Lundin extends credit line as exploration costs and forex loss creep in

Swedish oil and gas company Lundin Energy has secured a further credit commitment to provide the company with further financing flexibility amid expected exploration costs of $28 million and forex loss of $359 million in 1Q 2020.

Lundin said on Wednesday it would expense pre-tax exploration costs of approximately $28 million and recognise a net foreign exchange loss of approximately $359 million for the first quarter of 2020.

In addition, Lundin has secured additional credit commitments of $340 million.

It is the company’s policy to capitalize costs associated with its exploration activities and if it is determined that a commercial discovery has not been achieved, the associated exploration costs are charged to the income statement.

For the first quarter of 2020, Lundin Energy will incur a pre-tax charge to the income statement of $28 million relating to exploration costs. These exploration costs will be offset by a tax credit of approximately $22 million. The costs are mainly related to the appraisal of the Balderbrå discovery and other exploration costs on PL894, the Hasselbaink exploration well (PL917) and relinquished licences.

Forex loss

Lundin Energy will recognise a net foreign exchange loss of approximately $359 million for the first quarter of 2020. The Norwegian Krone weakened against the US Dollar by approximately 20 per cent and the Euro weakened against the US Dollar by approximately 2 per cent during the first quarter of 2020. The foreign exchange loss is largely non-cash and mainly relates to the revaluation of loan balances at the prevailing exchange rates at the balance sheet date.

Lundin Energy recognises income based on its sold volume (sales method). Consequently, changes in inventory and under/overlift balances are reported as an adjustment to cost, valued at production cost, including depletion.

During the first quarter of 2020, Lundin Energy was overlifted by 0.7 Mboepd.

Lundin Energy markets its own crude oil production and at times markets crude oil from third parties. For the first quarter 2020, revenue from the sale of crude oil from third parties amounted to $55.9 million offset by the purchase of crude oil from third parties of $55.2 million, resulting in a gross profit of $0.7 million on third party activities for the first quarter 2020.

Securing further credit

During the current oil market uncertainty, Lundin Energy has taken the measure of securing further credit commitments of $340 million through an unsecured corporate facility with five banks. The credit commitments remain subject to legal documentation, which is expected to be put in place over the next few weeks.

This new facility comes in addition to the existing $5 billion reserve-based lending (RBL) facility and the existing $160 million corporate facility for renewable investments and will provide the company with further financing flexibility and nationality.

It also has the effect of offsetting the impact of the RBL amortisation schedule which starts in the second half of 2020 and reduces the RBL from the current commitments of $5 billion to $4 billion by 1 January 2021. As at 31 March 2020, net debt stood at $3.69 billion.

Lundin will publish its financial report for the first quarter of 2020 on Thursday 30 April 2020.

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