In 1Q20, Aker BP’s net production was 208 100 (191 100) boe/d, and net sold volume was 207 500 (184 500) boe/d. These volumes represent a new all-time high for Aker BP, reflecting the continued ramp-up of production from the Johan Sverdrup field. Petroleum revenues did however decline by approximately 20% due to significantly lower realised oil and gas prices. This decline was partly mitigated by gains from the company’s oil price hedging programme. Total income for 1Q20 amounted to US$872 (1003) million.
Production costs for the oil and gas sold in the quarter amounted to US$156 (154) million. Per produced boe, production cost was reduced to US$8.7 (9.1). Exploration expenses amounted to US$50 (85) million and included costs of the Nidhogg well which was concluded as a non-commercial gas discovery. Depreciation amounted to US$277 (255) million, equivalent to US$14.6 (14.5) per boe. Impairments amounted to US$654 (0) million and were mainly caused by the sharp reduction in oil prices and the corresponding effect on investment plans and asset valuations.
Net financial expenses were US$149 (67) million in the quarter, negatively impacted by the weaker NOK versus US$. Loss before taxes amounted to US$414 million, compared to a profit of US$424 million in 4Q19. Tax income was US$80 million, compared to a tax expense of US$312 million in the previous quarter. The low effective tax rate for the first quarter mainly reflects the limited deductibility towards the special petroleum tax for financial items and impairments, as well as the currency-driven revaluation of the company’s tax balances. Overall, the company reported a net loss of US$335 million for the quarter, compared to a net profit of US$112 million in the previous quarter.
Investments in fixed assets amounted to US$343 (490) million in the quarter, driven by field development activities across the company’s portfolio. First oil from Skogul was achieved during the quarter. Skogul is the subsea production well number 36 in the Alvheim area and has been delivered safely, efficiently and on schedule.
Updated investment programme
In order to secure its financial optionality in response to the uncertainty caused by the Covid-19 situation and the sharp reduction in oil prices, Aker BP has made significant changes to its investment program which was presented at the company’s Capital Markets Update in February 2020. All non-sanctioned field development projects are put on hold, and several exploration wells are postponed. For 2020, this represents a 20% reduction in capital spend compared to previous guidance, with potential for further reductions in coming years. Production costs are also expected to be reduced by around 20% from previous guidance, as all non-critical activities are being postponed and the weaker NOK favourably impacts the cost level. The production guidance for 2020 remains unchanged at 205-220 mboepd. The longer-term production outlook will obviously be impacted by the company’s investment level.
Liquidity and financial position
Maintaining a strong financial position is a key strategic priority for Aker BP, and the company is continuously managing its capital structure and exposures to enhance flexibility and reduce cost and risk. During the first quarter, the company strengthened its liquidity by issuing US$1.5 billion in new long-dated bonds at attractive terms. Furthermore, the maturity for US$2 billion of the company’s bank facility (RCF) was in April extended by one year from 2024 to 2025. The company’s oil price hedging programme has also been expanded. At the end of the first quarter Aker BP had US$4 billion in available liquidity, with no significant debt maturities until 2022.
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