Weekly news, topics & discussions

This week has been about the ongoing strike on the NCS, which has resulted in the shut-in of c330–340kboed of production, c8% of Norway’s total, with potential shut-in of 25% from next week. Another hurricane in the US GoM has resulted in the shut-in of c1.7mb/d, helping Brent prices up 10% this week.

Shut-in production a low risk for Q4

Equinor announced it would have to suspend production on Johan Sverdrup if the strike on the NCS continues until 14 October. However, due to production curtailments and plans for testing higher plateau production, we believe most lost production could be made up later in Q4. Hence, we believe a strike would have only a minor impact on Q4 production, and see the strike already reflected in share prices.

Weekly news, topics & discussions

Brent is down 7% on a larger market sell-off on increased demand concerns related to the resurgence in Covid-19 cases. In a tough week for the majors, Shell’s share price hit an all-time low, and BP’s a 25-year low. In Norway, a fire at an LNG export facility and strike action on the NCS raised concerns about Q4 output. However, for liquids, we believe curtailments will allow volumes to recover in Q4.

Weekly news, topics & discussions

Aker BP announced this week it is offering a total of USD1.25bn notes, which will in our view result in excess cash and could enhance the company’s possibilities for increased shareholder returns and/or M&A. Total this week made more renewable investments, and China has increased its LNG imports.

Weekly news, topics & discussions

Oil prices rebounded from last week, helped by a decline in crude inventories and Saudi Arabia’s continued pressure on OPEC+ compliance, while Nordic E&P equities generally traded sideways. This week the European Commission presented its plan to lower EU GHG emissions by 55%, and estimates that to achieve this, gas consumption should be cut by 25% versus 2015.

Weekly news, topics & discussions

Brent is down 6% this week on larger cuts in Saudi Aramco’s official selling prices on increased demand concerns. Equinor announced a renewable farm-down to BP, implying a value uplift of 10x of its invested capital, which illustrates the major’s eagerness to quickly deploy capital into renewables, but that competition in upcoming rounds is likely to be fierce. Also, reports suggest pressure for production cuts in Kurdistan, putting DNO’s production at risk.

Weekly news, topics & discussions

Following BW Energy’s Q2 report last week, we lifted our NAV to NOK40/share (30) and increased our target price to NOK26 (20), as we see multiple upcoming potential triggers from the re-start of the Ruche development and exploration potential. Elsewhere, Brent prices saw a large drop this week after US EIA oil figures were published on Wednesday while European gas prices continue to rise ahead of the winter season.

Weekly news, topics & discussions

In Norway, additional projects are moving forward thanks to the support package, which we believe could lift NAVs, while Equinor is progressing the Bay du Nord development offshore Canada towards FID, potentially as early as 2021. BW Energy reported Q2 results and provided a firm timeline for its Ruche development as well as an exciting exploration update on the Hibiscus area suggesting material resource upside potential.

Weekly news, topics & discussions

Statistics Norway this week updated its May forecast for total investment in oil and gas activity in 2020. The small increase was driven by higher investment in existing fields (on the back of the tax change in June). For 2021, the estimate is up 2% from May, but still down from February’s estimate, mainly driven by a further decline in exploration activities.

Lundin Energy (Hold, TP: SEK235.00) - Miss versus consensus on weaker ...

Lundin Energy reported Q2 EBITDA of USD335m, in line with our estimate, but 8% below consensus. All guidance items were unchanged, and we expect limited consensus revisions on the back of the report. However, testing higher plateau levels on Sverdrup in H2 could provide some 2021 production upside.

Lundin Energy (Hold, TP: SEK235.00) - Conservative production guidance

Ahead of the Q2 results due at 7:30 CET on 29 July, we forecast EBITDA of USD333m versus consensus of USD318m, reflecting slightly higher sold volumes. We see potential for a slightly more upbeat production outlook, but at a 30% NAV premium, we maintain our HOLD, while we have lowered our target price to SEK235 (245) due to FX.

Northern Lights

Weekly news, topics & discussions

Another major, Shell, expects USD15bn–22bn post-tax impairments in Q2 after revising its price assumptions. Equinor is using a Brent price/bbl of USD77 in 2025 and USD80 in 2030; hence we see a risk of impairments in Q2, which could hamper the DPS growth outlook due to gearing rising above its target. For AkerBP, we expect results from the Sandia well in the Barents Sea shortly.

Weekly news, topics & discussions

Aker BP delivered PDO on the Hod development project this week, while Equinor awarded several LOIs on its Breidablikk project in the North Sea, moving it towards an FID later this year. Norway has launched the 25th licensing round, with eight out of nine areas in the Barents Sea, for which we expect low interest given lower oil prices and disappointing results in the past decade.

Weekly news, topics & discussions

Brent has rebounded this week, and is up 9% on declining global inventories, high OPEC+ compliance with the agreed production cut as well as positive equity markets. In Norway, production curtailments could end sooner than the planned year-end, and May liquids production surprised on the upside, while gas disappointed. DNO also received payment from the KRG for May sales this week.

Weekly news, topics & discussions

With the favourable temporary change to petroleum taxes in Norway, a number of projects have been moved forward, such as NOAKA, Hod, and the electrification of the Sleipner field centre. Brent is down 8% from last week, the first weekly decline since April, following fears of a second Covid-19 wave.

Favourable tax outcome for Norway’s petroleum industry

Parliament reached broad agreement on a temporary change to petroleum taxes to support the industry, with a higher uplift tax rate, a time extension to the package, and no dividend restrictions. We expect the package to accelerate investment in the coming years, and materially raise the value of the non-sanctioned portfolio; we believe Aker BP is set to benefit the most.

Weekly news, topics & discussions

The parliamentary finance committee in Norway delayed its recommendation for the petroleum tax proposal, due this week, with the deadline pushed to Monday and voting set for next Friday. Ahead of the OPEC+ meeting scheduled for this Saturday, market talk suggests a 1-month extension of the deep production cut that helped oil prices above USD40/bbl for the first time since early-March.

Party like it’s USD100/bbl oil on NCS

As negotiations on the government support package draw to a close (recommendation due today, voting next week), the opposition parties (which combined hold a majority) are indicating improved terms. While we expected a more favourable outcome, leaks to the local media suggest a material improvement. We estimate that the most favourable proposal would imply an oil price of USD100/bbl to yield the same value per barrel as under the old tax system when using Equinor’s price assumptions, highlight...

Lundin Energy (Hold, TP: SEK245.00) - Great assets, but needs discover...

Great assets, but needs discoveries We initiate coverage with a HOLD and SEK245 target price, as we find the stock fairly valued at a 2022e P/E of 10.6x and implied long-term oil price of USD68/bbl. The company has a solid, focused portfolio with world-class assets in Johan Sverdrup (20% ownership) and Edvard Grieg (65%) that are continuing to deliver production growth. However, the current valuation implies additional growth is needed. Without the required near-term success, we see a risk that ...