Release Date: October 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Var Energi ASA (VARRY, Financial) reported solid operational and financial results for Q3 2024, with production in line with expectations and strong cash flow from operations post-tax of $1.3 billion.
- The company is poised for significant production growth, expecting to add around 150,000 barrels of oil equivalent per day over the next three quarters, with key projects like Johan Castberg and Boulder X on track.
- Var Energi ASA (VARRY) continues to deliver attractive and predictable shareholder distributions, confirming a Q3 dividend of 11 US cents per share and providing Q4 dividend guidance of $270 million.
- The company has successfully integrated the Neptune Energy acquisition, achieving over 50% of the targeted $500 million post-tax synergies.
- Var Energi ASA (VARRY) maintains a strong balance sheet with a leverage ratio of 0.7 times net debt to EBITDA and over $2 billion in available liquidity, supporting its growth strategy and shareholder returns.
Negative Points
- Production in Q3 2024 was impacted by a high level of planned maintenance shutdowns, resulting in a decrease to 256,000 barrels per day compared to the previous quarter.
- The Boulder X project has experienced a delay, with the target production start-up moved to Q2 2025, although the company states this has limited impact on 2024 production.
- Despite strong operational performance, Var Energi ASA (VARRY) faces a more volatile price environment, which could impact future financial results.
- The company continues to experience too many low-level safety incidents, which remain a focus for improvement.
- Var Energi ASA (VARRY) has reduced its fixed price exposure for gas sales to around 5%, increasing exposure to spot and month-ahead pricing, which could lead to increased revenue volatility.
Q & A Highlights
Q: Could you provide more details on the FIDs, particularly Boulder Phase Five, and the overall resource impact expected from these FIDs? Also, what are the key projects that excite you?
A: We have identified over 20 early-phase projects, accounting for around 400 million barrels of contingent resources. We expect to sanction up to eight projects by the end of next year, starting with Boulder Phase Five. Key projects include Boulder Phase Six and the Ring Horn North discovery. In the IOER area, we have four discoveries that we aim to move forward as one project. The FRA project is another significant non-operated project expected to be sanctioned next year.
Q: The production guidance for the full year implies a wide range for the fourth quarter. Could you explain the variance between the bottom and top ends of this range?
A: The variance is primarily due to the uncertainty around the timing of the Johan Castberg startup and its ramp-up pace. Without Johan Castberg, we would be in the middle of the range. The upside depends on the timing and speed of the Johan Castberg startup.
Q: Regarding Boulder X, you mentioned contingency in the timeline. Could you elaborate on the implications if things run ahead of schedule?
A: The completion of the FPSO is the critical factor. We aim to complete all work onshore to ensure a fast and efficient offshore startup. The offshore hookup scope is minimal, and we have contingency plans, including additional accommodation, to expedite the process. We are confident in achieving first oil within Q2 next year, with some contingency in the schedule.
Q: Can you discuss your dividend policy, particularly the decision to maintain a 30% payout of CFFO? How might this change if oil prices decline next year?
A: Our dividend policy remains at 20% to 30% of CFFO. We have maintained dividends at the upper range despite lower gas prices, signaling predictability and sustainability. Next year, with higher production and declining investments, we expect CFFO growth. The dividend level is assessed quarterly based on the commodity environment and company performance, with more precise guidance expected in February's capital market update.
Q: What are your views on M&A, particularly after recent divestments? Are you considering opportunities on the Danish Continental Shelf?
A: We have divested non-core assets and received multiple offers, indicating a strong market for the right assets. We continue to evaluate opportunities, but specific interest in the Danish Continental Shelf was not detailed in the call.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
