As a result of an unprecedented combination of a global pandemic coupled with a dramatic fall in oil prices, Norwegian oil and gas company OKEA will postpone all project sanction decisions and, where possible, further cancel sanctioned plans.
OKEA said on Friday that its board of directors and the management team 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.
OKEA stated it is in a very strong financial position. Currently, the company has a significant cash reserve of NOK 1.2 billion and its operated Draugen field, which provides a substantial proportion of the company’s revenues, has low lifting costs of less than 20 $/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 $/bbl.
The OKEA01 Bond was successfully refinanced and in 4Q 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 said it is monitoring this closely and is prepared 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 noted it has substantial flexibility to reduce expenditure through focused cost reduction measures, together with the deferral of non-essential activities into 2021 or beyond.
Deferrals & cancellations
The company also said it will postpone all project sanction decisions, such as drilling or seismic programs.
OKEA 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 OKEA is 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,” OKEA said.
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. OKEA believes it is in a strong position to take advantage of any opportunities that may arise and will continue to seek out new inorganic growth opportunities.
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