Release Date: July 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Var Energi ASA (VARRY, Financial) delivered strong operational performance with production of 293,000 barrels of oil equivalent per day in the first half of 2024, at the upper end of the guidance range.
- The company reported a cash flow from operations (CFFO) of $711 million in Q2, driven by strong operational performance and above-market gas sales prices.
- Var Energi ASA (VARRY) confirmed a dividend for the second quarter of USD0.11 per share, with a Q3 2024 dividend guidance of $270 million, maintaining a consistent dividend policy.
- The company is on track to deliver its 2025 growth target of 400,000 barrels per day, with significant projects like Johan Castberg and Balder X nearing completion.
- Var Energi ASA (VARRY) has a strong financial position with a leverage ratio of 0.8 times net debt to EBITDAX and $1.8 billion in available liquidity, supporting its growth strategy.
Negative Points
- Production in the second quarter was slightly down compared to the first quarter due to planned maintenance activities.
- The Balder X project faces potential delays, with a decision on installation timing to be made at the end of August, which could push the start-up to 2025.
- The company is experiencing too many small low-level safety incidents, which remains a focus for improvement.
- Var Energi ASA (VARRY) expects to pay approximately $1.3 billion in cash tax payments in the second half of 2024, impacting cash flow.
- The company's exploration CapEx guidance has been revised upward to $350 million due to successful discoveries, indicating higher than anticipated exploration costs.
Q & A Highlights
Q: Can you provide an update on the progress of the Balder X project and any changes in confidence since the last quarter?
A: Nick Walker, CEO: We've made significant progress on Balder X, nearing completion of the FPSO. We've redesigned the mooring system to allow for later installation, providing flexibility. Our target is to complete this year, with a decision by the end of August. If delayed to next year, we expect installation in early spring with first oil by the end of Q2 2025.
Q: Could you explain the rationale behind maintaining a 30% dividend payout of CFFO this year, and is this likely to continue into 2025?
A: Stefano Pujatti, CFO: The 30% payout reflects our resilience during a peak CapEx phase. With major projects like Castberg and Balder starting in Q4, we anticipate higher production and lower investments in 2025, supporting CFFO growth and dividends. Our capital allocation balances investment, dividends, and deleveraging.
Q: Has your conviction on achieving first oil from Balder X in Q4 changed, and what are the implications if it moves to Q2 2025?
A: Nick Walker, CEO: Our focus is on completing the FPSO without taking excessive work offshore. We've created flexibility for a later decision. If delayed, it won't impact long-term guidance or costs significantly. We aim for installation in early 2025, ensuring quality and safety.
Q: What are the expectations for Johan Castberg's ramp-up, and what challenges exist for accelerating new project sanctions in 2025?
A: Nick Walker, CEO: Johan Castberg is on track for Q4 start-up, with stability expected within 3-6 months. For new projects, the challenge is initiating them. They're mostly tiebacks, and the industry is capable of timely execution. We aim for sanctions in 2025, leveraging Norway's expertise.
Q: With the reduction in fixed-price gas sales, what is your outlook for the European natural gas market over the next 12 months?
A: Stefano Pujatti, CFO: We see gas trading around EUR35-40/MWh, with global LNG market tightening and potential supply disruptions. We opted not to lock in fixed prices due to unattractive forward curves, maintaining flexibility to capitalize on market opportunities as they arise.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
