Dato for ledelsens godkendelse af årsrapporten:2023-05-15
Ledelsespåtegning:The Board of Directors and the Executive Board have today discussed and approved the annual report of Noreco Oil Denmark A/S for the financial year 1 January – 31 December 2022. The annual report has been prepared in accordance with the Danish Financial Statements Act. In our opinion, the financial statements give a true and fair view of the Company's assets, liabilities and financial position at 31 December 2022 and of the results of the Company's operations for the financial year 1 January – 31 December 2022. Further, in our opinion, the Management's review gives a fair review of the development in the Company's activities and financial matters, of the results for the year and of the Company's financial position. We recommend that the annual report be approved at the annual general meeting. Following the acquisition of Shell’s Danish upstream assets in 2019, Noreco holds a 36. 8 percent non-operated interest in the DUC and is the second largest oil and gas producer in Denmark. DUC is a joint venture between TotalEnergies (43. 2 percent), Noreco Oil Denmark A/S (36. 8 percent) and Nordsøfonden (20. 0 percent), and comprises four hubs (Halfdan, Tyra, Gorm and Dan) and 11 producing fields. It is operated by TotalEnergies, which has extensive offshore experience in the region and worldwide. Since the acquisition in 2019, Noreco has built a meaningful presence in Denmark and established good relationships with its partners TotalEnergies and Nordsøfonden, as well as other stakeholders including the DEA. Production remained robust as a result of proactive workovers and well restimulations and Noreco delivered strong production from the Halfdan, Dan and Gorm hubs in 2022 with a yearly production of 26. 7 mbøpd and an overall operational efficiency at approximately 88. 0 percent. The Tyra redevelopment is an ongoing project within the DUC and is the largest project that is ever carried out on the Danish continental shelf. During 2022, several important project milestones were reached. Successful completion of offshore installation campaign for Tyra II, which now has its final shape with all major lifts and installations completed. In 2022, the Company and its partners in the DUC announced a revision of the Tyra start-up date, from Q2 2023 to winter 2023/2024. The revision was driven by global supply chain challenges that had impacted the yard fabrication of the process module in addition to a revised plan by the Operator of the ongoing hook-up and commissioning work offshore. In 2022, the company participated in the following licences/concessions: Licence Field Ownership % DK 1/90 & 7/86 Lulita 10. 000 DK Sole Concession of 8 July 1962 DUC 36. 800 Organisational structure Noreco Oil Denmark A/S is a wholly owned subsidiary of Noreco Denmark A/S. The ultimate parent company BlueNord ASA is registered in Norway and listed at the Oslo Børs. For more information about the group please see the website www. bluenord. com. Noreco Oil Denmark A/S is the parent company of the subsidiaries Noreco Petroleum Denmark A/S and Noreco Oil UK Ltd. Noreco Petroleum Denmark A/S Noreco Petroleum Denmark holds a 10. 0% share of license 1/90 & 786. The company has no employees. Noreco Oil UK Ltd. The company currently holds no licences, however Noreco Oil (UK) Ltd. is actively seeking strategic opportunities. Key operations and profit Total revenue for 2022 amounted to USD 961 million, increased from USD 558 million the previous year. The revenue is related to oil and gas sales from the DUC fields. The revenue in 3 2022 was achieved by a production of 7. 5 million barrels of oil and 314. 3 million Nmof gas from the company’s share in the DUC fields, compared to 7. 5 million barrels of oil and 323. 2 3million Nm of gas the previous year. The increase in revenue reflects the high commodity prices in 2022. Realized average oil price for 2022 was USD 76 per barrel compared to USD 58 per barrel the previous year. Production cost amounted to USD 416 million in 2022 compared to USD 360 million in 2021. Net financial items amounted to an expense of USD 115 million in 2022, compared to an expense of USD 103 million in 2021. Income Tax amounted to a tax expense of USD 270 million for the year, compared to an expense of USD 23 million in 2021. Net profit after tax for the year amounted to USD 103 million compared to USD 18 million in 2021. Equity amounted to USD 503 million as of 31 December 2022 compared to USD 318 million as of 1 January 2022. The change in equity reflects the net profit after tax and value adjustments of financial instruments. Noreco is actively assessing the long-term potential for carbon capture and storage (CCS), both within its existing asset base in the DUC and beyond. Through Project Bifrost, where we are partner alongside TotalEnergies and Nordsøfonden, we are undertaking early-stage studies to determine the feasibility of CO2 transport and storage using existing infrastructure at the Harald reservoir. During 2022, Noreco also made a strategic investment in CarbonCuts, a start-up company focused on assessing the potential for onshore CCS in Denmark. Combined with Bifrost, Noreco has a portfolio of opportunities that will allow us, in the future, to progress those that best fit our profile at the time. Noreco has established a link in margin payable under the RBL and the achievement of ESG targets on emissions intensity reduction and power from renewables that will support progression of the Company’s ESG strategy. This provides a margin decrease for ESG targets being met and a margin increase if ESG targets are not met. Interest is accrued on the repayment amount with an interest rate comprising the current SOFR rate plus a 4. 0 – 4. 5 percent margin per annum. Outlook for 2023 Noreco has a stable business, underpinned by the Company’s position in the DUC and further supported by risk mitigations. The volatility in prices has been significant and management is continuously assessing the market to mitigate commodity price volatility. The Company has during 2022 entered into fixed-price swap contracts for additional oil and gas volumes from 2023 to 2024. The Company monitors the Russia-Ukraine conflict closely and has not identified any negative impact on the Company’s assets or income. See further detail on this issue and mitigations as outlined in the section Risks and Uncertainties on page 12. The Tyra redevelopment is progressing and will significantly enhance Noreco production on start-up. The Company also expects direct field operating expenditure to decrease to USD 13 per barrel when Tyra is back in production winter 2023-24. Noreco’s cash position has strengthened significantly during 2022 and the Company has a solid basis for executing the strategy and the ambition to deliver material shareholder returns and significant value creation. Activity to progress value additive organic DUC investment projects also continues, and we will seek to sanction projects as they are sufficiently matured. Noreco believes economic investments in these projects will help to replace produced reserves, and provide strong financial returns benefiting the Company’s shareholders. The Company expects revenue and net profit to be slightly lower than in 2022, this is caused by reduced production compared to 2022, driven by high maintenance and activity levels in Q2 and Q3 2023 and that prices for gas is expected to be below the high level in 2022. Research and development Noreco invests in research and development to support and further grow its E&P activities. The DUC has a partnership with DTU, Technical University of Denmark and has together established the Danish Hydrocarbon Research and Technology Centre (the “DHRTC”). DHRTC conducts research to improve future production of oil and gas from the Danish North Sea. The Centre's research seeks to increase sustainability through improved cost efficiency and reduced environmental impact. In 2022 the DUC invested DKK 95 million in the DHRTC. Current ongoing work programme includes: • Abandonment of offshore oil and gas fields. Monitoring of abandoned installations in reference to an environmental baseline, for long-term protection. • CO2 storage in old oil and gas fields. No showstoppers have been identified for storage in chalk. • Produced water management. Developing new technologies to optimise the water treatment process (zero harmful discharge vision). • Operations and maintenance technology. Modular architecture for planning maintenance in a cost-effective way. Corporate Social Responsibility Requirements according to the Danish Financial Statements Act, section 99a have been fulfilled. The information can be found in the Annual Report and Accounts 2022 of BlueNord ASA. For a statement of the company's corporate social responsibility, please refer to Annual Report and Accounts 2022 of BlueNord ASA page 34, the information can be found at: https://bluenord. com/wp-content/uploads/2023/03/BlueNord-2022-Annual-Report. pdf Information in relation to the company’s work with human rights can be found in the Annual Report and Accounts 2022 of BlueNord ASA page 52-54. Information in relation to the company’s work with anti-corruption and bribery can be found https://bluenord. com/pdf/Code-of-Conduct. pdf and Annual Report and Accounts 2022 of BlueNord ASA page 52-54. Health, Environment and Safety Noreco puts emphasis on its employees performing company activities in line with the principals of business integrity and with respect for people and the environment. During 2022, Noreco was, through its ownership in the DUC in which TotalEnergies is the operator, involved in production of oil and gas which could cause emissions to the sea and air. Noreco will conduct its business operation in full compliance with all applicable national legislation in the countries where it is operating. The Company is committed to carry out its activities in a responsible manner to protect people and the environment. Our fundamentals of HSEQ and safe business practice are an integral part of Noreco’s operations and business performance. The Danish Offshore Safety Act is the legal framework for promotion of a high level for health and safety offshore and for creating a framework enabling the companies to solve offshore health and safety issues themselves. The Danish Offshore Safety Act generally applies to all offshore activities related to hydrocarbon facilities, infrastructure and pipelines connected hereto. Licensees under the Danish Subsoil Act are required to identify, assess and reduce health and safety risks as much as reasonably practicable, as well as be compliant with the ALARP (As Low As Reasonably Practicable) principle. Furthermore, the licensee shall ensure that operators are able to fulfil the safety and health obligations pursuant to the Danish Offshore Safety Act. Reporting of tax payments to Governments Requirements according to the Danish Financial Statements Act, section 99c have been fulfilled. The information can be found in the Annual Report and Accounts 2022 of Norwegian Energy Company ASA at page 87, the information can be found at: https://bluenord. com/wp-content/uploads/2023/03/BlueNord-2022-Annual-Report. pdf Report on data ethics Noreco døs not yet have a policy for data ethics. Noreco primarily sells its products to few large companies and døs not handle a significant amount of sensitive personal data. However, one of the purposes of Noreco Code of Conduct is to ensure that the employees familiarize themselves, and are aware of, proper data management within the Noreco organization. Risks and uncertainties Noreco Oil Danmark A/S is subject to a variety of risks, which derive from the nature of the oil and gas production and exploration activities, with zero tolerance for compliance risks and operational risks tolerance as low as reasonably practical. Within the Noreco Group a single overall control framework is in place, which is designed to manage rather than eliminate the risk of failure to achieve business objectives, and only provides reasonable and not absolute assurance against material misstatement or loss. Management of the Company is responsible for application of, adherence to and safeguarding of internal systems for risk management. The risks that the Company faces could have a material adverse effect separately, or in combination, on operational performance, earnings, cash flows and financial conditions. The most significant risks in general terms and for the Company include: Risks related to the Company’s assets The Company’s future production of oil and gas is concentrated in a limited number of offshore fields that are located in a congregated geographical area. There are currently four production hubs which are interconnected and utilize the same infrastructure. In addition to this, the fields within one hub are interconnected and one field can depend on another for gas injection and other factors important to extract hydrocarbons. Gas produced on each of the hubs is normally processed and transported to shore via the Tyra hub. Due to the ongoing Tyra Redevelopment, gas is temporarily going to Dan and sent to the NOGAT system in the Dutch sector. The Gorm hub receives liquids from all the other hubs and sends it to shore via a pipeline on Gorm E. Consequently, the concentration of fields, infrastructure and other Noreco assets may result in that accidents, problems, incidents or similar on one location may affect a significant part of Noreco’s business. Reserves risk The Company’s oil and gas production could vary significantly from reported reserves and resources. Should actual production deviate from estimated reserves, this may have a significant impact on the value of the Group’s assets, the cash flow from operations and total revenues over the lifetime of the assets. Material deviations between actual results and estimated reserves for one asset may also create uncertainties about the estimated reserves of other assets based on the same assumptions, which may in turn be detrimental for investors’ confidence in Noreco’s reserves estimates. Risks related to development projects Noreco’s development projects and resource portfolio will require substantial investments to bring into production. The Company may be unable to obtain needed capital or financing on satisfactory terms, which could lead to a decline in its oil and gas reserves. The Company makes and expect to continue to make substantial investments in its business for the development and production of oil and natural gas reserves. The Company’s development projects may not be finalized within the projected budget or timeframe, or other unforeseen events may arise which affects the projects. The Company intends to finance the majority of its future investments with cash flow from operations and borrowings under its RBL Facility and other equity and debt facilities. Decommissioning risks There are significant uncertainties relating to the cost for decommissioning of licences including the schedule for removal of any installation and performance of other decommissioning activities. No assurance can be given that any anticipated costs and time of removal will be correct and any deviation from such estimates may have a material adverse effect on the Company’s business, results of operations, cash flow and financial condition. Third party risk the Company is subject to third party risk in terms of operators and partners as it døs not have a majority interest in any of its licences, and consequently cannot solely control such assets. Although the Company has consultation rights or the right to withhold consent in relation to significant operational matters, depending inter alia on the importance of the matter, level of its interest in the licence, which licence, the contractual arrangements for the licence, etc, the Company will have limited control over management of such assets and mismanagement by the operator or disagreements with the operator as to the most appropriate course of action may result in significant delays, losses or increased costs to it. Jointly owned licences also result in possible joint liability, on certain terms and conditions. Other participants in licences may default on their obligations to fund capital or other funding obligations in relation to the assets. In such circumstances, the Company may be required under the terms of the relevant operating agreement or otherwise to contribute all or part of such funding shortfall ourselves. Risks related to commodity prices The Company’s business, results of operations, cash flow and financial condition will depend significantly on the level of oil and gas prices and market expectations of these and may be adversely affected by volatile oil and gas prices. The Company’s future revenues, cash flow, profitability and rate of growth depend substantially on prevailing international and local prices of oil and gas. As oil and gas are globally traded commodities, Noreco is unable to control or predict the prices it receives for the oil and gas it produces; however, the Company has a material hedging programme in place that mitigates the short-term impact of price volatility. The hydrocarbons produced from specific fields may have a premium/discount to benchmark prices such as Brent and this may vary over time. Currency risks The Group is exposed to market fluctuations in foreign exchange rates. Revenues are in USD for oil and in EUR for gas, while operational costs, taxes and investment are in several other currencies, including DKK. The Company’s financing is primarily in USD. Significant fluctuations in exchange rates between EUR and DKK, and USD and DKK may materially adversely affect the reported results. Risks related to Danish taxation and regulations All of Noreco Oil Denmark’s petroleum assets are located in Denmark and the petroleum industry is subject to higher taxation than other businesses. There is no assurance that future political conditions in Denmark will not result in the relevant government adopting different policies for petroleum taxation than currently in place. However, due to the Compensation Agreement in place between the Danish State and the DUC, any alterations in present legislation to the disadvantage of the DUC licensees would be compensated. The compensation would be determined with a view to the impact of the changes on the DUC but however cannot exceed the net advantage deemed to have been obtained by the State. This agreement effectively reduces the risk associated with Danish taxation and regulations and provides for a high degree of influence for the DUC in the design and adoption of any amendments to the petroleum tax rules. As an oil and gas producer in Denmark, the Company is exposed to risk relating to the EU imposed Solidarity Contribution and a law proposal for the implementation is currently being presented in the Danish parliament. As taxation has a major impact on the Company’s results, such amendments may significant impact the group’s cash flow and financial condition. A further proposal yet to be adopted is regarding additional CO2 duties. The proposal as currently presented would be implemented from 2025 but as it is still in proposal stage, the timing and extent of impact remains uncertain. Risks related to debt financing Noreco has exposure to floating interest rates, through the Company’s debts to other group companies and debt under the RBL facility. The Company’s floating interest rate exposure (SOFR) under its Reserve Based Lending Facility has been fixed through a swap agreement with a group of banks from 1 November 2021 until 30 June 2024. Noreco will as a result pay interest on its RBL cash drawings equal to 0. 4041 percent plus the applicable margin, adjusted as described under Key operations and profit. The Company’s material hedging programme provides significant visibility over Noreco’s ability to meet its requirements related to debt financing. Risks related to future capital requirements Noreco’s future capital requirements will be determined based on several factors; including production levels, commodity prices, future expenditures that are required to be funded and Financial reporting risk While Noreco has in place internal controls covering the Company’s financial reporting function, any material error or omission could significantly impact the accuracy of our reported financial performance and expose the Company to a risk of regulatory or other stakeholder action. Insurance risk Although the Company maintains liability insurance in an amount that it considers adequate and consistent with industry standard, the nature of the risks inherent in oil and gas industry generally, and on the Danish Continental Shelf specifically, are such that liabilities could materially exceed policy limits or not be insured at all, in which event the Company could incur significant costs that could have adverse effect on its financial condition, results of operation and cash flow. Political and regulatory risks The Company is exposed to political and regulatory risks. Exploration and development activities in Denmark are dependent on receipt of government approvals and permits to develop its assets. The Danish Subsoil Act, among other things, sets out different criteria for the organization, competence and financial capability that a licensee at the Danish Continental Shelf (DCS) must fulfil at all times. The Company is qualified to conduct its operations on the DCS, however, there is no assurance that future political conditions in Denmark will not result in the government adopting new or different policies and regulations on exploration, development, operation and ownership of oil and gas, environmental protection, and labour relations. In December, the Danish government announced the “2050 North Sea Agreement” ceasing oil and gas extraction by 2050. The agreement provides industry stability and opportunities on the DCS, beyond the DUC concession which expires in 2042. Further, the Company may be unable to obtain or renew required drilling rights, licences, permits and other authorizations and these may also be suspended, terminated or revoked prior to their expiration. Risks related to environmental regulations The Company may be subject to liability under environmental laws and regulations. All phases of the oil and gas business present environmental risks and hazards and are subject to environmental regulation pursuant to a variety of international conventions and state and municipal laws and regulations. Environmental legislation provides for, among other things, restrictions and prohibitions on spills, and releases or emissions of various substances produced in association with oil and gas operations. The legislation also requires that wells and facility sites are operated, maintained, abandoned and reclaimed to the satisfaction of applicable regulatory authorities. The Company is subject to legislation in relation to the emission of carbon dioxide, methane, nitrous oxide and other so-called greenhouse gases. Compliance with such legislation can require significant expenditures and a breach may result in the imposition of fines and penalties, some of which may be material, in addition to loss of reputation. Reputational risks Noreco may be negatively affected by adverse market perception as it depends on a high level of integrity and to maintain trust and confidence of investors, DUC participants, public authorities and counterparties. Any mismanagement, fraud or failure to satisfy fiduciary or regulatory responsibilities, or negative publicity resulting from other activities, could materially affect the Company’s reputation, as well as its business, access to capital markets and commercial flexibility. Subsequent events There are no events with significant accounting impacts that have occurred between the end of the reporting period and the date of this report. The Company monitors the Russia–Ukraine situation closely and has not identified any negative impact on the Company’s assets or income. In March 2023 Noreco announced its intention to change name to BlueNord, the name change was approved by the Annual General Meeting in Norwegian Energy Company ASA, held on April 25 2023.
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