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OKEA ASA
Quarterly Report • Apr 28, 2020
3701_rns_2020-04-28_ef37f12c-ef31-4091-b4db-1b5913f9b31c.pdf
Quarterly Report
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First quarter 2020 summary
Highlights
- No serious incidents at operated operations
- Production of 19,099 (19,498) boepd
- Operating income of NOK 551 (764) million
- Impairments of NOK 634 (54) million largely related to adverse market developments during the quarter
- Loss from operating activities of NOK 503 (profit of 179) million
- Net loss on financial items of NOK -423 (-37) million mainly due to unrealised FX-loss on bonds
- Net profit / loss (-) before tax was NOK -926 (142) million
- Cash flow from operations of NOK 21 (494) million
(Amounts in parentheses refer to corresponding period previous year)
Financial and operational summary
| Unit | Q1 2020 | Q4 2019 | Q1 2019* | Full year 2019 |
|
|---|---|---|---|---|---|
| Revenue from crude oil and gas sales | NOKm | 504 | 534 | 748 | 2 936 |
| EBITDA 1) | NOKm | 312 | 226 | 413 | 1 636 |
| EBITDAX 1) | NOKm | 340 | 378 | 425 | 1 936 |
| Profit/loss (-) before income tax | NOKm | -926 | -35 | 142 | 419 |
| Profit/loss (-) before tax per share | NOK/share | -9.07 | -0.34 | 1.73 | 4.52 |
| Net profit / loss (-) | NOKm | -785 | -2 | -9 | -71 |
| Cash flow from operations | NOKm | 21 | 238 | 494 | 2 111 |
| Cash flow from investments | NOKm | -333 | -244 | -266 | -847 |
| Net interest-bearing debt 1) | NOKm | 1 752 | 893 | 1 920 | 893 |
| Draugen | Boepd 2) | 8,922 | 8,835 | 8,637 | 9,092 |
| Gjøa | Boepd 2) | 9,812 | 7,842 | 10,488 | 9,230 |
| Ivar Aasen | Boepd 2) | 365 | 343 | 373 | 341 |
| Total net production | Boepd 2) | 19,099 | 17,020 | 19,498 | 18,663 |
| Over/underlift/inventory adjustments | Boepd 2) | -3,289 | -3,185 | 767 | 818 |
| Net Sold volume | Boepd 2) | 15,810 | 13,835 | 20,265 | 19,481 |
| Production expense per boe 1) | NOK/boe | 87.3 | 120.7 | 82.1 | 95.7 |
| Realised liquids price | USD/boe | 48.4 | 61.2 | 56.2 | 56.6 |
| Realised gas price | USD/scm | 0.10 | 0.13 | 0.29 | 0.16 |
1) Definitions of Alternative Performance Measures refer to the last section of the Quarterly Report
- 2) Boepd is defined as barrels of oil equivalents per day
- * Restated
Financial review
Statement of comprehensive income
Total operating income in the first quarter was NOK 551 (764) million. The decrease from previous year was mainly due to reduced volumes sold from Gjøa and Draugen and lower oil and gas prices.
Other operating income / loss (-) amounted to NOK 47 (-6) million. The income in the first quarter mainly relates to gain from value adjustments of put options for oil and tariff income from Gjøa, while the loss last year relates to costs and value adjustments of put options for oil.
Production expenses amounted to NOK 167 (144) million, corresponding to NOK 87.3 (82.1) per boe. Net OKEA produced volumes were 19,099 (19,498) boepd in the quarter. The reduction was due to general field decline and the shut-in of the D-2 well at Draugen, partly offset by very high uptime at Draugen.
Changes in over-/under-lift positions and production inventory amounted to NOK -33 (-165) million. As over- /under-lift and inventory positions are recognised at the lower of production cost and market value at balance sheet date, the low oil price at the end of the quarter adversely impacted the valuation of inventory. Produced volumes exceeded sold volumes by 3,289 boepd in the quarter while sold volumes exceeded produced by 767 boepd last year.
Exploration expenses amounted to NOK 27 (12) million for the quarter which mainly relates to various field evaluation activities on Hasselmus in the Draugen licence, PL974 (Storskrymten) and PL038D (Grevling).
Total impairments amounted to NOK 634 (54) million and relate to technical goodwill on Draugen, Gjøa and Ivar Aasen as well as impairment of ordinary goodwill and asset under development (Yme). Impairments recognised in the quarter were primarily driven by the significant adverse development in in oil and gas prices in the quarter. Reference is made to note 10 for further information.
Depreciation in the first quarter of 2020 was NOK 182, compared to NOK 180 million in the first quarter of 2019.
General and administrative expenses amounted to NOK 11 (30) million and represent OKEA's share of costs after allocations to licence activities. The reduction was mainly due to reduced costs on corporate activities.
Net financial items amounted to NOK -423 (-37) million. The financial loss in the quarter was mainly due to a significant increase in the NOK/USD exchange rate which led to unrealised FX losses on bond loans of approximately NOK -518 (gain of 27) million in the quarter, partly offset by exchange rate gains on receivables and bank deposits in foreign currencies of NOK 136 (loss of 3) million. Interest expenses amounted to NOK 45 (59) million following deduction of capitalised borrowing cost of NOK -27 (0) million.
Profit / loss (-) before income tax amounted to NOK -926 (142) million for the quarter.
Tax expenses (-) / tax income (+) for the quarter amounted to NOK 142 (-151) million representing an effective tax income rate of 15% (107%). The deviation from the expected 78% was mainly caused by impairments that are not tax deductible and financial items which are tax deductible by approximately 30%. These effects were partly offset by the effect of uplift.
Net profit / loss (-) for the period was NOK -785 (-9) million and earnings per share were NOK -7.69 (-0.11).
Statement of financial position
Goodwill amounted to NOK 827 (1 473) million. The reduction was caused by impairments as further described in note 10.
Right-of-use assets amounted to NOK 142 (190) million at the end of the quarter.
Cash and cash equivalents were NOK 1 259 (586) million. The increase in cash and cash equivalents was mainly due to positive cash flow from operations and proceeds from share issues executed in 2019, offset by cash spending on investment and financing activities.
Spare parts, equipment and inventory amounted to NOK 121 (228) million.
Equity amounted to NOK 900 (1 447) million at the end of first quarter. The reduction was caused by net losses, largely due to impairments and unrealised losses resulting from the weakened NOK compared to USD, offset by share issues.
Provisions for asset retirement obligations amounted to NOK 4 045 (3 888) million. The increase was caused by accretion effects and regular updates in assumptions in calculation of estimates.
Interest-bearing loans and borrowings were NOK 3 012 (2 506) million. The NOK amount of bond loans has increased due to the significantly weakened NOK compared to USD.
The lease liability relating to IFRS 16 is split into a non-current liability of NOK 113 (144) million and a current liability of NOK 29 (46) million.
Trade and other payables amounted to NOK 1 019 (1 088) million, which mainly consisted of working capital from joint licences, trade creditors and prepayments from customers.
Statement of cash flows
Net cash flows from operating activities in the quarter amounted to NOK 21 (494) million. Revenues for the quarter were NOK 551 (764) million. The reduction compared to last year, was due to lower sold volumes and lower prices. In addition, settlement of the final completion statement to Shell relating to the acquisition of the Draugen and Gjøa assets and other changes in working capital items reduced cash flows from operations.
Net cash flows from investment activities in the quarter amounted to NOK -333 (-266) million, of which investments in Oil & Gas properties amounted to NOK -321 (-165) million, mainly relating to the Yme New Development project and the P1 project at Gjøa.
Net cash flows from financing activities in the quarter amounted to NOK -92 (-36) million, of which interest paid amounted to NOK -40 (-36) million and purchase of own bonds (OKEA02) amounted to NOK -52 million.
Operational review
OKEA produced 19,099 (19,498) boepd in the first quarter. The average realised liquid price was USD 48.4 (56.2) per barrel, while gas revenues were recognised at market value of USD 0.10 (0.29) per standard cubic metre (scm).
Draugen (Operator, 44.56%)
Production from Draugen was 8,922 (8,637) boepd net to OKEA for the quarter, representing an increase of approximately three per cent. Regularity was as high as 97% (78%).
The production increase was due to higher uptime. This effect was partly offset by shut-in of well D-2 due to a failed downhole safety valve and general production decline. OKEA is planning for an efficient and safe well intervention campaign to secure continued production from well D-2.
Production level at Draugen is as normal, despite reduced manning level onboard due to the Covid-19 situation. . There are no project activities ongoing, and the focus is on safe and normal operation as well as ordinary maintenance
Gjøa (Partner, 12.00%)
Net production to OKEA from Gjøa in the quarter was 9,812 (10,488) boepd and production regularity was as high as 97% (90%). Both availability and reliability are above plan, mainly due to good planning and execution of operations and project work and avoidance of disruptions. The SEGAL gas export system was stable during the quarter.
The P1 appraisal well is currently being drilled. The well has taken more time than planned due to weather conditions and an additional sidetrack being required to obtain better reservoir data for placement of the planned producer wells. The P1 project Topside/Subsea is ahead of schedule and first oil from P1 is expected in Q1 2021.
The planned shutdown scope for maintenance in 2020 is being reviewed due to Covid-19 risk, with a target to reduce risk by postponing scope to 2021.
Ivar Aasen (Partner, 0.554%)
Net production to OKEA from Ivar Aasen during the quarter was 365 (373) boepd. Production remains on plateau but is expected to fall off during Q2 2020 until the new Increased Oil Recovery (IOR) wells are drilled and put in production.
Due to the current low oil price and Covid-19 restrictions, a review of activity plans is ongoing and actions are taken to ensure business continuity. The Increased Oil Recovery (IOR) campaign for 2020 has not yet been approved in the licence, but the target is to maintain the two well rig commitments due to low break-even price for the increased production volumes.
Development projects
Grevling / Storskrymten (Operator, 35.00% / 60.00%)
Subsurface work and concept studies for the Grevling and Storskrymten licences has been matured to a concept selection level. Further studies for Carbon Capture and Storage (CCS) optionality for the jack-up Mobile Offshore Production Unit (MOPU) are planned during 2020.
Yme (Partner, 15.00%)
The Yme New Development project is ongoing with the upgrade of the jack-up rig Maersk Inspirer at Aker Solutions Yard in Egersund.
An additional rig campaign has been successfully executed, which completes the majority of the hook-up and carry-over scope for the wellhead module.
Availability of personnel at the yard, due to the Covid-19 restrictions, has adversely impacted the progress of upgrading the rig. The planned production start has therefore been pushed forward to year-end 2020. However, the timeline is uncertain due to the current Covid-19 situation in addition to inherent schedule risk of large modification projects.
Yme is expected to add a production of 7 500 boepd net to OKEA at plateau.
Exploration licences
Planning work for the two exploration wells near Grevling in PL973 (Chrysaor operator, OKEA 30%) has progressed during the quarter. In March, however, the licensees decided to postpone the activity due to the uncertainties caused by the Covid-19 situation. The two wells are now provisionally scheduled to be drilled in early 2021 and detailed well planning will continue throughout 2020.
The five new licences on the Norwegian Continental Shelf awarded by the Ministry of Petroleum and Energy under the Award in Pre-Defined Areas (APA) for 2019 were formally established in February and work programmes will commence in Q2.
Health, safety and the environment (HSE)
There have been no serious incidents in OKEA's operated assets in the first quarter of 2020, nor any recordable injuries. This is in accordance with OKEA's ambitions of a high HSE standard in our activities.
The first quarter of 2020 has been influenced by the world-wide situation related to the outbreak of Covid-19. OKEA has established a Business Continuity Team as a multi-discipline work group with the necessary resources and authority to ensure the right priorities, initiatives and plans to safeguard the health of the personnel as well as securing the business continuity in OKEA's operations and activities. Actions related to infection prevention and control have been implemented to limit the risk of infection, as well as establishing instructions for how to handle the situation if there should be an infection case, including upholding the high HSE standard and ensuring the business continuity priorities. This also involves implementing actions recommended by the Norwegian health authorities and by the Norwegian Oil and Gas Association. The situation has been handled without significant impact on the Draugen operations.
The Draugen licence partners are working to strengthen ambitions and identify opportunities to improve the environmental footprint of the Draugen operations and activities. Environmental management and prioritisation of opportunities to improve energy efficiency and greenhouse gas intensity were key areas emphasised. In addition, initiatives related to produced water and disposal strategies were high on the agenda, emphasising possibilities to further improve the environmental impact factor to reduce the risk of harmful impact to the marine life.
Outlook
The oil industry is currently facing a challenging combination of a global pandemic coupled with a dramatic fall in oil prices. OKEA has put a series of mitigations in place to ensure that the company is able to withstand the current market conditions for an extended time period, including safety measures in offices and operations and cost-cutting initiatives. The company has a solid cash balance and does not face any bond maturities until 2023 or refinancing requirements in the short term.
OKEA's portfolio of producing assets had a production expense of 87.3 NOK/boe in the first quarter of 2020 and will therefore continue to remain a positive contributor to the company's financial position even at low oil prices. In addition, as operator of Draugen, the company has flexibility to reduce expenditure through focused cost reduction measures, together with the deferral of non-essential activities into 2021 or beyond. For the entire portfolio measures already implemented reduces 2020 spending with NOK 270 million. Potential further saving potentials of NOK 160 million is currently evaluated. The measures implemented to preserve capital include reduced overall activity level, postponing exploration wells in PL973 and suspension of the Hasselmus development project for 12 months.
Based on management estimates, and in a continuing low oil price scenario, certain bond covenants may become in temporary breach. The company intends to enter into discussions with bondholders to request a waiver and has engaged DNB Markets to act as financial advisor in this respect. The Board and management will continue to closely monitor the situation.
Financial Statements with notes Q1 2020
Quarterly Report Q1 2020
Statement of Comprehensive Income
| Q1 2020 | Q1 2019 | 2019 | ||
|---|---|---|---|---|
| Amounts in NOK `000 | Note | (unaudited) | (unaudited) | (audited) |
| Revenues from crude oil and gas sales | 6 | 503 660 | 748 115 | 2 935 635 |
| YME compensation contract breach | 6 | - | 22 098 | 22 098 |
| Other operating income / loss (-) | 6 | 47 111 | -5 985 | 61 833 |
| Total operating income | 550 770 | 764 228 | 3 019 566 | |
| Production expenses | -166 862 | -144 106 | -708 649 | |
| Changes in over/underlift positions and production inventory | -33 494 | -164 585 | -272 472 | |
| Exploration expenses | -27 440 | -12 402 | -299 446 | |
| Depreciation, depletion and amortization | 8 | -181 622 | -180 210 | -703 883 |
| Impairment | 8, 9, 10 | -633 720 | -53 648 | -105 394 |
| General and administrative expenses | -10 826 | -30 151 | -102 562 | |
| Total operating expenses | -1 053 964 | -585 103 | -2 192 406 | |
| Profit / loss (-) from operating activities | -503 194 | 179 125 | 827 160 | |
| Finance income | 11 | 37 098 | 25 047 | 103 893 |
| Finance costs | 11 | -77 807 | -89 838 | -444 880 |
| Net exchange rate gain/loss (-) | 11 | -382 364 | 27 847 | -66 777 |
| Net financial items | -423 073 | -36 944 | -407 764 | |
| Profit / loss (-) before income tax | -926 268 | 142 181 | 419 396 | |
| Taxes (-) / tax income (+) | 7 | 141 537 | -151 456 | -490 527 |
| Net profit / loss (-) | -784 730 | -9 275 | -71 131 |
Other comprehensive income, net of tax:
Items that will not be reclassified to profit or loss in subsequent periods:
| Remeasurements pensions, actuarial gain/loss (-) | - | - | 418 |
|---|---|---|---|
| Total other comprehensive income, net of tax | - | - | 418 |
| Total comprehensive income / loss (-) | -784 730 | -9 275 | -70 712 |
| Weighted average no. of shares outstanding basic | 102 068 870 | 82 204 500 | 92 848 011 |
|---|---|---|---|
| Weighted average no. of shares outstanding diluted | 102 068 870 | 82 204 500 | 92 848 011 |
| Earnings per share (NOK per share) - Basic | -7,69 | -0,11 | -0,77 |
| Earnings per share (NOK per share) - Diluted | -7,69 | -0,11 | -0,77 |
Statement of Financial Position
| (unaudited) Amounts in NOK `000 Note (unaudited) (audited) ASSETS Non-current assets Goodwill 9, 10 826 908 1 472 721 1 425 568 Exploration and evaluation assets 17 653 9 320 15 927 Oil and gas properties 8 4 038 361 3 767 080 3 885 889 Buildings 8 86 719 91 344 87 875 Furniture, fixtures and office equipment 8 10 267 7 511 11 250 Right-of-use assets 3, 8 142 435 189 541 163 398 Other non-current assets 12 2 987 851 2 778 951 2 968 502 Total non-current assets 8 110 194 8 316 469 8 558 409 Current assets Trade and other receivables 14 607 734 840 921 621 913 Spareparts, equipment and inventory 17 121 056 228 154 142 291 Restricted cash - 142 123 - Cash and cash equivalents 15 1 259 339 585 949 1 663 478 Total current assets 1 988 129 1 797 146 2 427 682 TOTAL ASSETS 10 098 323 10 113 615 10 986 091 EQUITY AND LIABILITIES Equity Share capital 13 10 250 8 220 10 206 Share premium 1 912 462 1 624 104 1 912 462 Other paid in capital 10 139 1 754 6 855 Accumulated loss -1 032 824 -186 656 -248 094 Total equity 900 027 1 447 423 1 681 430 Non-current liabilities Asset retirement obligations 16 4 044 547 3 888 000 4 024 420 Pension liabilities 3 27 591 - 26 857 Lease liability 3, 20 113 514 144 034 117 996 Deferred tax liabilities 7 688 879 711 252 830 417 Interest-bearing loans and borrowings 19 3 011 608 2 505 875 2 556 570 Total non-current liabilities 7 886 140 7 249 161 7 556 259 Current liabilities Trade and other payables 18 1 019 295 1 087 578 1 371 587 Income tax payable 7 245 037 265 720 294 704 Lease liability - current 3, 20 28 632 45 544 45 544 Public dues payable 19 191 15 311 32 798 Provisions, current - 2 878 3 769 Total current liabilities 1 312 155 1 417 031 1 748 402 Total liabilities 9 198 295 8 666 193 9 304 661 |
31.03.2020 | 31.03.2019 | 31.12.2019 | |
|---|---|---|---|---|
| TOTAL EQUITY AND LIABILITIES | 10 098 323 | 10 113 615 | 10 986 091 |
Statement of Changes in Equity
| Share | Other paid | Accumulated | |||
|---|---|---|---|---|---|
| Amounts in NOK `000 | Share capital | premium | in capital | loss | Total equity |
| Equity at 1 January 2019 | 8 220 | 1 624 104 | 1 361 | -177 381 | 1 456 304 |
| Total comprehensive income/loss (-) for the period | -9 275 | -9 275 | |||
| Share based payment | 394 | 394 | |||
| Equity at 31 March 2019 | 8 220 | 1 624 104 | 1 754 | -186 656 | 1 447 423 |
| Equity at 1 April 2019 | 8 220 | 1 624 104 | 1 754 | -186 656 | 1 447 423 |
| Total comprehensive income/loss (-) for the period | -61 438 | -61 438 | |||
| Share issues, cash | 1 986 | 288 358 | 290 344 | ||
| Share based payment | 5 101 | 5 101 | |||
| Equity at 31 December 2019 | 10 206 | 1 912 462 | 6 855 | -248 094 | 1 681 430 |
| Equity at 1 January 2020 | 10 206 | 1 912 462 | 6 855 | -248 094 | 1 681 430 |
| Total comprehensive income/loss (-) for the period | -784 730 | -784 730 | |||
| Share issues, cash | 44 | 44 | |||
| Share based payment | 3 284 | 3 284 | |||
| Equity at 31 March 2020 | 10 250 | 1 912 462 | 10 139 | -1 032 824 | 900 027 |
Statement of Cash Flows
| Q1 2020 | Q1 2019 | 2019 | ||
|---|---|---|---|---|
| Amounts in NOK `000 | Note | (unaudited) | (unaudited) | (audited) |
| Cash flow from operating activities | ||||
| Profit / loss (-) before income tax | -926 268 | 142 181 | 419 396 | |
| Income tax paid/received | 7 | -49 667 | - | -171 671 |
| Depreciation, depletion and amortization | 8 | 181 622 | 180 210 | 703 883 |
| Impairment | 9, 10 | 633 720 | 53 648 | 105 394 |
| Accretion asset retirement obligations | 11 | 779 | 3 977 | 16 088 |
| Gain from sales of licenses | 6 | - | - | -19 063 |
| Interest expense | 11 | 72 261 | 54 417 | 297 998 |
| Loss on financial assets | 10 615 | - | - | |
| Change in trade and other receivables, and inventory Change in trade and other payables |
-1 098 | 158 584 | 434 004 | |
| Change in foreign exchange bond loans and other | -394 583 | -72 157 | 335 354 | |
| non-current items | 493 754 | -26 838 | -10 267 | |
| Net cash flow from / used in (-) operating | ||||
| activities | 21 135 | 494 024 | 2 111 116 | |
| Cash flow from investment activities | ||||
| Investment in exploration and evaluation assets | -1 726 | -3 588 | -10 195 | |
| Business combination, cash paid | - | - | -40 000 | |
| Investment in oil and gas properties | -320 577 | -164 843 | -852 611 | |
| Investment in buildings | - | - | - | |
| Investment in furniture, fixtures and office machines | -251 | -4 105 | -11 628 | |
| Net investment in (-)/release of restricted cash | - | -93 796 | 48 327 | |
| Investment in financial assets | -10 615 | - | - | |
| Proceeds from sales of licenses | - | - | 18 716 | |
| Net cash flow from / used in (-) investment | ||||
| activities | -333 170 | -266 332 | -847 391 | |
| Cash flow from financing activities | ||||
| Net proceeds from borrowings, bond loan | - | - | 1 062 157 | |
| Repayment/buy-back of borrowings, bond loan | -51 690 | - | -1 107 839 | |
| Interest paid | -40 458 | -36 413 | -232 412 | |
| Net proceeds from share issues | 44 | - | 283 177 | |
| Net cash flow from / used in (-) financing | ||||
| activities | -92 104 | -36 413 | 5 083 | |
| Net increase/ decrease (-) in cash and cash | ||||
| equivalents | -404 139 | 191 278 | 1 268 807 | |
| Cash and cash equivalents at the beginning of the | ||||
| period | 1 663 478 | 394 670 | 394 670 | |
| Cash and cash equivalents at the end of the | ||||
| period | 1 259 339 | 585 949 | 1 663 478 | |
| Restricted cash at the end of the period | 0 | 142 123 | 0 | |
| Restricted and unrestricted cash at the end of | ||||
| the period | 1 259 339 | 728 071 | 1 663 478 |
Notes to the interim financial statements
Note 1 General and corporate information
These financial statements are the unaudited interim condensed financial statements of OKEA ASA for the first quarter of 2020. OKEA ASA ("OKEA" or the "company") is a public limited liability company incorporated and domiciled in Norway, with its main office located in Trondheim. OKEA ASA's shares were listed on the Oslo Stock Exchange on 18 June 2019. The Company's ticker is OKEA.
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The Company's overall vision is to be the leading company on the Norwegian Continental Shelf in terms of delivering safe and costeffective field developments and operational excellence, while maintaining a competent organisation with direct management engagement in all projects and activities.
Note 2 Basis of preparation
The interim accounts have been prepared in accordance with IAS 34 Interim Financial Reporting. The interim accounts do not include all the information required in the annual accounts and should therefore be read in conjunction with the annual accounts for 2019. The annual accounts for 2019 were prepared in accordance with EU`s approved International Financial Reporting Standards (IFRS).
The interim financial statements were approved for issue by the company's Board of Directors on 27 April 2020.
Note 3 Accounting policies
The accounting policies adopted in the preparation of the interim accounts are consistent with those followed in the preparation of the annual accounts for 2019. New standards, amendments and interpretations to existing standards effective from 1 January 2020 did not have any significant impact on the financial statements.
Note 4 Critical accounting estimates and judgements
The preparation of the interim accounts entails the use of judgements, estimates and assumptions that affect the application of accounting policies and the amounts recognised as assets and liabilities, income and expenses. The estimates, and associated assumptions, are based on historical experience and other factors that are considered as reasonable under the circumstances. The actual results may deviate from these estimates. The material assessments underlying the application of the company's accounting policies, and the main sources of uncertainty, are the same for the interim accounts as for the annual accounts for 2019.
Note 5 Business segments
The Company's only business segment is development and production of oil and gas on the Norwegian Continental Shelf.
Note 6 Income
Breakdown of petroleum revenues
| Amounts in NOK `000 | Q1 2020 | Q1 2019 | 2019 |
|---|---|---|---|
| Sale of liquids | 418 517 | 570 161 | 2 486 165 |
| Sale of gas | 85 143 | 177 954 | 449 470 |
| Total petroleum revenues | 503 660 | 748 115 | 2 935 635 |
| Sale of liquids (boe*) | 907 496 | 1 259 259 | 5 024 339 |
| Sale of gas (boe) | 531 196 | 584 954 | 2 086 178 |
| Total Sale of petroleum in boe | 1 438 692 | 1 844 213 | 7 110 517 |
*Barrels of oil equivalents
Other operating income
| Total other operating income/loss (-) | 47 111 | 16 113 | 83 931 |
|---|---|---|---|
| Joint utilisation of logistics resources | 1 043 | - | - |
| Sale of licenses | - | - | 19 971 |
| Tariff income Gjøa | 15 182 | - | 56 681 |
| Gain / loss (-) from put options, oil | 30 886 | -5 985 | -14 819 |
| Yme compensation contract breach | - | 22 098 | 22 098 |
Note 7 Taxes
Income taxes recognised in the income statement
| Amounts in NOK `000 | Q1 2020 | Q1 2019 | 2019 |
|---|---|---|---|
| Change in deferred taxes current year | 141 537 | -40 865 | -72 117 |
| Taxes payable current year | - | -110 591 | -430 778 |
| Tax payable adjustment previous year | - | - | 117 251 |
| Change in deferred taxes previous year | - | - | -106 476 |
| Tax refund adjustment previous year | - | - | 1 592 |
| Total taxes (-) / tax income (+) recognised in | |||
| the income statement | 141 537 | -151 456 | -490 527 |
Reconciliation of income taxes
| Amounts in NOK `000 | Q1 2020 | Q1 2019 | 2019 |
|---|---|---|---|
| Profit / loss (-) before income taxes | -926 268 | 142 181 | 419 396 |
| Expected income tax at nominal tax rate, 22% | 203 779 | -31 280 | -92 267 |
| Expected petroleum tax, 56% Permanent differences, including impairment of |
518 710 | -79 622 | -234 862 |
| goodwill | -469 059 | -40 140 | -61 583 |
| Effect of uplift | 15 068 | 6 314 | 47 993 |
| Financial and onshore items | -126 961 | -6 729 | -162 177 |
| Effect of new tax rates | - | - | - |
| Change valuation allowance | - | - | - |
| Adjustments previous year and other | - | - | 12 368 |
| Total income taxes recognised in the | |||
| income statement | 141 537 | -151 456 | -490 527 |
| Effective income tax rate | 15 % | 107 % | 117 % |
Specification of tax effects on temporary differences, tax losses and uplift carried forward
| Amounts in NOK `000 | 31.03.2020 | 31.03.2019 | 31.12.2019 |
|---|---|---|---|
| Tangible and intangible non-current assets | -1 916 953 | -1 779 762 | -1 945 367 |
| Provisions (net ARO), lease liability, pensions and gain/loss account | 1 150 727 | 1 160 580 | 1 163 869 |
| Interest-bearing loans and borrowings | -13 989 | -30 197 | -14 661 |
| Current items | -9 128 | -99 328 | -47 346 |
| Tax losses carried forward, onshore 22% | 1 198 | 449 | 1 190 |
| Tax losses carried forward, offshore 22% | 64 884 | - | - |
| Tax losses carried forward, offshore 56% | 25 070 | - | - |
| Uplift, offshore 56% | 9 311 | 37 006 | 11 898 |
| Valuation allowance (uncapitalised deferred tax asset) | - | - | - |
| Total deferred tax assets / liabilities (-) recognised | -688 879 | -711 252 | -830 417 |
Deferred tax is calculated based on tax rates applicable on the balance sheet date. Ordinary income tax is 22%, to which is added a special tax for oil and gas companies at the rate of 56%, giving a total tax rate of 78%.
Companies operating on the Norwegian Continental Shelf under the offshore tax regime can claim the tax value of any unused tax losses or other tax credits related to its offshore activities to be paid in cash (including interest) from the tax authorities when operations cease. Deferred tax assets that are based on offshore tax losses carried forward are therefore normally recognised in full.
There is no time limit on the right to carry tax losses forward in Norway.
Note 8 Tangible assets and right-of-use assets
| Amounts in NOK `000 | Oil and gas properties in production |
Oil and gas properties under development |
Buildings | Furniture, fixtures and office machines |
Right-of-use assets |
Total |
|---|---|---|---|---|---|---|
| Cost at 1 January 2020 | 3 176 835 | 1 505 913 | 92 501 | 15 056 | 199 051 | 4 989 357 |
| Additions Reclassification from |
144 067 | 176 511 | - | 251 | - | 320 829 |
| inventory | 36 511 | 36 511 | ||||
| Removal and decommissioning asset |
- | - | - | - | - | - |
| Cost at 31 March 2020 | 3 357 414 | 1 682 424 | 92 501 | 15 308 | 199 051 | 5 346 697 |
| Accumulated depreciation and impairment at 1 January 2020 |
-796 860 | - | -4 625 | -3 806 | -35 653 | -840 944 |
| Depreciation | -169 557 | - | -1 156 | -1 235 | -9 674 | -181 622 |
| Impairment IFRS 16 Right-of-use assets presented gross related to leasing contracts entered into as licence operator |
- - |
-35 060 - |
- | - | -11 289 | -35 060 -11 289 |
| Accumulated depreciation and impairment at 31 March 2020 |
-966 416 | -35 060 | -5 781 | -5 041 | -56 617 | -1 068 915 |
| Carrying amount at 31 March 2020 |
2 390 997 | 1 647 364 | 86 719 | 10 267 | 142 435 | 4 277 782 |
Note 9 Goodwill
| Amounts in NOK `000 | Technical goodwill |
Ordinary goodwill |
Total goodwill |
|---|---|---|---|
| Cost at 1 January 2020 Additions through business combination |
1 114 547 | 416 415 | 1 530 962 |
| Cost at 31 March 2020 | - 1 114 547 |
- 416 415 |
- 1 530 962 |
| Accumulated impairment at 1 January 2020 | -105 394 | - | -105 394 |
| Impairment | -345 462 | -253 198 | -598 660 |
| Accumulated impairment at 31 March 2020 | -450 856 | -253 198 | -704 054 |
| Carrying amount at 31 March 2020 | 663 690 | 163 217 | 826 908 |
Note 10 Impairment
Tangible and intangible assets are tested for impairment whenever impairment indicators are identified and at least on an annual basis. Impairment is recognised when the book value of an asset or cash generating unit exceeds the recoverable amount. The recoverable amount is the higher of the asset's fair value less costs to sell and value in use. The recoverable amount is estimated based on discounted future after tax cash flows. The expected future cash flows are discounted to net present value by applying a discount rate after tax that reflects the weighted average cost of capital (WACC).
Technical goodwill arises as an offsetting account to the deferred tax recognised in business combinations and is allocated to each Cash Generating Unit (CGU). When deferred tax from the initial recognition decreases, more goodwill is as such exposed for impairments.
Below is an overview of the key assumptions applied in the impairment test as of 31 March 2020:
| Year | Oil USD/BOE* |
Gas GBP/therm* |
Currency rates USD/NOK |
|---|---|---|---|
| 2020 Q2-Q4 | 36,1 | 0,3 | 10,5 |
| 2021 | 39,9 | 0,3 | 10,5 |
| 2022 | 42,0 | 0,4 | 10,5 |
| 2023 | 48,8 | 0,4 | 10,5 |
| 2024 | 58,8 | 0,4 | 10,6 |
| From 2025 | 65,0 | 0,4 | 8,0 |
* Prices in real terms
Other assumptions
For oil and gas reserves future cash flows are calculated on the basis of expected production profiles and estimated proven and probable remaining reserves.
Future capex, opex and abandonment cost are calculated based on the expected production profiles and the best estimate of the related cost. For fair value testing the discount rate applied is 10.0% post tax.
The long-term inflation rate is assumed to be 2.0%.
Impairment testing of technical goodwill, ordinary goodwill and fixed assets
In the testing of impairment, fair value of the company is based on its market capitalisation around the balance sheet date. The fair value of the company is compared to the carrying value of the company's net assets.
Based on the impairment test, NOK 634 million in impairment charge has been recognised during the first quarter of 2020 and relates to technical goodwill on Draugen, Gjøa and Ivar Aasen in addition to impairment of asset under development at Yme and ordinary goodwill.
Sensitivity analysis
The principles applied for impairment testing of ordinary goodwill, as described above, ultimately sets a floor to the book value of the equity. Consequently, any worsened assumptions for market conditions, WACC or inflation rate will as such not lead to higher total company impairment values for Q1 2020 as changes in assumptions would initially impact the carrying value of Oil and Gas properties.
Note 11 Financial items
| Q1 2020 | Q1 2019 | 2019 |
|---|---|---|
| 2 431 | 333 | 5 037 |
| 19 349 | 24 714 | 98 856 |
| 15 318 | - | - |
| 37 098 | 25 047 | 103 893 |
| -72 261 | -59 093 | -297 882 |
| 27 107 | - | - |
| - | - | -116 |
| -549 | -89 | -12 300 |
| -20 127 | -28 691 | -114 944 |
| -11 976 | -1 964 | -19 639 |
| -77 807 | -89 838 | -444 880 |
| -42 171 | ||
| -3 396 | ||
| 136 078 | -3 057 | -21 210 |
| -382 364 | 27 847 | -66 777 |
| -407 764 | ||
| - -518 442 -423 073 |
3 514 27 390 -36 944 |
*Refer to note 21 for more information about derivatives.
Note 12 Other non-current assets
Amounts in NOK `000
| Other non-current assets at 1 January 2019 (Indemnification asset) | 2 754 237 |
|---|---|
| Changes in estimates | -327 243 |
| Effect of change in the discount rate | 442 651 |
| Unwinding of discount | 98 856 |
| Total other non-current assets at 31 December 2019 | 2 968 502 |
| Other non-current assets at 1 January 2020 (Indemnification asset) | 2 968 502 |
| Changes in estimates | - |
| Effect of change in the discount rate | - |
| Unwinding of discount | 19 349 |
| Total other non-current assets at 31 March 2020 | 2 987 851 |
The amount consists of a receivable from seller Shell from the acquisition of Draugen and Gjøa assets in 2018. The parties have agreed that the seller Shell will cover 80% of the actual abandonment expenses for the Draugen and Gjøa fields up to a predefined after-tax cap amount of NOK 638 million (2018 value) subject to Consumer Price Index adjustment. The present value of the expected payments is recognised as a pre-tax receivable on seller.
In addition, the seller has agreed to pay OKEA an amount of NOK 375 million (2018 value) subject to CPI adjustment according to a schedule based on the percentage of completion of the decommissioning of the Draugen and Gjøa fields.
The net present value of the receivable is calculated using a discount rate of 2.6% and recognised in the financial statements.
Note 13 Share capital
| Number of shares | Ordinary shares |
|---|---|
| Outstanding shares at 1.1.2020 | 102 064 050 |
| New shares issued during 2020 | 438 600 |
| Number of outstanding shares at 31 March 2020 | 102 502 650 |
| Nominal value NOK per share at 31 March 2020 | 0,1 |
| Share capital NOK at 31 March 2020 | 10 250 265 |
As per 31 March 2020 1,235,000 equity-settled warrants are still outstanding. See note 10 to the 2019 Annual Statements for further description.
Note 14 Trade and other receivables
| Amounts in NOK `000 | 31.03.2020 | 31.03.2019 | 31.12.2019 |
|---|---|---|---|
| Accounts receivable and receivables from operated licences | 70 777 | 108 544 | 254 626 |
| Accrued revenue | 43 191 | 178 024 | 73 211 |
| Prepayments | 37 579 | 53 304 | 9 883 |
| Working capital and overcall, joint operations/licences | 202 178 | 138 802 | 17 249 |
| Escrow receivable, Yme removal | - | -1 316 | - |
| Underlift of petroleum products | 216 401 | 323 140 | 262 095 |
| VAT receivable | 3 930 | 6 797 | 4 063 |
| Other short term receivables | - | 30 035 | - |
| Fair value put options, oil | 33 679 | 3 590 | 786 |
| Total trade and other receivables | 607 734 | 840 921 | 621 913 |
Note 15 Cash and cash equivalents
Cash and cash equivalents:
| Amounts in NOK `000 | 31.03.2020 | 31.03.2019 | 31.12.2019 |
|---|---|---|---|
| Bank deposits, unrestricted | 1 250 164 | 577 511 | 1 647 436 |
| Bank deposit, employee taxes | 9 175 | 8 437 | 16 041 |
| Total cash and cash equivalents | 1 259 339 | 585 949 | 1 663 478 |
Note 16 Asset retirement obligations
| Amounts in NOK `000 | Total non current |
|---|---|
| Provision at 1 January 2019 | 3 859 308 |
| Additions and adjustments | - |
| Changes in estimates | -536 803 |
| Effects of change in the discount rate | 586 971 |
| Unwinding of discount | 114 944 |
| Total provisions at 31 December 2019 | 4 024 420 |
| Provision at 1 January 2020 | 4 024 420 |
| Additions and adjustments | - |
| Changes in estimates | - |
| Effects of change in the discount rate | - |
| Unwinding of discount | 20 127 |
| Total provisions at 31 March 2020 | 4 044 547 |
Asset retirement obligations
Provisions for asset retirement obligations represent the future expected costs for close-down and removal of oil equipment and production facilities. The provision is based on the company's best estimate. The net present value of the estimated obligation is calculated using a discount rate of 2%. The assumptions are based on the economic environment around the balance sheet date. Actual asset retirement costs will ultimately depend upon future market prices for the necessary works which will reflect market conditions at the relevant time. Furthermore, the timing of the close-down is likely to depend on when the field ceases to produce at economically viable rates. This in turn will depend upon future oil and gas prices, which are inherently uncertain.
For recovery of costs of decommissioning related to assets acquired from Shell, see note 12.
Note 17 Spareparts, equipment and inventory
| Amounts in NOK `000 | 31.03.2020 | 31.03.2019 | 31.12.2019 |
|---|---|---|---|
| Inventory of petroleum products | 35 110 | 99 549 | 22 909 |
| Spare parts and equipment | 85 946 | 128 605 | 119 381 |
| Total spareparts, equipment and inventory | 121 056 | 228 154 | 142 291 |
Note 18 Trade and other payables
| Amounts in NOK `000 | 31.03.2020 | 31.03.2019 | 31.12.2019 |
|---|---|---|---|
| Trade creditors | 8 651 | 34 721 | 339 909 |
| Accrued holiday pay and other employee benefits | 49 166 | 32 012 | 69 294 |
| Working capital, joint operations/licences | 516 441 | 471 100 | 613 329 |
| Accrued interest bond loans | 34 319 | 28 921 | 6 120 |
| Accrued consideration from acquisitions of interests in licenses | - | 164 782 | -0 |
| Prepayments from customers | 284 427 | 183 769 | 174 324 |
| Fair value put options, foreign exchange | - | 12 050 | - |
| Loan from shareholder OKEA Holdings Ltd | 1 257 | 1 141 | 1 257 |
| Other accrued expenses | 125 034 | 159 083 | 167 354 |
| Total trade and other payables | 1 019 295 | 1 087 578 | 1 371 587 |
Note 19 Interest-bearing loans and borrowings
| Amounts in NOK `000 | OKEA02 | OKEA03 | Total |
|---|---|---|---|
| Bond loans at 1 January 2020 | 1 540 153 | 1 016 417 | 2 556 570 |
| Amortisation of transaction costs | 2 439 | 1 166 | 3 605 |
| Buy-back OKEA02 | -67 008 | - | -67 008 |
| Foreign exchange movement | 311 394 | 207 048 | 518 442 |
| Bond loans at 31 March 2020 | 1 786 977 | 1 224 631 | 3 011 608 |
During 2019 and Q1 2020 the company was in compliance with the covenants under the bond agreements.
The oil industry is currently facing a challenging combination of a global pandemic coupled with a dramatic fall in oil prices. OKEA has put a series of mitigations in place to ensure that the company is able to withstand the current market conditions for an extended time period, including safety measures in offices and operations and cost-cutting initiatives. The company has a solid cash balance and does not face any bond maturities until 2023 or refinancing requirements in the short term.
OKEA's portfolio of producing assets had a production expense of 87.3 NOK/boe in the first quarter of 2020 and will therefore continue to remain a positive contributor to the company's financial position even at low oil prices. In addition, as operator of Draugen, the company has flexibility to reduce expenditure through focused cost reduction measures, together with the deferral of non-essential activities into 2021 or beyond. For the entire portfolio measures already implemented reduces 2020 spending with NOK 270 million. Potential further saving potentials of NOK 160 million is currently evaluated. The measures implemented to preserve capital include reduced overall activity level, postponing exploration wells in PL973 and suspension of the Hasselmus development project for 12 months.
Based on management estimates, and in a continuing low oil price scenario, certain bond covenants may become in temporary breach. The company intends to enter into discussions with bondholders to request a waiver and has engaged DNB Markets to act as financial advisor in this respect. The Board and management will continue to closely monitor the situation.
Note 20 Leasing
The Company has entered into operating leases for office facilities. In addition, the Company has entered into operating leases as an operator of the Draugen field for platform supply vessel and associated Remote Operated Vehicle (ROV) upgrade, together with office and warehouse Draugen.
Amounts in NOK `000
| Lease debt 1 January 2020 | 163 540 |
|---|---|
| Additions lease contracts | |
| Accretion lease liability | 2 505 |
| Payments of lease debt | -23 899 |
| Total lease debt at 31 March 2020 | 142 145 |
| Break down of lease debt | |
|---|---|
| Short-term | 28 632 |
| Long-term | 113 514 |
| Total lease debt | 142 145 |
Future minimum lease payments under non-cancellable lease agreements
| Amounts in NOK `000 | 31.03.2020 |
|---|---|
| Within 1 year | 28 632 |
| 1 to 5 years | 110 815 |
| After 5 years | 53 918 |
| Total | 193 364 |
Future lease payments related to leasing contracts entered into as an operator of the Draugen field are presented gross.
Note 21 Derivatives
| Amounts in NOK `000 | 31.03.2020 | 31.03.2019 | 31.12.2019 |
|---|---|---|---|
| Premium commodity contracts | 6 721 | 5 528 | 4 785 |
| Unrealised gain/loss (-) commodity contracts | 26 958 | -1 938 | -4 000 |
| Short-term derivatives included in assets | 33 679 | 3 590 | 786 |
| Premium currency contracts | - | - | |
| Unrealised gain/loss (-) currency contracts | - | -12 050 | - |
| Short-term derivatives included in assets/liabilities (-) | - | -12 050 | - |
Note 22 Fair value of financial instruments
It is assessed that the carrying amounts of financial assets and liabilities, except for interest-bearing loans and borrowings, is approximately equal to its fair values. For interest-bearing loans and borrowings, the fair value is estimated to be NOK 2 591 840 thousand at 31 March 2020. The OKEA02 bond loan is listed on the Oslo Stock Exchange and the fair value is based on the latest quoted market price of 84,00 (level 1 in the fair value hierarchy according to IFRS 13). The OKEA03 bond loan is not yet listed on the Oslo Stock Exchange and the fair value is based on the latest quoted market price of OKEA02.
Fair values of put options oil are based on quoted market prices at the balance sheet date (level 2 in the fair value hierarchy). The fair values of the put options are equal to their carrying amounts.
Note 23 Events after the balance sheet date
The challenges caused by the combination of the global pandemic Covid-19 coupled with dramatic fall in oil prices continues. Reference is made to note 19 for the challenges related to potential breach of bond covenants.
Reconciliations of Alternative Performance Measures
| EBITDA | Q1 2020 | Q1 2019 | Year 2019 |
|---|---|---|---|
| Amounts in NOK `000 | 3 months | 3 months | 12 months |
| Profit / loss (-) from operating activities | -503 194 | 179 125 | 827 160 |
| Add: depreciation, depletion and amortization | 181 622 | 180 210 | 703 883 |
| Add: impairment | 633 720 | 53 648 | 105 394 |
| EBITDA | 312 148 | 412 984 | 1 636 437 |
| EBITDAX | Q1 2020 | Q1 2019 | Year 2019 |
|---|---|---|---|
| Amounts in NOK `000 | 3 months | 3 months | 12 months |
| Profit / loss (-) from operating activities | -503 194 | 179 125 | 827 160 |
| Add: depreciation, depletion and amortization | 181 622 | 180 210 | 703 883 |
| Add: impairment | 633 720 | 53 648 | 105 394 |
| Add: exploration expenses | 27 440 | 12 402 | 299 446 |
| EBITDAX | 339 588 | 425 386 | 1 935 883 |
| Production expense per boe | Q1 2020 | Q1 2019 | Year 2019 |
|---|---|---|---|
| Amounts in NOK `000 | 3 months | 3 months | 12 months |
| Productions expense | 166 862 | 144 106 | 708 649 |
| Minus: tariff income | -15 182 | - | -56 681 |
| Divided by: produced volumes (boe) | 1 738 009 | 1 774 318 | 6 811 995 |
| Production expense NOK per boe | 87,3 | 82,1 | 95,7 |
| Profit/loss (-) before tax per share | Q1 2020 | Q1 2019 | Year 2019 |
|---|---|---|---|
| Amounts in NOK `000 | 3 months | 3 months | 12 months |
| Profit / loss (-) before income tax | -926 268 | 142 181 | 419 396 |
| Divided by: weigh. average no. of shares | 102 064 050 | 82 204 500 | 92 848 011 |
| Result before tax per share (NOK per share) | -9,08 | 1,73 | 4,52 |
| Earnings per share | Q1 2020 | Q1 2019 | Year 2019 |
|---|---|---|---|
| Amounts in NOK `000 | 3 months | 3 months | 12 months |
| Net profit / loss (-) | -784 730 | -9 275 | -71 131 |
| Calculated interest on preference capital (8%) | - | - | - |
| Calculated net profit / loss (-) attributable to ordinary shares | -784 730 | -9 275 | -71 131 |
| Divided by: weigh. ave. no. of shares - Basic | 102 064 050 | 82 204 500 | 92 848 011 |
| or. Div. by: weigh. average no. of shares - Diluted | 102 064 050 | 82 204 500 | 92 848 011 |
| Earnings per share (NOK per share) - Basic | -7,69 | -0,11 | -0,77 |
| Earnings per share (NOK per share) - Diluted | -7,69 | -0,11 | -0,77 |
| Net interest-bearing debt | Q1 2020 | Q1 2019 | Year 2019 |
|---|---|---|---|
| Amounts in NOK `000 | 3 months | 3 months | 12 months |
| Interest-bearing loans and borrowings | 3 011 608 | 2 505 875 | 2 556 570 |
| Minus: Cash and cash equivalents | 1 259 339 | 585 949 | 1 663 478 |
| Net interest-bearing debt | 1 752 270 | 1 919 927 | 893 092 |
Definitions of Alternative Performance Measures
EBITDA is defined as earnings before interest and other financial items, taxes, depreciation, depletion, amortization and impairments
EBITDAX is defined as earnings before interest and other financial items, taxes, depreciation, depletion, amortization, impairments and exploration expenses
Net interest-bearing debt is book value of current and non-current interest-bearing debt excluding lease liability (IFRS 16) less cash and cash equivalents
Production expense per boe is defined as production expense less tariff income divided by produced volumes
Profit/loss (-) before tax per share is profit/loss (-) before income tax divided by weighted average number of shares outstanding
OKEA is an oil company contributing to the value creation on the Norwegian Continental Shelf with cost effective development and operation systems.
OKEA ASA
Ferjemannsveien 10 7042 Trondheim
www.okea.no