Norway: Noreco Reports 59% Higher Results Compared to Previous Quarter

Norwegian Energy Company ASA  today presents its second quarter 2010 results, with EBITDA of NOK 269 million, 59% higher than in previous quarter, and a net result of NOK -6 million, compared with NOK -21 million.

Q2 results

Oil and gas production was 13,125 barrels of oil equivalents (boe) per day, up from 11,375 boe/day in the previous quarter mainly due to increased contribution from the Siri area fields and strong performance at Brage. Realized oil price was USD 75.4 per boe. Total revenues for the quarter was NOK 560 million, compared to revenues of NOK 481 million in the first quarter 2010.

Production expenses were NOK 132 million and included NOK 9 million related to the Siri shutdown. Exploration expenses were NOK 100 million, mainly driven by seismic acquisitions to support future exploration drilling. EBIT was NOK 94 million. Net financial items amounted to NOK -121 million. Tax for the quarter was NOK -21 million.

As previously announced, Noreco in July agreed to sell its 20% share in PL378 for USD 43 million. The company expects to report a gain on this sale of approximately USD 40 million when the transaction is completed, most likely in Q3 2010. The transaction is therefore not reflected in the Q2 2010 financial statements.

Outlook

During the second quarter, production from the Siri area fields has been lower than Noreco’s expectations. This is caused by limitations in the field’s gas handling capacity which were identified after the start-up of the Nini East satellite field in February. In addition, one of the production wells at Siri (SCB-1) has been shut in since late April pending repair of a safety valve. The solution to the gas handling issue is to upgrade a compressor at Siri. Due to equipment delivery time, the upgrade is currently scheduled for December this year, and is then assumed to require a shutdown of production from Siri, Nini and Cecilie for approximately two weeks. For the SCB-1 well the plan is to replace the subsea control module for the safety valve as well as the jumper between the subsea tree and the module. This work is scheduled for October this year due to installation vessel availability. In total, the production issues at Siri lead to a revision of the company’s production estimate for 2010 to approximately 12.100 boe per day (previously “in the low end of the 13-14.000 range”). The new estimate reflects the current situation and planned initiatives described above. For the rest of Noreco’s producing fields there are only minor adjustments.

The Oselvar development is progressing on schedule and within budget, and is now approximately 32% completed. During a shutdown at the Ula host platform this summer, all planned work in preparations for tie-in to the Oselvar module (which is currently under construction and will be installed next summer) was completed.

For Huntington, a letter of intent was signed with Sevan Marine for leasing the Sevan Voyageur FPSO, and a draft field development plan (FDP) has been submitted. Additional contracts required for the development will be signed and a final FDP will be submitted to UK authorities when the FPSO contract is completed.

For the Nemo discovery, a concept selection has been made for a subsea tie-back to the Pierce field on the UK continental shelf. Invitations to tender for the development have been sent out with planned sanction of the project in Q4 2010.

Following the sale of its 20% share of PL378 containing the Grosbeak discovery and the Gnatcatcher prospect, Noreco’s exploration drilling program for the rest of 2010 consists of three wells. The first is Zidane-1, which is currently being drilled. The well is operated by RWE Dea and results are expected later in Q3. Drilling at the Noreco-operated Svaneøgle prospect will most likely commence mid-Q4, pending rig availability. The Lundin-operated Barchan well is also expected to be spudded in Q4.

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Source: Noreco, August 5, 2010: