March 20, 2020
The industry is in the midst of an unprecedented combination of a global pandemic coupled with a dramatic fall in oil prices. The Board of Directors and the Management team of OKEA have been working closely together over the past weeks to assess and understand the impacts of this on the business, and to put a series of mitigations in place that will ensure the Company is able to withstand the current market conditions for an extended period of time. The Company would therefore like to provide the following financial and operational update to the market as a result of these measures.
Most importantly, OKEA is in a very strong financial position. Currently, the Company has a significant cash reserve of NOK 1.2 billion and the OKEA-operated Draugen Field, which provides a substantial proportion of the Company’s revenues, has low lifting costs of less than 20 USD/bbl. It will therefore remain a positive contributor to the Company even at current oil prices. The next OKEA Draugen lifting is scheduled for May and this has been hedged just below 50 USD/bbl.
The OKEA01 Bond was successfully refinanced and in Q4 2019 and replaced by a new facility, OKEA03. This means that the Company does not face any bond maturities until 2023 or refinancing requirements in the short term and has enough cash available to withstand a sustained period of low oil prices. However, in a continuing low oil price scenario certain bond covenants may temporarily become in technical breach. The Company monitoring this closely and is prepared to, and have the tools available to, take necessary actions going forward if required. Importantly, the Company does not have any RBL facilities which could be at risk of redetermination.
In addition to this, the Company has substantial flexibility to reduce expenditure through focused cost reduction measures, together with the deferral of non-essential activities into 2021 or beyond. The Company will postpone all project sanction decisions, such as drilling or seismic programmes. We will further cancel sanctioned plans where possible and as agreed with Joint Venture partners. These measures will result in reductions to previously planned exploration expenditure of around 90% for the rest of the year.
The Yme project remains on schedule and we are working closely with the Operator, Repsol, and the other JV partners to understand and mitigate the impact that restrictions (particularly travel restrictions) caused by the COVID-19 pandemic may have on the project. The project is still on schedule for first oil in second half of 2020.
The Company has put in place a series of measures designed to protect our employees and to ensure full continuity on OKEA operated projects, particularly at the Draugen Field. Our staff are now predominantly working from home and minimising social contact, and we have also stopped all business travel. On Draugen, we have introduced a policy that increases time spent offshore and reduced offshore manning levels from 70 to 37. We closely monitor the health of offshore staff and are taking measures to ensure that anyone who has been (or may have been) in contact with someone infected with the virus does not travel offshore.
The current situation is affecting the entire industry, and not just OKEA. OKEA has always believed that consolidation of small-medium sized players on the Norwegian Shelf is inevitable and the current situation is likely to accelerate that. We believe that OKEA is in a strong position to take advantage of any opportunities that may arise and will continue to seek out new inorganic growth opportunities.
The Board and Management will continue to closely monitor the situation and will be prepared to react swiftly and decisively as necessary to ensure the long-term strength of the Company. OKEA will continue to provide the market with updates as the year progresses.
For further information, please contact:
Birte Norheim, CFO, +47 952 93 321, email: email@example.com
Ståle Myhre, VP Investor Relations, +47 917 51 878, email: firstname.lastname@example.org
About OKEA ASA
OKEA is an Exploration and Production (E&P) company and operator on the Norwegian Continental Shelf with production of ~19 000 boe per day. OKEA aims to grow through low-cost field developments of discoveries with reserves up to 100 million boe and through mergers and acquisitions (M&A). The operating organisation is built on the acquisition of the producing field Draugen in 2018.
OKEA is listed on Oslo Stock Exchange under the ticker "OKEA".
More information on www.okea.no