian government in 2021. The corre- sponding tax payment in 2020 amounted to USD 342 million. Area fees per license paid as operator in 2021 to the Norwegian author- ities on behalf of the joint ventures (100% figures) are presented in the table to the right. Net Profit Interest (NPI) payment to the Norwegian authorities amounted to USD 5 million in 2021. The NPI payment is related to licenses awarded in the second licensing round and collected by Petoro. CO 2 and NOX fees are considered to be taxes paid on consumptions and exempted from this reporting similar to value added taxes. When companies are required to report payments to government, it is also mandatory to report on investments, sales income, production volumes and purchases of goods and services in the country in which companies have activities within the extractive industries. Vår Energi operates only on the Norwegian Continental Shelf. This reporting requirement is therefore deemed to be met by the financial statements as specified below: • specified in the cash flow analysis in the financial statements • specified in note 4 to the financial statements • - lents, as specified in note 5 to the financial statements For information about purchases of goods and services, reference is made to the Income Statement and the related notes. Area fees paid / (refunded) (USD thousand) License PL229 2 155 PL489 1 478 PL229E 677 PL122 641 PL027 525 PL001 CS/DS 237 PL028/ PL028S 143 PL001 71 PL027 FS 51 Total 53 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 53 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Corporate governance 54 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 54 GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Corporate governance Vår Energi is committed to providing information in an open, trans- parent, and timely manner to its shareholders and stakeholders. At 31 December 2021, the Company was privately held with all shares outstanding owned by Eni International B.V. and Point Resources Holding AS. In connection with the listing on Oslo Stock Exchange (OSE) in February 2022, The Company adopted and implemented a corporate governance regime which in all material respects complies with the Norwegian Code of Practice for Corporate Governance dated 14 October 2021 (the “Corporate Governance Code”). The Company has established two share classes with deviating voting rights in respect of Board elections, whereby the holder of the Class B shares shall be entitled to appoint four of the shareholders-elected directors to the Board of Directors. There are no specific measures in place regulating the exercise of the influence which follows from holding a majority of the shares in the Company. Other than this, there are no deviations from the Corporate Governance Code. The Board of Directors on 15 February 2022 approved the following Corporate Governance policy: Introduction to the corporate governance policy The Board of Directors of Vår Energi ASA (the Company) has approved this corporate governance policy document (the CG Policy). The CG Policy gives an overview and is a supplement to the other Policies and Management System Guidelines (MSGs) already implemented by the Company, and / or which have been implemented or amended in connection with the listing of the Company’s shares on the Oslo Stock Exchange. The CG Policy addresses the framework of guidelines and principles regulating the interaction between the Company’s shareholders, the Board of Directors (the Board), the Chief Executive Officer (the CEO) and the Company’s executive management team. The CG Policy is based on the Norwegian Code of Practice for Corporate Governance issued by the Norwegian Corporate Governance Board. The Company will, in accordance with applicable legislation and stock exchange listing rules, provide a report on the Company’s corporate governance in the directors’ report or in a document that is referred to in the directors’ report in connection with its annual financial statements and report. Business activity, vision and values Vår Energi ASA is a leading independent upstream oil and gas company on the Norwegian continental shelf (NCS), headquartered outside Stavanger, Norway, and with branch offices in Hammerfest and Oslo. We are committed to deliver a better future through responsible growth based on over 50 years of NCS operations, a robust and diversified asset portfolio with ongoing development projects, and a strong exploration track record. Our ambition is to be the safest operator on the NCS, the partner of choice, an ESG leader and a net zero producer (Scope 1 and 2) by 2030. Our values are closely linked to who we are. They aim to support our common direction and reflect the desired behaviour in our company. The values are at the essence of our identity and beliefs. Our values represent our compass, providing both internal and external direction for our company. Our values should be an integrated part of every decision-making process. Our values are: • Growth • Integrity • Will to win • Inspiring • Team player 55 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 55 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Corporate governance Corporate governance GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Ethical guidelines The Company will maintain high ethical standards in its business concept and relations with partners, customers, suppliers and employ- ees. Reference is made to the Code of Ethics approved by the Board on 16 September 2020. A brief summary of the ethical guidelines are as follows: 1. Integrity: We carry out our daily activities with responsibility, equity, fairness and good faith, respecting internal and external regulations. 2. Respect and protection of Human Rights: We operate with respect for human dignity and Human Rights, and we require the same commitment from all our partners. We ensure an inclusive work environment that values uniqueness and diversity as fundamental resources for the development of humanity. 3. Transparency: We are attentive to the needs and expectations of our stakeholders. We are committed to engage in continuous dialogue with our counterparts, providing them clear, complete and truthful information, being aware that sharing objectives and results is essential to maximise value and reduce business risks. 4. Promotion of development: We work to support an efficient and sustainable access to energy resources that protects the needs of future generations and respects Human Rights, the environment and society as a whole. We favour an inclusive development that can generate shared and lasting value in all territories in which we operate by working alongside the communities. 5. Operational excellence: We guarantee the efficiency and integration of our activities, minimising risks and creating opportunities along the entire value cycle. 6. Innovation: We believe that innovation is at the basis of personal and business growth. We are committed to acquiring cutting-edge technological skills in order to develop innovative ideas and improve our daily activities, contributing to the progress of civil society by increasing safety and reducing environmental impact. The above list represents a brief summary of Vår Energi ASA’s ethical guidelines. The complete guidelines are compiled in the Code of Ethics, in which all employees are trained regularly. Any breach of ethical guidelines may inflict severe consequences for the Company and any breach may imply consequences for the person in question. Company capital and dividends The Board is committed to maintain a satisfactory equity ratio in the Company according to the Company’s goals, strategy and risk profile, thereby ensuring that there is an appropriate balance between equity and other sources of financing. The Board will continuously assess the Company’s capital requirements related to the Company’s strategy and risk profile. The Company is committed to create long-term value for its sharehold- ers. The Company targets to distribute dividends of around 20-30% of after-tax operating cash flow (CFFO). Dividends will be paid out annually, shortly after the annual general meeting has been held. The dividend will be contingent on the Company’s financial position and the business outlook, to ensure that the Company can prudently manage future obligations, business cycles and opportunities for strategic development. General authorisations for the Board to increase the share capital and to buy own shares will not ordinarily be proposed for periods longer than until the next Annual General Meeting of the Company. Share classes There are two classes of shares in the Company, where one class has certain appointment rights in relation to the Board, save for this all shares carry equal rights. The Company emphasise equal treatment of its shareholders. Transactions with related parties Any transactions, agreements or arrangements between the Group and the Company’s shareholders, members of the Board, members of the executive management team or close associates of any such parties may only be entered into as part of the ordinary course of business and on arm’s length market terms. All such transactions shall, where relevant, comply with the procedures set out in the Norwegian Public Limited Liability Companies Act and the Norwegian Code of Practice for Corporate Governance. According to the Norwegian Code of Practice for Corporate Governance, the Board shall, in principle, arrange for a valuation to be obtained from an independent third party for trans- actions with related parties, including agreements that are considered immaterial. The Company’s financial statements shall provide further information about transactions with related parties in accordance with applicable accounting principles. Directors shall immediately notify the Board and members of the exec- utive management team shall immediately notify the CEO (who, where relevant, will notify the Board) if they have any material direct or indirect interest in any transaction entered into by the Group. Transfer of shares The shares of the Company are freely transferable. 56 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 56 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Corporate governance Corporate governance GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 The general meeting All shareholders have the right to participate in the general meetings of the Company, which exercise the highest authority of the Company. The annual general meeting shall normally be held before 31 May each year. The full notice for general meetings shall be sent to shareholders no later than 21 calendar days prior to the meeting. The notices for such meetings shall include documents providing the shareholders with sufficient details in order for the shareholders to make an assessment of all the cases to be considered as well as all relevant information regarding procedures of attendance and voting. The notice and the documents may be sent to or made available for the shareholders by electronic communication, to the extent allowed in the Company’s articles of association. Representatives from the Board and the Company’s auditor will normally be present at general meetings. Notices for general meetings shall provide information on the proce- dures shareholders shall observe in order to participate in and vote at the general meeting. The notices will also set out: (i) the procedure for representation at the meeting through a proxy, including a form to appoint a proxy, and (ii) the right for shareholders to propose resolu- tions in respect of matters to be dealt with by the general meeting. The cut-off for confirmation of attendance shall be set as short as practically possible and the Board will arrange matters so that share- holders who are unable to attend in person, will be able to vote by proxy. A form of proxy will be distributed with the notice. The Board of Directors – composition In appointing members to the Board, other than those to be appointed by the holder of B shares, it is emphasised that the Board shall have the necessary competence to independently evaluate the subject presented by the executive management team. It is also considered important that the Board can function well as a team. Directors shall be elected for periods not exceeding two years at a time, with the possibility of re-election. Directors are encouraged to own shares in the Company. The Board shall comply with all applicable requirements as set out in the Norwegian Public Limited Liability Companies Act and the listing rules of Oslo Stock Exchange (OSE). Acknowledging that the Board is ultimately appointed by and at the shareholders’ discretion, the composition of the Board should also seek to comply with the recom- mendations set out in the Norwegian Code of Practice for Corporate Governance. The Company does not have a corporate assembly. Nomination committee The Company shall have an election committee as set out in the arti- cles of association. The members of the nomination committee should be elected to take into account the interests of shareholders in general, and the majority of the election committee should be independent of the Board and the executive management team. Members of the Board and the executive management team should not be members of the election committee. Instructions for the election committee have been issued and approved by the Company’s general meeting. Sub-committees of the Board of Directors The Company have established an audit committee in accordance with the rules of the Norwegian Public Limited Liability Companies Act and the listing rules of the Oslo Stock Exchange (OSE). Instructions to the Audit Committee have been put in place by the Board. The Board has established a remuneration committee. The remu- neration committee shall review and recommend to the Board the remuneration policies/framework for the Company’s Executive/Senior Management, and provide general advice related to compensation. The Board has also established a safety & sustainability committee to assist the Board in reviewing the performance of the Company within safety and sustainability. Responsibility of the Board of Directors The Board shall prepare an annual plan for its work with special emphasis on goals and strategy. The Board’s primary responsibili- ties shall be (i) participating in the development and approval of the Company’s strategy, (ii) performing necessary control functions and (iii) acting as an advisory body for the executive management team. Its duties are not static, and the focus will depend on the Company’s ongoing needs. The Board is also responsible for ensuring that the operation of the Company is compliant with the Company’s values and ethical guidelines. The Chair of the Board is responsible for ensuring that the Board’s work is performed in an effective and correct manner. The Board shall ensure that the Company has a proper management with internal distribution of responsibilities and duties. A division of work has been established between the Board and the executive man- agement team. The CEO is responsible for the executive management of the Company. 57 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 57 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Corporate governance Corporate governance GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 All members of the Board shall regularly receive information about the Company’s operational and financial development. The Company’s strategies shall regularly be subject to review and evaluation by the Board. The Board shall prepare an annual evaluation of its work. Reference is further made to the Rules of Procedures for the Board of Directors of Vår Energi ASA. Risk management and internal control The Board shall ensure that the Company has sound internal control and risk management routines that are appropriate in relation to the extent and nature of the Company’s activities. Risk management and internal control routines shall also encompass the Company’s corpo- rate values and ethical guidelines. Reference is further made to the Policy on HSSEQ as approved by the Board on 16 September 2020. The objective of the risk management and the internal control system is to manage exposure to risks in order to ensure successful conduct of the Company’s business, to support the quality of its financial report- ing and ensure compliance with laws and regulations. The Board shall carry out an annual review of the Company’s most important areas of exposure to risk and its internal control arrange- ments. The Board shall provide an account in the annual report of the main features of the Company’s internal control and risk management systems as they relate to the Company’s financial reporting. Board of Directors – remuneration The general meeting shall determine the Board’s remuneration annually, normally in advance. Remuneration of Directors shall be reasonable and based on the Board’s responsibilities, work, time invested and the complexity of the enterprise. The Board shall be informed if individual Directors perform tasks for the Company other than exercising their role as Directors. Work in sub-committees may be compensated in addition to the remuneration received for Directorship. The Company’s financial statements shall provide information regard- ing the Board’s remuneration. Remuneration to the management The Board decides the salary and other compensation to the CEO. The CEO’s salary and bonus shall be determined on the basis of an eval- uation by the Board, with emphasis on the CEO’s and the Company’s overall performance. Any fringe benefits shall be in line with market practice and should not be substantial in relation to the CEO’s basic salary. The Board shall annually carry out an assessment of the salary and other remuneration to the CEO. The CEO determines the remuneration of executive employees within the guidelines and instructions provided by the Board. The Board shall, based on proposal from the remuneration committee, issue guidelines for the remuneration of the executive management team. The guidelines shall lay down the main principles for the Company’s management remuneration policy. The salary level should not be of a size that could harm the Company’s reputation or above the norm in comparable companies. The salary level should, however, ensure that the Company is able to attract and retain executive employees with the desired expertise and experience. The Company’s financial statements shall provide further information about salary and other compensation to the CEO and the executive management team. The Company will also prepare annual guide- lines on remuneration of senior executives in accordance with the Norwegian Public Limited Companies Act. Information and communication The Board and the executive management team assign considerable importance to giving the shareholders relevant and current informa- tion about the Company and its activity areas. Emphasis is placed on ensuring that the shareholders receive the same and simultaneous information. Reference is made to the Investor Relations Policy approved by the Board on 15 February 2022. Sensitive information will be handled internally in a manner that mini- mises the risk of leaks. The Company shall have routines for who is allowed to speak on behalf of the Company on different subjects and who shall be responsible for submitting information to the market and investor community. The CEO, CFO and Head of Investor Relations will be the main contact persons of the Company in such respects. The Board should ensure that the shareholders are given the oppor- tunity to make known their points of view at and outside the general meeting. 58 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 58 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Corporate governance Corporate governance GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Auditor Each year, the auditor shall present to the Board a plan for the imple- mentation of the audit work and a written confirmation that the auditor satisfies established requirements as to independence and objectivity. The auditor shall be invited to be present at Board meetings where the annual accounts are dealt with. Whenever necessary, the Board and/ or Audit Committee shall meet with the auditor to review the auditor’s view on the Company’s accounting principles, risk areas, internal control routines, etc. The auditor should only be used as a financial advisor to the Company where such use does not affect or reasonably question the auditor’s independence and objectiveness as auditor for the Company. Only the Company’s CEO and/or CFO shall have the authority to enter into agreements in respect of such counselling assignments. At the annual general meeting and/or in the annual financial state- ments, the Board shall present a review of the auditor’s compensation as paid for auditory work required by law and remuneration associated with other concrete assignments. In connection with the auditor’s presentation to the Board of the annual work plan, the Board should specifically consider if the auditor to a satisfactory degree also carries out a control function. The Board shall invite the auditor to attend all general meetings. Financial policy The Company shall prepare a statement of its financial policy, pro- viding details of the Company’s handling of financial risks, hedging, funding policies, etc. Take-over situations In a take-over process, should it occur, the Board and the executive management team each have an individual responsibility to ensure that the Company’s shareholders are treated equally and that there are no unnecessary interruptions to the Company’s business activities. The Board has a particular responsibility in ensuring, to the extent possible, that the shareholders have sufficient information and time to assess the offer. In the event of a take-over process, the Board shall ensure that: a) the Board will not seek to hinder or obstruct any takeover bid for the Company’s operations or shares unless there are particular reasons for doing so; b) the Board will not undertake any actions intended to give sharehold- ers or others an unreasonable advantage at the expense of other shareholders or the Company; c) the Board will not institute measures with the intention of protecting the personal interests of its members at the expense of the interests of the shareholders; and d) the Board shall be aware of the particular duty it has for ensuring that the values and interests of the shareholders are protected. In the event of a take-over bid, the Board will, in addition to complying with relevant legislation and regulations, seek to comply with the recommendations in the Norwegian Code of Practice for Corporate Governance unless there are particular reasons not to. This includes obtaining a valuation from an independent expert. On this basis, the Board will seek to make a recommendation as to whether or not the shareholders should accept the bid. 59 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 59 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Corporate governance Corporate governance GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Consolidated financialstatements 61 Parent company financialstatements 103 Auditor’s report 125 Responsibility statement 130 Financial statements 60 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 60 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 62 Consolidated balance sheet statement 63 Consolidated statement of changes in equity 65 Consolidated statement of cash flows 66 Notes to the consolidated financial statements 67 Note 1 Corporate information 67 67 72 73 73 74 76 76 76 Note 10 Financial items 77 77 79 80 81 82 85 85 Note 18 Trade receivables 85 85 Note 20 Financial instruments 86 Note 21 Cash and cash equivalents 93 Note 22 Share capital and shareholders 93 94 95 96 96 Note 27 Commitments, provisions and contingent consideration 97 Note 28 Lease agreements 98 99 100 102 102 Consolidated financialstatements 61 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 61 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Consolidated statement of comprehensiveincome USD 1000, except earnings per share data Note 2021 2020 Petroleum revenues 4 6 043 375 2 868 635 Other operating income 4 29 357 25 205 Total income 6 072 732 2 893 840 Production costs 5 (1 289 981) (1 028 506) Exploration expenses 8 (57 138) (57 183) Depreciation and amortisation 13, 14 (1 704 561) (1 706 740) Impairment loss and reversals 12, 13, 15 (982) (2 178 108) Other operating expenses 9 (110 483) (176 204) Total operating expenses (3 163 146) (5 146 741) Operating profit/(loss) 2 909 586 (2 252 901) Net financial income/(expenses) 10 (269 489) (238 058) Net exchange rate gain/(loss) 10 (142 371) 286 955 Profit/(loss) before taxes 2 497 727 (2 204 004) Income tax (expense)/income 11 (1 876 143) 577 380 Profit/(loss) for the year 621 585 (1 626 625) Other comprehensive income: Items that may be reclassified subsequently to the income statement: Currency translation differences (62 122) (114 548) Net gain/(loss) on put options used for hedging 6 919 (11 617) Other comprehensive income for the period, net of tax (55 203) (126 165) Total comprehensive income 566 382 (1 752 789) Earnings per share EPS Basic 22 1 556 (4 072) EPS Diluted 22 1 556 (4 072) 62 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 62 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Consolidated balance sheet statement USD 1000 Note 31 Dec 2021 ASSETS Non-current assets Intangible assets Goodwill 12 2 531 897 2 820 840 Capitalised exploration wells 12 199 981 113 327 Other intangible assets 12 104 520 107 732 Tangible fixed assets Property, plant and equipment 13 15 188 917 15 593 975 Right of use assets 14 298 432 133 846 Financial assets Investment in shares 16 853 881 Other non-current assets 16 1 809 2 694 Total non-current assets 18 326 409 18 773 295 Current assets Inventories 17 301 329 283 199 Trade receivables 18, 29 745 921 165 984 Other receivables, prepaid assets and financial instruments 19 280 697 241 938 Tax receivable 11 - 522 854 Cash and cash equivalents 21 223 588 272 411 Total current assets 1 551 534 1 486 385 TOTAL ASSETS 19 877 943 20 259 680 63 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 63 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Consolidated balance sheet statement USD 1000 Note EQUITY AND LIABILITIES Equity Share capital 22 45 972 45 972 Share premium 2 643 181 3 593 181 Other equity (1 216 783) (1 784 276) Total equity 1 472 369 1 854 877 Non-current liabilities Interest-bearing loans and borrowings 23 4 493 426 5 583 552 Deferred tax liabilities 11 7 799 594 7 342 952 Abandonment obligation 24 3 235 640 4 260 181 Lease liabilities, non-current 28 216 208 123 404 Other non-current liabilities 25 162 870 156 865 Total non-current liabilities 15 907 737 17 466 952 Current liabilities Abandonment obligation, current 24 61 536 26 270 Accounts payables 29 422 155 252 801 Taxes payable 11 801 432 16 505 Interest-bearing loans, current 23 333 149 - Lease liabilities, current 28 108 880 41 078 Other current liabilities 26 770 685 601 197 Total current liabilities 2 497 837 937 851 Total liabilities 18 405 574 18 404 803 TOTAL EQUITY AND LIABILITIES 19 877 943 20 259 680 Sandnes, 29 March 2022 The Board of Directors of Vår Energi ASA Signed electronically Thorhild Widvey Chair Liv Monica Bargem Stubholt Deputy Chair Francesco Gattei Director Guido Brusco Director Clara Andreoletti Director Marica Calabrese Director Fabio Romeo Director Ove Gusevik Director Kjersti Selvik Director, employee representative Laurits Hosar Director employee representative Jan Inge Nesheim Director, employee representative Christine Vorland Director, employee representative Torger Rød Chief Executive Officer 64 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 64 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Consolidated statement of changes in equity USD 1000 Share capital Share premium Translation differences Hedge reserve Balance at 1 January 2020 45 972 4 043 181 27 303 (45 625) (17 120) 4 053 711 Profit/(loss) for the period - - (1 626 625) - - (1 626 625) Other comprehensive income/(loss) - - - (114 548) (11 617) (126 165) Total comprehensive income/(loss) - - (1 626 625) (114 548) (11 617) (1 752 789) Dividends paid - (450 000) - - - (450 000) Other - - 3 955 - - 3 955 Balance at 31 December 2020 45 972 3 593 181 (1 595 366) (160 173) (28 737) 1 854 877 Balance at 1 January 2021 45 972 3 593 181 (1 595 366) (160 173) (28 737) 1 854 877 Profit/(loss) for the period - - 621 585 - - 621 585 Other comprehensive income/(loss) - - - (62 122) 6 919 (55 203) Total comprehensive income/(loss) - - 621 585 (62 122) 6 919 566 382 Dividends paid - (950 000) - - - (950 000) Other - - 1 111 - - 1 111 Balance at 31 December 2021 45 972 2 643 181 (972 671) (222 295) (21 818) 1 472 369 65 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 65 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Consolidated statement of cash flows USD 1000 Note 2021 2020 Profit/(loss) before income taxes 2 497 727 (2 204 004) – Depreciation and amortisation 13, 14 1 704 561 1 706 740 – Impairment loss and reversals 15 982 2 178 108 – (Gain)/loss on sale and retirement of assets 4 (2 232) (1 043) – Impairment of exploration wells 8 5 887 20 024 – Accretion expenses (asset retirement obligation) 10 94 733 74 427 – Unrealised (gain)/loss on foreign currency transactions and balances 10 558 940 (319 964) – Other non-cash items and reclassifications (171 439) 371 554 – Changes in inventories, accounts payable and receivables (440 481) 280 532 – Changes in other current balance sheet items 183 695 136 203 Contingent consideration paid related to prior business combination 26 (30 000) - Income tax received/(paid) 11 164 439 (342 304) Interest received 10 13 090 32 224 Interest paid 10 (141 532) (188 638) Net cash flow from operating activities 4 438 371 1 743 857 USD 1000 Note 2021 2020 Cash flow from investing activities Expenditures on exploration and evaluation assets 12 (104 318) (40 515) Expenditures on property, plant and equipment 13 (2 480 298) (1 771 339) Payment for decommissioning of oil and gas fields 24 (70 418) (101 687) Proceeds from sale of assets (sales price) 24 398 - Expenditures on other intangible assets (295) - Net cash used on business combination 12 (2 208) (33 498) Net cash used in investing activities (2 633 140) (1 947 039) Cash flow from financing activities Dividends paid (950 000) (450 000) Net proceeds/(payments) of revolving credit facility 20 4 494 104 - Net proceeds/(payments) of reserve based lending facility 20 (5 335 000) 964 572 Payment of other loans and borrowings 20 - (197 571) Payment of principal portion of lease liability 28 (43 790) (43 703) Net cash from financing activities (1 834 686) 273 297 Net change in cash and cash equivalents (29 456) 70 116 Cash and cash equivalents, beginning of period 272 411 203 969 Effect of exchange rate fluctuation on cash held (19 367) (1 675) Cash and cash equivalents, end of period 223 588 272 411 66 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 66 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Notes to the consolidated financial statements Note 1 Corporate information The consolidated financial statements of Vår Energi ASA and its subsidiaries (collectively, “the Group” or “Vår Energi”) for the twelve months period ended 31 December 2021 were authorised for issue in accordance with a Board resolution on 29 March 2022. Vår Energi ASA is a public limited liability company incorporated and domiciled in Norway and the Company’s shares are listed on Oslo Stock Exchange. The Group’s head office is located at Vestre Svanholmen 1, 4313 Sandnes, Norway. Vår Energi is an independent Oil and gas exploration, development and pro- duction company with a diverse portfolio of production, development and exploration assets on the Norwegian Continental Shelf (NCS). Group structure The consolidated financial statements of the Group include: Shares in subsidiaries Name Business location 2021 Point Resources FPSO Holding AS Sandnes, Norway 100% Vår Energi Marine AS Sandnes, Norway 100% Shares in subsidiaries indirectly owned Name Business location 2021 Point Resources FPSO AS Sandnes, Norway 100% PR Jotun DA Sandnes, Norway 100% Note 2 Summary of IFRS accounting principles The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by The European Union (EU). The financial statements have been prepared on a historical cost basis, except for certain financial instruments that have been measured at fair value. The financial statements have been prepared based on the assumption of going concern. All figures in the financial statements are presented in USD and all values are rounded to the nearest thousand (000), except when otherwise indicated. Vår financial statements in USD, primarily as this is the common presentation currency among upstream oil & gas companies. Transactions in foreign currencies are recorded at the exchange rate on the transaction date. Monetary items are valued at year-end exchange rates and the corresponding currency loss/gain is recognised in profit or loss. For presentation purposes, balance sheet items are translated from functional currency to presentation currency by using spot rates of exchange at the balance sheet date. Items within profit & loss and other comprehensive income are translated from functional currency to presentation currency by using quarterly average exchange rates, or rates at the dates of the transactions if significantly different. For share capital and share premium historical exchange rates are used. I.e. these equity items are not re-translated and the cumulative translation adjustment (CTA) only include the cumulative differences between opening and closing rates on total net assets, and average to closing rates on retained earnings and other performance statement items, such as revaluation gains or cash flow hedging reserves. Comparative information has been provided for the previous period. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary. Profit or loss is attributed to the equity holders of the parent of the Group. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. Business combinations and goodwill Business combinations are accounted for using the acquisition method. Identifiable assets, liabilities and contingent liabilities are measured at fair value at the date of acquisition. Acquisition cost is measured against the fair value of the acquired assets and liabilities. Identifiable intangible assets are included to the extent they may be separated from other assets or meet the legal con- tractual criteria. If the acquisition cost at the time of the acquisition exceeds the fair value of the acquired net assets, goodwill arises. Acquisition date is the date on which the acquirer achieves control over the acquiree and is set at 67 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 67 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 The valuation is based on currently available information on fair values as of the acquisition date. Calculation of fair value has been obtained by discounting expected cash flows from future operations to get to the net present value. If new information becomes available within 12 months from the acquisition date and provisional purchase price allocation, the Group may make changes to the purchase price allocation. Working interests in licences on the Norwegian Continental Shelf (NCS) are only sold in a post-tax market. I.e. the acquirer generally takes over the tax written down values of the seller and is therefore not entitled to a tax deduction for the consideration paid over and above the seller’s tax values. In accordance with IAS 12 Income Taxes, a provision for deferred taxes on the difference between the acquisition cost and the transferred tax depreciation bases is made. The offsetting entry to this deferred tax liability is goodwill. Consequently, in addition to ordinary goodwill as discussed above, goodwill also arises as a technical effect of deferred taxes recognised for the after-tax consideration paid in business combinations for assets acquired under section 10 of the Norwegian Petroleum Tax Act. Goodwill arises from differences between the fair value of assets acquired and the purchase price. After initial recognition, goodwill is not depreciated, but tested for impairment when there are indications of impairment and at least annually. Goodwill impairments cannot be reversed in later periods if impair- ment indicators are no longer present. Revenue and over and underlift balances Revenue from the sale of liquids or gas is recognised at the point in time when the Group’s contractual performance obligations have been fulfilled and control is transferred to the customer. This will generally be at the time of delivery which is also when title passes to the customer. Revenues are recognised on the basis of volumes lifted and sold to customers during the period (sales method). To the extent the Group has lifted and sold more than its entitled share of production based on the ownership interest, an accrual is recognised for the fair value. To the extent the Group has lifted and sold less than its entitled share of production, costs are deferred for the underlift. The Group has interests in licences on the Norwegian Continental Shelf. IFRS defines a joint arrangement as an arrangement over which two or more parties have joint control. Joint control is the contractually agreed sharing of control which exists only when decisions about the relevant activities (being those that significantly affect the returns of the arrangement) require unanimous consent of the parties sharing control. Under IFRS 11 Joint Arrangements, a joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets and obligations for the liabilities, relating to the arrangement. The Group recognises investments in joint operations (oil and gas production licenses) by reporting its share of related revenues, expenses, assets, liabilities and cash flows under the respective items in the Group’s financial statements. For those licenses that are not deemed to be joint arrangements pursuant to the definition in IFRS 11 as there is no joint control (“undivided interests”), the Group recognises its share of related expenses, assets, liabilities and cash flows in the same way as under IFRS 11. The terms “joint operations” and “undi- vided interests” are used interchangeably throughout the financial statements. Income taxes include current taxes payable or refundable, adjustments of prior years’ taxes payable and deferred taxes. The deferred taxes are calcu- lated using the full liability method, under which tax on temporary differences between the carrying amounts of assets and liabilities and their tax basis are recognised. Deferred tax assets relating to earned uplift on incurred invest- ments are not recognised because of the initial recognition exemption in IAS 12 Income Taxes. Deferred tax assets are recognised to the extent it is probable that the asset will be realised. An “uncertain tax treatment” is a tax treatment relating to which there is uncertainty whether the relevant tax authority will accept the tax treatment under the local tax law. Uncertain tax positions are recognised and presented as assets or liabilities depending on whether an outflow or inflow of economic resources embodying economic benefits has become probable. Taxes relating to items recognised in OCI have also been recognised in OCI. Exploration drilling costs are treated in accordance with the successful efforts method; each well making the basis for the evaluation. Costs related to explo- ration wells in progress and exploration wells with finds are capitalized until the evaluation of the well has been completed. Such capitalised costs may remain capitalised for more than one year. The main criteria for keeping explo- ration costs capitalised are that there are plans for future activity in the licence area and a development decision is expected in the near future. To the extent that no resources are discovered, or recovery of the resources is considered commercially unviable, the capitalised exploration expenditures are charged to the income statement. Other exploration costs, including seismic studies, are expensed as incurred. Development expenditures The development phase commences when the licence partners have decided the concept selection. Direct and indirect expenditures related to development projects are capitalised. Property, plant and equipment (PPE) are valued at acquisition cost less accu- mulated depreciations and impairments or reversal of impairments. When the asset is sold or retired, the net book value is derecognised and a potential loss or profit is recognised. Gains and losses on disposals or retirements are determined by comparing proceeds with carrying amounts. These are included in profit or loss. Maintenance is expensed as incurred, whereas costs for improving and upgrad- ing production facilities are added to the acquisition cost and depreciated with the related asset. Depreciation Offshore installations are depreciated in accordance with the unit-of-production method based on proven reserves (the ratio between annual production quan- tity and the reserves, whereupon the reserves are updated quarterly). Onshore assets are depreciated over the estimated useful life, according to the straight- line method, 3-15 years. 68 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 68 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Tangible fixed assets are assessed for potential impairment when events or changes in circumstances indicate that the book value of the assets is higher than their recoverable amounts. The unit of account for assessment of impair- ment is the lowest level for which independent cash inflows are possible to identify. For oil and gas assets, this is typically the field or licence level, but can also be at a hub level. Impairment is recognised when the carrying amount of the cash generating unit (CGU), including any allocated goodwill, exceeds the recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs of disposal and its value in use. When estimating value in use and fair value less costs of disposal, expected future cash flows are discounted to the net present value applying a discount rate after tax that reflects the current market valuation of the time value of money and risks specific to the asset or CGU. The discount rate is derived from a weighted average cost of capital (WACC) determination. For the purpose of impairment testing the life- time of the field is normally determined to be the time when the operating cash flows from the field becomes negative. A previously recognised impairment can only be reversed if changes to the estimates used for the calculation of the recoverable amount have been observed. Reversals are recognised in profit or loss. After a reversal, the depreciation amount is adjusted on a prospective basis in order to distribute the asset’s revised book value, minus any residual value, on a systematic basis over the asset’s expected remaining life. Spare parts and consumables are measured at the average cost price of the inventory items. Physical stock of crude oil is valued at production cost. The Group recognises an asset retirement obligation (ARO) to the extent it has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the obligation amount can be made. The obligation generally arises when the asset is installed at the field location. Vår Energi recognises its share of the estimated AROs based on its working interest in the various fields both for Vår Energi operated fields and partner operated fields. When the liability is initially recognised, the present value of the estimated costs is capitalised by increasing the carrying amount of the related tangible oil and gas asset and depreciated over the useful life of the asset (generally by the application of the unit-of-production method). The discount rate used to discount the liability is based on an interest rate that reflects current market assessments and the risks specific to the liability. The periodic unwinding of the discount is recognised in profit or loss as The term of the discount rates used is aligned with the estimated timing of the removal, plugging and decommissioning activities at the fields. Changes in the estimated timing or cost of decommissioning are dealt with prospectively by recording an adjustment to the provision and a corresponding adjustment Upon retirement of the Gassled pipelines, the costs of ARO will be recharged to the users (shippers) of the pipelines based on shipped volumes. As a shipper Vår Energi has incurred such liabilities. These liabilities have also been rec- ognised as the net present value of estimated future retirement costs on the basis of accumulated shipped volumes. These liabilities are presented in Other non-current liabilities against which the charges from Gassled will be recog- nised when invoiced. Vår Energi has a defined contribution pension plan that satisfies the statutory requirements in the Norwegian law on required occupational pension (“lov om obligatorisk tjenestepensjon”). Contributions are paid to pension insurance plans and charged to profit or loss in the period to which the contributions relate. Once the contributions have been paid, there are no further payment obligations. Leasing commitments At the inception of a contract, the Group assesses whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The lease liability is recognised at the commencement date and measured at the present value of the remaining lease payments, discounted using the Group’s incremental borrowing rate at the commencement date. The borrow- ing rate is derived from the terms of the Group’s existing credit facilities. RoU assets are depreciated over the lease term as this is ordinarily shorter than the useful life of the assets. The lease term represents the non-cancellable period of the lease, together with periods covered by an option either to extend or to terminate the lease when the Group is reasonably certain to exercise The Group applies the exemption for short term leases (12 months or less) and low value leases. As such, related lease payments are not recognised in the balance sheet but expensed or capitalized in line with the accounting treatment for other non-lease expenses. The inclusion of non-lease components may vary across different lease categories, but for the most material classes of assets (rigs and supply vessels), the Group has excluded the non-lease components when measuring the lease liability. Vår Energi, as operator of an unincorporated joint operation, from time to time, enters into a lease contract as the sole signatory and recognises on the balance sheet: (i) the entire lease liability if, based on the contractual provisions and any other relevant facts and circumstances, it has primary responsibility for the liability towards the third party supplier; and (ii) the entire right-of-use asset, unless, the terms and conditions of the joint operation and other arrangements are separately negotiated with the non-operators and effectively extinguish Vår Energi’s primary obligation for the lease with the third-party supplier. If a lease contract is signed by all the partners, Vår Energi recognises its share of the right-of-use asset and lease liability on the balance sheet based on its working interest. If Vår Energi does not have primary responsibility for the lease liability, it does not recognise any right-of-use asset and lease liability related to the lease contract. Whether a contract is entered into on behalf of the license is subject to a contract specific assessment. 69 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 69 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Other lease contracts, such as offices and supply vessels not linked to specific fields, are recognised on a gross basis even when parts of the related cash- flows are charged to the license partners. For such contracts, the partner’s share of the cost recovered by the Group are presented as other income. Operators on licences in which Vår Energi is a partner may enter into lease contracts in their own name at the initial signing, and subsequently formally sublease the related asset to operated licenses. In such cases, the sublease will be the basis for determining both the right of use, commencement, and the duration of the lease (and the application of the short-term lease exemption). No such sublease arrangements with a term longer than 12 months have been identified in the portfolio of lease arrangements. Financial assets and liabilities The Group’s financial assets and liabilities comprise non-listed equity instru- ments, derivative financial instruments (assets and liabilities), receivables, cash and cash equivalents, payables, other short term liabilities and non-current liabilities. The classification of financial assets and liabilities at initial recogni- tion depends on the financial instrument’s contractual cash flow characteristics and the Group’s business model for managing them. The Group classified its financial instruments in the following categories: • Financial assets and liabilities at amortised cost • Derivative financial assets and liabilities designated as accounting hedge instruments (cash flow hedges) for which the effective portion is recognised at fair value through other comprehensive income • Financial assets at fair value through profit and loss The Group measures financial instruments at amortized cost if both of the following conditions are met: • The financial instrument is held within a business model with the objective to hold financial instruments in order to collect or pay contractual cash flows and, the contractual terms of the financial instrument give rise on specified dates to or requires cash flows that are solely payments of princi- pal and interest on the principal amount outstanding. Financial instruments at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment testing. Gains and losses are recognised in profit or loss when the instrument is derecognised, modified or impaired. The Group’s financial instruments at amortized cost includes trade receivables and other short-term deposits, trade payables and other current and non-current liabilities. Receivables are initially recognised at fair value less impairment losses. Accounts receivables that do not contain a signifi- cant financing component are measured at the transaction price determined under IFRS 15. Cash and cash equivalents are measured at fair value, loans and borrowings and other liabilities are measured at amortised cost. Derivative financial instruments The Group uses derivative financial instruments, such as Brent Crude put options, to hedge its commodity price risks on future oil production volumes (cash flow hedges). Such derivative financial instruments are initially recog- nised at fair value on the date on which a derivative contract is entered into and subsequently re-measured at fair value. The put options are measured at fair value on the balance sheet date, using market inputs as observable forward curves, interest rates and time to maturity. Implied volatilities from market observable option prices are used when the price of the option is modelled. The Group has designated these put options as cash flow hedges relating to expected future production and sales of crude oil, and applied hedge account- ing. The effective portion of the gain or loss on the hedging instrument is recognised in other comprehensive income (OCI), while any ineffective portion is recognised immediately in profit or loss. Amounts recognised in OCI are transferred to profit or loss when the hedged transaction affects profit or loss. Option premiums paid (time value at date of purchase) are treated as cost of hedging and presented in operating expenses when the hedged transaction affects profit or loss, while the intrinsic value (“in-the-money value”) on put options exercised are presented in gains on cash flow hedges in petroleum revenues. Option premium costs are deferred and paid at the time of exercise or expiry. These deferred payments are presented as current liabilities in the balance sheet. Contracts to buy or sell a non-financial item that can be settled net in cash or another financial instrument, or by exchanging financial instruments, as if the contracts were financial instruments, are accounted for as financial instruments. However, contracts that are entered into and continue to be held for the purpose of the receipt or delivery of a non-financial item in accordance with the Group’s expected purchase, sale or usage requirements, also referred to as own-use contracts, are not accounted for as financial instruments. Such sales and purchases of physical commodity volumes are reflected in the Consolidated statement of income as Petroleum revenues and Other operating expenses, respectively. This is applicable to a number of contracts for the sale of natural gas, which are recognised upon delivery of the volumes. Current versus non-current classification of assets and liabilities The Group presents assets and liabilities in the balance sheet based on the current/non-current classification. An asset is current when it is: • Expected to be realised or intended to be sold or consumed in the normal operating cycle • Held primarily for the purpose of trading • Expected to be realised within twelve months after the reporting period Or • Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period All other assets are classified as non-current. A liability is current when: • It is expected to be settled in the normal operating cycle • It is held primarily for the purpose of trading • It is due to be settled within twelve months after the reporting period Or • There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period The Group classifies all other liabilities as non-current. Deferred tax assets and liabilities are classified as non-current assets and liabilities. Cash flow The statement of cash flow has been prepared in accordance with the indirect method. Cash consist of cash, bank deposits and short-term deposits in affili- ated banks. 70 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 70 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Sale and swaps of assets Sale of assets on the Norwegian continental shelf are carried out on an after- tax basis according to the petroleum tax act § 10. The effective date for tax purposes is set to 1 January, while revenues and costs are recognised by Vår Energi as seller until transfer of control to the buyer (completion date). When entering into agreements regarding the purchase/ swap of assets, the parties agree on an effective date for the takeover of the net cash flow (usually 1 January in the calendar year, which is also the effective date for tax purposes). In the period between the effective date and the completion date, the seller will include revenues and expenditures relating to its sold share of the license in the financial statements. In accordance with the purchase agreement, there is a settlement with the seller of the net cash flows from the asset in the period from the effective date to the completion date (pro & contra settlement). The pro & contra settlement will result in an adjustment to the seller’s losses/gains and to the cost of the assets for the purchaser, in that the settlement (after a tax reduction) is deemed to be part of the consideration in the transaction. Revenues and expenses from the relevant license are included in the purchas- er’s Income statement from the acquisition date, as defined above. For tax purposes, the purchaser will include the net cash flow (pro & contra) and any other income and costs as from the effective date. When acquiring licenses that are defined as asset acquisitions, no provision is made for deferred tax in accordance with the initial recognition exemption. A gain or loss related to an after-tax-based sale of assets includes the release of tax liabilities previously recognised related to the assets. The resulting after- tax gain or loss is recognised in full in Other income in the statement of income. The preparation of financial statements in accordance with IFRS requires man- agement to make judgments, estimates and assumptions that have an effect on the application of accounting principles and the reported assets, liabilities, income and expenses. The main significant judgments management has made regarding the application of accounting principles are the following: Goodwill allocation For the purpose of impairment testing, goodwill is allocated to a cash-gen- erating unit (CGU), or groups of CGUs that are expected to benefit from the synergies of the business combination from which it arose. The allocation of goodwill requires judgment and may significantly impact any subsequent impairment charge. Technical goodwill and deferred tax is recognised for the after-tax consideration paid in business combinations for assets acquired under section 10 of the Norwegian Petroleum Tax Act. Technical goodwill is allocated to the field level (CGU) from which it arose. Identifying a lease within joint operating arrangements When applying IFRS 16 Leases in situations where the asset is being used in a joint arrangement or in relation to an undivided interest significant judgement is required in determining what party is the primary obligor, whether the arrange- ment constitutes or contains a lease, commencement date, lease term and whether there is a sublease arrangement. Oil and gas reserves Oil and gas reserves are estimated by the Group’s experts in accordance with industry standards. The estimates are based on Vår Energi’s own assessment of internal information and information received from operators. Oil and gas reserves consist of the estimated quantities of crude oil, natural gas and condensates shown by geological and technical data to be recoverable with reasonable certainty from known reservoirs under existing economic and operational conditions, i.e. on the date that the estimates are prepared. Current market prices are used when establishing the estimates. Reserves and production volumes are used to calculate the depreciation of oil and gas fields by applying the unit-of-production method. Reserve estimates are also used as basis for impairment testing of license-related assets and goodwill. Changes in petroleum prices and cost estimates may change reserve estimates and accordingly economic cut-off, which may impact the timing of assumed decommissioning and removal activities. Changes to reserve estimates can also result from updated production and reservoir information. Future changes to oil and gas reserves can have a material effect on depre- ciation, life of field, impairment of license-related assets and goodwill, and operating results. Successful Effort Method - exploration and exploration potential Expenses relating to the drilling of exploration wells and exploration poten- tial (presented in other intangible assets) are temporarily recognized on the balance sheet as capitalised exploration expenditures and other intangible assets, pending an evaluation of potential oil and gas discoveries. If resources are not discovered, or if recovery of the resources is considered technically or commercially unviable, the costs of exploration wells and exploration potential are expensed. Judgments as to whether these assets should remain capital- ised or be expensed at the reporting date may materially affect the operating result for the period. Fair value measurement The fair values of non-financial assets and liabilities are required to be determined, for example in a business combination, to determine the allocation of purchase price in an asset deal or when the recoverable amount of an asset or CGU is based on fair value less costs to sell. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability. A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. The fair value of oil fields in the production and development phase is generally based on discounted cash flow models, where the determination of inputs to the models may require significant judgment, as described in the section below regarding impairment. 71 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 71 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Impairment/reversal of impairment Changes in the expected future value/cash flows of CGUs results in impairment if the estimated recoverable amount is lower than the book value (including any allocated goodwill) or the reversal of previously recognized impairments if the recoverable value is higher than the book value (impairment of goodwill is not reversed). Estimation of recoverable amounts involves the use of judgment and assumptions, including the modelling of future cash flows to estimate the CGUs value in use or fair value less costs of disposal. Impairment assessments require long-term assumptions concerning a number of often volatile economic factors, including future oil prices, oil production, currency exchange rates and discount rates. Such assumptions require the estimation of relevant factors such as long-term prices, the levels of capex and opex, production estimates and decommissioning costs. These evaluations are also necessary to determine a CGU’s fair value unless information can be obtained from an actual observable market transaction. See individual notes on Property, plant and equipment and intangible assets, including goodwill and note on Impairment for details of impairments. Asset retirement obligations There is significant uncertainty in the estimate of ARO. These estimates are based on currently applicable laws and regulations, and existing technologies. Many ARO activities will take place decades into the future, and the technology and related costs are expected to evolve over time. The estimates include costs based on expected removal concepts using existing technology and estimated costs of maritime operations, hiring of lifting vessels and drilling rigs. As a result, there may be significant adjustments to the estimates of ARO and associated assets that can affect future financial results. Income taxes Income taxes are significant amounts in Vår Energi’s financial statements. There may be uncertainties related to interpretation of applicable tax laws and regulations regarding amounts in Vår Energi’s filed tax returns. In cases of uncertain tax treatments, it may take a long time to complete the discussions with the tax authorities or to reach resolutions of the appropriate tax positions. The carrying values of income tax related assets and liabilities are based on Vår Energi’s interpretations of applicable laws, regulations and relevant court decisions. The quality of these estimates, including the most likely outcomes of uncertain tax treatments, is highly dependent upon proper application of very complex sets of rules and the recognition of changes in applicable rules. Certain new accounting standards and amendments to standards are issued, but not yet effective as of 31 December 2021. These standards and amendments are not expected to have a material impact on the group in the current or future reporting periods. Note 3 Segment information Vår Energi operates within the geographical area Norway and the business is entirely related to exploration for and production of petroleum in Norway. Vår Energi’s activities are considered to have a homogeneous risk and return profile before tax. Vår Energi operates within a single operating segment which matches the internal reporting to the executive management. 72 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 72 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Note 4 Income Petroleum revenues (USD 1000) Note 2021 2020 Revenue from crude oil sales - Revenue from gas sales Revenue from NGL sales Gains on cash flow hedge - crude put options 19, 20 - Total petroleum revenues Sales of crude (boe 1000) (unaudited) Sales of gas (boe 1000) (unaudited) Sales of NGL (boe 1000) (unaudited) Other operating income (USD 1000) 2021 2020 Gain/loss (-) from sale of assets Other operating income Total other operating income Vår Energi was fully hedged for oil production after tax at a strike price of 50 USD/bbl in 2020. Gain on cash flow hedge in 2020 relates to exercised put options during the year, especially the period March - May with prices below 35 USD/BBL. Asset sale in 2021 relates to 10% ownership interest in the Jotun FPSO to Mime Petroleum AS. Other operating income is mainly related to other partner’s share of lease cost recovered by the company. Note 5 Production costs USD 1000 2021 2020 Cost of operations Transportation and processing Environmental taxes Insurances Production cost based on produced volumes Back-up cost shuttle tankers Adjustment of over/underlift (-) Premium expense for crude put options Production cost based on sold volumes Total produced volumes (boe 1000) (unaudited) Production cost per boe produced (USD/boe) (unaudited) 12.0 9.9 Vår Energi has in 2021 updated the classification of cost compared to the Consolidated Financial Statements for 2020 to 73 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 73 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Note 6 Staff costs and remuneration USD 1000 2021 2020 Salary expenses Social security tax (incl. pension and social charges for foreign personnel) Pension cost, defined benefit scheme - Pension cost, defined contribution scheme Other personnel expenses Total Average number of employees 921 889 Pension cost and pension fund/-obligations Vår Energi has a defined contribution pension plan that satisfies the statutory requirements in the Norwegian law on required occupational pension (“lov om obligatorisk tjenestepensjon”). Contributions are paid to pension insurance plans and charged to the income statement in the period to which the con- tributions relate. Once the contributions have been paid, there are no further payment obligations. Personnel employed in Eni Norge AS before the merger with Point Resources AS had a defined benefit pension scheme. This scheme was terminated end of 2019, and effective from 1 January 2020 all employees in Vår Energi AS have a defined contribution pension plan. Key management personnel compensation 2021 1 Name Bonus 2 Chief Executive Officer 721 3 Chief Executive Officer - 4 Chief Financial Officer 469 - Rune Oldervoll Vice President Operations Ove André Årdal Vice President Commercial 5 Vice President Exploration - 128 - 6 Vice President Exploration - - - Ørjan Jentoft Vice President Partner Operated Assets Annethe Gjerde Vice President Contracts & Procurement Bjørn Thore Ribesen Vice President Field Development & Projects Aksel Luhr General Counsel Charlotte V. Saunders Vice President Corporate Services Ove M. Helle Vice President Safety & Sustainability Tor B. Tangvald Vice President Internal Audit Total compensation 1 2 Employed since June 2021. 3 Employed until end of May 2021 4 Paid by Eni S.p.A. Inpat on shadow payroll – figures are based on contract. Amount is gross paid. Pension is handled by Eni S.p.A. 5 Seconded from Eni S.p.A to Vår Energi since September 2021. 6 Employed until end of October 2021, figures are based on contract. Amount is gross paid. Pension is handled by EIRL (Eni International Resources Ltd) 74 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 74 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Key management personnel compensation 2020 1 Name Bonus Chief Executive Officer 2 Chief Financial Officer - - Rune Oldervoll Vice President Operations Ove André Årdal Vice President Commercial 3 Vice President Exploration - - - Ørjan Jentoft Vice President Partner Operated Assets - Annethe Gjerde Vice President Contracts & Procurement 4 Vice President Field Development & Projects Aksel Luhr General Counsel Charlotte V. Saunders Vice President Corporate Services Ove M. Helle Vice President Safety & Sustainability Tor B. Tangvald Vice President Internal Audit Total compensation 1 2 Paid by Eni S.p.A. Inpat on shadow payroll – figures are based on contract. Amount is gross paid. Pension is handled by Eni S.p.A. 3 Paid by Eni S.p.A. Inpat on shadow payroll – figures are based on contract. Amount is gross paid. Pension is handled by EIRL (Eni International Resources Ltd) 4 Employed since June 2020. None of the members of the Board, including the Chair, received any remu- neration from Vår Energi for their responsibility as a Director in 2021. None of the members of the Board or the Management has received remuneration or economical benefits from other companies in the Group. Vår Energi has made arrangements to provide subsidised loans to local employees. No other loans, guarantees or other commitments have been granted to any member of the Board or to any member of the Management. The CEO shall receive severance pay equal to 12 months’ salary if the board of directors decide that the CEO shall withdraw from his position and terminate his employment. VP Internal Audit had an option to end his employment with the company as of 26 March 2022 with a 24 months compensation – equiva- lent to USD 498 thousand. The option was not exercised. No other employee, including any member of Management, has entered into employment agree- ments which provide for any special benefits upon termination. None of the Directors has a service contract and none will be entitled to any benefits upon termination. Vår Energi has a bonus scheme for all employees calculated according to achieved objectives. In addition to bonus based on the general element, The Management takes part in the general pension plan as described in this note. In addition, Vår Energi has, on an administrative basis, established an arrangement granting a 15% deposit of salary above 12G. At the date of the Prospectus, ref. note 32, none of the members of Management hold any shares in Vår Energi. Management compensation guidlines In 2021, Vår Energi did not have requirements for guidelines or reports on man- agement compensation according to the Public Limited Liability Companies Act § 6-16, as it was not listed on the stock exchange. Vår Energi has described its management compensation guidelines which will be presented for approval in the Annual General Meeting in May 2022. 75 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 75 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Note 7 Auditors fee USD 1000 2021 2020 Statutory audit 445 607 Other attestations 434 10 Other services 70 163 Total fee 949 Services other than audit in 2021 provided by the auditors related to assistance with prospectus. In 2020 services other than audit mainly related to project support and assistance to offshore operations department and non-financial process improvement activities. Note 8 Exploration expenses USD 1000 Note 2021 2020 Seismic Area Fee Dry well expenses 12 Other exploration expenses Total exploration costs Note 9 Other operating expenses USD 1000 Note 2021 2020 R&D expenses Legal provisions - Pre-production costs Guarantee fee decomissioning obligation Value adjustment contingent considerations 27 (128) Administration expenses Other expenses Total other operating expenses Vår Energi has in 2021 updated the classification of cost compared to the Consolidated Financial Statements for 2020 to Movement in value adjustment contingent considerations in 2020 mainly relates to updated reserves estimate in the Forseti structure. R&D cost Vår Energi participates in a variety of research and development (R&D) projects. The objective is to support ongoing and future activities carried out by the company in the areas of exploration, development and production. Vår Energi is engaged in large scale projects aiming to develop climate emissions reduction capabilities, such as carbon capture and storage (CCS) and low emissions technologies. Vår Energi’s R&D portfolio includes about 40 projects, mainly administered in the form of Joint Industry Projects (JIPs) or consortia, but also as bilateral R&D contracts. 76 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 76 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Note 10 Financial items USD 1000 Note 2021 2020 Interest income on bank accounts and receivables Dividends 232 34 Other financial income 721 - Interests on debts and borrowings Interest on lease debt Capitalised interest cost, development projects Amortisation of fees and expenses Accretion expenses (asset retirement obligation) 24 Other financial expenses Net financial income/(expenses) Currency forward contracts gain/(loss) - Unrealised exchange rate gain/(loss) Realised exchange rate gain/(loss) Net exchange rate gain/(loss) Net financial items Due to extinguishment of debt and new debt in November 2021, the prepayments of fees related to the loans which were terminated are fully recognised through P&L in 2021 and presented as increased amortisation of fees and expenses. 2021 exchange rate gains and losses relates mainly to substantial realised exchange rate gain due to the realisation of the RBL loan in November 2021 (refer to note 23). This exchange rate gain was offset by reversal of prior period unrealised exchange rate gains for the same loan. Note 11 Income Taxes USD 1000 2021 2020 Current year tax payable/receivable Prior period adjustments to current tax Current tax expense/(income) Change in deferred taxes Deferred tax expense/(income) Tax expense/(income) in profit and loss Effective tax rate in % Tax expense/(income) in put option used for hedging Tax expense/(income) in other comprehensive income Reconciliation of tax expense Tax rate 2021 2020 Corporate (78%) tax rate on profit/loss before tax 78% Tax effect of uplift 56% Impairment of goodwill 78% Tax effects of items taxed at other than corporate (78%) tax rate 56% Other permanent differences, prior period adjustments and change in estimates of uncertain tax positions 78% Tax expense/(Income) 77 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 77 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Temporary timing differences at end of period 2021 2020 Tangible fixed assets Capitalised exploration cost Other intangible assets Abandonment obligation Other Basis for deferred ordinary taxes Uplift recognised as part of business combinations Additional depreciation for special tax Temporary differences not relevant for special taxes Basis for deferred special taxes Ordinary tax 22% Special tax 56% Items taxed at other tax rates - Net deferred tax asset/(liability) as of closing balance Breakdown of tax effect on temporary differences 2021 2020 Tangible fixed assets Capitalised exploration cost Other intangible assets Abandonment obgliation Lease liabilities Financial instruments Other provisions Net deferred tax asset/(liability) as of closing balance Deferred tax asset/(liability) 2021 2020 Deferred tax liabililty/asset at beginning of period Current year deferred tax income/(expense) Deferred taxes related to business combinations Deferred taxes recognised directly in OCI or equity Currency translation effects Net deferred tax asset/(liability) as of closing balance Calculated tax receivable/(payable) 2021 2020 Tax payable/receivable at beginning of period Current year payable taxes Payable taxes related to business combinations 969 Net tax payment/tax refund Prior period adjustments and change in estimate of uncertain tax positions Currency translation effects Net tax receivable/(payable) as of closing balance 78 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 78 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Note 12 Intangible assets USD 1000 Note Goodwill intangible assets Capitalised exploration wells Total Cost as at 1 January 2020 Additions - - Additions through business combination - - Reclassification - - - - Disposals/expensed exploration wells - - Currency translation effects Cost as at 31 December 2020 Depletion and impairment as at 1 January 2020 - - Depreciation - - - - Provision for impairment - - Disposals - - - - Currency translation effects - - Depletion and impairment as at 31 December 2020 - - Net book value as at 31 December 2020 USD 1000 Note Goodwill intangible assets Capitalised exploration wells Total Cost as at 1 January 2021 Additions - 295 Additions through business combination - - Reclassification - - Disposals/expensed exploration wells 8 - - Currency translation effects Cost as at 31 Desember 2021 Depletion and impairment as at 1 January 2021 - - Depreciation - - - - Provision for impairment 15 - - Disposals - - - - Currency translation effects - - Depletion and impairment as at 31 December 2021 - - Net book value as at 31 December 2021 Other Intangible assets include exploration potentials acquired through business combinations and are measured according to the successful efforts method. 79 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 79 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Note 13 Tangible assets USD 1000 Note production facilities Facilities under construction plant and equipment Total Cost as at 1 January 2020 Additions Estimate change asset retirement obligation - - Additions through business combinations - - Reclassification - - Disposals - - - - Currency translation effects 854 Cost as at 31 December 2020 Depletion and impairment as at 1 January 2020 - Depreciation - Provision/reversal of impairment - - Disposals - - - - Currency translation effects - (381) Depletion and impairment as at 31 December 2020 - Net book value as at 31 December 2020 USD 1000 Note production facilities Facilities under construction plant and equipment Total Cost as at 1 January 2021 Additions Estimate change asset retirement cost - - Additions through business combinations - - - - Reclassification - Disposals - - Currency translation effects Cost as at 31 December 2021 Depletion and impairment as at 1 January 2021 - Depreciation - Provision/reversal of impairment 15 - - Disposals - - - - Currency translation effects - 380 Depletion and impairment as at 31 December 2021 - Net book value as at 31 December 2021 Reduction in asset retirement cost in 2021 mainly relates to increased discount rates. Increase asset retirement cost in 2020 relates to change in discount rate and updated cost estimate. 80 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 80 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Note 14 Right of use assets USD 1000 Note Rigs and vessels Total Cost as at 1 January 2020 Additions - - Additions through business combinations - - - - Reclassification - - - - Disposals - - Currency translation effects - - Cost as at 31 December 2020 Depletion and impairment as at 1 January 2020 Depreciation Provision/reversal of impairment - - - - Disposals - - Currency translation effects - - Depletion and impairment as at 31 December 2020 Net book value as at 31 December 2020 USD 1000 Note Rigs and vessels Total Cost as at 1 January 2021 Additions - - Reclassification - - Disposals - - - - Currency translation effects Cost as at 31 December 2021 Depletion and impairment as at 1 January 2021 Depreciation Provision/reversal of impairment - - - - Disposals - - - - Currency translation effects (393) Depletion and impairment as at 31 December 2021 Net book value as at 31 December 2021 81 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 81 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Note 15 Impairment Impairment testing Impairment tests of individual cash-generating units (CGUs) are performed when impairment triggers are identified. In Vår Energi, CGU equals an asset or production license based on how company monitors business activity and if an asset or license generates its own independent inflow of cash. Impairment is recognised when the book value of an asset or a cash-generating unit exceeds the recoverable amount. The recov- erable amount is the higher of the asset’s fair value less cost of disposal and its value in use. The fair value less cost of disposal estimates are level 3 fair value estimates in the fair value hierarchy. Impairments are correspondingly reversed if the conditi ons for the impairment are no longer present. Upper limit of reversal is the historical impairments less estimated depreciation as if the impair - ment had not taken place. Impairments of goodwill are not reversed. The impairment testing is performed based on discounted cash flows. The expected future cash flow is discounted to the net present value by applying a discount rate after tax that reflects the current market valuation of the time value of money, and the specific risk related to the asset. The discount rate is derived from the weighted average cost of capital (WACC) for a market participant. Cash flows are projected for the estimated lifetime of the fields. - nomic assumptions. From 2021, Vår Energi has updated its process for estimating future prices and currency rates. Prior to 2021, the price and exchange rate assumptions were based on input from the main shareholder Eni SpA, while for 2021 the price and currency rate assumptions are generated independently by Vår Energi. The oil and gas prices are based on the forward curve for the next three-year period and from the fourth year the oil and gas prices are based on the company’s 3 . Following is an overview of the key assumptions applied: Prices Future price level is a key assumption and has significant impact on the net present value. Forecasted prices are based on Vår Energi’s long-term price estimates and available market data as of 31 December 2021. The nominal oil prices (USD/bbl) as applied in impairment tests are as follows: Year 2020 2021 2022 55.0 74.1 2023 60.0 68.9 2024 62.0 68.1 3 ) as applied in impairment tests are as follows: Year 2020 2021 2022 1.48 6.51 2023 1.53 3.29 2024 1.60 2.17 82 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 82 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Oil and gas reserves Future cash flows are calculated based on expected production profiles and estimated proven, probable and risked possible reserves. The recoverable amount is sensitive to changes in reserves. Production (mboe) per period as applied in the impairment test: Year 2022–2026 542 2027–2031 325 2032–2036 156 2037–2041 83 2042–2054 59 Future expenditure Future capex, opex and abandonment cost are calculated based on the expected production profiles and the best estimate of the related cost. Discount rate The discount rate is derived from the Group’s weighted average cost of capital (“WACC”). The capital structure considered in the WACC calculation is derived from the capital structures of an identified peer group and market participants with consid- eration given to optimal structures. The cost of equity is derived from the expected return from an investor of the Company. The cost of debt is based on the interest-bearing borrowings for a market participant specific to the assets acquired. The beta factors are evaluated annually based on publicly available market data about the identified peer group. 7% discount rate used for both 2020 and 2021. Currency rates (NOK/USD) While there are inherent uncertainties in the assumptions, the foreign currency assumptions reflect management’s best Inflation Impairment testing of goodwill The technical goodwill recognised in previous business combinations is allocated to each CGU for the purpose of impair- ment testing. Hence, technical goodwill is included in the impairment testing of the CGU, and the technical goodwill is written down before the asset. The carrying value of the CGU is the sum of tangible assets, intangible assets and technical goodwill as of the assessment date. In the impairment test performed, carrying value is adjusted by the remaining part of deferred tax from which the technical goodwill arose, to avoid an immediate impairment of all technical goodwill. When deferred tax liabilities from the acquisitions decreases as a result of depreciation, more goodwill is as such exposed for impairment. This may lead to future impairment charges even though other assumptions remain stable. The ordinary goodwill is tested for impairment on an operating segment level. If the net recoverable amount calculated as total of NPV less Net book value (NBV) for the offshore asset portfolio exceeds the carrying value of ordinary goodwill, no impairment is recorded. Impairment charge/reversal Below is an overview of the impairment charge/reversal and the carrying value per cash generating unit where impairment/ reversal was recognized in 2021: Cash generating unit (USD 1000) value Recoverable amount Goodwill Deferred tax impact Balder - - Fenja - - Goliat - Tor - Other Total Impairments were USD 203 million in 2021 mainly related to a revised baseline for sanctioned projects updated in Q4 2021. Reversals of impairments were USD 202 million in 2021 mainly related to higher price assumptions. 83 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 83 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Sensitivity analysis The table below shows how the impairment or reversal of impairment of assets and technical goodwill would be affected by changes in the various assumptions, given that the remaining assumptions are constant. Change in impairment after (USD 1000) Change assumption Decrease in assumption Oil and gas prices +/-25% Production profile +/- 5% Discount rate +/- 1% point The sensitivities are created for illustration purposes, based on a simplified method and assumes no changes in other input factors. Significant reductions are likely to result in changes in business plans, cut-offs as well as other factors used when estimating an asset’s recoverable amount. Changes in such input factors would likely significantly reduce the actual impair- ment amount compared to the illustrative sensitivity above. Climate related risks The climate related risk assessment is generally described in the company’s sustainability reporting. Financial reporting and impairment testing includes a step up of CO 2 Maturing decarbonation projects in order to meet the goal to become climate neutral by 2030 and future changes in how the world will react in light of the goals set in the Paris Agreement could have negative effects on the value of Vår Energi’s oil and gas assets with additional impairments. Impairment testing in 2020 In 2020, the impairment charge was mainly related to technical and ordinary goodwill. The methodology for impairment testing was the same as in 2020 as described in this note. Vår Energi has updated its process for estimating future prices and currency rates from 2021 as described earlier. The 2020 assumptions for prices and exchange rates are shown in comparable tables in this note. Discount rate of 7% and inflation of 1.9% also used in 2020 testing. Summary of impairments The following impairments was recorded in 2020: Cash generating unit (USD 1000) Åsgard Balder Area Grane Goliat Trestakk Snorre/Vigdis Greater Ekofisk Fram Tyrihans Ormen Lange Other Operating segment Total 84 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 84 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Note 16 Investment in shares and other non-current assets USD 1000 Business Location Norpipe Oil AS Tananger, Norway 6.52% 173 179 Tjeldbergodden Utvikling AS 0.48% 68 70 Ormen Lange Eiendom DA Tananger, Norway 6.34% 612 632 Investment in shares Alve slot fee Total other non-current assets Other mainly consists of non-current slot fee prepayment, where Marulk is paying a fee to Alve for use of umbilical at Alve. Note 17 Inventories USD 1000 Spare parts & drilling material Physical oil inventory Total inventory Note 18 Trade receivables USD 1000 Note Trade receivables - related parties 29 Trade receivables - external parties Sale of trade receivables Total trade receivables As part of the Group’s working capital optimisation and finance cost minimisation procedures Vår Energi has entered into Credit Discount Agreements with several banks. Under the arrangements the ownership, including credit risk, of invoices for oil cargos sold are transferred to the respective banks, and the receivables to which the payments relate are derecognised from Vår Energi’s balance sheet. Payments to the banks are made when Vår Energi receives payments from the customers. Trade receivables are presented net of payments received from the banks for the sold invoices, as Vår Energi has retained the right to receive payments from the customers, an obligation to pay these cash flows to the banks without material delay, but only to the extent Vår Energi collects the payments from the customers. Note 19 Other receivables and financial assets USD 1000 Note Underlift of hydrocarbons Prepaid expenses Brent crude put options - financial assets 20 Other Total current receivables 85 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 85 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Note 20 Financial instruments Capital management For the purpose of the Group’s capital management, capital includes equity attributable to the equity holders and current and non-current financing. The primary objective of the Group’s capital management is to ensure that it maintains a solid balance sheet and investment grade credit rating in order to The Group manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the financial cove- nants. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders, or issue new shares. As part of the refinancing to an unsecured financing structure, obtain- ing external credit rating and the initial public offering, the Group’s financial policies were reviewed and updated. In order to achieve this overall objective, the Group’s capital management, amongst other things, aims to ensure that it meets financial covenants attached to its interest-bearing loans and borrowings that form part of its capital structure requirements. Breaches in the financial covenants would permit the bank to immediately call interest-bearing loans and borrowings. There have been no breaches in the financial covenants of any interest-bearing loans and borrowings in the current or prior period. The Group monitors the leverage ratio using net interest bearing debt (NIBD) divided by earnings before interest, tax, depreciation, amortisation and exploration expenses (EBITDAX). Net interest-bearing debt is defined as inter- est-bearing loans and borrowings less cash and short-term deposits. Please refer to note 23 for more details related to financial liabilites and borrowings. Risk Management Vår Energi recognises that effectively managing risks and opportunities is essential to the Group’s long-term success and is a key enabler in achieving Vår Energi’s strategic objectives. The Board of Directors is responsible for risk management as part of its role in providing strategic oversight and stewardship of the Group. This includes approving the annual budget and four-year business plan, evaluating risks to the delivery of the plan and agreeing financial and oper- by the Risk and Compliance Committee and on a regular basis by the Board. Vår Energi is subject to various controllable and uncontrollable risks associated with the nature of the oil and gas business operations. Companies operating in the oil and gas industry are exposed to a variety of operational, financial and external risks that may not be entirely possible to eliminate even with robust risk management routines and experiences. Operational risks The Board of Directors recognises the risks associated with the Group’s operational assets. The regulation of activities on the NCS provides a sound framework for handling these risks, and the Group takes an active and respon- sible approach as a partner. Future production of oil and gas is dependent on the Group’s ability to find, or acquire, and develop reserves. Costs of development projects or exploration efforts are also uncertain. As a result of these risks, the Group may incur costs that could adversely affect the Group’s financial position or its reputation as a player on the NCS. The Group intends to act as a sound, responsible and technically competent partner across the whole spectrum of activities in all its operations. Vår Energi works actively with our partners and has established mitigating actions to reduce the possibility of operational incidents occurring. Financial risks The Group is exposed to market fluctuations in commodity prices, foreign exchange rates and interest rates. The main financial risks Vår Energi is exposed to are: • Commodity prices due to volatility in oil and gas prices • Fluctuation in foreign exchange rates due to currency mismatch between income and cost currencies, including tax payments • Fluctuation in interest rates leading to a fluctuation in finance costs • Funding and liquidity risk due to unavailability of funding, deposits or loss of income • Credit risk of customers and partners Commodity price risk Vår Energi operates in the crude oil and natural gas market and fluctuations in hydrocarbon prices have a significant effect on the Group’s revenues. Commodity price risk represent the Group’s most important market risk. To manage this risk, Vår Energi protects cash flows from sale of crude oil through entering into commodity price hedging instruments and cash flows from sale of natural gas through entering into fixed price gas sales contracts. In order to reduce the risk related to oil price fluctuations, the Group has established an oil price hedging program for 2022 where 100% of planned after-tax volumes for oil have been hedged by acquiring monthly settled oil price put options. To align after-tax cash flows and adjust for different tax treatment of financial deriva- tives and the underlying oil production, 28% of the planned production volume is hedged. Similarly, approximately 9% of the Group’s expected gas production in 2022 has been sold on fixed price terms. Currently the Group does not view the natural gas market sufficiently liquid to increase the fixed price portion. 86 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 86 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Currency risk Vår Energi is receiving proceeds in USD, EUR and GBP. The sale of crude oil is denominated in USD, whereas natural gas sales are mainly denominated in EUR with a minor part being denominated in GBP. Cash expenditures (OPEX, CAPEX, G&A which has been included in the below sensitivity tables, with the exception of deferred consideration to ExxonMobil which is now current as it is due 30 December 2022 and also included below. The table below shows the Group’s main exposure in USD as of 31 December: Interest-bearing loans The following table demonstrates the sensitivity to a reasonably possible change in the foreign exchange rate, with all other variables held constant, of the Group’s profit before tax due to changes in the carrying value of monetary assets and liabili- ties at the reporting date. 10% -10% Interest rate sensitivity Interest rate risk arises from the effects fluctuations in underlying market rates may have on future cash flows. At present, the main source of interest rate risk for Vår Energi is the floating interest rate in the financing facilities. The following table demonstrates the sensitivity to a reasonable possible change in interest rates on the Group’s profit before tax from the impact of changes in interest rates on floating rate borrowings (“Interes-bearing loans” in the table above) with all other variables held constant. Note that the rate will never be lower than the margin, i.e. if the SOFR rate (Secured Overnight Financing Rate) + CAS (Compounded Reference Rate) is below zero, this will result in the interest rate being equal to the agreed margin, hence downward sensitivity has been set to -0.15% for 2021. 1.00% -0.50% - -0.15% - 87 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 87 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Liquidity risk The Group’s future capital requirements depend on many factors, and the Group may need additional funds to fulfil its com- mitments and further develop exploration and development programmes to support the strategic direction of the Group. Liquidity risk is the risk that the Group will not be able to meet the obligations of financial liabilities when they become due. Risk levels are analysed by at least quarterly updates of cash flow projections for the strategic plan period and comparing with available liquidity during the period. Additional updates will be made if significant macroeconomic changes occur. The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank over- drafts and bank loans. See note 23 for an overview of available credit facilities. The table below shows the payment structure for the Group’s financial commitments, based on undiscounted contractual payments (excluding lease liabilities): Year ended 31 December 2021 USD 1000 Total Interest-bearing loans and borrowings - - Deferred payment ExxonMobil 2022 - - - - - - Year ended 31 December 2020 USD 1000 Total Interest-bearing loans and borrowings - - - - Deferred payment ExxonMobil 2022 - - - - - - - As mentioned in details in note 23, the long-term loans were refinanced in November 2021. The new loans are no longer using LIBOR interest rate as reference. The reference rate for all existing long term loans are now SOFR (Secured Overnight Financing Rate). For the deferred payment to ExxonMobil LIBOR is still used and will be used untill the payment is done in December 2022. The LIBOR is ment to be published untill 30 June 2023, so the agreed interest rate will be available for the duration of the liability. So no consquence for Vår Energi related to IBOR-reform. Credit risk Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. Vår Energi is exposed to credit risk from its operating activities and from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments. Credit risk is considered limited as Vår Energi sells the crude oil to Eni and ExxonMobil trading entities and natural gas to Eni trading entities and other major international oil and gas players and only use investment grade and highly reputable banks as counterparties. The Group considers its credit risk related to customers as well as partners, to be low, as they are all creditworthy energy companies. 88 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 88 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Categories of financial assets and liabilities The Group has the following financial assets and liabilities: derivative financial assets and liabilities recognized at fair value through profit or loss, derivative financial assets and liabilities designated as accounting hedge instruments (cash flow hedges) for which the effective portion is recognized at fair value through other comprehensive income, accounts receivables that do not contain a significant financing component are measured at the transaction price determined under IFRS 15, cash and cash equivalents measured at fair value, loans and borrowings and other liabilities measured at amortised cost. 2021 USD 1000 Note fair value through profit and loss Cash, cash equivalents and Financial liabilities measured at amortised cost Cash flow hedge Total Assets Trade receivable 18 - - - Investments in shares 16 853 - - - 853 Cash and cash equivalents 21 - - - Oil put options asset 19 - - - Other short term receivables 19 - - - Total financial assets - Liabilities Accounts payable - - - Net payables to joint operations 26 - - - 26 - - - Oil put options liability 26 - - - RCF credit facility 23 - - - Prepaid RBL/RCF loan expenses 23 - - - Deferred payment ExxonMobil 2022 23 - - - Total financial liabilities 89 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 89 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2020 USD 1000 Note fair value through profit and loss Cash, cash equivalents and Financial liabilities measured at amortised cost Cash flow hedge Total Assets Trade receivable 18 - - - Investments in shares 16 881 - - - 881 Cash and cash equivalents 21 - - - Oil put options asset 19 - - - Other short term receivables 19 - - - Total financial assets - Liabilities Accounts payable - - - Net payables to joint operations 26 - - - Employees, accrued public charges and other payables 26 - - - Oil put options liability 26 - - - RBL credit facility 23 - - - Prepaid RBL loan expenses 23 - - - Deferred payment ExxonMobil 2022 23 - - - Total financial liabilities 90 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 90 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Fair Value Management assessed that the fair values of cash and short-term deposits, trade receivables, trade payables, bank over- drafts, and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments. Carrying amount of long term liabilities are also assumed to approximate fair value due to floating interest rate and short term interest rate periods. Derivative assets and liabilities are, as described above, measured at fair value. And they have been determined to constitute level 2 fair value measurements. Investment in shares (in the fair value through profit or loss category) are measured at fair values using level 3 fair value estimates. See below discussion related to fair value hierarchy. Derivative financial instruments The Group uses derivative financial instruments, such as Brent crude put options to hedge its commodity price risks. As of 31 December 2020 and 2021, the Group had the following volumes of Brent crude oil put options in place and with the following strike prices: Hedging instruments Volume (no of put options outstanding at balance sheet Brent crude oil put options 31 Dec 2020, exercisable in 2021 40 Brent crude oil put options 31 Dec 2021, exercisable in 2022 47 Brent crude put options - financial assets USD 1000 Note 2021 2020 The beginning of the period Increased market value on realised put options - Realised gain brent crude put options 4 - Cost of hedge 5 Effective portion recognised in OCI New Brent crude put options FX-effect (147) The end of the period Unrealised gains and losses are recognized in OCI. Note that the cost price (option premium agreed at the inception of the contracts) for the options is paid at the time of realisation (time of exercise or expiration) and that this deferred payment is presented as current liabilities in the balance sheet, see below table. Brent crude put options – deferred premiums Note 2021 2020 The beginning of the period Cost of hedge 5 New Brent crude put options FX-effect 147 The end of the period All outstanding put option contracts at 31 December 2021 are due to expire in 2022. Petroleum revenue for 2020 includes hedges). No gain included in petroleum revenue for 2021. The full intrinsic value (“in the money value”) of the options at the income statement in the period in which the hedged revenues were realised, and presented as production costs. 91 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 91 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Reconciliation of liabilities arising from financing activities The table below shows a reconciliation between the opening and the closing balances in the statement of financial position for liabilities arising from financing activities. USD 1000 Cash flow Non-cash changes Long-term interest-bearing debt (RCF) - - - - Long-term interest-bearing debt (RBL) - - - - 1 - - - Prepaid loan expenses - Totals - 1 Deferred payment to ExxonMobil is due 30 December 2022 and is classified as current liability as of December 2021. It includes interest payment. USD 1000 Cash flow Non-cash changes Long-term interest-bearing debt (RBL) - - - Deferred payment ExxonMobil* - - Prepaid loan expenses - Totals - 1 Deferred payment to ExxonMobil includes interest payment. Fair value hierarchy The fair value of the financial instruments is included at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following methods and assumptions were used to estimate the fair values: The Group enters into derivative financial instruments with various counterparties, principally financial institutions with investment grade credit ratings. Derivatives valued using valuation techniques with market observable inputs are mainly commodity option contracts. The most frequently applied valuation techniques include forward pricing and swap models that use present value calculations. The models incorporate various inputs including the credit quality of counterparties and forward rate curves of the underlying commodity. All derivative contracts are fully cash-collateralised, thereby eliminating both counterparty and the Group’s own non-performance risk. As at 31 December 2021, the marked-to-market value of derivative asset positions is net of a credit valuation adjustment attributable to derivative counterparty default risk. The changes in counterparty credit risk had no material effect on financial instruments recognised at fair value. All assets and liabilities, for which fair value is measured or disclosed in the financial statements, are categorised within the fair value hierarchy, described as follows, based on the lowest-level input that is significant to the fair value measurement as a whole: • Level 1 input in the form of listed (unadjusted) prices in active markets for identical assets or liabilities. • Level 2 — input other than listed prices of assets and liabilities included in Level 1 that is observable for assets or liabili- ties, either directly (i.e. as prices) or indirectly (i.e. derived from prices). • Level 3 — input for assets or liabilities for which there is no observable market data (non-observable input). 92 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 92 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Note 21 Cash and cash equivalents USD 1000 Bank deposits, unrestricted Bank deposit, restricted, employee taxes Total bank deposits Note 22 Share capital and shareholders Ultimate owner of Eni International BV is Eni SpA. Ultimate owner of Point Resources Holding AS is Hitec Vision fund V, VI, VII, LP. Earnings per share are calculated by dividing the net result attributable to shareholders of the Parent Company by the weighted average number of shares for the year. There are no option schemes or convertible bonds in the company, meaning there is no difference between the ordinary and diluted earnings per share. USD 1000 2021 2020 Profit for the year attributable to ordinary equity holders of the parent company The year’s average number of ordinary shares (in thousands) 399 399 Earnings per share in USD Earnings per share in USD diluted The company was listed on the Oslo Stock Exchange 16 February 2022, and as a consequence of this, company bylaws, voting rights and composition of the board have changed after 31 December 2021. See note 32 for more information. An overview of the 20 largest shareholders registered as of 21 February 2022 can be found here: Vår Energi - Share Info - Largest shareholders (varenergi.no) 93 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 93 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Note 23 Financial liabilities and borrowings Interest-bearing loans and borrowings USD 1000 Note RBL credit facility - RCF bridge facility 32 2023 - RCF working capital facility 32 2024 - RCF liquidity facility 32 2026 - - RCF credit facility 32 2023 - Deferred payment ExxonMobil, non-current 2022 - Prepaid loan expenses Total non-current interest-bearing loans and borrowings USD 1000 Note Deferred payment ExxonMobil, current - Total current interest-bearing loans and borrowings - Total interest-bearing loans and borrowings On 1 November 2021, Vår Energi signed a senior unsecured multicurrency facilities agreement for USD 6.0 billion with a group of 12 international banks, refinancing the reserve based lending (‘RBL’) facility. The agreement contains of 3 separate facilities; (1) bridge to bond facility of USD 3 billion which including extension options at the borrower’s discretion has a tenor of up to 2 years, (2) working capital revolving credit facility of USD 1.5 billion with a tenor 3 years and (3) liquidity facility of USD 1.5 billion with a tenor 5 years. The facilities have no amortisation structure and all amounts outstanding fall due at maturity. The facilities have covenants covering leverage (net interest-bearing debt to 12 months rolling EBITDAX not to exceed 3.5) and interest coverage (EBITDA to 12 months rolling interest expenses shall exceed 5) which will be tested at the end of each calendar quarter. Vår Energi has been and is compliant with these covenants at 31 December 2021. The interest conditions for the facilities are determined by the rating and timing; at 31 December 2021 the following condi- tions applied: Bridge to bond: 0.5% margin plus the CAD and SOFR rate. Working Capital facility: 1.08% margin plus the CAD and SOFR rate. Liquidity facility: 1.13% margin plus the CAD and SOFR rate. On 24 March 2020, Vår Energi signed two unsecured revolving credit facility agreements (RCF) for a total amount of USD 600 million with a tenor of 3 years. The agreements were amended and restated 18 November 2021 to align with the Corporate Facilities with no changes to tenor or total commitment. Deferred payment to ExxonMobil is part of the consideration for the 2019 acquisition of ExxonMobil’s ownership interests in Partner-Operated fields and licenses on the Norwegian Continental Shelf. Credit facilities - utilised and unused amount USD 1000 Drawn amount RCF credit facility Undrawn amount credit facilities Net proceeds of revolving credit facility is offset with prepaid loan expenses of USD 26.4 million in the cash flow statement. 94 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 94 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Note 24 Provision for abandonment liabilities USD 1000 Total provision as of 1 January 2020 Change in estimate Accretion discount Payment for decommissioning of oil and gas fields Currency translation effects Total provision as of 31 December 2020 Change in estimate Accretion discount Payment for decommissioning of oil and gas fields Currency translation effects Total provision as of 31 December 2021 Estimated abandonment period: 2022–2056 Breakdown of the provision by decommissioning period 2022–2030 2031–2040 2041–2057 Breakdown of the provision to short-term and long-term liabilities Short-term Long-term Total provision as of 31 December 2021 Change in estimate mainly relates to updated discount rates in 2021 vs. 31 December 2020. Estimates are based on executing a concept for abandonment in accordance with the Petroleum Activities Act and interna- tional regulations and guidelines. The calculations assume an inflation rate between 1.8% - 2.3% and discount rates between 1.15% and 3.00%. The discount rates are based on risk-free interest without addittion of credit margin. Vår Energi has a retirement obligation as a shipper in Gassled booked to other non-current liabilities (note 25) in the balance 95 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 95 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Note 25 Other non-current liabilities USD 1000 Note Contingent consideration 27 1 Removal provision Gassled 24 Total other non-current liabilities 1 Deferred gain In 2017 Point Resources AS, sold the shares in ExxonMobil Property Norway (2) AS, and immediately entered into a finance lease for the office building located in Grenseveien 6, 4313 Sandnes. The excess of sales proceeds is deferred and amortised over the lease term (20 years). Note 26 Other current liabilities USD 1000 Note Overlift of hydrocarbons Net payables to joint operations Employees, accrued public charges and other payables Contingent consideration, current 27 - Deferred payment for option premiums - oil puts 20 Total other current liabilities The liability for oil put options relates to cost of oil put options that under the purchase agreement is due for payment at the time of settlement of the option (exercise/expiry) and is not a measure of fair value. 96 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 96 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Note 27 Commitments, provisions and contingent consideration Other contractual obligations Vår Energi is required to participate in the approved work programs for the licences. Together with the licence partners there is also an obligation to participate in exploration wells according to the license agreements. Remaining drilling Commitments Vår Energi has entered into contractual commitments to secure planned activities. The numbers disclosed in the table below, represents Vår Energi’s share of capital and operation expenditures from its participation in operated and non- operated exploration, development and production projects, as well as corporate activities. The current main development projects are Johan Castberg, Balder Future and Brediablikk. The table below excludes contracts reported as lease, as disclosed in note 28 Lease agreements. USD 1000 Within one year After one year but not more than five years More than five years Total commitments other than leases Vår Energi’s operations involve risk for damages, including pollution. Installations and operations are covered by an operations insurance policy. Guarantees on Snorre. Vår Energi has contingent liabilities in respect of agreements with pipeline and processing companies, whereby it may be required to provide such companies with additional funds against future transportation and processing of petroleum liquids and natural gas delivered by Vår Energi to these companies. Eni International B.V. has issued a guarantee to ExxonMobil for the seller’s subsidiary removal cost obligations per Norwegian Law, in connection with Vår Energi’s asset acquisitions from ExxonMobil in 2017 and 2019. Vår Energi pays and expenses an annual fee to Eni International B.V. The total estimated net present value of the fee payments as of decommissioning of asset acquired from ExxonMobil in 2017 and 2019, see note 24. Provisions and Contingencies As part of the purchase agreement between Point Resources AS and ExxonMobil in 2017, Point Resources AS agreed to pay a contingent consideration related to possible development of the Forseti structure. The total consideration shall in no the P50 reserves estimate exceeds 15 million BOE. As of 31 December 2021, the net present value of the remaining consid- During the normal course of its business, Vår Energi will be involved in disputes, including tax disputes. The Group has made accruals for probable liabilities related to litigation and claims based on management’s best judgment and in line with IAS37 and IAS12. 97 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 97 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Note 28 Lease agreements Vår Energi has entered into lease agreements for drilling rigs, helicopter, storage vessel and other vessels to secure planned activities. The Group has lease agreements for offices in Sandnes, Oslo and Hammerfest. The most significant office contract is the lease of the main office building in Vestre Svanholmen 1, Sandnes. Vår Energi also has leases for supply vessels and warehouses supporting operation at Balder and Goliat, where the most significant are for the supply vessels operating at Goliat. A new lease agreement commenced in Q4 2021 for the West Phoenix drilling rig. The rig will support the Balder Future drilling campaign in the North Sea. Non-lease components such as the service element of rig commitments are not included as part of the lease debt. As at The total expenditure relating to short-term leases which are not recognized as part of lease liabilities was USD 18 million USD 1000 Note 2021 2020 Opening Balance lease debt New lease debt in period Payments of lease debt Lease debt derecognized in period - Interest expense on lease debt Currency exchange differences Total lease debt Breakdown of the lease debt to short-term and long-term liabilities Short-term Long-term Total lease debt Lease debt split by activities Offices Rigs and Supply vessels Warehouse Total Nominal lease debt maturity breakdown Within one year 108 880 Two to five years 32 005 After five years 115 314 Total 349 024 98 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 98 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Note 29 Related party transactions Vår Energi has a number of transaction with other wholly owned or controlled companies by the shareholders. The related party transactions reported is owned/controlled by the majority owner of Vår Energi, Eni International BV. Revenues are mainly related to sale of oil, gas and NGL while the expenditures are mainly related to technical services, seconded person- nel, insurance guarantees and rental cost. Current assets USD 1000 Trade receivables Eni Trade & Biofuels SpA - Eni Global Energy Markets Eni SpA Other Total trade receivables All receivables are due within 1 year. Current liabilities USD 1000 Account Payables Eni Global Energy Markets Eni International BV Eni SpA Other 915 148 Total account payables Sales revenue USD 1000 2021 2020 Eni Trade & Biofuels SpA - Eni SpA Eni Global Energy Markets Total sales revenue Operating and capital expenditures USD 1000 2021 2020 Eni SpA Eni Trade & Biofuels SpA - Eni International BV Eni Global Energy Markets Eni International Resources Ltd. Other Total operating and capital expenditures 99 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 99 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Note 30 License ownerships Fields Licenses Concession period expires BALDER 90.00% Vår Energi PL 001/PL 027/PL 027C/PL 169/PL 028 2030 BAUGE 17.50% Equinor PL 348/PL 348B 2029 BRAGE 12.26% Wintershall Dea PL 053B/PL 055/PL 185/PL 055B/PL 055D 2030 34.40% Equinor PL169/PL169 BS/PL001 DS/ PL027 FS 2030 BØYLA 20.00% Aker BP PL 340/PL 340BS 2029 12.39% ConocoPhillips PL 018/PL 018 B 2028 12.39% ConocoPhillips PL 018 2028 EMBLA 12.39% ConocoPhillips PL 018 2028 FENJA 45.00% Neptune Energy PL 586 2039 FRAM 25.00% Equinor PL 090/090E 2024 GOLIAT 65.00% Vår Energi PL229 2042 GRANE 28.32% Equinor PL 001CS/PL 169B1 2030 GUNGNE 13.00% Equinor PL 046 2028 HEIDRUN 5.18% Equinor PL 095/PL 124 2024/2025 HYME 17.50% Equinor PL 348 2029 JOHAN CASTBERG 30.00% Equinor PL 532 2049 16.66% Equinor PL 134D 2027 20.00% Vår Energi PL 122 2025 48.38% Equinor PL 092/PL 121 2024 MORVIN 30.00% Equinor PL 134B/P L034C 2027 Fields Licenses Concession period expires NORNE 6.90% Equinor PL 128/PL 128 B 2026 ORMEN LANGE 6.34% Norske Shell PL 208/PL 250 2041 RINGHORNE ØST 69.98% Vår Energi PL 027/PL 169E/PL 053B/PL 055/PL 185 2030 SIGYN 40.00% Equinor PL 072 2022 11.50% Equinor PL 128 2026 SLEIPNER VEST 17.24% Equinor PL 029/PL 046 2028 SLEIPNER ØST 15.40% Equinor PL 046 2028 SNORRE 18.55% Equinor PL 057 2040 STATFJORD 21.37% Equinor PL 037 2026 STATFJORD NORD 25.00% Equinor PL 037 2026 STATFJORD ØST 20.55% Equinor PL 037/PL 089 2040 SVALIN 13.00% Equinor PL 169 2030 SYGNA 21.00% Equinor PL 037/PL 089 2040 TOR 10.82% ConocoPhillips PL 006/PL 018 2028 TORDIS 16.10% Equinor PL 089 2040 40.90% Equinor PL 091/PL 091D 2029 TYRIHANS 18.02% Equinor PL 073/PL 073 B/PL 091 2029 URD 11.50% Equinor PL 128 2026 VIGDIS 16.10% Equinor PL 089 2040 ÅSGARD 22.06% Equinor PL 062/PL 074/PL 094 /PL 094 B/PL 134/PL 237/PL 479 2027 100 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 100 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Licenses PL001 90.00% Vår Energi PL001 CS 100.00% Vår Energi PL001 DS 100.00% Vår Energi PL018 12.39% ConocoPhillips PL018 B 12.39% ConocoPhillips PL027 90.00% Vår Energi PL027 C 90.00% Vår Energi PL027 FS 100.00% Vår Energi PL027 HS 100.00% Vår Energi PL028 90.00% Vår Energi PL028 C 13.00% Equinor PL028 S 90.00% Vår Energi PL029 85.00% Vår Energi PL037 25.00% Equinor PL044 13.12% ConocoPhillips PL046 13.00% Equinor PL053 B 12.26% Wintershall Dea PL055 12.26% Wintershall Dea PL055 B 12.26% Wintershall Dea PL055 D 12.26% Wintershall Dea PL055 E 12.26% Wintershall Dea PL057 4.90% Equinor PL062 9.80% Equinor PL072 40.00% Equinor PL072 B 50.00% Equinor PL073 12.09% Equinor PL073 B 14.50% Equinor PL074 39.20% Equinor Licenses PL074 B 39.20% Equinor PL074 CS 39.20% Equinor PL074 DS 39.20% Equinor PL074 ES 39.20% Equinor PL089 16.10% Equinor PL090 25.00% Equinor PL090 E 25.00% Equinor PL090 I 25.00% Equinor PL091 40.90% Equinor PL091 D 40.90% Equinor PL091 E 40.90% Equinor PL092 54.90% Equinor PL094 34.30% Equinor PL094 B 22.06% Equinor PL095 5.00% ConocoPhillips PL107 B 5.00% Equinor PL107 D 5.00% Equinor PL121 34.90% Equinor PL122 20.00% Vår Energi PL122 B 20.00% Vår Energi PL122 C 20.00% Vår Energi PL122 D 20.00% Vår Energi PL124 10.00% Equinor PL128 11.50% Equinor PL128 B 6.90% Equinor PL128 D 11.50% Equinor PL128 E 11.50% Equinor PL134 30.00% Equinor Licenses PL134 B 30.00% Equinor PL134 C 30.00% Equinor PL134 D 30.00% Equinor PL145 20.00% ConocoPhillips PL169 13.00% Equinor PL169 B1 7.00% Equinor PL169 B2 10.00% Equinor PL169 E 13.00% DNO Norge PL185 12.26% Wintershall Dea PL199 15.00% Equinor PL209 10.00% Equinor PL219 50.00% Equinor PL220 15.00% Equinor PL229 65.00% Vår Energi PL229 B 65.00% Vår Energi PL229 E 50.00% Vår Energi PL229 G 50.00% Vår Energi PL237 22.06% Equinor PL250 5.91% Shell PL257 15.00% Equinor PL263 C 9.80% Equinor PL275 12.39% ConocoPhillips PL293 25.00% Equinor PL312 41.00% Equinor PL312 B 41.00% Equinor PL340 20.00% Aker BP PL340 BS 20.00% Aker BP PL348 17.50% Equinor Licenses PL348 B 17.50% Equinor PL375 20.00% Equinor PL393 50.00% Equinor PL473 39.20% Equinor PL479 34.30% Equinor PL489 40.00% Vår Energi PL532 30.00% Equinor PL554 30.00% Equinor PL554 B 30.00% Equinor PL554 C 30.00% Equinor PL554 D 30.00% Equinor PL586 45.00% Neptune PL608 30.00% Equinor PL740 50.00% DNO Norge PL784 20.00% Aker BP PL822 S 40.00% Aker BP PL869 20.00% Aker BP PL901 50.00% Vår Energi PL917 20.00% ConocoPhillips PL917 B 20.00% ConocoPhillips PL938 20.00% Neptune PL946 40.00% Equinor PL947 40.00% Equinor PL947 B 40.00% Equinor PL956 70.00% Vår Energi PL984 30.00% DNO Norge PL984 BS 30.00% DNO Norge PL985 40.00% Vår Energi Licenses PL1001 20.00% ConocoPhillips PL1002 40.00% Vår Energi PL1002B 40.00% Vår Energi PL1005 40.00% Aker BP PL1025 S 30.00% Vår Energi PL1035 30.00% Suncor PL1042 30.00% Aker BP PL1043 40.00% Vår Energi PL1050 21.37% Equinor PL1065 40.00% Vår Energi PL1070 30.00% Total PL1072 70.00% Vår Energi PL1072 B 70.00% Vår Energi PL1073 70.00% Vår Energi PL1074 40.00% Vår Energi PL1075 60.00% Vår Energi PL1078 30.00% Equinor PL1079 30.00% Vår Energi PL1080 30.00% Equinor PL1090 50.00% Vår Energi PL1096 30.00% Vår Energi PL1114 30.00% Chrysador Norge PL1117 30.00% Okea PL1120 20.00% DNO Norge PL1121 30.00% Equinor PL1122 20.00% ConocoPhillips PL1131 40.00% Vår Energi PL1132 60.00% Vår Energi 101 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 101 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Note 31 Proved developed reserves (unaudited) Production 2020 (97.1) Changes in estimate 2020 (12.6) Proved developed reserves as at 31 December 2020 Production 2021 (89.7) Changes in estimate 2021 100.0 Proved developed reserves as at 31 December 2021 Proved developed reserves are Vår Energi ASA’s own evaluation based on U.S. Securities and Exchange Commission (SEC). Reference is also made to the 2021 Annual Statement of Reserves Report. Total proved reserves at 31 December 2021 were 718 million BOE. The minor reduction from 2020 to 2021 is mainly due to a combination of high production (90 million BOE) in 2021 partly offset by additional reserves maturation and upward revisions of reserves following the better commodity prices during 2021. Total contingent resources (3C) at year-end 2021 were 562 million BOE, an increase of 141 million BOE compared to activities being planned in some of our developed fields. More than 75% of Vår Energi’s total proved and probable reserves are coming from four major hubs: Balder/Grane Area with 31%, Barents Sea Area with 19%, Åsgard Area with 15% and Tampen Area with 12%. 71% of the Company’s proved and probable reserves were oil, whereas nearly 24% were gas and 5% were NGL. The Company’s 5 largest fields - Balder, Ringhorne, Goliat, Johan Castberg and Snorre combined amounts to approximately 47% of total proved and probable reserves. Note 32 Subsequent events In January 2022, Vår Energi was awarded 10 licenses in the APA 2021 licensing round, of which five operated. The new licenses have a good strategic fit with existing portfolio, strengthening presence in key hubs while also offering additional opportunities into new prospective sectors on the NCS. On 26 January 2022, following an extraordinary General Meeting of Vår Energi’s shareholders, Vår Energi was converted to a public limited liability company (ASA - Allmennaksjeselskap) and the composition of the Board of Directors changed. On 15 February 2022, the voting rules were amended and a resolution of the general meeting requires the support of at least two-thirds of the votes cast and of the share capital represented at the general meeting. On 16 February 2022, Vår Energi ASA was listed on the Oslo Stock Exchange. In 2022 Vår Energi has entered into forward gas sales contracts. Vår Energi has sold 9.2% of its estimated 2022 gas production on a fixed price, generating sales revenues of USD 407 million at an average price of 155.7 $/BOE. The current market situation is very much impacted by the war in Ukraine and uncertainty related to availability of gas from Russia into the European market. There is currently not sufficient liquidity in the market to enter into new fixed price gas sales contracts. Vår Energi operates only on the Norwegian Continental Shelf and market its petroleum products to customers in Norway, impact on safe and reliable energy supply, as well as to the market prices of oil, gas and other commodities which may impact future operations and results. 102 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 102 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Parent company financialstatements Statement of comprehensive income 104 Balance sheet statement 105 Statement of changes in equity 107 Statement of cash flows 108 Notes to the financial statements 109 Note 1 Corporate information 109 109 109 110 110 111 111 111 111 Note 10 Financial items 112 112 114 115 116 117 118 119 Note 18 Trade receivables 119 119 Note 20 Financial instruments 120 Note 21 Cash and cash equivalents 122 Note 22 Share capital and shareholders 122 122 122 122 123 Note 27 Commitments, provisions and contingent consideration 123 Note 28 Lease agreements 123 124 124 124 124 103 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 103 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Parent company Statement of comprehensive income USD 1000, except earnings per share data Note 2021 2020 Petroleum revenues 4 Other operating income 4 Total income Production costs 5 Exploration expenses 8 Depreciation and amortisation 13, 14 Impairment loss and reversals 12, 13, 15 Other operating expenses 9 Total operating expenses Operating profit/(loss) Net financial income/(expenses) 10 Net exchange rate gain/(loss) 10 Profit/(loss) before taxes Income tax (expense)/income 11 Profit/(loss) for the year Other comprehensive income: Items that may be reclassified subsequently to the income statement: Currency translation differences Net gain/(loss) on put options used for hedging Other comprehensive income for the period, net of tax Total comprehensive income Earnings per share EPS Basic 22 EPS Diluted 22 104 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 104 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Parent company Balance sheet statement USD 1000 Note 31 Dec 2021 ASSETS Non-current assets Intangible assets Goodwill 12 Capitalised exploration wells 12 Other intangible assets 12 Tangible fixed assets Property, plant and equipment 13 Right of use assets 14 Financial assets Investment in shares 16 Other non-current assets 16 Total non-current assets 18560933 19123522 Current assets Inventories 17 Trade receivables 18, 29 Other receivables, prepaid assets and financial instruments 19 Tax receivable 11 - Cash and cash equivalents 21 Total current assets 1519123 1440148 TOTAL ASSETS 20080056 20563670 105 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 105 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Parent company Balance sheet statement USD 1000 Note 31 Dec 2021 EQUITY AND LIABILITIES Equity Share capital 22 Share premium Other equity Total equity Non-current liabilities Interest-bearing loans and borrowings 23 Deferred tax liabilities 11 Abandonment obligation 24 Lease liabilities, non-current 28 Other non-current liabilities 25 Total non-current liabilities Current liabilities Abandonment obligation, current 24 Accounts payables 29 Taxes payable 11 - Interest-bearing loans, current 23 - Lease liabilities, current 28 Other current liabilities 26 Total current liabilities Total liabilities TOTAL EQUITY AND LIABILITIES Sandnes, 29 March 2022 The Board of Directors of Vår Energi ASA Signed electronically Thorhild Widvey Chair Liv Monica Bargem Stubholt Deputy Chair Francesco Gattei Director Guido Brusco Director Clara Andreoletti Director Marica Calabrese Director Fabio Romeo Director Ove Gusevik Director Kjersti Selvik Director, employee representative Laurits Hosar Director employee representative Jan Inge Nesheim Director, employee representative Christine Vorland Director, employee representative Torger Rød Chief Executive Officer 106 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 106 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Parent company Statement of changes in equity USD 1000 Share capital Share premium Translation differences Hedge reserve Balance at 1 January 2020 Profit/(loss) for the period - - - - Other comprehensive income/(loss) - - - Total comprehensive income/(loss) - - Dividends paid - - - - Other - - - - Balance at 31 December 2020 Balance at 1 January 2021 Profit/(loss) for the period - - - - Other comprehensive income/(loss) - - - Total comprehensive income/(loss) - - Dividends paid - - - - Other - - - - Balance at 31 December 2021 107 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 107 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Parent company Statement of cash flows USD 1000 Note 2021 2020 Profit/(loss) before income taxes – Depreciation and amortisation 13, 14 – Impairment loss and reversals 15 – (Gain)/loss on sale and retirement of assets 4 - – Impairment of exploration wells 8 – Accretion expenses (asset retirement obligation) 10 – Unrealised (gain)/loss on foreign currency transactions and balances 10 – Other non-cash items and reclassifications – Changes in inventories, accounts payable and receivables – Changes in other current balance sheet items Contingent consideration paid related to prior business combination 26 - Income tax received/(paid) 11 Interest received 10 Interest paid 10 Net cash flow from operating activities USD 1000 Note 2021 2020 Cash flow from investing activities Expenditures on exploration and evaluation assets 12 Expenditures on property, plant and equipment 13 Payment for decommissioning of oil and gas fields 24 Proceeds from sale of assets (sales price) - Expenditures on other intangible assets (295) - Net cash used on business combination 12 Net cash used in investing activities Cash flow from financing activities Dividends paid Net proceeds/(payments) of revolving credit facility 20 - Net proceeds/(payments) of reserve based lending facility 20 Payment of other loans and borrowings 20 - Payment of principal portion of lease liability 28 Net cash from financing activities Net change in cash and cash equivalents Cash and cash equivalents, beginning of period Effect of exchange rate fluctuation on cash held Cash and cash equivalents, end of period 108 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 108 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Parent company Notes to the financial statements Note 1 Corporate information The financial statements of Vår Energi ASA for the twelve months period ended 31 December 2021 were authorised for issue in accordance with a Board resolution on 29 March 2022. Vår Energi ASA is a public limited liability company incorporated and domiciled in Norway and the Company’s shares are listed on Oslo Stock Exchange. The Company’s head office is located at Vestre Svanholmen 1, 4313 Sandnes, Norway. Vår Energi is an independent exploration and production (E&P) company with a diverse portfolio of production, development and exploration assets on the Norwegian Continental Shelf (NCS). The Vår Energi parent IFRS annual financial statements for 2020 is available here. Note 2 Summary of IFRS accounting principles These parent company financial statements should be read in connection with the Consolidated financial statements of Vår Energi, published together with these financial statements. With the exceptions described below, Vår Energi ASA applies the accounting policies of the group, as described in Vår Energi’s disclosure note 2 Summary of IFRS accounting principles, and reference is made to this note for further details. Subsidiaries Shareholdings in subsidiaries are accounted for using the cost method. Investments in subsidiaries are tested for impairment following the same principles as the impairment testing of Property, plant and equipment in the financial statements of the Group. Dividends received from subsidiaries are presented in Net financial income. Note 3 Segment information Refer to note 3 in the Consolidated Financial Statements disclosing information to the Company’s segment information. 109 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 109 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Note 4 Income Petroleum revenues (USD 1000) Note 2021 2020 Revenue from crude oil sales - Revenue from gas sales Revenue from NGL sales Gains on cash flow hedge - crude put options 19, 20 - Total petroleum revenues Sales of crude (boe 1000) (unaudited) Sales of gas (boe 1000) (unaudited) Sales of NGL (boe 1000) (unaudited) Other operating income (USD 1000) 2021 2020 Gain/loss (-) from sale of assets - Other operating income Total other operating income Vår Energi was fully hedged for oil production after tax at a strike price of 50 USD/bbl in 2020. Gain on cash flow hedge in 2020 relates to exercised put options during the year, especially the period March - May with prices below 35 USD/BBL. Other operating income is mainly related to other partner’s share of lease cost recovered by the company. Note 5 Production costs USD 1000 2021 2020 Cost of operations Transportation and processing Environmental taxes Insurances Production cost based on produced volumes Back-up cost shuttle tankers Adjustment of over/underlift (-) Premium expense for crude put options Production cost based on sold volumes Total produced volumes (boe 1000) (unaudited) Production cost per boe produced (USD/boe) (unaudited) 11.8 10.1 Vår Energi has in 2021 updated the classification of cost compared to the Parent Company Financial Statements for 2020 110 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 110 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Note 6 Staff costs and remuneration Refer to note 6 in the Consolidated Financial Statements disclosing information to the Company’s staff costs and remuneration. Note 7 Auditors fee USD 1000 2021 2020 Statutory audit 427 586 Other attestations 434 10 Other services 70 163 Total fee 931 Services other than audit in 2021 provided by the auditors related to assistance with prospectus. In 2020 services other than audit mainly related to project support and assistance to offshore operations department and non-financial process improvement activities. Note 8 Exploration expenses Refer to note 8 in the Consolidated Financial Statements disclosing information to the Company’s exploration expenses Note 9 Other operating expenses Refer to note 9 in the Consolidated Financial Statements disclosing information to the Company’s other operating expenses 111 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 111 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Note 10 Financial items USD 1000 Note 2021 2020 Interest income on bank accounts and receivables Dividends 34 Other financial income - - Interests on debts and borrowings Interest on lease debt Capitalised interest cost, development projects Amortisation of fees and expenses Accretion expenses (asset retirement obligation) 24 Other financial expenses Net financial income/(expenses) Currency forward contracts gain/(loss) - Unrealised exchange rate gain/(loss) Realised exchange rate gain/(loss) Net exchange rate gain/(loss) Net financial items Due to extinguishment of debt and new debt in November 2021, the prepayments of fees related to the loans which were terminated are fully recognised through P&L in 2021 and presented as increased amortisation of fees and expenses. 2021 exchange rate gains and losses relates mainly to substantial realised exchange rate gain due to the realisation of the RBL loan in November 2021 (refer to note 23). This exchange rate gain was offset by reversal of prior period unrealised exchange rate gains for the same loan. Note 11 Income Taxes USD 1000 2021 2020 Current year tax payable/receivable Prior period adjustments to current tax Current tax expense/(income) Change in deferred taxes Deferred tax expense/(income) Tax expense/(income) in profit and loss Effective tax rate in % 25% Tax expense/(income) in put option used for hedging Tax expense/(income) in other comprehensive income Reconciliation of tax expense Tax rate 2021 2020 Corporate (78%) tax rate on profit/loss before tax 78% Tax effect of uplift 56% Impairment of goodwill and shares in subsidiaries 78% Tax effects of items taxed at other than corporate (78%) tax rate 56% Other permanent differences, prior period adjustments and change in estimates of uncertain tax positions 78% Tax expense/(Income) 112 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 112 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Temporary timing differences at end of period 2021 2020 Tangible fixed assets 10 934 083 Capitalised exploration cost 199 981 Other intangible assets 104 520 Abandonment obligation Other Basis for deferred ordinary taxes Uplift recognised as part of business combinations Additional depreciation for special tax Temporary differences not relevant for special taxes Basis for deferred special taxes Ordinary tax 22% Special tax 56% Items taxed at other tax rates - Net deferred tax asset/(liability) as of closing balance Breakdown of tax effect on temporary differences 2021 2020 Tangible fixed assets Capitalised exploration cost Other intangible assets Abandonment obgliation Lease liabilities Financial instruments Other provisions Net deferred tax asset/(liability) as of closing balance Deferred tax asset/(liability) 2021 2020 Deferred tax liabililty/asset at beginning of period Current year deferred tax income/(expense) Deferred taxes related to business combinations Deferred taxes recognised directly in OCI or equity Currency translation effects Net deferred tax asset/(liability) as of closing balance Calculated tax receivable/(payable) 2021 2020 Tax payable/receivable at beginning of period Current year payable taxes Payable taxes related to business combinations 969 Net tax payment/tax refund Prior period adjustments and change in estimate of uncertain tax positions Currency translation effects Net tax receivable/(payable) as of closing balance 113 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 113 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Note 12 Intangible assets USD 1000 Note Goodwill intangible assets Capitalised exploration wells Total Cost as at 1 January 2020 Additions - - Additions through business combination - - Reclassification - - - - Disposals/expensed exploration wells - - Currency translation effects Cost as at 31 December 2020 Depletion and impairment as at 1 January 2020 - - Depreciation - - - - Provision for impairment - - Disposals - - - - Currency translation effects - - Depletion and impairment as at 31 December 2020 - - Net book value as at 31 December 2020 USD 1000 Note Goodwill intangible assets Capitalised exploration wells Total Cost as at 1 January 2021 Additions - 295 Additions through business combination - - Reclassification - - Disposals/expensed exploration wells 8 - - Currency translation effects Cost as at 31 Desember 2021 Depletion and impairment as at 1 January 2021 - - Depreciation - - - - Provision for impairment 15 - - Disposals - - - - Currency translation effects - - Depletion and impairment as at 31 December 2021 - - Net book value as at 31 December 2021 Other Intangible assets include exploration potentials acquired through business combinations and are measured according to the successful efforts method. 114 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 114 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Note 13 Tangible assets USD 1000 Note production facilities Facilities under construction plant and equipment Total Cost as at 1 January 2020 Additions Asset retirement cost - Estimate change - - Additions through business combinations - - Reclassification - - Disposals - - - - Currency translation effects 854 Cost as at 31 December 2020 Depletion and impairment as at 1 January 2020 - Depreciation - Provision/reversal of impairment - - Disposals - - - - Currency translation effects - (381) Depletion and impairment as at 31 December 2020 - Net book value as at 31 December 2020 USD 1000 Note production facilities Facilities under construction plant and equipment Total Cost as at 1 January 2021 Additions Estimate change asset retirement cost - - Additions through business combinations - - - - Reclassification - Disposals - - Currency translation effects Cost as at 31 December 2021 Depletion and impairment as at 1 January 2021 - Depreciation - Provision/reversal of impairment 15 - - Disposals - - - - Currency translation effects - 380 Depletion and impairment as at 31 December 2021 - Net book value as at 31 December 2021 Reduction in asset retirement cost in 2021 mainly relates to increased discount rates. Increase asset retirement cost in 2020 relates to change in discount rate and updated cost estimate. 115 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 115 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Note 14 Right of use assets USD 1000 Note Rigs and vessels Total Cost as at 1 January 2020 Additions - - Additions through business combinations - - - - Reclassification - - - - Disposals - - Currency translation effects - - Cost as at 31 December 2020 Depletion and impairment as at 1 January 2020 Depreciation Provision/reversal of impairment - - - - Disposals - - Currency translation effects - - Depletion and impairment as at 31 December 2020 Net book value as at 31 December 2020 USD 1000 Note Rigs and vessels Total Cost as at 1 January 2021 Additions - - Reclassification - - Disposals - - - - Currency translation effects Cost as at 31 December 2021 Depletion and impairment as at 1 January 2021 Depreciation Provision/reversal of impairment - - - - Disposals - - - - Currency translation effects (393) Depletion and impairment as at 31 December 2021 Net book value as at 31 December 2021 116 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 116 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Note 15 Impairment Refer to note 15 in the Consolidated Financial Statements disclosing information to the Company’s impairment testing process, assumptions and sensitivity analysis. Impairment charge/reversal of goodwill and PP&E Below is an overview of the impairment charge/reversal and the carrying value per cash generating unit where impairment/ reversal was recognized in 2021 for Vår Energi ASA: Cash generating unit (USD 1000) value Recoverable amount Goodwill Deferred tax impact Balder - - Fenja - - Goliat - Tor - Other Total impairment Impairments were USD 114 million in 2021 mainly related to a revised baseline for sanctioned projects updated in Q4 2021. Reversals of impairments were USD 202 million in 2021 mainly related to higher price assumptions. Impairment of investments in subsidiaries The company’s investments in subsidiaries (see note 16) are carried at cost and therefore applicable for impairment testing under IAS 36. After the Jotun FPSO sale from PR Jotun DA to Vår Energi ASA in 2020 and the corresponding arbitration in 2021 to set final consideration, the carry value of the investment in Vår Energi ASA is lower than the underlying value. Impairment testing in 2020 The following impairments was recorded in 2020: Cash generating unit (USD 1000) Åsgard - Balder Area - Grane - Goliat Trestakk - Snorre/Vigdis - Greater Ekofisk Fram - - Tyrihans - Ormen Lange - Other Operating segment - Total 117 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 117 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Note 16 Investment in shares and other non-current assets Investment in subsidiaries The subsidiaries are owned 100% by Vår Energi. Subsidiaries USD 1000 Business Location 2021 Point Resources FPSO Holding AS Sandnes, Norway Vår Energi Marine AS Sandnes, Norway 664 Shares in subsidiaries The value of the Jotun FPSO-transaction in 2020 is not reflected in the equity in Point Resources FPSO Holding. USD 1000 2021 2020 Investments 1 January Value adjustments - Impairments - Translation differences Investments 31 December Other investments USD 1000 Business Location Norpipe Oil AS Tananger, Norway 6.52% 173 179 Tjeldbergodden Utvikling AS 0.48% 68 70 Ormen Lange Eiendom DA Tananger, Norway 6.34% 612 632 Investment in shares Non-current assets USD 1000 Alve slot fee Total other non-current assets Other mainly consists of non-current slot fee prepayment, where Marulk is paying a fee to Alve for use of umbilical at Alve. 118 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 118 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Note 17 Inventories USD 1000 Spare parts & drilling material Physical oil inventory Total inventory Note 18 Trade receivables USD 1000 Note Trade receivables - related parties 29 Trade receivables - external parties Sale of trade receivables Total trade receivables Please see note 18 for Group Financial Statement for details about factoring arrangements. Note 19 Other receivables and financial assets USD 1000 Note Underlift of hydrocarbons Prepaid expenses Brent crude put options - financial assets 20 Other Total current receivables 119 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 119 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Note 20 Financial instruments Please refer to note 20 in Group Financial Statement for more information, approximately same information for both. Below please find information where there is difference between Group and Company. Categories of financial assets and liabilities The Company has the following financial assets and liabilities: derivative financial assets and liabilities recognized at fair value through profit or loss, derivative financial assets and liabilities designated as accounting hedge instruments (cash flow hedges) for which the effective portion is recognized at fair value through other comprehensive income, accounts receivables that do not contain a significant financing component are measured at the transaction price determined under IFRS 15, cash and cash equiva- lents measured at fair value, loans and borrowings and other liabilities measured at amortised cost. 2021 USD 1000 Note fair value through profit and loss Cash, cash equivalents and Financial liabilities measured at amortised cost Cash flow hedge Total Assets Trade receivable 18 - - - Investments in shares 16 - - - Cash and cash equivalents 21 - - - Oil put options asset 19 - - - Other short term receivables 19 - - - Total financial assets - Liabilities Accounts payable - - - Net payables to joint operations 26 - - - Employees, accrued public charges and other payables 26 - - - Oil put options liability 26 - - - RCF credit facility 23 - - - Prepaid RBL/RCF loan expenses 23 - - - Deferred payment ExxonMobil 2022 23 - - - Total financial liabilities 120 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 120 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2020 USD 1000 Note fair value through profit and loss Cash, cash equivalents and Financial liabilities measured at amortised cost Cash flow hedge Total Assets Trade receivable 18 - - - Investments in shares 16 - - - Cash and cash equivalents 21 - - - Oil put options asset 19 - - - Other short term receivables 19 - - - Total financial assets - Liabilities Accounts payable - - - Net payables to joint operations 26 - - - Employees, accrued public charges and other payables 26 - - - Oil put options liability 26 - - - RBL credit facility 23 - - - Prepaid RBL loan expenses 23 - - - Deferred payment ExxonMobil 2022 23 - - - Total financial liabilities 121 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 121 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Note 21 Cash and cash equivalents USD 1000 Bank deposits, unrestricted Bank deposit, restricted, employee taxes Total bank deposits Note 22 Share capital and shareholders Refer to note 22 in the Consolidated Financial Statements disclosing information to the Company’s share capital and shareholders. Note 23 Financial liabilities and borrowings Refer to note 23 in the Consolidated Financial Statements disclosing information to the Company’s financial liabilities and borrowings. Note 24 Provision for abandonment liabilities Refer to note 24 in the Consolidated Financial Statements disclosing information to the Company’s provision for abandonment liabilities. Note 25 Other non-current liabilities Refer to note 25 in the Consolidated Financial Statements disclosing information to the Company’s other non-current liabilities. 122 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 122 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Note 26 Other current liabilities USD 1000 Note Overlift of hydrocarbons Net payables to joint operations Employees, accrued public charges and other payables Contingent consideration, current 27 - Deferred payment for option premiums - oil puts 20 Total other current liabilities The liability for oil put options relates to cost of oil put options that under the purchase agreement is due for payment at the time of settlement of the option (exercise/expiry) and is not a measure of fair value. Note 27 Commitments, provisions and contingent consideration Refer to note 27 in the Consolidated Financial Statements disclosing information to the Company’s commitments, provi- sions and contingent considerations. Note 28 Lease agreements Refer to note 28 in the Consolidated Financial Statements disclosing information about the Vår Energi lease agreements. The difference in the Parent Financial Statement is that the Jotun FPSO lease is included in 2020 and that the Ingrid USD 1000 Note 2021 2020 Opening Balance lease debt New lease debt in period Payments of lease debt Lease debt derecognized in period - Interest expense on lease debt Currency exchange differences Total lease debt Breakdown of the lease debt to short-term and long-term liabilities Short-term Long-term Total lease debt Lease debt split by activities Offices Rigs and Supply vessels Warehouse Total Nominal lease debt maturity breakdown Within one year Two to five years After five years Total 123 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 123 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Note 29 Related party transactions Refer to note 29 in the Consolidated Financial Statements disclosing information to the Company’s related party transactions. Intragroup transactions showed below Current assets USD 1000 Trade receivables Other 39 25 Current liabilities USD 1000 Account Payables 1 Other 2 - Operating and capital expenditures USD 1000 2021 2020 1 Other (187) 1 Relates to Jotun FPSO sale from PR Jotun DA to Vår Energi ASA. The decrease in liabilities and credit in operating and capital expenditures reflects the adjustment after an arbitration to set final consideration. Note 30 License ownerships Refer to note 30 in the Consolidated Financial Statements disclosing information to the Company’s license ownerships. Note 31 Proved developed reserves (unaudited) Refer to note 31 in the Consolidated Financial Statements disclosing information to the Company’s proved developed reserves. Note 32 Subsequent events Refer to note 32 in the Consolidated Financial Statements disclosing information to the Company’s subsequent events. 124 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 124 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Auditor’s report Independent Auditor's Report - Vår Energi ASA To the General Meeting of Vår Energi ASA Independent Auditor’s Report Report on the Audit of the Financial Statements Opinion We have audited the financial statements of Vår Energi ASA, which comprise: • The financial statements of the parent company Vår Energi ASA (the Company), which comprise the balance sheet as at 31 December 2021, the statement of comprehensive income, statement of changes in equity and stateme nt of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and • The consolidated financial statements of Vår Energi ASA and its subsidiaries (the Group), which comprise the balance sheet as at 31 December 2021, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion: • the financial statements comply with applicable statutory requirements, • the financial statements give a true and fair view of the financial position of the Company as at 31 December 2021, and its financial performance and its cash flows for the year then ended in accordance with In ternational Financial Reporting Standards as adopted by the EU, and (1) Independent Auditor's Report - Vår Energi ASA • the financial statements give a true and fair view of the financial position of the Group as at 31 December 2021, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the EU. Our opinion is consistent with our additional report to the Audit Committee. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company and the Group as required by laws and regulations and the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (including In ternational Independence Standards) (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. To the best of our knowledge and belief, no prohibited non-audit services referred to in the Audit Regulation (537/2014) Article 5.1 have been provided. We have been the auditor of the Company for 3 years from the election by the general meeting of the shareholders on 5 July 2019 for the accounting year 2019. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. (2) 125 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 125 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Auditor’s report Independent Auditor's Report - Vår Energi ASA Key Audit Matter How our audit addressed the Key Audit Matter Impairment of goodwill and property, plant and equipment Vår Energi ASA has property, plant and equipment with a carrying amount of USD 15 189 million at 31 December 2021. In addition, the carrying value of goodwill (including technical goodwill) was USD 2 532 million at 31 December 2021. In line with Vår Energi’s accounting policies for impairment of non-financial assets, management has assessed whether there are impairment or impairment reversal ind icators . Based on identified impairment indicators, an impairment calculation was prepared. Management’s assessment of recoverable amounts of goodwill and property, plant and equipment requires estimates and assumptions relating to operational and market factors and involves a significant amount of judgement. In addition, the calculation of recoverable amounts requires financial modelling of the cash flo ws re lated to the cash generating units, which can be inherently complex, and may require use of additional judgement. Based on the results of the assessment of impairment triggers and the corresponding calculation of recoverable We assessed management’s identification of impairment or impairment reversal indicators and agreed that indicators were present. We obtained management’s impairment calculation as of 31 December 2021. Management’s identification of cash generating units were in line with our expectations. For each cash generating unit, including allocated technical goodwill, we assessed the key inputs into the calculat ion of recoverable amount by: ● comparison of management´s short-term price assumptions against external price forward curves; ● comparison of long-term oil and gas price assumptions against long-term price assumptions communicated by peers and other publicly available sources; ● Tested CGU and underlying asset specific assumptions underlying the impairment test model (e.g. production profiles, capital expe nd itures, operating costs, removal costs); ● Assessing the reasonableness of CGU and underlying asset specific assumptions by comparing current year actual data to data that were forecasted for the current year and comparing current year actual data to data forecasted for future years; ● Reconciling removal costs and years in the impairment models towards the removal costs applied in the calculation of asset removal liability; (3) Independent Auditor's Report - Vår Energi ASA amounts, a total net impairment charge of USD 1 million was recognised in 2021. The impairment charges relate to impairments of technical goodwill of USD 203 million offset by reversals of impairments on property, plant and equipment of USD 202 million. We focussed on this area because goodwill and property, plant and equipment constitute a significant share of total assets in the balance sheet, and because the assessment of recoverable amount is complex and i nvo lves significant management judgement which may have a direct impact on net profit. Please refer to note 15 for a description of management’s assessment of impairment. ● Evaluation of internal reserves estimation process and testing certain controls in the reserves process. We also evaluated the professional qualifications and objectivity of management’s experts (internal reservoir engineers) who performed the detailed preparation of the reserve estimates and inquiring and analyse production and other changes in reserves throughout the year; ● Testing tax assumptions and calculations of tax basis and tax cash flows; ● Assessing the calculati on from post to pre tax impairment charge or reversal; and ● benchmarking of inflation, discount rates and exchange rates applied against external market data The valuation of goodwill and property, plant and equipment are inherently uncertain due to the judgemental nature of the underlying estimates. We further assessed the mathematical and methodological integrity of management’s impairment models. For ord inary goodwill, management determined that ordinary goodwill on 31 December 2021 was not impaired. We obtained and considered management’s estimation of fair value of the Company’s total assets and liabilities supporting the carrying value of goodwill at 31 December 2021. We also calculated the market capitalisation after the listing of the Company 16 February 2022 based on the quoted share price an d comp ared the market capitalization to the carrying value of net assets and liabilities at year-end. We evaluated the appropriateness of the related note disclosures and found that they satisfied IFRS requirements. (4) 126 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 126 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Auditor’s report Independent Auditor's Report - Vår Energi ASA Estimation of abandonment obligations Abandonment obligations as of 31 December 2021 were calculated for operated and non-operated assets. Abandonment obligations represent USD 3 297 million in the balance sheet as of 31 December 2021 and is accounted for as a non-current provision of USD 3 236 million and current provision of USD 62 million. The estimation and measurement of abandonment obligations requires a number of estimates and judgment s to be ap plied. This includes timing of actual cash flows, amount of abandonment costs and discount rate. The timing of removal is also dependent on the reserves estimation and is impacted by the commodity price outlook. The calculation of the abandonment obligations requires financial modelling of cash flows related to the removal and decommissioning cost. Such modelling can be complex and may require use of ad ditional judgement. We focused on this area due to the significant value the provision for abandonment obligations represents in the balance sheet, and the level of management judgement used in determining the provision for abandonment obligations. We obtained management’s assessment and model for calculation of abandonment obligations at 31 December 2021 and held meetings with management to under stand the nature and details of the calculation. We found the methodology to be in line with requirements in IFRS. The decommissioning cost estimates for the non-operated assets are based on the respective Operators cost estimate. We obtained the cost estimate prepared by the external Operators of the non-operated fields from management. We checked that the external cost estimates were included as inpu t in the calculation of the abandonment obligation for the non-operated fields and challenged assumptions applied. For the operated Balder and Goliat fields, the cost estimates are based on Vår Energi’s internal calculation and assessment. Vår Energi has involved a multi-discipline project team with professionals from various technical areas. The calculation of cost estimates for the Vår Energi operated fields are based on several cost inputs. We assessed the cost estimate assumptions applied for reasonableness. This included, but were not limited to, number of wells to be plugged, rig rates per day, decommissioning year and contingency level. We also tested the model used for calculating the abandonment obligations and found that the model makes calculations as expected. We received management’s ass essme nt of the timing of decommissioning and removal activities for each field. We benchmarked the inflation rate and the discount rate used in calculation of the (5) Independent Auditor's Report - Vår Energi ASA Please refer to note 24 for a description of how management has accounted for the abandonment obligations. abandonment obligations. Our testing substantiated that management assumptions were fair. We evaluated the appropriateness of the related note disclosures and found that they satisfied IFRS requirements. Other Information The Board of Directors and the Managing Director (management) are responsible for the information in the Board of Directors’ report and the other information accompanying the financial statements. The other information comprises information in the annual report, but does no t include the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the information in the Board of Directors’ report nor the other information accompanying the financial statements. In connection with our audit of the financial statements, our responsibility is to read the Board of Directors’ report and the other information accompanying t he financial statements. The purpose is to consider if there is material inconsistency between the Board of Directors’ report and the other information accompanying the financial statements and the financial statements or our knowledge obtained in the audit, or whether the Board of Directors’ report and the other information accompanying the financial statements otherwise appears to be materially mi sstated. We are required to report if there is a material misstatement in the Board of Directors’ report or the other information accompanying the financial statements. We have nothing to report in this regard. Based on our knowledge obtained in the audit, it is our opinion that the Board of Directors’ report ● is consistent with the financial statements and ● contains the information required by applicable legal re quirements. Our opinion on the Board of Director’s report applies correspondingly to the statements on Corporate Governance and Corporate Social Responsibility, and to the report on payments to governments. (6) 127 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 127 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Auditor’s report Independent Auditor's Report - Vår Energi ASA Responsibilities of Management for the Financial Statements Management is responsible for the preparation of financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the EU, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial stateme nts, management is responsible for assessing the Company’s and the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or erro r and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • identify and assess the risks of material misstatement of the financ ial statements, whether due to fraud or error. We design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misre presentations, or the override of internal control. (7) Independent Auditor's Report - Vår Energi ASA • obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's or the Group's internal control. • evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by ma nagement. • conclude on the appropriateness of management’s use of the going concern basis of accounting, and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company and the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company and the Group to cease to continue as a going concern. • evaluate the overall presentation, structure and content of the financial stateme nts, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves a true and fair view. • obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with the Board of Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the Audit Commi ttee with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the Board of Directors, we determine those matters that were of most significance in the audit of the financial s tatements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes (8) 128 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 128 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Auditor’s report Independent Auditor's Report - Vår Energi ASA public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on Other Legal and Regulatory Requirements Report on compliance with Regulation on European Single Electronic Format (ESEF) Opinion We have performed an assurance engagement to obtain reasonable assura nce that the financial statements with file name “20220329 Vår Energi Annual Report 2021” have been prepared in accordance with Section 5-5 of the Norwegian Securities Trading Act (Verdipapirhandelloven) and the accompanying Regulation on European Single Electronic Format (ESEF). In our opinion, the financial statements have been prepared, in all material respects, in accordance with the require ments of ESEF. Management’s Responsibilities Management is responsible for preparing, tagging and publishing the financial statements in the single electronic reporting format required in ESEF. This responsibility comprises an adequate process and the internal control procedures which management determines is necessary for the preparation, tagging and publication of the financial statements. Auditor’s Res ponsibilities Our responsibility is to express an opinion on whether the financial statements have been prepared in accordance with ESEF. We conducted our work in accordance with the International Standard for Assurance Engagements (ISAE) 3000 – “Assurance engagements other than audits or reviews of historical financial information”. The standard requires us to plan and perform procedures to obtain re asonable assurance that the financial statements have been prepared in accordance with the European Single Electronic Format. As part of our work, we performed procedures to obtain an understanding of the company’s processes for preparing its financial statements in the European Single Electronic Format. We evaluated the completeness and accuracy of the iXBRL tagging and assessed management’s use of judgeme nt. Our work (9) Independent Auditor's Report - Vår Energi ASA comprised reconciliation of the financial statements tagged under the European Single Electronic Format with the audited financial statements in human-readable format. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Stavanger, 29 March 2022 PricewaterhouseCoopers AS Gunnar Slettebø State Authorised Public Accountant (10) 129 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 129 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Statement by the Board of Directors and the Chief Executive Officer Pursuant to the Norwegian Securities Trading Act section § 5-5 with related regulations, we hereby confirm that, to the best of our knowledge, the Company’s and the group’s financial statements for 2021 have been prepared in accordance with IFRS, as adopted by the EU, and requirements in accordance with the Norwegian Accounting Act. The information presented in the financial statements gives a true and fair view of the company’s liabilities, financial position and results overall. To the best of our knowledge, the Board of Directors’ Report gives a true and fair view of the development, performance and financial position of the Company, and includes a description of the principal risk and uncertainty factors facing the Company and the Group. In addition, we confirm to the best of our knowledge, that the report ‘Payment to governments’ as provided in a separate section in this annual report, has been prepared in accordance with the requirements in the Norwegian Securities Trading Act Section 5-5a with related regulations. Sandnes, 29 March 2022 The Board of Directors of Vår Energi ASA Thorhild Widvey Chair Liv Monica Bargem Stubholt Deputy Chair Francesco Gattei Director Guido Brusco Director Clara Andreoletti Director Marica Calabrese Director Fabio Romeo Director Ove Gusevik Director Kjersti Selvik Director, employee representative Laurits Hosar Director employee representative Jan Inge Nesheim Director, employee representative Christine Vorland Director, employee representative Torger Rød Chief Executive Officer 130 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 130 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statementsFinancial statements GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Alternative Performance Measures (APMs) Vår Energi presents the APMs: CAPEX, CAPEX Coverage, EBITDAX, EBITDAX Margin, Free Cash Flow, NIBD, Adjusted NIBD, NIBD/EBITDAX Ratio, Adjusted NIBD/EBITDAX Ratio, TIBD/EBITDAX Ratio and Adjusted TIBD/EBITDAX Ratio. The APMs are not measurement of performance under IFRS (“GAAP”) and should not be considered to be an alternative to: (a) operating revenues or operating profit (as determined in accordance with GAAP), as a measure of Vår Energi’s operating performance; or (b) any other measures of performance under GAAP. The APM presented herein may not be indicative of Vår Energi’s historical operating results, nor is such measure meant to be predictive of the Group’s future results. Vår Energi believes that the APMs described herein is commonly reported by companies in the markets in which it competes and is widely used in comparing and analysing performance across compa- nies within the Group’s industry. The APMs used by Vår Energi are set out below (presented in alphabet- ical order): • “CAPEX” is defined by Vår Energi as expenditures on property, plant and equipment as presented in the cash flow statements within cash flow from investing activities. • “CAPEX Coverage” is defined by Vår Energi as cash flow from operat- ing activities as presented in the cash flow statements (“CFFO”), as a ratio to CAPEX. • “EBITDAX” is defined by Vår Energi as profit/(loss) for the period before income tax (expense)/income, net financial items, net exchange rate gain/(loss), depreciation and amortization, impair- ments and exploration expenses. • “EBITDAX margin” is defined by Vår Energi as EBITDAX and EBITDA as a percentage of total income, respectively. • “Free cash flow” (“FCF”) is defined by Vår Energi as CFFO less CAPEX and expenditures on exploration and evaluation assets. • “Net interest- bearing debt” or “NIBD” is defined by Vår Energi as interest-bearing loans and borrowings and lease liabilities (“Total interest-bearing debt” or “TIBD”) less cash and cash equivalents. • “Adjusted Net interest-bearing debt” or “Adjusted NIBD” is defined by Vår Energi as TIBD excluding lease liabilities (“Adjusted total inter- est-bearing debt” or “Adjusted TIBD”) less cash and cash equivalents. • “NIBD/EBITDAX” is defined by Vår Energi as NIBD as a ratio of EBITDAX. • “Adjusted NIBD/EBITDAX” is defined by Vår Energi as Adjusted NIBD as a ratio of EBITDAX. • “TIBD/EBITDAX” is defined by Vår Energi as interest-bearing loans and borrowings and lease liabilities as a ratio of EBITDAX. • “Adjusted TIBD/EBITDAX” is defined by Vår Energi as interest bearing loans and borrowings (but excluding lease liabilities) as a ratio of EBITDAX. 131 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 131 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Glossary Term Definition/description Boepd Barrels of oil equivalent per day Bscf Billions of standard cubic feet E&P Exploration and Production FPSO Floating, production, storage and offloading vessel HSEQ Health, Safety, Environment and Quality HSSE Health, Safety, Security and Environment Thousands of barrels of oil equivalent per day mmbls Standard millions of barrels mmboe Millions of barrels of oil equivalents Mmscf Millions of standard cubic feet MoF Ministry of Finance MPE Ministry of Petroleum and Energy NCS Norwegian Continental Shelf NGL Natural gas liquids NPD Norwegian Petroleum Directorate PDO Plan for Development and Operation PIO Plan for Installation and Operations PRMS Petroleum Resources Management System Scf Standard cubic feet Sm 3 Standard cubic meters SPT Special petroleum tax 1P reserves The quantities of petroleum which can be estimated with reasonable certainty to be commercially recoverable, also referred to as "proved reserves". 2C resources The quantities of petroleum estimated to be potentially recoverable from known accumulations, also referred to as "contingent resources". 2P reserves Proved plus probable reserves consisting of 1P reserves plus those additional reserves, which are less likely to be recovered than 1P reserves. 132 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 132 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 Financial calendar 2022 Quarterly Report – Q1 04 May 2022 Annual General Meeting Half-yearly Report 25 October 2022 Quarterly Report – Q3 133 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 133 CONTENTS | VÅR ENERGI VALUE CREATION SUSTAINABILITY LEADERSHIP DIRECTORS’ REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS GO BACK 2021 Artbox Report Template All rights reserved © Artbox AS 2021 2021 Artbox Report Template All rights reserved © Artbox AS 2021 artbox.noartbox.no 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