Johan Sverdrup field contribution leads to Aker BP’s credit rating boost

The recent start-up of the Equinor-operated giant Johan Sverdrup offshore oil field in Norway has spurred the credit rating agency S&P Global to upgrade Aker BP’s credit rating.

The Johan Sverdrup field in the North Sea. (Photo: Espen Rønnevik / Øyvind Gravås – Equinor ASA)
The Johan Sverdrup field in the North Sea. (Photo: Espen Rønnevik / Øyvind Gravås – Equinor ASA)

The Johan Sverdrup oilfield was discovered by Sweden’s Lundin Petroleum in 2010 and lies around 140 km west of Stavanger. The operatorship of the field was eventually taken over by Equinor who brought the Johan Sverdrup field online in October 2019.

Aker BP owns a 17.36% stake in the field. Equinor holds 42.6%, Lundin Petroleum 20%, state-owned Petoro 11.57%, Aker BP, and French Total 8.44%.

Johan Sverdrup is one of the five largest oil fields on the Norwegian continental shelf, with resources estimated at 2.7 billion barrels of oil equivalent.

It is the contribution of the Johan Sverdrup that has led to the credit rating upgrade for Aker BP from BB+ to BBB- with a stable outlook.

“We expect Aker BP ASA’s production will increase significantly, thanks to the Johan Sverdrup oilfield coming on stream. Risks to growth have therefore reduced and we anticipate Aker BP’s credit measures will improve materially,” the credit rating agency S&P Global said on Monday.

“We are raising our ratings on Aker BP and its senior unsecured debt to ‘BBB-‘ from ‘BB+’. The outlook is stable because we expect that Aker BP will continue to expand its production and developed reserves while maintaining funds from operations (FFO) to debt above 45% and positive free operating cash flow (FOCF) over the next two to three years.”

S&P Global said: “The upgrade stems from our view that the production increase stemming from new barrels at Johan Sverdrup will boost Aker BP’s operating cash flows and consequently its credit metrics. Phase 1 will net Aker BP 50,000 barrels of oil equivalent per day (boepd) at plateau. In addition, despite increasing dividends, approved capital expenditure (capex) is now much lower, at $500 million-$1 billion for 2020. This means the company has ample financial flexibility, for example, to invest in new projects, existing fills (Valhall or Hod), and new areas such as NOAKA in the North Sea.

“It can also continue its successful exploration efforts, which have yielded discoveries of about 350 million barrels of new oil resources. As such, we believe the company can balance capital spending, shareholder distributions, and its balance-sheet strength by adapting to the market environment and oil price developments,” S&P said.

Aker BP in October posted a net loss for the third quarter and a below-expected production due to delays in the Valhall field well stimulation program.

The company’s net production in the third quarter was 146.1 (127.3 q3 2018) thousand barrels of oil equivalents per day (“mboepd”).

The production volumes, while higher than in the second quarter, were below Aker BP’s plan. The reason for this were delays in the stimulation program at the Valhall field in the Norwegian North Sea following the planned maintenance shutdown in June.

Thee company forecast full-year 2019 production would be circa 155 mboepd, around the low end of the previously communicated range of 155-160 mboepd mainly due to the delays in the stimulation of new wells at Valhall.

Further down the road, production is expected to be boosted significantly as the giant Johan Sverdrup field was brought on stream early October, and Valhall Flank West which remains on track for first oil later this year.

In other Aker BP-related news, the company and its partners on Monday decided to proceed with Phase 2 of the Ærfugl project in the Norwegian Sea, three years ahead of the original plan. More on that here.

Offshore Energy Today Staff

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