Aker BP Puts All Pre-FID Projects on Hold
Norway-focused Aker BP announced on March 23 a 20% cut in capital expenditure owing to the coronavirus (Covid-19) pandemic, adding it will put all non-sanctioned projects on hold.
The company estimated its 2020 capex at $1.5bn in February, mostly relating to work at the sanctioned Johan Sverdrup Phase 2, Aerfugl Phase 1 and Valhall Flank West projects off Norway. However, $300mn relates to non-sanctioned investments, including the Hod redevelopment scheme, which will now be shelved.
Removing these projects, capex is expected to drop to $1.2bn, and well below $1bn in 2021 and 2022, following a $1-2bn reduction in those two years.
Aker BP, 30% owned by BP, also said it would curtail planned exploration spending by 20% in 2020 to $400mn. It initially intended to sink 10 exploration wells with its partners during the year, but has postponed two of them and undertook other cost-cutting measures. It is evaluating additional steps, including the deferral of more wells.
The operator is also targeting a 20% reduction in production costs to $7-8/boe, from $10/boe previously, by cancelling or postponing any activities not needed to ensure safe and stable operations. It aims to make a significant cut to maintenance and modification activities. Aker BP will benefit from a weaker Norwegian krone, which has lowered its costs in US dollars, it said.
The company's production forecast for 2020 remains unchanged at 205,000-220,000 boe/day.
"Our industry is currently facing an extremely challenging situation. In Aker BP, we have been working systematically over many years to improve efficiency and reduce costs, to build a significant portfolio of profitable investment opportunities, and to strengthen our financial capacity," CEO Karl Johnny Hersvik said. "With the measures we are now undertaking, Aker BP is well prepared to face the challenging market situation, and we have the financial resources to pursue value accretive growth opportunities ahead."
Aker BP said its commitment to continue paying dividends "remained firm", although the board still needs to assess the impact of Covid-19 and low prices on the company's balance sheet and liquidity. The company previously said it would issue $850mn in dividends in 2020, with payments rising by $100mn each year until 2023.
Fellow Norwegian player Equinor also announced plans to cut spending March 23, as well as suspend its $5bn share buyback programme, in common with other European majors Total and Shell.