Company update
Stavanger, 1 October 2014: Norwegian Energy Company ASA ("Noreco" or the "Company") has received information of an unplanned shut-down of Huntington in October 2014. The Company has also received updated information indicating a need for write-downs of its Oselvar and Huntington reserves.
The Oselvar write-down is not expected to impact Noreco’s cash flow and liquidity in 2014 and 2015. The Huntington development will however, impact cash balances through 2015 and onwards, and the unplanned shut-down has created uncertainty whether Noreco will be able to meet its financial commitments also towards the end of 2014.
Together with financial advisers the Company is evaluating mitigating measures that would be required to secure a sustainable financing solution. Noreco is also working with operators and licence partners to fully understand the new reservoir data, and is exploring measures that could improve production levels at the fields.
Oselvar impairment
With respect to Oselvar, updated geological and reservoir evaluations made by the operator DONG Energy indicate lower in-place volumes, more complex reservoir, less connectivity and poorer reservoir quality, resulting in a reduction of reserves and a shorter production lifetime than previously assumed due to earlier economic cut off. As a consequence, the Company is considering a write-down of its booked reserves for the Oselvar field by approximately 50-75 per cent of current estimates, according to assessments that are still subject to validation.
The likely value impairment will be a lower percentage of the current net book value as this includes significant tax balances. The write-down is currently estimated at ca. NOK 100 million post tax, which represents approximately ca 25 per cent of current net book value. This is a preliminary estimate, which will be further considered up until release of the Q3 financial report in November. The write-down is not expected to impact the Company's liquidity in 2014 and 2015.
Huntington production 2014
The Huntington operator E.ON has been informed by the CATS (Central Area Transmission System) operator BP that Huntington’s gas export will be restricted with effect from 1 October 2014. This restriction will allow Huntington to produce up to approximately 3,500 boepd net to Noreco until 18 October 2014. Thereafter CATS will restrict Huntington to zero gas export until the end of October and as previously indicated for the planned shut-down from 1 November 2014 until 5 December 2014 resulting in no oil production.
E.ON is continuing to explore with BP whether there is any possibility for some gas export through CATS in the restricted periods. E.ON is also continuing ongoing work to verify whether injection of gas into the Huntington reservoir is technically feasible and safe, in which case some oil production may be possible during the period.
This new information regarding extended production shut-down on Huntington creates uncertainty about the Company’s ability to meet its financial commitments and covenants towards the end of 2014.
Huntington impairment
With respect to Huntington production in 2015, the operator's preliminary production budgets indicate a significant reduction compared to Noreco’s current estimates. The preliminary information and prognoses remain subject to further investigation, and more precise projections are expected in the second half of October. At the same time, Noreco is working with the Huntington operator and licence partners to explore measures that could improve production levels.
Should the preliminary production projections be verified and not offset by other positive reservoir developments or rectifying measures, a write-down of goodwill and Huntington’s net book value may be required, possibly in a magnitude of NOK 700 million post tax. This estimate will be subject to further quality assurance and updates as new information becomes available, up until release of the Q3 financial report in November.
This development is currently not expected to have any immediate liquidity effects, but will impact the Company's liquidity position through 2015 and onwards.
Evaluating alternatives with advisors
The Company is now working with the operator and the other partners in the Huntington field in an effort to clarify the situation. Pending final assessments and cash flow considerations, the Company, together with its financial advisors Arctic Securities and Pareto Securities, is actively looking at potential mitigating measures needed under the circumstances. This includes a broad review of alternatives available to the Company, in order to secure a sustainable financing solution. Noreco is closely monitoring the information becoming available and further updates will be shared with the market by mid October.
Nordic Trustee, the trustee under the Company's bond loans, and SR-Bank, the lenders’ representative in the Company’s exploration loan facility, are being kept informed of the situation.
Siri insurance
Regarding the Siri Insurance case it has previously been informed that a court meeting late August was expected to set a time schedule for the case. The meeting concluded on a plan for the further proceedings which is expected to result in a ruling from the court in 2016. Noreco’s view on its legal position in this case has not changed.
Certain procedural matters are currently being addressed by the parties based on requests from the court, including the submission of additional technical reports, in order to optimise the further process.
Nini and Cecilie production update
As reported before, the technical installation work related to the permanent repair of the Siri platform, over which both Nini and Cecilie’s production is being processed and transported was completed in July and production from the field has partly resumed.
The use of the subsea storage tank resumed 25 September 2014. Final commissioning and authority approvals are still outstanding but are expected shortly. The temporary solution with production directly to shuttle tanker has therefore been terminated.
Contacts:
Media: Svein Arild Killingland, CEO +47 992 83 900
Investor Relations: Tommy Sundt, CFO +47 992 83 900
and Geir Arne Drangeid, IR contact on +47 913 10 458
Or email: investorrelations@noreco.com
This information is subject of the disclosure requirements pursuant to section of 5-12 of the Norwegian Securities Trading Act
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About Norwegian Energy Company ASA
Noreco is an independent Norwegian oil company. The company's focus is to explore, develop and produce oil and gas in the North Sea region. Since incorporation in 2005, the company has grown through licencing rounds, exploration and acquisitions. Noreco operates in Norway, Denmark and United Kingdom, and employs 53 oil and gas professionals. Noreco is listed on the Oslo Børs (ticker NOR). For further information, please visit: www.noreco.com.