Company update
Stavanger, 15 October 2014: Reference is made to the stock exchange notice dated 1 October 2014, where Norwegian Energy Company ASA ("Noreco" or the "Company") informed of expected write-downs of Oselvar and Huntington and uncertainty with respect to whether the Company would be able to meet its financial covenants year-end 2014 due to lower Huntington production, as well as significant negative impact on Noreco’s cash-flow in 2015 and beyond.
The work on mitigating actions by the Huntington operator E.ON continues for both short-term and longer-term production performance. Updates on these efforts are expected over the next couple of weeks. Negative developments in the performance of Noreco’s producing fields have, however, further added to the challenge in meeting cash covenants, and it now appears unlikely that the Company will be able to comply with its cash covenants towards the end of 2014 and through 2015.
Assessing all available alternatives
In addition to work related to data verification and operational measures, the Company continues, together with its financial and legal advisers, to assess the situation and the potential consequences for the Company and the stakeholders.
As previously reported, a full review of available alternatives and what would be required to secure a sustainable financing solution is being conducted. These efforts include a potential strategic solution for which commercial discussions are currently ongoing.
However, given the situation and also as there can be no assurance that such strategic solution will be successful, the Company expects to enter into more close discussions with shareholders, Nordic Trustee and bondholder representatives in the near term in order to seek the basis for an agreed capital restructuring, which all parties can support on an informed basis. The Company notes in this respect that such discussions are expected to be needed also under a strategic solution, should this prove viable.
Nordic Trustee, the trustee for the Company's bond loans, and SR-Bank, the lenders’ representative in the Company’s exploration loan facility, continue to be kept informed of the situation.
Cash position
As of 30 September 2014, total free cash in the group amounted to NOK 736 million. Of this NOK 695 million was held by the parent company in unpledged accounts, NOK 22 million in accounts in subsidiaries guaranteeing the NOR10 bond and NOK 0 million in accounts in subsidiaries guaranteeing the NOR06 bond. The estimated liquidity position according to current prognosis is now below NOK 100 million at 31 December 2014 (assuming payment of instalments and interests). Further, the liquidity position is also expected to be below covenant level through 2015.
Huntington production 2014
As previously informed Huntington’s gas export has been restricted with effect from 1 October 2014 due to operational problems in the CATS system. This restriction is still expected to be in place until 18 October, thereafter a full stop of Huntington gas export through CATS is expected until 5 December 2014, resulting in no oil production for that period, unless mitigating measures are successfully implemented by the operator.
Production from Huntington since the announcement has been 1,600 boepd net to Noreco. The operator continues its work on possible injection of gas into the reservoir in the restriction period. Further information on the feasibility of this is expected over the next couple of weeks.
Huntington impairment
The preliminary production estimates received from the operator have been subject to a thorough review by Noreco since 1 October 2014, but remain largely unchanged. The current production profile of Huntington, reflecting certain mitigating measures stipulated by Noreco, indicates approximately 50 % lower production in 2015 and 27 % lower in 2016 compared to the Company’s business plan as of October 2013.
Noreco continues to work with the operator and the license partners to fully understand the new reservoir data, but absent positive reservoir developments or successful mitigating actions a write-down of goodwill and Huntington’s net book value in the magnitude of NOK 700 million post tax is still considered the most likely outcome.
A renewed update from the operator on its work on mitigating actions is expected over the next couple of weeks. This work mainly focuses on options to optimise the water injector wells through intervention by ship or a drilling rig. The Huntington impairment will be subject to further quality assurance up until release of the Noreco’s Q3 financial report in November.
Oselvar impairment
Based on estimates from field operator Dong Energy, the booked reserves for the Oselvar field are likely to be written down by 75 %. This is due to lower in-place volumes, a more complex reservoir, less connectivity and poorer reservoir quality. Noreco does not expect the Oselvar impairment to have a material impact on the Company’s liquidity through 2015.
Information update
Please find attached certain additional information and details in the presentation attached hereto.
Noreco continues the efforts described herein with the highest priority, and will revert in due course with further updates and information as the situation progresses and clarifications are received.
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 licensing 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.