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Annual report 2019


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Annual report


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Annual report

Contents Contents

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About Vår Energi

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Achievements 2019

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Historical timeline

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Letter from the CEO

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Management

14

Board of Directors and Shareholders

15

About Vår Energi

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Our business

19

Exploration

20

Our operations

24

Development

30

Reserves

38

People, Organisation and Working Environment

40

Health, safety and environment

42

Research and development

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Sustainability

46

Financial aspects

48

Consolidated Financial Statements 2019

54

Financial Statements 2019 Parent company

80

Auditor’s report

100


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Annual report

Strengthening our foothold on the Norwegian Continental Shelf Vår Energi celebrated one year as one company 10 December 2019 - the very same day the company completed its acquisition of ExxonMobil’s non-operated fields in Norway, and thus becoming the second largest oil and gas exploration and production company on the Norwegian Continental Shelf (NCS). The ExxonMobil portfolio was a perfect match for the company’s ambitions and business strategy; reinforcing our long-term commitment to further develop the NCS. The acquisition doubled production to about 300,000 boepd – a number expected to grow organically to about 350,000 boepd by 2023. The company operates four producing fields and has participating interest in 31 partner-operated producing fields. Total reserves and resources are about 2000 million boe. Vår Energi plans to invest NOK 65 billion in development projects and exploration across the NCS over the next four years. Our portfolio is strengthened, and we will continue to further explore, develop and produce resources and reserves in a safe, profitable and sustainable manner. In continuing to create opportunities for Norwegian suppliers and securing employment in many parts of the country, while also committed to continuous improvement in all our activity, including investment and development initiatives to address the environmental challenges, the company is a major force on the Norwegian Continental Shelf and represents a new generation of NCS operators.


Annual report

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Annual reportt

Barents Sea

507

About Vår Energi Four core areas across the NCS Vår Energi AS is a Norwegian-based company which is owned by Eni International BV (ENI) (69,6 %) and Point Resources Holding AS a company administered by HitecVision (30,4 %). Our headquarter is located in Sandnes, and we have offices in Hammerfest and Oslo. The company operates four fields on the NCS, located in the Barents Sea, the Norwegian Sea and the North Sea. In addition to the four operated fields, Vår Energi currently holds ownership interests in 31 partner-operated fields.

Norwegian Sea

433

Central North Sea

933 127,6 Production 2019 KBOE/D

119,3 Production 2019 KBOE/D

Reserves and resources MMBOE

Southern North Sea

166 22,6 Production 2019 KBOE/D

Reserves and resources MMBOE

Reserves and resources MMBOE

26,5 Production 2019 KBOE/D

Reserves and resources MMBOE


Annual report

A leading and growing NCS independent

One of the largest NCS operators

Operator across the entire NCS

~300,000 barrels of oil equivalents per day

32 fields in production

~900 employees

Built to grow

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Annual report

Achievements 2019 Number of licenses

Reserves and resources (MBOE)

139 ~2,000 108 Production (MBOE)

NO SERIOUS PERSONNEL INJURIES

Vår Energi’s strategy is to deliver sustainable growth opportunities on the NCS and to contribute to doing our part in solving the energy challenge of the future – keeping two thoughts in mind. In 2019, together with our partners in the industry, Vår Energi defined climate targets to reduce CO2 by 2030 in accordance with the Paris agreement. Successful completion of the acquisition of ExxonMobil’s partner operated assets in December. Following the acquisition, Vår Energi became the second largest operator on the NCS, with total reserves and resources of more than 2,000 mboe. The Balder X project sanctioned by the Board and the PL 001 license in December 2019. Gross reserves are estimated to 159 MBOE and total planned investments to 21.7 BNOK. Awarded 17 licenses in the 2019 APA concession round, of which 7 operated. Adding 65 mboe in contingent resources through successful drilling in line with the objective to create value close to existing infrastructure. Industry-leading partner-operated portfolio with high focus on being a constructive partner and fulfilling our see-to duty. Partner-operated major development projects such as Johan Castberg and Snorre Expansion Project progressing according to plan. High focus on continuously improving the business, driving down costs and increasing recovery and uptime on the Company’s operated assets through our Realizing our Potential program Successfully refinanced the Company’s Reserve Based Lending (RBL) debt facility from USD 3.0 bn to USD 6.0 bn.


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20

10

10

17

0

2018

3,7 2019

0

2018

t (BNOK) Pro-forma* EBITDAX 30

0

2019

20 30,2

20 24,9 23,1 335 30 296

300 23,1 200

2019

Pro-forma peroleum revenues (BNOK)

30

10

20

23,1

0 0 2018

2019 2018

0 2019

3,7 2019 2018

Operating cash-flow (BNOK) Operating profitPro-forma* (BNOK) EBITDAX 20 3 8,5

15,8

40

43,5 6,7

6

2 12

10 30,2

2 0 2019

30

10

43,2

0 2019

2018 2018

2019

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2018

20

0

20192018 2018

0 2019 2019

0 2018

10

2019 2018

3,7 0 0 2019

2018

2018 0

Operating revenues (BNOK)EBITDAX Pro-forma*

2,5 20

40 23,1

2019 2018

2019

Pro-forma* pro KBOEP/

30

2,4

2019

10

50

6,7

2019 0

Net profit (BNOK) Operating revenues (BNOK Pro-forma* production Pro-fo in investment KBOEP/D Cash flow revenu 30 (BNOK) activities 60 400 40 57,5 2,5 24,9 38,5 2,4 20 335 300 23,1 30 296 40 200

10

2018 0

0

100

3

2

35

12

17

1

Net profit (BNOK)

rofit (BNOK)

57,5

10

20

2018

40

20

2018

4

0

15,8

38,5 40

Fields in production

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30

10

Pro-forma* sales revenues (BNOK)

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50

8 24,9

Operating cash-flow (BNOK)

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10

100

2019 2018

24,9

9

2019

60

40

10

0

2018

Pro-forma peroleum revenues (BNOK) Operating revenues (BNOK) Pro-forma* productionCash flow in investment 30 20 KBOEP/D activities (BNOK) 400

2,5 43,5

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400

24,9 43,5

300

335

30 30,2

1

10

100

10

2019

0

2018

2019

0

200

20

20180

2019 2018

0 2019

* The pro-forma figures for the Group has been calculated as if the ExxonMobil asset acquisition and the Eni - Point Resources merger had taken place 1January 2018. For more information, please see note 2.1.

2018


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Historical timeline

1965

1965

2010

2012

2015

2016

2017

Point Resources established

Acquisition of ExxonMobil's operated NCS portfolio


Annual report

2018

2019

VĂĽr Energi established

Acquisition of ExxonMobil's non-operated NCS portfolio

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Letter from the CEO Vår Energi was created in December 2018, with a clear growth ambition on the Norwegian Continental Shelf (NCS), by pursuing attractive M&A opportunities combined with our organic development portfolio comprising nearly 10 projects. In 2019, Vår Energi delivered on our strategy as we promised: The company doubled its size and became the second largest operator on the NCS by acquiring ExxonMobil’s non operated license portfolio in Norway. In addition the Final Investment Decision on our own operated development project Balder X was reached, also in line with our strategic target.

ExxonMobil’s Norwegian portfolio is a perfect match for our ambitious growth strategy and it reinforces our long-term commitment to further develop the NCS. The acquisition provided the company equity in more than 20 producing fields, including Grane, Snorre, Ormen Lange, Statfjord and Fram. The transaction was also a strategic fit, as several fields in the ExxonMobil portfolio were overlapping with Vår Energi’s existing assets. From this strengthened position, we will continue to further explore, develop and produce resources and reserves in a safe, profitable and sustainable manner.

As part of the ExxonMobil transaction, Vår Energi increased its Reserve Based Lending (RBL) debt facility from USD 3.0bn to USD 6.0bn. The facility involving syndication of 25 banks was successfully put in place prior to closing. Through the debt facility and existing cash in the company, we were able to fund the transaction without new equity. The USD 6.0bn facility further provides a good basis for funding our organic growth projects in the years to come. As the now second largest operator on the NCS overall, we count total equity reserves and resources of about 2,000 million boe. The total equity production for 2019 accounted for about 300,000 boepd, with plans to grow organically to about 350,000 boepd by 2023. The largest reserves come from our operated fields Balder and Goliat, and from partner operated fields such as Ekofisk, Eldfisk, Snorre, Åsgard, Grane, Ormen Lange, Tyrihans, Trestakk, Mikkel and Fram. As of December 31, 2019, Vår Energi’s portfolio included a total of 130 licenses on the NCS. The company participates in a further 32 producing licenses. Of these we operate four


Annual report

fields located along the entire NCS, from the Barents Sea in the North to the North Sea in the south; Goliat, Marulk, Balder and Ringhorne. The Balder Future development is the company’s largest operated project and represents a 19.6 billion NOK investment to recover 136 million boe. The project will enable a lifetime extension of the area towards 2045. In addition to increasing production and recoverable reserves in the Balder and Ringhorne fields, the project will provide opportunities for development of future discoveries in the area. With this project, Production License 001 will have a lifespan of 80 years. A revised plan for Development and Operations was submitted to the Norwegian Ministry of Petroleum and Energy in December 2019. Balder Future is expected to create almost 30 000 manyears of work through the Development and Operations phase. I am pleased to see that the main contracts have been awarded to suppliers based in Norway, ensuring local activity. Norwegian content represents approximately 70 % of the total Balder Future project. It is important for us to generate opportunities wherever we do business, and we do what we can to create employment and ripple effects in the areas where we operate. In addition to the Balder Future project, organic growth will be delivered through our partner-operated project portfolio, including amongst others Johan Castberg, Snorre Expansion Project, Breidablikk, Bauge and Fenja, which are all also providing high activity levels in many parts of Norway. In 2019, we passed FID for the Tor II and the Hywind Tampen projects and Vår Energi participated as partner in seven exploration wells, achieving a technical success rate of 63% and a commercial success rate of 57%. In January 2020, the company was awarded 17 licenses in the APA 2019 round, in areas of strategic significance to Vår Energi. Leading up to the APA 2020 round, the company will continue to focus on value creation close to existing infrastructure and in order to ensure a sustainable long-term plan for organic growth, we will also consider applying for selected high-risk high-reward opportunities that could deliver a new standalone production hub. By the end of 2019, Vår Energi employed close to 900 people at our offshore locations and offices in Stavanger, Hammerfest and Oslo. The health and safety of our employees and contractors is always our first priority. This is a value integrated in our culture as well as in our business plans. Our objective is to be the safest operator on the NCS. I am happy to report that no serious injuries were recorded during 2019, despite high levels of activity, including extensive maintenance and modifications on our installations.

In 2019 we optimised our organisation to further support our ambitions, drive functional excellence and realise synergies. Changes to ensure a robust and more agile organisation fit for growth and the future were made effective on the first of January 2020. This included clear Business Units with shared KPIs along the value drivers, and Corporate Centres of expertise which deliver services, safeguard the company and share best practices. Our digitalisation capability leap forward in 2019 starting with our digital vision; “Turning bytes to barrels”. Vår Energi’s digital portfolio is comprised of initiatives across the company and we are finding new and more effective ways of working within our organisation. Vår Energi regards sustainable operations as the key to longterm value creation. Our strategy is to deliver sustainable growth, and we are committed to actively reducing and minimise our impact and to reduce greenhouse gas emissions in line with the goals set by the collective Norwegian oil and gas industry. Greenhouse gas emissions will be reduced by 40 % in 2030, with a further reduction to almost zero in 2050. In 2019, 100 % of power generated for production on the Goliat field in the Barents Sea was provided by electricity from shore, and we are incorporating flexibility to import electricity to the Jotun FPSO/Balder X project in case area capacity becomes available in the future. In our partneroperated assets, the Hywind Tampen offshore wind farm passed FID, while we are evaluating power from shore at Sleipner and Fram. At Sleipner, Carbon Capture and Sequestration has been in operation for decades. For further details on our sustainability efforts, please refer to our Sustainability Report for 2019. At the time of writing, Vår Energi is, along with the rest of the industry, facing extraordinary circumstances. The sharp fall in in commodity prices and the consequences of the COVID-19 pandemic represents unprecedented challenges. We are working hard identifying and implementing appropriate measures to ensure sustainable business operations in a period of market slow down combined with excess supply of oil and gas. We are committed to find new and smarter ways of working, preparing the company for the future. I am confident that Vår Energi will generate value, opportunity and activity in Norway, benefiting our shareholders, employees, partners and society at large for many years to come. Stay safe everyone. Best regards from,

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Management

Kristin F. Kragseth CEO

Stefano Pujatti CFO

Tor B. Tangvald * VP Developments & Partner Operated Assets

Ove André Årdal VP Commercial

Rune Oldervoll VP Operations

Denis Palermo VP Exploration

Aksel Luhr Legal

Enrico Ferrari ** VP Contracts & Procurement

Charlotte V. Saunders VP Corporate Services

Ove M. Helle VP HSSEQ

Stig-Roar Olsen *** VP Internal Audit

Astrid Huglen VP Integration & Improvement

*2020: Ørjan Jentoft is VP Partner Operated Assets **2020: Annethe Gjerde is VP Contracts & Procurement ***2020: Tor Tangvald is VP Internal Audit


Annual report

Board of Directors and Shareholders Vår Energi’s shareholders are Italy based energy company Eni S.p.A. (69.6 percent) through its Dutch subsidiary Eni International B.V. and Norway based leading private equity investor HitecVision (30.4 percent) through Point Resources Holding AS.

Philip D. Hemmens, chairman Senior Vice President of North Europe Region for Eni S.p.A Massimo Mondazzi, director CFO, Eni S.p.A. Alessandro Puliti, director Chief Upstream Officer, Eni S.p.A. Stefano Maione, director Chief Development, Operations & Technology Officer, Eni S.p.A. Tor Espedal, director Senior Partner, HitecVision

Martin Bachmann, observer and alternate director Board member, Point Resources Holding AS, under HitecVision AS Ciro Antonio Pagano, observer and alternate director Executive Vice President Europe & Russia Region, Eni S.p.A. Pål Magnus Reed, alternate director Partner, HitecVision Martha Skjæveland, alternate director (elected amongst employees)

Fay-Renee Franksdatter Nilsen, director (elected amongst employees)

Nils Terje Haugen, alternate director (elected amongst employees)

Grete Myklebust, director (elected amongst employees)

Hogne Tungland, alternate director (elected amongst employees)

Judith Reve Solland, director (elected amongst employees)

Ellen Waldeland Hoddell, alternate director (elected amongst employees)

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About Vår Energi With the completion of the acquisition of ExxonMobil’s partner operated assets in Norway on December 10th 2019, Vår Energi became the second largest operator on the Norwegian Continental Shelf (NCS), with average daily production of ~300 000 barrels of oil equivalent (BOE) in 2019. The company operates four fields along the entire Norwegian shelf, located in the Barents Sea, the Norwegian Sea and the North Sea. The company is committed to further explore, develop and produce resources and reserves from our high-quality portfolio of licenses. About 900 employees, including contract workers, are employed at our offshore fields and onshore office locations; headquarters at Forus in the Stavanger region, and branch offices in Hammerfest and Oslo. As of 31 December 2019, Vår Energi’s portfolio consisted of 130 licences on the NCS. The company is operator for 28 of these. After APA-round 2019, awarded mid-January 2020 the portfolio grew to 139 licenses, 34 of which are operated by the company.

Improvement

fundamental insights into core elements of our business, describing who we are and how we work. The framework describes our core processes, governance and overall expectations to how we work. It also explains who we are based on our history, purpose, value foundation and our strategic goals. The Vår Energi values were finalised early 2019: Growth, Integrity, Will to win, Inspiring and Team player. Together the values become Vi vil! (We will!), in Norwegian. The main focus in 2019 has been to implement the core values across functions and departments in the company. Value workshops have been conducted in all departments aiming to get a better understanding of the meaning of the values and identify desired behaviours with an action based approach. A work environment survey was conducted mid 2019 where several improvement areas were identified. These have been continuously monitored in 2019 and a new work environment survey will be conducted in 2020 to follow up and further improve the way we work.

The merger between Point Resources and Eni Norge in December 2018 was completed with the philosophy of integrating first and optimising later and in 2019 post-merger integration has been a main priority.

The Vår Energi leadership principles, which are built on the values, were finalised in the autumn 2019.

A company improvement program called “Realise our Potential” was initiated in second half of 2019.

The digital vision for Vår Energi, Turning Bytes to Barrels, means that it is Vår Energi’s goal to be an agile adopter of new digital opportunities to ensure safe operations and increased competitiveness. Vår Energi also makes use of the digital ecosystem and technologies available from Eni S.p.A. when this is proven to add value and synergies.

The program aims to identify high value merger synergies and improvement opportunities. The most important objectives of the program are: operating cost reduction, increased recovery, increased uptime, reduced G&A cost and commercial optimisation. After the acquisition of ExxonMobil in December 2019 additional objectives related to Partner Operated Activities are being defined. This is anticipated to be further expanded. An improvement target for 2023 has been established and broken down in annual objectives.

Digitalisation

A digital roadmap which visualises the digital initiatives prioritised by the company is under development. The digital portfolio itself is managed through an established delivery and governance model as well as through a management committee which meets regularly to approve new initiatives and optimise the portfolio.

The annual improvement objectives are included in the company’s overall strategic plan and progress will be monitored closely.

21 digital initiatives were approved in Vår Energi in 2019. Nine of these were matured further to ongoing digital projects by year-end.

Culture

The digital initiatives are covering domains within the business line and support functions. In addition, several enabler initiatives covering fundamental technical solutions, competence development and new ways of working have been initiated.

Comprehensive work has been put into designing and developing a Vår Energi cultural framework which will serve as a compass for the organisation. The purpose of the framework is to give all employees and stakeholders


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Our business Licence awards During 2019, Vår Energi has been active on all parts of the Norwegian Continental Shelf through exploration and appraisal drilling, license rounds and portfolio development. Vår Energi’s main exploration goal is to contribute to the company’s reserve replacement through active exploration in close proximity to our producing assets and selective exploration in frontier areas. In 2019, Vår Energi was awarded 13 licenses form the APA 2018 bid-round: PL 988; PL 987; PL 984; PL 985; PL 980; PL 978; PL 977; PL 1010; PL 1005; PL 1001; PL 796 B; PL 1025S; PL 229F. As part of the acquisition of ExxonMobil’s partner-operated Norwegian portfolio Vår Energi acquired interests in 19 new licenses and increased interest in an additional 16 licenses: PL 001 CS, PL 027 FS, PL 028 C, PL 029, PL 037, PL 046, PL 072, PL 072 B, PL 089, PL 090, PL 090 E, PL 090 I, PL 169, PL 169 B1, PL 169 B2, PL 199, PL 209, PL 250, PL 257. For the APA 2019 bid round Vår Energi has been granted 7 operatorships (OP) and 10 partnerships in licenses distributed over the three main oil and gas provinces in the Norwegian Continental Shelf (NCS), which are pending ratification (announced 2020): PL 1043 (OP), PL 1042, PL 1035, PL 987 B, PL 984 BS, PL 917 B, PL 055 E, PL 1070, PL 1065 (OP), PL 947 B, PL 1080, PL 1079 (OP), PL 1078, PL 1075 (OP), PL 1074 (OP), PL 1073 (OP), PL 1072 (OP)

Licence relinquishments Vår Energi relinquished a total of seven licences in 2019.

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Annual report

Exploration Vår Energi was partner in seven exploration wells in 2019. The technical success rate which refers to all encountered Hydrocarbon accumulations including those that cannot be produced economically was 63%. The commercial success rate for discoveries where a development solution is under evaluation, reached 57%, including two partner operated wells obtained through the ExxonMobil acquisition in 2019.

North Sea The North Sea is a core area for Vår Energi. In 2019, focus was on drilling and further maturing the prospects around our main hubs, Balder/Ringhorne, the Frosk/Bøyla area, the greater Fram area and the greater Snorre area. The company completed seven wells in the North Sea: Rumpetroll, Froskelår and Froskelår NE in PL869, Hornet in PL777, Enniberg in PL917 and Echino South in PL090.

The total increase in contingent resources for 2019 were 65,4 MBOE. This comprises 31,6 MBOE from discoveries including 8,2 MBOE from ExxonMobil partner-operated exploration well Echino south and 5,6 MBOE from Goliat West, drilled late December 2018. Further 33,8 MBOE are contingent resources derived from the Exxon Mobile acquisition. Unit exploration cost amounted to 3 $/BOE pre-tax and 0,6 $/BOE post tax.

Norwegian Sea The Norwegian Sea had a lower activity level during 2019 than in 2018 following the successes of the Lange exploration. The maturation of the Lange prospect has resulted in the identification of further possibilities which will be tested in the coming years. The company completed two wells in the Norwegian Sea: Lanterna in PL 796 and Ragnfrid North PL199.

Vår Energi is continuously evaluating exploration opportunities in the market. 2019 was dominated by evaluating the upcoming exploration wells and opportunities in the new portfolio following the ExxonMobil acquisition in late 2019. The first exploration well in the new portfolio, Echino South in the Fram license, resulted in a discovery and value creation from exploration.

Barents Sea The Barents Sea is another core area for the company. Despite no wells being drilled in the area in 2019, plans were made for further exploration activity. New Ventures The exploration strategy going forward has a two pronged approach: to continue to deliver commercial discoveries close to existing infrastructure and to grow the business with new exploration and ideas in frontier areas of the NCS. Concession Rounds As part of the 2019 APA licencing round, Vår Energi was successfully awarded 17 licenses whereof seven were operatorships. In the 2020 APA licencing round Vår Energi will continue to focus on building value close to existing infrastructure and strengthen our position as operator. Vår Energi will also apply for licences in frontier areas where both risks and rewards are higher as a sustainable long-term plan for organic growth.


Annual report

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Two thoughts in mind

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Annual report /Operations

Operations North Hammerfest Goliat

Marulk

Goliat is operated from the Vår Energi office in Hammerfest.

The Marulk field is located in PL122 in the Norwegian Sea, west of Sandessjøen. Marulk is a subsea gas field located 25 kilometres southwest of the Norne field.

Production and maintenance In 2019, Goliat, located about 80 km north west of ­Hammerfest, produced 14,9 million barrels of oil equivalents. Goliat reached plateau production of 100,000 barrels in January 2018, and production has declined to about 50,000 barrels per day by year end 2019. Uptime on Goliat (production versus capacity) was approximately 70 percent in 2019, which was lower than planned due to c­ ompressor and well regularity challenges. Efforts were made to resolve these challenges, leading to significantly increased ­regularity towards the end of the year.

Marulk was discovered in 1992 and Plan for Development and Operation (PDO) was approved in 2010. The field has a subsea template tied into the Norne installation (FPSO), with production start-up in 2012. The Marulk Lange drilling was performed in 2019 and production started in October 2019. The development of the Lange formation consists of one production well drilled from the existing template, adding reserves and prolonging the Marulk field lifetime with several years. Marulk produced 3,5 MBOE in 2019.

Turnarounds In 2019, two turnarounds were completed. One addressed maintenance and modifications of safety critical equipment, and one addressed pipeline pigging, control system upgrade and upgrade of gas compression train to improve reliability. Also in 2019, a major diving campaign was completed for maintenance and modification on the anchoring system and a Light Well Intervention campaign was completed to improve well regularity. In 2020, only a minor turnaround is planned. Low environmental footprint Goliat is one of Norway’s most environmentally friendly offshore installations. The field is operated without any discharges of produced water and with electricity from shore in combination with capacity for on-site electricity production. In 2019, Goliat operated almost exclusively with power from shore. Vår Energi also contributed to the rebuilding and partial electrification of Simon Møkster’s LNG fuelled offshore vessel Stril Barents, which is on a long term contract for supply services to Goliat.

Marulk


Operations / Annual report

Goliat

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Ringhorne

Jotun

Balder


Operations / Annual report

Operations South Stavanger All Vår Energi operated fields located outside the Barents Sea are operated from the company’s headquarters in the Stavanger Region. Balder

Jotun

The Balder field is located in PL 001, approximately 190 kilometres northwest of Stavanger. It is the very first licence awarded on the NCS as well as the first exploration drilling and first oil discovery. Production on Balder started in 1999. The Balder field is developed with a floating production, storage, and offloading vessel (FPSO) and several subsea production systems and the field exports gas to Statpipe via the Jotun FPSO.

The Jotun field in PL 027 B is located in the North Sea, 200 kilometres west of Stavanger.

To extend production and field lifetime, several seismic surveys, drilling programs and modifications have been completed, and further development plans are currently ongoing. In 2019, Balder produced 5,9 million barrels of oil ­equivalent at an uptime (production versus capacity) of 91 percent. The Balder X development project is described further back in this annual report.

Ringhorne and Ringhorne East The Ringhorne field is located about 9 kilometres northeast of the Balder FPSO and includes a platform with initial processing and water injection capabilities. Oil and gas volumes are routed to the Balder and Jotun installations for final processing, storage and export. Production commenced in 2003. A new well workover and drilling campaign from the Ringhorne platform started in 2019 and is planned to continue for several years. In 2019, the Ringhorne field produced 3,3 million barrels of oil equivalent. The Ringhorne East field is located in PL 027 and PL 169 E on the Utsira High. Ringhorne East is developed with four wells from the Ringhorne platform. Production commenced in 2006. In 2019, the field produced 1,8 million barrels of oil equivalent.

The field was developed with two installations; a ­production vessel (Jotun A) and a wellhead platform (Jotun B). ­Production from Jotun B was permanently shut down in December 2016 however; Jotun A has continued ­processing and exporting hydrocarbons from the Ringhorne field. ­Decommissioning activities on the Jotun B installation were initiated in 2015 and in 2019 the topsides were removed for recycling onshore. Jotun decommissioning will continue in 2020. The Jotun B jacket will be removed for recycling and the Jotun A FPSO will be refurbished and relocated as part of the Balder X project, ref below.

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Annual report / Operations

Operations Production Vår Energi’s production of oil, NGL and gas in 2019 was ­approximately 107,3 million barrels of oil equivalents (MBOE) including production from assets obtained through the December 2019 ExxonMobil acquisition. The five largest contributors were Åsgard which produced (equity share) 19,1 MBOE (20,7 MBOE in 2018), Goliat with 9,7 MBOE (15,4 MBOE in 2018), Grane with 9,3 MBOE(10,6 MBOE in 2018), Balder with 8,8 MBOE (10,5 MBOE in 2018) and Ekofisk with 7,8 MBOE (8,1 MBOE in 2018). The remaining 52,7 MBOE came from Mikkel, Tyrihans, Statfjord, Ormen Lange, Sleipner West, Fram, Snorre, Sleipner East, Morvin, Heidrun, Tordis, Kristin, Trestakk, Ringhorne East, Vigdis, Statfjord North, Marulk, Norne, Sigyn, Brage, Bøyla, Svalin, Sygna, Skuld, Gungne, Urd and Statfjord East.

Production: largest contributors (MBOE) Ekofisk 7,8

Åsgard 19,1

Balder 8,8

Operated by others 105

Grane 9,3

Goliat 9,7


Operations / Annual report

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3

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Development Vår Energi operated projects Barents Sea and Norwegian Sea 1 Alke North Sea 2 Balder X Project

Partner-operated projects Barents Sea 3 Johan Castberg Norwegian Sea 4

Norne

16

Hyme

26 Sigyn

5

Åsgard

17

Ormen Lange

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6

Morvin

7

Mikkel

8

Tyrihans

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Garantiana

30 Brage

9

Kristin, Halten West

19

Brasse

31

10

Lavrans

20 Snorre

11

Trestakk

21

12

Mikkel South and Flyndretind

22 Tordis

32 Ekofisk

13

Heidrun

23 Statfjord

33 Tor

14

Fenja

24 Fram

34 Tommeliten

15

Bauge

25 Sleipner

Grane

28 Svalin Central North Sea

Vigdis

29 Breidablikk

Bøyla / Frosk

North Sea South

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Annual report / Development

Development Vår Energi operated projects Barents Sea and Norwegian Sea Alke The Alke license has received further extension of the license period to 2048 with condition to deliver a plan for Development and Operation (PDO) by 1 March 2022. The planning of a possible development of the Alke field is ongoing and the company is working to develop a possible gas export concept. Several studies are being conducted for possible gas export concepts, in combination with the Goliat licence. Decision Gate (DG) 1 was passed Q2 2019.

North Sea Balder X Project The Balder and Ringhorne area contains material undeveloped resources that could be developed and produced. They are planned to be developed in various phases. The Ringhorne phase III workover and drilling program has already started. The next phase is the Balder X project, which has the objective to further increase production and recoverable reserves at the Balder field and to provide capacity for development of future discoveries in the area. The Balder X Project consists of the two sub-projects: • Balder Future Project: Refurbishment and relocation of Jotun FPSO to accommodate tie-ins of thirteen new production wells and one new water injection well and with future expansion capacity to accommodate tie-in in the area. Jotun FPSO will be refurbished and relocated to between Ringhorne and Balder FPU and reconnected to the Ringhorne Platform. • Ringhorne Phase IV: Continuation of the Ringhorne Platform drilling activities in the form of continuation of the Ringhorne Phase III drilling campaign and execution of the Ringhorne Phase IV Drilling Campaign comprising five additional wells.

Actual seize of production from the Jotun FPSO was March 5th, 2020. Jotun FPSO will enter the yard at Rosenberg, Stavanger in summer 2020 and will then undergo a 22-month refurbishment program to extend its service life by 25 years. The Jotun FPSO will be re-installed spring 2022 with first oil end of 2022. All major Engineering Procurement, construction and installation (EPCI) contracts have been awarded. The Jotun FPSO lifetime extension contract has been awarded to Rosenberg Worley. The subsea production system (SPS), and subsea umbilical, risers and flowline (SURF) contract has been awarded to a consortium consisting of Baker Hughes and Ocean Installer. The Drilling contract has been awarded to Seadrill for the West Phoenix rig. The Balder X project was sanctioned by the Vår Energi board and the PL 001 licence in December 2019. A revised Plan for Development and Operation (PDO) for the Balder Future project was submitted to the Ministry of Petroleum and Energy in December 2019. The aggregated gross reserves captured from Balder X are estimated to 159 MBOE. Total investments of the Balder X project is estimated to 21.7 BNOK.


Annual report / Development

Partner-operated projects Barents Sea Johan Castberg The Johan Castberg project includes the development of three oil and gas discoveries (Skrugard, Havis and Drivis). Located in production licence PL 532, the field is scheduled to come on stream in Q4 2022 and is expected to produce for 30 years, with a peak production rate of 205 KBOED. Vår Energi holds a 30% participating Interest in the field with Equinor as operator. The development concept consists of 30 subsea wells drilled from ten subsea templates and two satellite wells tied back to a FPSO from which the produced oil will be offloaded onto shuttle tankers. The development project is progressing according to plan. The Hull of the FPSO will be transferred from Singapore to Stord for final integration & commissioning during 2020.

Norwegian Sea Norne Production from the Norne field (PL128) has been above forecast and budget with the main event being the M1-H gas producer accelerated from July to April 2019. Lifetime extension of the Norne FPSO to 2036 was approved by the Petroleum Safety Authority in December 2018, and the extension will maximise value through the optimisation of Norne and the recovery strategy from its satellite producers. Vår Energi is a partner on Norne with 6,9 % ownership interests, with Equinor as operator. The Alve, Urd, Skuld and Marulk fields are tied-back to the Norne FPSO. Vår Energi is partner in Urd and Skuld (11.5 % participating Interest) and operator of Marulk (20% participating Interest). Vår Energi has no ownership in Alve.

Åsgard The main risks relating to well collapse in the old wells on Åsgard were addressed in 2019 following challenges with this issue in 2018. The problem was solved in 2019 and production from the closed wells has resumed. The increased oil recovery project Low Pressure Production phase 3 on Åsgard B recommenced in 2019 following the conclusions from the Well Collapse Task Force. The project sanction is planned in Q3 2020. The Åsgard Subsea Compression project phase 2 passed Concept Select (DG2) in Q2 2019, including pre-investments in a Technology Qualification Programme. Gas injection risers were replaced and gas injection has been resumed from Åsgard A. Vår Energi owns 22 % of Åsgard, with Equinor as operator. Morvin The subsea facilities on the Morvin field, in PL134, are linked to the Åsgard field and have four wells in production. A LWI coil tubing activity for one of the Morvin wells is planned to remove downhole restrictions and improve well ­productivity for a 2021 campaign. Vår Energi owns 30 % of Morvin, with Equinor as operator. Mikkel The three wells and the two subsea templates at Mikkel are tied back to the Åsgard subsea compression stations and Åsgard B. Mikkel production has experienced slugging issues throughout 2019. Mitigating actions have been ­implemented and further are being assessed. A possible new well in 2020 can contribute positively to the minimum flow challenges and also yield additional reserves. Vår Energi owns 48 % of Mikkel, with Equinor as operator. Tyrihans The Tyrihans field has continued to produce throughout the year. A new contributing well was completed early in 2019. Currently no further gas injection is planned. A new well is planned in 2020 in Tyrihans North including a pilot to explore the Ile and Tilje formation. Vår Energi owns 18 % of Tyrihans, with Equinor as operator.

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Annual report / Development

Kristin, Halten West The Kristin field has experienced stable production through 2019 with high operational regularity. Currently, seven out of 12 wells from the drilling program are still producing. Throughout the year, the focus has been on the Kristin South project which consists of three licenses; HWU, PL 199 and PL 257. The Kristin part of the Kristin South project is planned as a subsea development tied back to the Kristin platform using an existing subsea template. Vår Energi owns 18 % of Kristin, with Equinor as operator. Lavrans Lavrans is part of the Kristin South project planned as a subsea development tied back to the Kristin platform. The project has during the year passed a concept selection and is expected to reach DG2 early next year. Lavrans is planned as a phased development where phase 1 includes four wells drilled from one new subsea template. Vår Energi owns 15 % of Lavrans, with Equinor as operator.

Trestakk The Trestakk field, in PL091, started production in July 2019 and is a subsea tie-back to Åsgard A. The performance from the completed wells has been below expectations in 2019. The drilling activities with Transocean Enabler have also been somewhat delayed, but will continue into 2020. Vår Energi owns 40 % of Trestakk, with Equinor as operator. Mikkel South and Flyndretind The Mikkel South and Flyndretind project, named Halten Øst Sør (HØS) passed Concept Selection (DG2) in January 2019 but was then, due to capacity constraints, put on hold for 2021. The project can be developed with other discoveries in the area and possible synergies are evaluated. The project will help to ensure accessible transport capacity from 2024 within Åsgard’s transport system. Vår Energi owns 41 % of Mikkel South and 39% of Flyndretind, with Equinor as operator for both. Heidrun The average daily oil production at the Heidrun field has been stable with high operational regularity. Heidrun has 43 active production wells. Two extra injectors have been drilled since October 2018. A water alternating gas (WAG) injection pilot started in October. Vår Energi owns 5 % of Heidrun, with Equinor as operator.

Fenja Fenja (PL586) is a subsea development that will be tied back to the Njord A platform. It consists of two subsea templates with six planned production wells. The oil will be routed to the production vessel Njord B, before export via shuttle tankers. Vår Energi owns 45 % of Fenja, with Neptune as operator. Bauge Bauge (PL348) has a planned start-up in 2020 and is expected to produce for more than 10 years. Bauge is a subsea development that will be tied back to the Njord A installation and consists of a subsea template with a total of two wells. The oil will be routed to the Njord B production vessel before export via shuttle tankers. Vår Energi owns 17,5 % of Bauge, with Equinor as operator. Hyme Hyme is currently shut down pending Njord A’s return to location in 2020. Vår Energi owns 17,5 % of Hyme, with Equinor as operator. Ormen Lange Ormen Lange is a subsea gas development tied back 120 km to the onshore gas plant in Nyhamna. The dry gas is exported through the Langeled pipeline to Easington, UK. There are currently 18 active gas producers producing 37 million Sm3/day. The production in 2019 was stable with some down time related to the repair of onshore gas compressors in June and July as well as a planned revision stop in September. In 2019, a concept selection was made for a subsea gas compressor system located close to the subsea production system. This will be in operation in 2025 and increase production rates bringing recovery as high as 84%. The concept was sanctioned in combination with an infill production well and a deep exploration well in December 2019. The wells be drilled and come in operation in 2021. Vår Energi owns 6.3 % of Ormen Lange, with Norske Shell as operator.

Central North Sea Garantiana Garantiana is planned as a subsea development to a nearby host. Several tie-back options have been evaluated but the project is now working towards a chosen host. Garantiana will be developed with seven to nine wells depending on the outcome of the Garantiana West exploration well which will be drilled in the first half of 2020. Vår Energi owns 30% of Garantiana, with Equinor as operator.


Development / Annual report

Brasse The concept for Brasse is a subsea development linked to a host platform, likely Oseberg or Brage. The host platform choice is planned to be concluded within the first half of 2020. Vår Energi owns 50% of Brasse, with DNO as operator. Snorre Production from the Snorre field continued with some interruptions in 2019. Three new oil producers and two new injection wells were drilled from the two Snorre facilities in 2019. By the end of the year, 37 active production wells were in place. Vår Energi owns 18,5 % of Snorre, with Equinor as operator. The Snorre Expansion Project (SEP) progressed as planned during 2019. The project consists of 24 subsea wells that will be connected to the Snorre A installation, and the project improves the gas capacity on the field and involves changes for oil export. The project scope also includes imports of injection gas to further increase oil recovery from Snorre. Production start-up is expected in early 2021. In 2019, the Snorre and Gullfaks partners supported the Hywind Tampen project and submitted the PDO for authority approval. The project will reduce the carbon footprint from the two fields significantly by partial supply of electricity from the offshore wind park. The wind farm will deliver power from 2023. Vår Energi owns 12 % of Hywind Tampen with Equinor as Operator. Vigdis Vigdis is a subsea development tied back to Snorre A with production of about 3 KOEBD (Vår Energi net) at year end 2019. Vigdis is located in PL089 where Vår Energi holds a 16% equity interest. A new drilling campaign started 4Q 2019, with several new wells coming in production in 2020. The planned drilling also includes several near field exploration targets which can likely be developed from existing sub-sea templates in Vigdis or Tordis. A new subsea booster compression project was funded in 2018 with expected start-up in 2021. The project will increase recovery and accelerate production from the field. Tordis Tordis is a subsea development tied back to Gullfaks A located in PL089 with Vår Energi equity of 16%. Current production is about 4 KBOED (Vår Energi net) at year end 2019. 2020 will see some new wells drilled in Tordis, in the combined drilling campaign with Vigdis.

Statfjord Vår Energi holds about 21% equity in the Statfjord Unit as well as the Statfjord Satellites, which approximately produced a combined 16 KOEBD (Vår Energi net) in 2019. The Statfjord field is developed with three large GBS structures, with Statfjord Nord, Statfjord Øst and Sygna subsea satellites tied back to Statfjord C. At year-end 2019, the owners decided to progress a field extension plan, including the drilling of up to 100 additional wells and extending the field life towards 2027 for Statfjord A, and 2035+ for Statfjord B and C. Fram Fram is a subsea development tied back to Troll C. Vår Energi holds a 25% interest in Fram, where the production was about 12 KOEBD (Vår Energi net) in 2019. A new gas compression module project will start up in 1Q2020 and increase the gas processing capacity and boost total production by more than 40%. A new discovery, Echino South - in the Fram license (PL090), was made in November 2019 with expected reserves of 10-25 MBOE (Vår Energi net). One or two additional exploration wells are expected to be drilled late 2020 or early 2021. Sleipner Vår Energi holds 15-17% equity interest in the Sleipner East and the Sleipner West Units. The fields are developed with central platform structures located at Sleipner East, and a wellhead platform plus a subsea template at Sleipner West. Production is around 14 KBOED (Vår Energi net) at year-end 2019, including the small Gungne field drilled from Sleipner A. Sleipner’s own production is in a late life phase, however, Gina Krog, Gudrun, Sigyn and Utgard are all processed at Sleipner’s facilities filling up the processing capacity. The facilities also play an important role as a hub in the Gassled system. A new 4D seismic is planned for 2020, and will likely open for several new wells, including some near field exploration targets. Sleipner is operated with an amine plant for carbon capture and CO2 injection into the large aquifer present in the area. A partial electrification with power from shore is planned funded in 2020 with start-up 2023.

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Annual report / Development

Sigyn Sigyn is a small subsea tie-back to Sleipner where Vår Energi holds 40% equity. Production is around 2 KOEBD (Vår Energi net) at year-end 2019. There are currently two active wells, one in Sigyn West and one in Sigyn East. Work is ongoing to evaluate an infill well in Sigyn East. Grane Grane is developed with a PDQ platform where Vår Energi holds a 28, 32% equity interest. Production was around 25 KBOD (Vår Energi net) in 2019. The license plans to extend infill drilling through 2024+. The reservoir management is based on injection of own produced gas in addition to ~1GSm3/year gas import from Heimdal, where Vår Energi is self-supplying its share of the imported gas. Svalin Svalin is a two subsea well development tied back to Grane and a dedicated well drilled from the Grane platform where Vår Energi holds a 13% equity interest. Production was around 1 KBOED (Vår Energi net) in 2019. Breidablikk Breidablikk represents the project north of Grane, with planned funding and field unitisation in 2020, and start-up in 2023. According to the pre-unit cooperation agreement Vår Energi holds a 42,16% equity interest in Breidablikk. The development concept is based on 23 wells drilled from subsea templates tied back to Grane. The reserves are around 81 MBOE (Vår Energi net). Brage Brage has produced from four different reservoirs since 1993. The field has maintained steady production throughout 2019. Brage is a mature oil field with declining production and a continuous drilling program to mitigate production decline. Two new wells have been put on production during 2019 as part of this program and another three new wells are planned in 2020. Vår Energi owns 12 % of Brage, with Wintershall Dea as operator.

North Sea South Ekofisk Ekofisk field development activities have mainly been related to drilling programs on Ekofisk Z (Ekofisk South project), Eldfisk S (Eldfisk II project), Ekofisk 2/4X and Ekofisk 2/4K. Ekofisk VC (a water injection project) was completed in 2019. Moreover, the licensees are working to mature the Eldfisk North project. The purpose of the project is to further develop Eldfisk Nord’s structure with two subsea templates and eight oil producing wells. Currently, the resources are estimated at 55 MBOE (gross). An investment decision is expected in 2021. Production start-up is estimated to 2023. Vår Energi owns 12 % of Ekofisk, in PL018, with ConocoPhillips as operator. Tor The partnership in the Tor licenses sanctioned the Tor II project in June 2019. Tor II will be developed with two subsea templates and eight oil producing wells. The resources on Tor II, are estimated at 63 MBOE (gross). The well streams will be connected to Ekofisk 2/4M, in PL018, for treatment and processing. Expected production start from Tor II is 4th quarter of 2020. The Ministry of Petroleum and Energy approved the PDO for Tor II project on 14. November 2019. Vår Energi owns 10 % of Tor, with ConocoPhillips as operator. Tommeliten The Tommeliten Alpha structure in PL 044 holds a gas/ condensate discovery with recoverable resources of approx. 117 MBOE (gross). In 2019 the licensees worked to mature a plan to develop the project with a decision planned for 2021. The preliminary concept is an unmanned wellhead platform with 11 gas producing wells tied back to PL 018 Ekofisk via a tie-in platform. Production start-up is estimated to 2024. Vår Energi owns 9 % of Tommeliten, with ConocoPhillips as operator. Bøyla / Frosk The main activity in PL340 (Bøyla / Frosk) in 2019 was the drilling of a Frosk test producer and its production start in August 2019. The well was part of a larger exploration campaign in the PL340 and PL869. Based on results from the test producer and the exploration campaign, a development process for the Frosk area has been initiated. DG1 (Concept Evaluation) is planned for April 2020. Vår Energi owns 20, 5 % of Bøyla/Frosk, with Aker BP as operator.


Development / Annual report

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38

Annual report / Reserves

Reserves At the end of the 2019, the company’s total proven reserves were 814 MBOE net to Vår Energi, representing an increase of 56% from the previous year. The new additions are mainly derived from the Final Investment Decision (FID) in Balder X project and the acquisition of ExxonMobil’s upstream assets in Norway. The estimated value of probable reserves corresponds to an additional 514 MBOE with volumes in “possible” and “contingent” reserve categories adding an additional 710 MBOE. The largest reserves and resources from the operated fields are in Balder and Goliat. The largest partner-operated reserves and resources are from producing fields Ekofisk, Eldfisk, Snorre, Åsgard, Grane, Ormen Lange, Tyrihans, Trestakk, Mikkel and Fram as well as in the partner-operated development projects Bauge, Fenja, Johan Castberg and Breidablikk. In 2019, Vår Energi became the second largest E&P company on the NCS after Equinor, with total reserves and resources of about 2,000 MBOE.


Reserves / Annual report

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40

Annual report


Annual report

People, Organisation and Working Environment People and organisation Vår Energi’s greatest resource is our people and it is a priority for the company to offer development through building competence and careers in a healthy working environment. At year-end 2019, Vår Energi had 900 employees, including 48 expatriates from the Eni Group and 33 new employees who joined from ExxonMobil in December. In addition the company had about 150 temporary contractors. Vår Energi recruited 74 new employees and two apprentices in 2019. The majority of employees (493) work at the company’s headquarters at Forus in the Stavanger Region. An additional 35 employees are located in the Oslo office, while 68 employees are located in the Hammerfest office. The company has a total of 279 employees working offshore. Vår Energi promotes equal opportunities and rights for all based on qualifications, and aims to prevent discrimination due to gender, ethnicity, country of origin, age, sexual orientation, language, disability or religion. The company’s Code of Ethics and procedures have regulations to prevent discrimination related to salary, career promotion and recruiting. The proportion of women employed in Vår Energi year end 2019 was 28 percent. Three of the eight members of the company’s Board of directors were women. Women held 27 % of the executive management team positions and 22 % of remaining leadership positions in the company. In Vår Energi there are employees from 19 countries. In 2020 a Sustainability Policy with appurtenant reporting framework will be developed for Vår Energi. As a part of this work measurable KPIs on gender balance and diversity will be selected for reporting.

Training and development Vår Energi believes that professional training and development are important means of advancing the growth,

motivation and consequently retention of our employees. Training plans are established with mandatory programmes combined with development initiatives requested by the individual and leader. Training offered to employees involves a combination of a comprehensive e-learning programmes, classroom trainings carried out in-house and on supplier premises, as well as a training programme tailored to each employee’s own position. In addition there is training provided by the Eni Corporate University in Milan. The company also offer a comprehensive training programme for the offshore organisation and will continue to improve and develop a common program for Vår Energi as part of ongoing integration work. An extensive series of courses will continue during 2020 in accordance with our predefined skill requirements. In 2020, a Leadership Training Program will be rolled out for all leaders in the new Vår Energi organisation.

Sickness absence The sickness absence in 2019 was 2,05 percent for Vår Energi. This is a decrease from December 2018 when the total sick leave for Vår Energi was 3, 83%

Working Environment and collaboration Vår Energi values it’s collaboration with employee representatives and is committed to strive for an open dialogue. One important collaboration arena is the Working Environment Committee (WEC/AMU) as described in the Norwegian Working Environment Act, and the established sub-committees. The committees have an important role to follow up conditions relating to the safety, health and welfare of the employees, and have quarterly meetings. The Work Council (WC) is an arena for the management of the company and employee representatives to cooperate and improve efficiency and job satisfaction, including sharing information and discus issues of importance to the company and its employees. The WC meets regularly. Vår Energi has four trade unions registered in the company; SAFE, Industri Energi, Tekna and Nito.

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Annual report

Health, safety and environment It is the company’s expressed goal to carry out our activities without causing harm to people or the environment. Vår Energi uses measurement indicators to monitor and learn from experiences in our operations to achieve transparency in the way we work. By requiring the use of high-quality and sustainable solutions in our own operations and the ones used by our suppliers: using the best available technologies and methods, emissions to air, discharges to sea, as well as waste generation are reduced as much as possible. Well planned, robust and effective preparedness against acute pollution is implemented in our activities. The Goliat field introduced a new concept for oil spill preparedness on the NCS in 2016, including support from the local fleet of fishing vessels with adapted oil spill response equipment and crew with in-depth knowledge of the waters off the coast of West Finnmark. This is a key element in the company’s oil spill response efforts in the Barents Sea. Our emergency response resources are also available for other activities in the region, including in aid of the local population. The company’s total recordable injury frequency (“TRIF”) for 2019 was 2.2 (Number of recordable personnel injuries per million worked hours), which is similar to the 2018 result. None of the registered personnel injuries are classified as serious. In 2019, Vår Energi had six events with higher potential, however no personnel were actually injured during these events. All the events have been investigated according to internal guidelines and measures has been implemented to ensure that tour experience leads to improvement. The company continued its commitment to barrier management in 2019, and is working to further develop a digital tool, or barrier panel, to monitor major accident risk for all offshore assets. Promoting a good working environment and HSE culture is an important goal for Vår Energi, it is therefore an integral part of the company’s total management system. The management system is certified in accordance with ISO-standard 14001 and OSHA 18001. The 2019 HSSEQ program activities have been conducted according to plan in 2019 and the 2020 Safety & Sustainability program has been issued for the company.

Health and working environment Throughout 2019, Vår Energi has worked systematically to avoid hazardous exposure and to maintain a high standards for hygiene, food handling and potable water quality. In 2019 the company has performed a thorough mapping of work environment risks offshore with the goal of providing an overview of physical, chemical, biological ergonomic and organisational conditions, to be able to implement relevant and targeted risk-reducing measures. The mapping project also included training in work processes and measures to promote better understanding of risk factors in the working environment. The overall goal is to use prioritised technical improvements to contribute to reduced work environment risk for employees and maintain safe and secure operations on all installations.

Environmental reporting from operated fields Vår Energi reports environmental data to authorities relating to operated producing fields and drilling operations, in accordance with the Norwegian Environment Agency’s Guide M107-2015 (Guidelines for reporting of offshore petroleum activities). For detailed information on environmental data for Vår Energi’s operated fields, reference is made to its annual reports to the Environment Agency. These reports are publicly available on the Norwegian Oil and Gas Association’s (NOROG) website (www.norskoljeoggass.no) or can be obtained contacting Vår Energi directly. Environmental reporting from fields in which Vår Energi is partner (partner-operated fields) is done by the relevant operator. An overview of key environmental parameters for the facilities on the operated fields is illustrated in the table below. The Goliat FPSO and the Ringhorne platform reinject all produced water and do not discharge to sea. The Balder production vessel has discharges to sea and reinjects produced water. The Jotun FPSO does not have any relevant data, as wells are permanently plugged. Environmental data for Marulk is reported by the operator of the Norne field, Equinor, except data from drilling operations.


Annual report

Average in 2019 Goliat FPSO

Balder FPSO

Ringhorne

Jotun FPSO

Marulk

-

13.6

-

16.1*

-

100

59**

-

-

Medium

1

0

0

1

-

Grading of industrial waste (%)

96

95

95

95

93

Amount of hazardous waste generated (tons)

144

245

1706

62

4357***

Oil concentration in produced water released to sea (mg/L) Amount of producer water reinjected from total quantity (%) Unintentional discharges of oil / chemicals to the sea (number>10L)

* Emissions of purified slop water and stripping water from storage tanks, ** Total injection rate for Balder FPSO and Ringhorne platform, *** Includes waste from drilling operations.

CO2 emission intensity (kg/BOE) from the installations subject to quotas are shown below, as well as total CO2 intensity for VĂĽr Energi. CO2 emission intensity in 2019 (kg/barrel of oil equivalents) Goliat FPSO 2.05*

Balder FPSO

Ringhorne 22.9**

* The Goliat FPSO is mainly operated by shore power ** Total emissions for Balder FPSO, Ringhorne platform and Jotun FPSO. *** Estimate. Will be verified March 2020

Jotun FPSO

Total for VĂĽr Energi 11.0***

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Annual report

Research and development Vår Energi participates in a variety of research and development (R&D) projects. The objective is to support ongoing and future activities carried out by the company in the areas of exploration, development and production. The company is engaged in large scale projects aiming to develop climate emissions reduction capabilities, such as offshore wind, carbon capture and storage (CCS) and low emissions technologies.

Safety and Environmental Protection Vår Energi strives to continually improve the company’s HSE performance by preventing major accident risks, personal injuries and occupational illness. Environmental impacts are continually lowered by reducing discharges and GHG emissions, waste generation (increased reuse and recycling), and more efficient energy management.

Vår Energi’s R&D portfolio includes more than 50 projects, mainly administered in the form of Joint Industry Projects (JIPs) or consortia, but also as bilateral R&D contracts.

Development and introduction of new and advanced technologies will play an important role in sustaining future safe operations. The quest for such techniques is therefore given high priority.

Operational Excellence

Decarbonisation

Vår Energi’s upstream research efforts prioritise technologies providing energy efficiency improvement while reducing cost (CAPEX and OPEX) and emissions, in order to maintain competitiveness and profitability.

Vår Energi is committed to reduce the company’s carbon footprint in all activities. In order to meet its ambition, the company has joined two leading research centres: LowEmission and Norwegian Carbon Capture and Storage (NCCS).

The company has defined drilling automation and digital drilling as technologies of high importance. This will enable the drilling of complex wells to target depth or further increasing recovery potential and reducing the number of days per well drilled. Subsea technology will be increasingly important for future oil and gas field industry. Vår Energi is cooperating with Eni SpA on a subsea hub concept which includes the development of technologies that will enable field developments with long tie backs to shore or existing offshore facilities, regardless of fluid characteristics.

Successful Exploration New technologies and methodologies that will improve and advance subsurface understanding are prioritised. The objective is to extend the lifetime of our installed assets and further develop prospects in their vicinity. A major R&D target is to reduce cost and time of exploration, develop and improve key technologies required to assess and exploit the potential of both mature basins and frontier areas.

Over the next six years Vår Energi will invest 30 MNOK in the (NCCS) centre. NCCS’ objective is to contribute to realising a full-scale CCS value chain by 2022. The program will enable fast-track deployment through industry driven science-based innovation, addressing the major barriers identified within demonstration and industry projects. Vår Energi has committed to invest 20 MNOK in the Low Emission Research Centre over the next eight years. The Low Emission Research Centre aims to develop new technologies and concepts for offshore energy systems, energy efficiency and integration with renewable power production technologies for application on the Norwegian Continental Shelf (NCS).

Maximise Recovery R&D projects focusing on maximised recovery from Vår Energi operated fields are treated with a particular attention and given high priority. Development of a new technology for smart completion will continue. The plan is to use this technology on new wells on the Balder field. The Enhanced Oil Recovery (EOR) strategy to improve the hydrocarbon recovery from the Goliat field is in development and will continue to be a priority in 2020.

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Sustainability Vår Energi represents a next generation oil and gas company on the NCS. We care about the climate and have pledged to cut carbon emissions. We strive towards sustainable business; continuous development of the industry and preservation of the environment. Vår Energi is committed to deliver greatest possible values from the NCS, and believe increased recovery from re-development projects is responsible resource management. Vår Energi aims to develop and implement new technologies within our core businesses. Environmental preventative measures are essential amongst our success criteria. With the first Norwegian oil field in production in the Barents Sea in the portfolio, Vår Energi has been particularly involved in technology development within preventive oil spill preparedness and response, including environmentally friendly operations. The company also invests in projects and technologies related to renewable energy, capture and storage of CO2 and lower greenhouse gas emissions. We believe in local engagement, and invest in the local communities where we are present. We use local suppliers as far as possible; this includes dividing larger-scale contracts into smaller parts to allow local businesses to participate.

Ripple effects and local engagement Vår Energi’s is committed to providing opportunities in the local communities where our business activities take place. The company has an ambition to contribute to industrial activity, job creation and competence development in the communities where we operate. In connection with operations both in the northern and southern parts of the NCS, Vår Energi facilitates local employment and development of the oil service industry, as well as supporting a number of cultural and educational measures. Vår Energi actively collaborates with regional and local networks and organisations, such as Petro Arctic and ProBarents, aiming to further develop the northern Norwegian regional supplier base and industrial cluster.

Support activities within culture and competence Vår Energi has chosen to support projects within culture and competence in the north of Norway, especially in Finnmark, in addition to the Stavanger Region where the company’s headquarter is located. Examples of projects which received support from Vår Energi in 2019: • Sami Reindeer Races Federation, Finnmark • Sirma IL, Finnmark • Skaidi Xtreme, Finnmark • Young Entrepreneurship, Finnmark • Arctic Culture School and Culture Centre, Finnmark • Nordkapp Film Festival, Finnmark • Varanger Festivalen, Finnmark • Artic Talent, Northern Norway • Sørøya Fishing Festival, Finnmark • Newton-room in Hammerfest, Finnmark • Knowledge Factory in Sandnes • Norwegian Oil Museum in Stavanger • Perleporten Cultural Centre in Honningsvåg • Kirkens Bymisjon, Rogaland • Street Magazine Asfalt, Stavanger • Young Entrepreneurship Rogaland, Junior Achievement Young Enterprise • National Telethon in the Stavanger region • Viking FC juniors in Stavanger Complete information related to the company’s environmental, social and governance (ESG) performance and targets are given in the Vår Energi 2019 Sustainability Report published in May 2020.


Annual report

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Annual report / Financial aspects

Financial aspects Corporate information Vår Energi AS is a limited-liability company incorporated and domiciled in Norway. The company shares are owned by Eni International BV (69.6%) and Point Resources Holding AS (30.4%). The head office is located at Vestre Svanholmen 1, NO-4313 Sandnes, Norway. The Group comprises the following companies: Vår Energi AS (Parent Company), Point Resources FPSO Holding AS, Point Resources FPSO AS, PR Jotun DA and Vår Energi Marine AS.

Business Combination The agreement with ExxonMobil to acquire its partner operated upstream assets in Norway was completed on 10 December 2019. The transaction included ownership interests in more than 20 producing fields. The fields are operated mostly by Equinor, including Grane, Snorre, Ormen Lange, Statfjord and Fram, with a combined production of approximately 150,000 barrels of oil equivalents per day in 2019. The business combination was accounted for using the acquisition method. Assets from ExxonMobil have been measured at fair value as at completion date 10 December 2019. For tax and economic purposes, the effective date of the assets transferred was 1. January 2019. Vår Energi AS was formed following a merger between Eni Norge AS and Point Resources AS in December 2018. Acquiror was Eni Norge AS. The business combination was accounted for using the acquisition method. Assets acquired from Point Resources AS was measured at fair value as of 31 December 2018. For accounting purposes, the income statement for 2018 included only the acquiring entity’s operations.

Consolidated financial result for the year The Company’s net income for 2019 was NOK 132 million higher than in 2018. The ordinary pre-tax profit for 2019 was NOK 6 799 million, compared with NOK 8,109 million in 2018. After NOK 4 288 million of tax cost, net income amounted to NOK 2,511 million, compared with NOK 2,378 million in 2018.

Consolidated production, sales, and other revenues Equity production of oil, NGL, and gas for 2019 amounted to 56,5 million barrels of oil equivalents (MBOE) compared to total production in 2018 of 48,8 MBOE. This increase is mainly due to production derived from fields not included in 2018 production; full year production from legacy Point Resources fields and December month production from the ExxonMobil asset acquisition. This was partly offset by declining Goliat production during 2019. Revenues from product sales in 2019 were NOK 24,867 million, an increase of 12% compared with 2018. The average realised oil price decreased from USD 69,79 per bbl in 2018, to USD 63,70 per bbl in 2019. The average exchange rate (NOK/USD) was 8,80 in 2019 vs. 8,13 in 2018. The average price for all products decreased from NOK 455 per BOE in 2018 to NOK 440 per BOE in 2019.

Consolidated Operating costs Total operating costs for 2019 were NOK 18,420 million, which is an increase of NOK 4,848 million compared with 2018. The main reason for the increase is cost derived from fields not included in 2018; full year operating cost from heritage Point Resources fields and December month cost related to the ExxonMobil asset acquisition.

Consolidated statements of Financial position – market, credit and liquidity risks As of 31 December 2019, current and other long-term loans amounted to NOK 1,796 million and NOK 40,462 million respectively. Unused drawing rights were USD 942 million. The financial position of the Company is regarded as good. The financial situation is influenced by fluctuations in the commodity price of crude oil, gas and in exchange rates, and the Company has put in place a financial risk management policy to monitor, report and where deemed required actively mitigate the risk. Therefore, the Company has decided to hedge 100% of the oil production post-tax for 2020. This comes in addition to the available amount under the Company’s Senior Financing Facility, and in total resulting in a satisfactory liquidity for the Company should the commodity prices be reduced. The credit risk related to sales is considered to be low since our customers are major international oil companies. The main differences between pre-tax income and cash flows from operations are due to depreciation and tax payments.


Financial aspects / Annual report

Pro-forma figures (unaudited)

Net Profit interest (NPI) payment to the Norwegian authorities: 78,335

The Board of Directors consider the pro-forma numbers presented in the table below to represent an approximate measure of the performance of the combined group on an annualised basis and to provide a reference point for comparison in future periods. The pro-forma figures for the Group has been calculated as if the asset acquisition and the merger had taken place on 1 January 2018. If the transaction with ExxonMobil had occurred on 1 January 2019, the total production for Vår Energi in 2019 is estimated at 108,0 MBOE / 296,0 kboed. Pro-forma 1 January - 31 December (NOK 1 000)

2019

Sales revenue Other operating revenue Production costs EBITDAX

43,151,023

57,499,329

255,930

113,434

-13,213,571

-14,118,347

30,193,382

43,494,416

-940,099

-858,719

29,253,283

42,635,697

296,0

334,6

Exploration costs EBITDA

2018

PRODUCTION (kboe/d)

The NPI payment is related to licenses awarded in the second licensing round and collected by Petoro. CO2 and NOX fees are considered to be taxes paid on consumptions and exempted from this reporting similar to Value Added Taxes. Disclosure of sales revenues and investments are reported in notes 2.2 and 3.1/3.2 in the Annual Accounts. Interest payments are disclosed in note 5.5 in the Annual Accounts.

Vår Energi AS (Parent Company); annual results and proposed dividend distribution The Board of Directors, having no knowledge of any matters not disclosed that could be of significance when evaluating the Company’s position, recommends the following allocation of net income and distribution of dividends. (NOK 1 000) Net income

Transparency reporting on payments to governments (Country by country reporting)

Increase of retained earnings Dividends for distribution

According to the Norwegian Accounting Act section 3-3d pertaining to companies in the extractive industry, the companies are required annually to disclose payments to governments per country and project. Vår Energi AS had the following payments to Norwegian governments in 2019: Figures in thousand NOK Corporate tax payment to the State

1,848,192

Area fee per license paid as operator to the Norwegian authorities on behalf of the joint ventures (100% figures): PL001

612

PL027

6,650

PL028

1,225

PL122

5,508

PL201

4,284

PL229

25,526

PL293

22,185

PL489

12,699

Totalt:

78,689

2,516,461 716,461 1,800,000

The company’s equity before distribution of dividends was NOK 23,884 million. Proposed dividend is within net income of the year and free cash flow from operating activities. Current cash projections shows that the company will have sufficient earnings and cash flow to support the proposed dividend and financing capacity for development and exploration projects. The company also has under the RBL credit facility available funds to support financial commitments of its projects and after the dividend distribution proposed will be within the financial covenants provided for in the RBL contract.

Going concern One of the key objectives of the Company is to have sufficient cash, cash equivalents and loan facilities to be able to finance daily operations and investments, in accordance with its business plan and portfolio commitments. The Board of Directors confirms that the financial statements of the Company have been prepared under the going concern assumption, in accordance with the Norwegian Accounting Act section 3-3 a. The Board of Directors is confident that the Company is well positioned to continue in operational existence, based on the current balance sheet, revenue forecast, and projected expenses.

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50

Annual report / Financial aspects

Internal Control system Vår Energi has established an internal control environment which has been periodically assessed and modified to comply with changes in the organization or its business activities. The Finance Department will continue to monitor the internal controls established and prepare the best internal control design to prevent the risk of mistakes and frauds in the financial statement. A Compliance function has been established to monitor internal controls with respect to compliance with internal and external rules and regulations. Any material deviations from the established internal control design will be reported to Management, the Risk & Compliance Committee and the Audit Committee.

Board composition At year-end 2019, the Board of Directors of Vår Energi AS consisted of 8 members, of which five men and three women.

Subsequent events At the beginning of 2020, Coronavirus pandemic is spreading around the world with different countries adopting different measures to contain spreading of the virus. In January, Vår Energi established a multi-disciplinary task force to monitor the situation and identify mitigating actions. The company has robust emergency response and business continuity plans in place and is closely cooperating with other O&G companies on the Norwegian Continental Shelf through NOROG (Norwegian Oil & Gas Association). As of today no major impact on Vår operations has been recorded.

Coronavirus, together with OPEC cuts uncertainties, have also pushed down significantly oil and gas prices after the year end closing. Vår Energi has a sound financial position able to cope with current oil and gas prices and has also in place hedging instruments (strike Brent 50 USD/bbl) covering 100% of post-tax production including the ExxonMobil acquired portfolio for the entire 2020 calendar year In January 2020, Vår Energi AS was awarded 17 new licenses in the APA 2019 licensing round. In seven of the licenses Vår Energi was appointed operatorship. The Board of Directors have no knowledge of any further subsequent events that could be of significance for the financial statements as of 31 December 2019.

Outlook The Norwegian Continental Shelf (NCS) is an attractive province, with a vast resource potential, representing opportunities in which Vår Energi is ready to take part. Vår Energi operates oil and gas production across the entire shelf, with fields in the Barents Sea, the Norwegian Sea and the North Sea. The company is committed to further explore, develop and produce resources and reserves from our high-quality portfolio of licenses. A business plan for the company is jointly developed and sanctioned by the shareholders; the integrated energy company Eni (69.6 percent) and Norway based leading private equity investor HitecVision (30.4 percent). The company has the capacity and competency to deliver ambitious growth plans, while also providing a safe and sustainable working environment.

Sandnes, 24 March 2020

Philip D. Hemmens Chairman

Tor Espedal Board member

Stefano Maione Board member

Alessandro Puliti Board member

Massimo Mondazzi Board member

Grete Myklebust Board member

Fay-Renée F. Nilsen Board member

Judith R. Solland Board member

Kristin F. Kragseth Chief Executive Officer


Financial aspects / Annual

51


52

Annual report

Two thoughts in mind.


Annual report

53


54

Annual report

Consolidated Financial Statements 2019 Consolidated statement of income Consolidated balance sheet Consolidated statements of cash flow

55 56 58

Notes to the consolidated financial statements

60

Background information 1.1 Corporate information 1.2 Accounting principles

62 62

Operational performance 2.1 Business combinations (including proforma) 2.2 Petroleum revenues 2.3 Other operating revenues 2.4 Production costs 2.5 Staff costs and remuneration 2.6 Other operating expenses 2.7 Exploration cost

62 64 65 65 65 67 67

Asset base 3.1 Intangible assets 3.2 Tangible assets 3.3 Impairment 3.4 Other non-current assets 3.5 Inventories 3.6 Investment in shares

68 69 70 70 70 71

Special items and provisions 4.1 Other non-current liabilities 4.2 Abandonment obligation 4.3 Commitments and contingent liabilities

71 71 72

Financial instruments, capital structure and equity 5.1 Financial liabilities and borrowings 5.2 Other current liabilities 5.3 Other receivables and financial assets 5.4 Changes in shareholder’s equity 5.5 Financial income and financial expenses 5.6 Financial instruments 5.7 Cash and cash equivalents

73 73 74 74 74 75 75

Tax 6.1 Tax

76

Other disclosures 7.1 Related parties 7.2 License ownerships 7.3 Proved developed reserves (un-audited)

77 78 80


Annual report

Consolidated statement of income Full year NOK 1000

Note

2019

2018

Sales revenue

2.2

24,866,949

Other operating revenue

2.3

255,930

0

25,122,879

22,113,050

Total operating revenue Production costs

2.4, 2.5

Transportation costs Other operating expenses

2.6

22,113,050

-7,374,612

-4,111,251

-1,250,571

-1,119,631

-428,823

-94,402

Exploration costs

2.7, 3.1

-932,128

-226,050

Depreciation

3.1, 3.2

-9,007,373

-8,020,869

Impairment and reversal of impairments

3.2, 3.3

573,089

0

-18,420,418

-13,572,203

6,702,461

8,540,846

5.5

96,593

-431,923

6,799,054

8,108,923

6.1

-4,288,393

-5,730,425

2,510,661

2,378,498

Total operating cost Operating profit/(loss) (EBIT) Net financial items Profit/(loss) before income taxes Taxes on ordinary income Profit/(loss) for the period

(1) Includes figures from underlying assets from business combination with ExxonMobil Exploration and Production Norway AS completed in December 2019. (2) Income statement of 2018 only includes continuing entity’s operation, Eni Norge AS following business combination and merger with Point Resources AS end of 2018.

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56

Annual report

Consolidated balance sheet Year end NOK 1000

Note

2019

2018

ASSETS Non-current assets Intangible assets Goodwill

3.1

5,673,107

236,350

Capitalized exploration wells

3.1

768,588

575,231

Other intangible assets

3.1

921,867

0

Wells and production facilities

3.2

95,319,576

61,159,925

Facilities under construction

3.2

16,472,823

6,146,781

Other property, plant and equipment

3.2

272,242

218,677

Tangible fixed assets

Financial assets Investment in shares

3.6

7,520

2,126

Other non-current assets

3.4

70,204

1,116,787

119,505,927

69,455,876

Total non-current assets Current assets Inventories

3.5

1,730,336

766,139

Trade receivables

7.1

4,519,261

2,091,485

Other receivables and financial assets

5.3

5,956,391

1,088,918

Cash and cash equivalents

5.7

1,790,911

8,776,703

Total current assets

13,996,898

12,723,246

TOTAL ASSETS

133,502,825

82,179,122

(1) Includes figures from underlying assets from business combination with ExxonMobil Exploration and Production Norway AS completed in December 2019 (2) Balance sheet for 2018 includes activities of Eni Norge AS and Point Resources AS following business combination and merger with Point Resources AS at the end of 2018.


Annual report

Year end NOK 1000

Note

2019

2018

EQUITY AND LIABILITIES Equity Share capital

5.4

399,425

399,425

Share premium

5.4

21,151,241

21,151,241

Other equity

5.4

Total equity

560,348

0

22,111,014

21,550,666

Non-current liabilities Interest-bearing loans and borrowings

5.1

40,462,433

5,337,859

Deferred tax liabilities

6.1

16,722,022

15,546,559

Non-current abandonment obligation

4.2

29,623,036

18,768,035

Pension liability

2.5

226,559

260,713

Other non-current liabilities

4.1

886,522

733,489

87,920,572

40,646,655

Total non-current liabilities Current liabilities Current abandonment obligation

4.2

882,192

436,000

Accounts payables

7.1

2,225,712

1,809,479

Taxes payable

6.1

10,110,920

889,776

Current interest-bearing loans

5.1

1,796,132

298,957

Accrued dividend

5.4

1,800,000

14,770,399

Other current liabilities

5.2

6,656,284

1,777,190

Total current liabilities

23,471,240

19,981,800

Total liabilities

111,391,812

60,628,456

133,502,825

82,179,122

TOTAL EQUITY AND LIABILITIES

(1) Includes figures from underlying assets from business combination with ExxonMobil Exploration and Production Norway AS completed in December 2019 (2) Balance sheet for 2018 includes activities of Eni Norge AS and Point Resources AS following business combination and merger with Point Resources AS at the end of 2018.

Sandnes, 24 March 2020

Philip D. Hemmens Chairman

Tor Espedal Board member

Stefano Maione Board member

Alessandro Puliti Board member

Massimo Mondazzi Board member

Grete Myklebust Board member

Fay-RenĂŠe F. Nilsen Board member

Judith R. Solland Board member

Kristin F. Kragseth Chief Executive Officer

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Annual report

Consolidated statements of cash flow Full year NOK 1000

Note

Profit/(Loss) before income taxes

2019

2018

6,799,054

8,108,923 8,020,869

Depreciation, depletion and amortisation

3.1, 3.2

9,007,373

Reversal of impairment of tangible fixed assets

3.2, 3.3

-573,089

0

0

-3,432 -27,118

Inventory write-down Impairment of exploration wells

3.1

157,756

(Gain)/loss on sale and retirement of assets

2.3

-159,794

0

Utilization of decommissioning provision

4.2

-533,160

-73,041

Accretion expenses (asset retirement obligation)

4.2

Changes in inventories, accounts and other payables, trade and other receivables, and provisions Income tax received/(paid) Accrued pension cost

2.5

Net cash flows from/-used in operating activities

535,573

291,196

-1,359,762

653,950

-1,859,239

-1,142,061

-35,482

-28,675

11,979,230

15,800,611

Expenditures on exploration and evaluation assets

3.1, 3.2

-351,314

-269,418

Expenditures on other property, plant and equipment

3.1, 3.2

-10,727,919

-4,761,359

1,273,053

0

2.1

-28,666,514

1,297,998

-38,472,694

-3,732,779

0

16,550,599

-14,712,310

-1,000,000

Proceeds from sale of assets (sales price) Business combination Net cash flows from/-used in investing activities Proceeds from other paid-in capital Dividends Proceeds from loans and borrowings

5.1

34,471,761

0

Payments of long-term loan and borrowings

5.1

-270,990

-19,077,570

Net cash from/-used in financing activities

19,488,461

-3,526,971

Net change in cash and cash equivalents

-7,005,003

8,540,861

8,776,704

182,112

19,210

53,731

1,790,911

8,776,704

Cash and cash equivalents, beginning of period Effect of exchange rate fluctuation on cash held Cash and cash equivalents, end of period


Content / Annual report

59


60

Annual report / Notes

Notes to the consolidated financial statements 1.1 Corporate information The consolidated financial statements of Vår Energi AS and its subsidiaries (collectively, “the Group” or “Vår Energi”) for the year ended 31 December 2019 were authorised for issue in accordance with a Board resolution on 24 March 2020. Vår Energi AS is a limited liability company incorporated and domiciled in Norway and the Company’s shares are privately held. The Group’s head office is located at Vestre Svanholmen 1, 4313 Sandnes, Norway. Vår Energi is an independent exploration and production (E&P) company with a diverse portfolio of production, development and exploration assets on the Norwegian Continental Shelf (NCS). On 10 December 2019, Vår Energi acquired ExxonMobil’s partner-operated business in Norway from ExxonMobil Exploration and Production Norway AS. The acquisition included transfer of ExxonMobil’s onshore E&P staff in Norway and the subsidiary Vår Energi Marine AS (renamed from Standard Marine Tønsberg AS). More detailed information is included in note 2.1. Group structure The consolidated financial statements of the Group include: Shares in subsidiaries Voting/Ownership Name

Business location

2019

Point Resources FPSO Holding AS

Sandnes, Norway

100%

Vår Energi Marine AS

Sandnes, Norway

100%

Shares in subsidiaries indirectly owned

Profit or loss is attributed to the equity holders of the parent of the Group. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. Business combination and goodwill Business combinations are accounted for using the acquisition method. Identifiable assets, liabilities and contingent liabilities are measured at fair value at the date of acquisition. Acquisition date is the date on which the acquirer achieves control over the acquiree and is set at completion date. The valuation is based on currently available information on fair values as of the acquisition date. Calculation of fair value has been obtained by discounting cash flows from future operations to get to the net present value. If new information becomes available within 12 months from the acquisition date, the Group may change the fair value assessment in the purchase price allocation. No technical goodwill or deferred tax is recognized for the after-tax consideration paid in business combinations for assets acquired under section 10 of the Norwegian Petroleum Tax Act. Goodwill arises from difference between the fair value on assets acquired and the calculated purchase price. After initial recognition, goodwill is measured at cost less a straight-line depreciation. The Group has assessed and deemed ten years depreciation plan to be reasonable based on expected production profiles of the acquired assets. Revenue Sales of petroleum products are recorded as revenue according to the sales method on the date of delivery, based on the terms and conditions in the sales agreements. Other revenue is recorded at the time of the delivery.

Voting/Ownership Name

Business location

2019

Point Resources FPSO AS

Sandnes, Norway

100%

PR Jotun DA

Sandnes, Norway

100%

1.2 Accounting principles Basis for preparation The financial statement is reported in accordance with the Norwegian Accounting Act of 1998 and Norwegian General Accepted Accounting Principles. Basis of consolidation Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.

Participation in jointly controlled operations Vår Energi reflects its net share of income, costs, assets and liabilities in the balance sheet and income statement regarding interests in jointly controlled operations based on the relative ownership share in the individual licenses. Use of estimates Estimates and assumptions are used in the preparation of the financial statements in accordance with generally accepted accounting principles. These are based on best estimates available and can deviate from the final actual results. Income taxes Income taxes include current payable taxes, adjustment of prior years’ payable taxes and deferred taxes. The deferred taxes are calculated using the full liability method, under which temporary timing differences between assets and liabilities in the financial statements are recognised against their tax basis. The earned uplift on incurred investment is fully taken into consideration when calculating the deferred taxes. Deferred tax assets are only recognised if it is highly probable that the asset will be realised. Provisions for uncertain tax positions are recognized when an outflow of economic resources embodying economic benefits has become probable.


Notes / Annual report

Exploration costs Exploration drilling costs are treated in accordance with the successful effort method; each well making the basis for the evaluation. Costs related to exploration wells in progress and exploration wells with finds are capitalized until the evaluation of the well has been completed. Other exploration costs are expensed as incurred. Net profit interest The Norwegian State has large holdings in oil and gas licences on the Norwegian Continental Shelf (NCS) through the State’s Direct Financial Interest (SDFI). The Balder, Ringhorne, Ringhorne East and Sleipner West fields are subject to a net profit interest (NPI), as these fields are located in some of the first licences issued on the NCS. SDFI receives a share of the net profit from the few fields in Norway subject to such agreements. Petoro is a state-owned limited company which manages the SDFI in the Norwegian oil and gas sector. The net profit interest is calculated on the basis of quarterly cash flows. Losses in a quarter can be offset against profits in subsequent quarters. NPI related to abandonment costs incurred after the production has ceased will be refunded by Petoro. NPI is classified as other operating expenses. Development expenditures The development phase commences when the license partners have decided the concept selection. Direct and indirect expenditures related to development projects are capitalized. Maintenance is expensed as incurred, whereas costs for improving and upgrading production facilities are added to the acquisition cost and depreciated with the related asset. Tangible Assets Tangible assets are valued at acquisition cost less accumulated depreciations and write-offs. When the asset is sold or retired the net book value is deducted and a potential loss or profit is recognized in the profit and loss account. Intangible assets Intangible assets are valued at acquisition cost less accumulated depreciations and write offs. When the asset is sold or retired the net book value is deducted and a potential loss or profit is recognized in the profit and loss account. Intangible assets such as software are depreciated on a straight line 3-5 years basis. License rights capitalized as intangible assets are depreciated according to the unit-of-production (UoP) method if there are discoveries in the relevant license that enters production phase. Depreciation Offshore installations are depreciated in accordance with the unit-of-production method (the ratio between annual production quantity and the reserves, whereupon the reserves are updated quarterly). Onshore assets are depreciated over the anticipated economical lifetime, according to the straight-line method, 3-15 years. Impairment Tangible assets are assessed for impairment if there are indicators of a loss of value. The assessment of assets is carried out at the field or license level. If the carrying amount of an asset is greater than its recoverable amount, the asset is written down. Recoverable amount is the higher of fair value less costs to sell and its value in use. Impairments are correspondingly reversed if the conditions for the impairments are no longer present. Asset retirement costs Asset retirement costs are calculated in accordance with net present value method in NRS 13 Contingent liabilities and Contingent assets. The present value of the asset retirement costs is recognized in the balance sheet as a part of the acquisition costs of the fixed assets and

is depreciated as part of this. The provision corresponds to the present value of the asset retirement obligation in the total economic lifetime of the fixed asset for existing installations. The discount rate used in the calculation of the net present value of the obligation is adjusted in accordance with the estimated time of removal and decommissioning at the fields. Changes in the time element (net present value) of the abandonment provision are expensed annually as a financial item and increase in the asset retirement obligation in the balance sheet. Changes in estimates are recorded as tangible assets. Vår Energi has a liability as a shipper for Gassled. The liability is recorded as the net present value of estimated future retirement obligations based on accumulated shipped volumes. Foreign currency Transactions in foreign currency are recorded at the exchange rate of the transaction date. Monthly exchange rates are used as a practical approach when there are no material differences in the exchange rates from the transaction date. Financial items are valued at year-end exchange rates and the corresponding currency loss/gain is recorded in the profit and loss account. Exception is when these are hedged by foreign exchange contracts in which case the contract rate is used. Functional currency and presentation currency is NOK. Inventories Materials in the warehouse are valued at original cost on the balance sheet. Materials are expensed when they are used. Physical stock of crude oil on operated fields are valuated at production cost. Inventories of petroleum products on partner operated fields are included in over/underlifting. Over-/underlifting and gas loan Overlift of petroleum products is valued at production cost, while underlift is valued at the lower of production cost and sales value. Pension liability Vår Energi uses the option in GRS 6 to measure and classify pension costs in accordance with IAS 19. The pension costs and the pension liability are calculated according to the principle of linear accrual/ earning based on estimated factors for the discount rate, future regulation of salary, pensions and contributions from social security, future earnings on the pension fund in addition to actuary premises concerning death rate, voluntary turnover of employees, etc. The pension fund is evaluated according to actual value and is deducted from the net pension liability in the balance sheet at the balance sheet date. The pension accounting is based on linear profile of funding and expected salary at the time of the termination. Changes in actuary estimates are recognised in equity. Leasing commitments Leasing agreements without transfer of material risk and control to the lessee are considered as operational leasing. The Group’s leasing expenses in operating leases are reflected as current operating costs. Leasing agreements not classified as operational leasing are classified as financial lease. The net present value of future lease payments is capitalised as tangible assets and as liabilities. The asset value is depreciated over the lease period. The lease payments are deducted against the liabilities. Shares in other companies Shares in other companies are valued at cost or written down to net realizable value if there is a decline in value below the carrying amount. Shares in subsidiaries following business acquisition is initially recognised at fair value in the parent company. Financial items Interest expenses related to material development projects are capitalised as a part of the investment.

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Annual report / Notes

Put options used for hedging The Group uses derivative financial instruments, such as Brent Crude put options, to hedge its commodity price risks. The effective portion of the gain or loss on the hedging instrument is recognised in equity, while any ineffective portion is recognised immediately in the profit or loss. Amounts recognised in equity movements are transferred to profit or loss when the hedged transaction affects profit or loss. Commodity options are valued on a daily basis using market inputs as observable forward curves, interest rates and time to maturity of the option. In addition, implied volatilities from market observable option prices are used in computing the theoretical options price. The final market-to-market value is then computed as calculated option price multiplied with quantity. Assets and liabilities Assets and liabilities to be paid within one year are classified as short-term assets/liabilities. Deferred tax assets and liabilities are offset to the extent that the deferred taxes relate to the same fiscal

authority and there is a legally enforceable right to offset current tax assets against current tax liabilities. All deferred taxes are classified as non-current. Cash flow The statement of cash flow has been prepared in accordance with the indirect method as per the temporary Norwegian Accounting Standard. Cash consist of cash, bank deposits and short-term deposits in affiliated banks. Sale of assets Sale of assets on the Norwegian Continental Shelf are treated as after-tax transactions according to the petroleum tax act § 10, to ensure tax neutrality. Effective date for tax purposes are 01.01.2019, while revenues and costs are booked until completion date.

2.1 Business combinations (including proforma) Acquisition of ExxonMobil’s Partner Operated Assets in Norway On 10 December 2019, Vår Energi acquired ExxonMobil’s ownership interests in Partner-Operated fields and licenses on the Norwegian Continental Shelf. The acquisition included more than 20 producing fields, including 6 fields with ownership interests also previously held by Vår Energi. In addition, the acquisition included licenses with future development projects and exploration potentials. As part of the acquisition of the assets, 33 employees were transferred from ExxonMobil to Vår Energi. As part of the transaction, Vår Energi acquired 100% of the shares in Standard Marine Tønsberg AS. Standard Marine Tønsberg AS subsequently changed name to Vår Energi Marine AS. The company has a long term in-chartering agreement with Knutsen NYK Shuttle Tankers 16 AS for one shuttle tanker vessel, MT Ingrid Knutsen, and a corresponding out-chartering agreement with Teekay Navion Offshore Loading Pte Ltd. The transaction with ExxonMobil is recorded as a Business Combination and was completed on 10 December 2019. For tax and economic purposes, the effective date of the assets transferred was 1 January 2019.

NOK 1000 Purchase consideration Cash consideration Deferred payment* Payment for acquired assets and liabilities

28,776,002 2,894,524 31,670,526

* Described in the section below Deferred payments The part of the purchase price is to be paid 30 December 2022. Outstanding payments are subject to interest. Assets acquired and liabilities assumed The fair values of the identifiable assets and liabilities of ExxonMobil’s partner-operated upstream business in Norway as at the date of acquisition were:


Notes / Annual report

NOK 1000 ASSETS Non-current assets Oil and gas properties

43,374,488

Exploration prospects

919,230

Financial assets Total non-current assets

5,395 44,299,113

NOK 1000 ASSETS Current assets Inventories

1,663,210

Net working capital

221,111

Cash and short term deposits

109,488

Deferred tax asset

750,295

Total current assets

2,744,105

Total assets

47,043,217

Non-current liabilities Shippers Liability Gassled

420,351

Provision for abandonment

11,697,475

Total non-current liabilities

12,117,826

Current liabilities Taxes payable

8,764,580

Total current liabilities

8,764,580

Total liabilities

20,882,407

Total identifiable net assets at fair value

26,160,811

Consideration paid on acquisition

31,670,526

Goodwill arising on acquisition

5,509,715

According to § 10 in the Norwegian Petroleum Tax Act transaction shall be done after tax and the buyer is therefore not entitled to claim tax deduction for the part of consideration that exceeds the tax position acquired from the seller. None of the goodwill recognised is expected to be deductible for income tax purposes. Preliminary purchase price allocation The valuation is based on currently available information about fair values as of the acquisition date. Final completion statement and audit of amounts in 2020. If new information becomes available within 12 months from the acquisition date, the Group may change the fair value assessment in the Purchase price allocation. Any adjustments will result in a corresponding adjustment of goodwill.

Net cash flow from acquisition Net cash acquired Cash paid Net cash flow on acquisition

109,488 28,776,002 -28,666,514

63


64

Annual report / Notes

Pro-forma figures (Un-audited): The Board of Directors considers the pro-forma numbers presented in the table below to represent an approximate measure of the performance of the combined group on an annualised basis and to provide a reference point for comparison in future periods. The pro-forma figures for the Group has been calculated as if the ExxonMobil asset acquisition and the Eni - Point Resources merger had taken place 1 January 2018. The pro-forma figures for 2019 have been collected directly from ExxonMobil, the preliminary completion statement and NPD. Pro-forma figures for 2018 have mainly been taken from the corresponding Annual Report.

Pro-forma 1 January - 31 December (NOK 1 000)

2019

Sales revenue Other operating revenue

2018

43,151,023

57,499,329

255,930

113,434

Production costs

-13,075,985

-14,118,347

EBITDAX

30,330,968

43,494,416

-940,099

-858,719

29,390,869

42,635,697

296,0

334,6

Exploration costs EBITDA PRODUCTION (kboed)

2.2 Petroleum revenues NOK 1000 Revenue from crude oil sales

EU

Norway

2019

2018

15,969,980

3,537,207

19,507,187

15,237,018

Revenue from gas sales

3,919,946

1,853

3,921,799

5,228,516

Revenue from NGL sales

1,345,929

92,034

1,437,964

1,647,516

Total petroleum revenues

21,235,855

3,631,094

24,866,949

22,113,050

2019

2018

boe*

56,678,071

48,783,030

boe

155,282

133,652

USD/bbl

63,70

69,79

boe

56,093,158

47,089,855

Key operational figures Production Average production per day Average oil price including hedging effects Volumes sold * boe = Barrel of oil equivalent


Notes / Annual report

2.3 Other operating revenues NOK 1000

Note

2019

Gain from sale of assets Oil put options

5.6

-

-62,991

-

158,111

-

255,930

-

Other operating income Total other operating revenues

2018

160,810

Asset sale relates to divestment of 10% ownership interests in six Vår Energi-operated licenses across the Balder and Ringhorne fields in the North Sea to Mime Petroleum AS. Other operating income includes insurance reimbursement on Goliat.

2.4 Production costs NOK 1000

2019

2018

6,050,036

3,680,019

Environmental taxes

418,961

184,786

Over-/underlift & physical stock adjustments

567,927

61,160

Insurances

335,984

183,535

Production and processing costs

Purchase of natural gas Total production cost

1,705

1,750

7,374,612

4,111,251

2.5 Staff costs and remuneration NOK 1000 Salary expenses Social security tax (incl. pension and social charges for foreign personnel) Pension cost, defined benefit scheme Pension cost, defined contribution scheme Other personnel expenses Total

Capitalized salaries and other personnel cost totalled KNOK 248,878 (KNOK 64,267 in 2018) and the share charged to partners in operated joint ventures amounted to KNOK 324,622 (KNOK 328,230 in 2018). Pension cost and pension fund/-obligations Vår Energi AS has a defined contribution pension plan that satisfies the statutory requirements in the Norwegian law on required occupational pension (“lov om obligatorisk tjenestepensjon”). Contributions are paid to pension insurance plans and charged to the income statement in the period to which the contributions relate. Once the contributions have been paid, there are no further payment obligations. Personnel employed in Eni Norge AS before the merger with Point

2019

2018

1,241,665

655,539

170,110

61,780

108,572

97,402

58,207

-

135,499

50,079

1,714,052

864,800

Resources AS has a defined benefit pension scheme. The pension scheme fulfils the requirements in the mandatory occupational pension act. The pension arrangement gives defined future benefits. The Company also has additional defined pension insurance for personnel in higher salary grades. The value of the pension obligations is assessed according to IAS 19 by an Actuary. 354 employees and 27 pensioners are included in the scheme. The social security tax is included in the net pension fund. The economic assumptions regarding pensions are in accordance with assumptions in NRS (V). In 2020 the defined benefit scheme has been replaced by a defined contribution scheme for all employees.

65


66

Annual report / Notes

Pension cost of the year, defined benefit scheme NOK 1000 Company service cost Change Plans Interest expense on service cost Administration cost Net pension cost before social security Social security Pension cost of the year Pension fund/liabilities Estimated gross pension liabilities Estimated market value of pension fund Pension liability

Specification of estimated market value of pension fund Estimated pension fund as at 1 January

2019 92,226

2018 82,855

-

-

2,398

1,989

531

522

95,155

85,366

13,417

12,037

108,572

97,402

2019

2018

-980,571

-897,626

754,012

636,913

-226,559

-260,713

2019

2018

636,913

540,550

Unrecognised loss/(gain)

-31,473

-27,928

Net contribution

136,047

114,303

Benefits paid

-5,197

-3,784

Return on pension

17,722

13,771

754,012

636,913

Estimated market value as at 31 December

2019

2018

Discount rate

Economic assumptions:

2,30%

2,60%

Expected return on plan assets

2,30%

2,60%

Expected long-term salary increase

2,25%

2,75%

Expected long-term G increase

2,00%

2,50%

Expected long-term pension escalation

2,00%

2,50%

There are 844 employees in Vår Energi AS at year-end 2019. Average number of employees during the year was 830, equivalent to 766 full time employees. NOK 1000

Remunerations Managing Director has received the following remuneration:

2019

2018*

Salary

5,909

511

Bonus

3,642

-

Other

679

-

Pension costs

816

-

11,045

511

Total remuneration to Managing Director *starting from December after merger between Eni Norge AS and Point Resources AS

parties. The company has no commitments with regard to severance to the Managing Director or the Chairman of the Board.

Managing Director is part of the defined contribution pension plan.

The Company has a bonus scheme for all employees calculated according to achieved objectives.

Members of the board received no remuneration in 2019. The Chairman receives no remuneration. No loans/guarantees have been given to the Managing Director, the Chairman of the Board, or other close

Auditors fee Vår Energi has changed auditor in 2019 to PricewaterhouseCoopers. Amounts are exclusive of VAT.


Notes / Annual report

NOK 1000

2019

Statutory audit

4,489

Other attestations

152

Other services*

2,709

Total fee

7,350

*Support for Vår Energi Management System implementation

2.6 Other operating expenses NOK 1000 R&D cost

2019

2018

170,727

94,402

Legal provisions

138,093

-

Net profit interest

78,335

-

Other expenses

41,668

-

428,823

94,402

Total other operating expenses

R&D cost Vår Energi participates in a variety of research and development (R&D) projects. The objective is to support ongoing and future activities carried out by the Group in the areas of exploration, development and production.

The Group is engaged in large scale projects aiming to develop climate emissions reduction capabilities, such as offshore wind, carbon capture and storage (CCS) and low emissions technologies. Vår Energi’s R&D portfolio includes more than 50 projects, mainly administered in the form of Joint Industry Projects (JIPs) or consortia, but also as bilateral R&D contracts.

2.7 Exploration costs NOK 1000

2019

2018

Seismic

161,205

41,773

Area Fee

89,309

60,741

Field evaluation

291,677

46,880

Dry well expenses

157,756

27,118

Other exploration expenses*

232,180

49,538

Total exploration costs

932,128

226,050

*R&D cost 2018 reclassified to Other operating expenses

67


68

Annual report / Notes

3.1 Intangible assets NOK 1000

Goodwill

Other intangible assets

Capitalized exploration wells

Total

Cost as at 1 January 2018

-

-

278,700

278,700

Additions

-

-

269,412

269,412

236,350

-

-

236,350

Reclassification

-

-

-

-

Disposals / Expensed exploration wells

-

-

27,118

27,118

236,350

-

575,231

811,580

Depletion and impairment as at 1 January 2018

-

-

-

-

Depreciation

-

-

-

-

Provision for impairment

-

-

-

-

Disposals

-

-

-

-

Depletion and impairment as at 31 December 2018

-

-

-

-

Net book value as at 31 December 2018

236,350

-

575,231

811,580

Cost as at 1 January 2019

236,350

-

575,231

811,581

-

2,767

351,314

354,080

5,509,715

919,230

-

6,428,945

Reclassification

-

-

-

-

Disposals / Expensed exploration wells

-

-

-157,957

-157,957

5,746,065

921,997

768,588

7,436,650

Additions through business combination

Cost as at 31 December 2018

Additions Additions through business combination

Cost as at 31 December 2019 Depletion and impairment as at 1 January 2019

-

-

-

-

-72,958

-130

-

-73,088

Provision for impairment

-

-

-

-

Disposals

-

-

-

-

-72,958

-130

-

-73,088

5,673,107

921,867

768,588

7,363,562

Bal 31/12-18

Depreciation

Addition

Total

236,350

-72,958

-

163,392

-

-

5,509,715

5,509,715

236,350

-72,958

5,509,715

5,673,107

Depreciation

Depletion and impairment as at 31 December 2019 Net book value as at 31 December 2019 Goodwill NOK 1000 Eni-Point Merger (10 Dec 2018) ExxonMobil asset acquisition (10 Dec 2019) Total


Notes / Annual report

3.2 Tangible assets Wells and production facilities

Facilities under construction

Other property, plant and equipment

Total

103,068,817

1,197,589

356,362

104,622,768

2,631,912

2,646,516

870

5,279,297

21,902,215

2,428,343

206,843

24,537,401

125,667

-125,667

-

-

-

-

-

-

127,728,611

6,146,781

564,075

134,439,467

-58,571,188

-

-322,027

-58,893,215

Cost as at 1 January 2018 Additions Additions through business combinations Reclassification Disposals Cost as at 31 December 2018 Depletion and impairment as at 1 January 2018 Depreciation

-7,997,498

-

-23,371

-8,020,869

Provision / reversal of impairment

-

-

-

-

Disposals

-

-

-

-

-66,568,686

-

-345,398

-66,914,084

61,159,925

6,146,781

218,677

67,525,383

127,728,610

6,146,781

564,075

134,439,466

Additions

4,789,062

6,735,235

104,390

11,628,686

Additions through business combinations

39,072,447

4,302,041

-

43,374,488

414,853

-711,233

-

-296,380

Depletion and impairment as at 31 December 2018 Net book value as at 31 December 2018 Cost as at 1 January 2019

Reclassification Disposals Cost as at 31 December 2019 Depletion and impairment as at 1 January 2019 Depreciation

-1,806,340

-

-

-1,806,340

170,198,633

16,472,823

668,465

187,339,921

-66,568,686

-

-345,398

-66,914,084

-8,916,994

-

-50,825

-8,967,820

573,089

-

-

573,089

Provision / reversal of impairment* Disposals

33,534

-

-

33,534

-74,879,057

-

-396,223

-75,275,280

95,319,576

16,472,823

272,242

112,064,641

2019

2018

Increase/decrease in asset retirement cost**

11,905,001

1,746,845

Depreciation of capitalized asset retirement cost

-1,810,003

-370,976

Depletion and impairment as at 31 December 2019 Net book value as at 31 December 2019

As at 31 December 2019 KNOK 129 162 of the gross book value relates to capitalized interest. Spesification of increase in asset retirement cost and depreciation NOK 1000

*See note 3.3 for information regarding impairment charges **Includes additions through business combination

69


70

Annual report / Notes

3.3 Impairment Impairment testing Impairment tests of individual cash-generating units (CGUs) are performed when impairment triggers are identified. In Vår Energi, CGU equals an asset or production license based on how management monitors business activity and if an asset or license generates its own independent inflow of cash. Impairment is recognized when the book value of an asset or a cash-generating unit exceeds the recoverable amount. The recoverable amount is the higher of the asset’s fair value less cost to sell and value in use. Write-downs are correspondingly reversed if the conditions for the write-down are no longer present. Impairment testing has been performed for all CGUs except for assets purchased from ExxonMobil with completion 10 December 2019 as these are valued at net present value in the Purchase Price Allocation. The impairment testing is performed based on discounted cash flows. The expected future cash flow is discounted to the net present value by applying a discount rate after tax that reflects the current market valuation of the time value of money, and the specific risk related to the asset. The discount rate is derived from the weighted average cost of capital (WACC) for a market participant. Cash flows are projected for the estimated lifetime of the fields. Key assumptions applied for impairment testing purposes as of 31 December 2019 are based on Vår Energi’s assumptions for prices, exchange rate and inflation rate. Impairment testing of goodwill Most of the goodwill on the balance sheet relates to the asset acquisition from ExxonMobil (see note 2.1 for details) and therefore not part of the 2019 impairment testing. The remaining goodwill of KNOK 163,000 has been tested with no impairment recognised.

Prices Future price level is a key assumption and has significant impact on the net present value. Forecasted prices are based on Vår Energi’s long-term price estimates and available market data as of year-end 2019. Oil and gas reserves Future cash flows are calculated on the basis of expected production profiles and estimated proven, probable and risked possible reserves. The recoverable amount is sensitive to changes in reserves. For more information about reserves, reference is made to note 7.3. Future expenditure Future capex, opex and abandonment cost are calculated based on the expected production profiles and the best estimate of the related cost. Discount rate The discount rate is derived from the Group’s weighted average cost of capital (“WACC”). The capital structure considered in the WACC calculation is derived from the capital structures of an identified peer group and market participants with consideration given to optimal structures. The cost of equity is derived from the expected return on investment by the Group’s investors. The cost of debt is based on the interest-bearing borrowings on debt specific to the assets acquired. The beta factors are evaluated based on publicly available market data about the identified peer group. Inflation The long-term inflation rate is assumed to be 1.9%

Impairment charge/reversal Below is an overview of the impairment charge and the carrying value per cash generating unit where impairment has been recognized in 2019: Impairment charged/reversal Recoverable amount/carrying value at 31.12.19

Cash generating unit (NOK 1000) Brage

-519,300

212,534

Goliat

1,092,389

19,840,888

Total

573,089

With the reversal of Goliat impairment, the 2015 write-down has been fully reversed up to carrying value less calculated depreciation as if the 2015 write-down had not taken place.

3.4 Other non-current assets NOK 1000

Note

2019

2018

4.2

22,112

1,079,100

Other

48,092

37,687

Total other non-current assets

70,204

1,116,787

Receivables decommissioning costs for Jotun*

*Jotun decommissioning ongoing, and majority of work will be completed within 12 months. Cost estimate has been revised downwards since 2018.

3.5 Inventories NOK 1000 Inventory, spare parts & drilling material Physical oil inventory Total inventory

2019

2018

1,548,155

710,223

182,181

55,916

1,730,336

766,139


Notes / Annual report

3.6 Investment in shares NOK 1000

Business location

Book Value

Tananger, Norway

1,526

6,52%

Kjørsvikbugen, Norway

600

0,48%

Tananger, Norway

5,395

6,34%

Note

2019

2018

-

7,948

56,923

324,884

Norpipe Oil AS Tjeldbergodden Utvikling AS Ormen Lange Eiendom DA

Ownership

4.1 Other non-current liabilities NOK 1000 Deferred payments Contingent consideration

4.3

Deferred revenue*

102,586

107,766

Lease commitment Forus office

4.3

177,288

178,165

Removal provision Gassled

4.2

549,725

114,725

886,522

733,489

Total other non-current liabilities

* Deferred revenue In 2017 Point Resources AS, sold the shares in ExxonMobil Property Norway (2) AS, and immediately entered into a finance lease for the office building located in Grenseveien 6, 4313 Sandnes. The excess of sales proceeds is deferred and amortized over the lease term (20 years).

4.2 Abandonment obligation NOK 1000

Total

Total obligation at 31 December 2018

19,204,035

Change in estimate

-398,699

Additions through business combinations

11,697,475

Accretion discount

535,573

Utilization abandonment fund

-533,158

Total obligation at 31 December 2019

30,505,227

Estimated abandonment period:

2020-2058 Note

2018

Non-current receivables related to decommissioning costs for Jotun

NOK 1000

3.3

22,112

Current receivables related to decommissioning costs for Jotun

5.3

Total receivables related to decommissioning costs for Jotun The estimate is based on executing a concept for abandonment in accordance with the Petroleum Activities Act and international regulations and guidelines. The calculations assume an inflation rate of 1,900% discount rates between 2,082% and 2,900% The nominal value of the estimate is KNOK 49 282 697 at 31 December 2019.

422,555 444,667

Compensation of decommissioning costs for Jotun As part of the transaction with ExxonMobil in 2017, the seller has in the sale and purchase agreement agreed to pay parts of the decommissioning costs for Jotun and the Group has a receivable against ExxonMobil to cover those costs that are within compensation threshold. The Group expects that all decommissioning costs within the compensation threshold will be refunded from the seller.

Vår Energi has a retirement obligation as a shipper in Gassled booked to other non-current liabilities in the balance sheet statement. The Group has accrued KNOK 549,725 for this purpose at 31 December 2019. Note

2019

Non-current receivables related to decommissioning costs for Jotun

NOK 1000

3.3

22,112

Current receivables related to decommissioning costs for Jotun

5.3

Total receivables related to decommissioning costs for Jotun

422,555 444,667

71


72

Annual report / Notes

4.3 Commitments and contingent liabilities Other contractual obligations Minimum work programs The Group is required to participate in the approved work programs for the licences. Together with the licence partners there is an obligation to participate in exploration wells according to the licence agreements. There were no remaining drilling commitments at December 31, 2019.

NOK 1000 Within one year After one year but not more than five years More than five years Total operating lease commitments

Finance lease commitments After Point Resources AS sold the shares in ExxonMobil Property Norway (2) AS in 2017 it immediately entered a finance lease for the office building located in Grenseveien 6, 4313 Sandnes. The rent is adjusted annually in accordance with the Norwegian consumer price

Operating lease commitments Vår Energi has entered into lease agreements for drilling rigs, helicopter, storage vessel and other vessels to secure planned activities. The Group has lease agreements for offices in Sandnes, Oslo and Hammerfest. In addition, as a partner in the Ekofisk-license the Group has a leasing agreement for the offices and base in Tananger. Future minimum lease payments under non-cancellable operating leases as at 31 December are as follows:

2019

2018

1,082,260

1,201,600

4,155,613

2,799,233

427,207

403,590

5,665,080

4,404,423

index. The contract expires October 2037. The lease agreement does not provide explicit extension or purchase rights. Future minimum lease payments, together with the present value of the net minimum lease payments are as follows:

2019 NOK 1000

Minimum payments

Present value of payments

Within one year

19 894

18 777

After one year but not more than five years

84 677

63 665

More than five years

335 749

114 740

Total minimum lease payments

440 321

197 182

Less amounts representing finance charges

-243 138

-

Present value of minimum lease payments

197 182

197 182

Liability for damages/insurance The Group’s operations involve risk for damages, including pollution. Installations and operations are covered by an operations insurance policy. Guarantees Vår Energi has provided guarantees with KNOK 14,900 in favour of Aker BP ASA in relation to decommissioning cost on Snorre. Other obligations Related to the decommissioning of Jotun B, there is a cancellation fee of KUSD 15,600 in the contract with Heerema. Vår Energi has contingent liabilities in respect of agreements with pipeline and processing companies, whereby it may be required to provide such companies with additional funds against future transportation and processing of petroleum liquids and natural gas delivered by Vår Energi to these companies.

Contingencies As part of the purchase agreement between Point Resources AS and ExxonMobil in 2017, Point Resources AS agreed to pay an annual contingent consideration to ExxonMobil the following 5 years after transaction close if the yearly average oil price exceeds a certain threshold. The maximum contingent consideration each year is KUSD 25,000. As of 31 December 2019, the fair value of future contingent consideration was estimated to KUSD 9,000 / KNOK 76,000 and was recognised as a liability (KNOK 31,800 current). Through the merger between Point Resources AS and Eni Norge AS, this contingent consideration has been transferred to Vår Energi AS. In addition, the purchase agreement defined a contingent consideration related to possible development of the Forseti structure. As of 31 December 2019, the fair value of this consideration was estimated to KUSD 29,000 / KNOK 258,000 and was recognised as a liability.


Notes / Annual report

5.1 Financial liabilities and borrowings Interest-bearing loans and borrowings NOK 1000

Maturity

2019

RBL credit facility

2024

38,373,672

3,975,410

Deferred payment ExxonMobil

2022

2,764,791

1,291,783

Deferred payment ExxonMobil

2020

-

413,319

Prepaid RBL loan expenses Total non-current interest-bearing loans and borrowings Current interest-bearing loans and liabilities Deferred payment ExxonMobil

2018

-676,029

-342,652

40,462,433

5,337,859

Maturity

2019

2020

1,796,132

298,957

1,796,132

298,957

Total current interest-bearing loans and borrowings

2018

In relation to the reserve based lending facility, Vår Energi is obliged to submit a liquidity test ahead of making distributions to shareholders in addition to 1 April and 1 October to ensure that liquidity levels comply with what is outlined in the RBL agreement. In addition, there are covenants related to a maximum ratio of net debt divided by EBITDAX and a minimum ratio of EBITDA to Interest Expenses. The Group is in compliance with its covenants as at 31 December 2019. ExxonMobil non-current deferred payment in 2019 relates to assets acquired in 2019 while current deferred payment in 2019 relates to assets acquired in 2017.

Credit facilities - utilised and unused amount NOK 1000

2019

Drawn amount credit facilities Undrawn amount credit facilities

2018

38,373,672

3,975,410

8,237,429

19,758,231

Letter of Credit amounting to KNOK 14,888 has been issued to Aker BP which reduces available loan. Security related to the Group’s borrowing base facility include mortgages over the Borrower’s license interests in all underlying assets, from time to time; assignment of the Borrower’s claims under the insurances providing coverage for any underlying asset; and assignment of the Borrower’s monetary claims under each hedging agreement.

5.2 Other current liabilities NOK 1000

Note

2019

2018

Net overlift of hydrocarbons

1,515,898

Net payables to joint operations

1,051,385

774,106

189,507

150,002

190,824

185,168

Employees Accrued public charges and indirect taxes

472,819

Lease commitment Grenseveien office

4.3

19,894

19,409

Contingent consideration

4.3

31,763

97,252

Oil put options liability

5.6

292,008

102,710

Currency forward contracts Other payables Total other current liabilities

2,634,090

-

730,915

-24,278

6,656,284

1,777,189

73


74

Annual report / Notes

5.3 Other receivables and financial assets NOK 1000

Note

2019

Net underlift of hydrocarbons

499,360

183

332

Employees Prepaid expenses Oil put options

5.6

Currency forward contracts Receivables decommissioning costs for Jotun

4.2

41,840

84,702

146,064

135,399

2,748,300

-

422,555

359,600

Other Total current receivables

2018

2,475,958

121,491

9,525

5,956,391

1,088,918

5.4 Changes in shareholder’s equity NOK 1000 Opening Balance

Share Capital

Share Premium

Other Equity

Total Equity

399,425

21,151,241

-

21,550,666

Dividends Accrued

-

-

-1,800,000

-1,800,000

Transactions booked to equity*

-

-

-150,313

-150,313

-

-

2,510,661

2,510,661

399,425

21,151,241

560,348

22,111,014

Profit and loss for the year Closing balance

Share capital amounted to KNOK 399,425 as of 31 December 2019 which consisted of 399,425 shares at par value NOK 1,000. Every share has equal voting rights, 1 share equals 1 vote. Shareholders are ENI International B.V. with 278,000 shares and Point Resources Holding AS with 121,425. * Change in estimate on pension liability and fair value adjustment of oil put options booked to equity post tax.

5.5 Financial income and financial expenses NOK 1000

Note

Interest income on bank accounts and receivables

2019

2018

115,006

42,235

1,760

2,282

-

-

Financial income

116,766

44,517

Currency forward contracts

114,210

16,891

Dividends Other financial income

Other exchange rate gain/(loss)

1,094,652

33,911

Net exchange rate gain / (loss)

1,208,862

50,802

Interest expenses

-676,816

-236,047

-552,220

-291,196

-

-

Financial expenses

-1,229,035

-527,243

Net financial items

96,593

-431,923

Accretion expenses (asset retirement obligation) Other financial expenses

4.2


Notes / Annual report

5.6 Financial instruments The Group uses derivative ďŹ nancial instruments, such as Brent crude put options, to hedge its commodity price risks, respectively. As of 31 December 2019 the Group had Brent crude oil put options in place with a strike of USD 50/bbl. for approximately 35 per cent of the 2020 oil production. Brent Crude put options - financial assets NOK 1000

2019

2018

The beginning of the period

135,399

60,184

Realised Brent Crude put options

-62,991

-13,579

Effective portion recognised in OCI (before tax)

-194,148

48,199

New Brent Crude put options

273,780

38,437

Forex translation effect The end of the period

-5,977

2,157

146,064

135,399

As at 31 December 2019, the fair value of outstanding Brent Crude oil put options amounted to an asset of KNOK 146,100. Brent Crude put options - liabilities NOK 1000

2019

2018

The beginning of the period

102,710

266,477

Realised Brent Crude put options

-93,218

-202,204

New Brent Crude put options

273,780

38,437

Forex translation effect The end of the period

8,736 292,008

102,710

All put option contracts are due in 2020.

5.7 Cash and cash equivalents NOK 1000 Bank deposits, unrestricted Bank deposit, restricted, employee taxes Total bank deposits

2019 1,720,255

2018 8,662,859

70,656

113,844

1,790,911

8,776,703

75


76

Annual report / Notes

6.1 Income Taxes Profit and loss - NOK million

2019

2018

Basis for taxes: Income before taxes

6,799,054

8,108,923

Marginal tax rate (78%)

5,303,262

6,324,960

Tax effect of: - Permanent and other differences

602,800

-2,411

- Items taxed at other tax rates

-373,557

-17,927

-1,263,641

-555,073

19,528

-19,124

4,288,393

5,730,425

2,292,465

2,431,098

19,528

-3,940

- Earned uplift - Previous years’ adjustment This year’s tax cost Specification of the year’s tax cost Payable tax Previous years payable taxes Deferred tax related to tax rate change Deferred tax This year's tax cost

0

-17,927

1,976,399

3,321,194

4,288,393

5,730,425

6,799,054

8,108,923

Payable tax as of 31.12 Income before taxes Permanent difference Change in timing differences Utilization of carry forward loss

775,928

9,036

-3,170,821

1,239,026

0

-573,972

Base for 22% income tax

4,404,161

8,783,013

Uplift

-1,452,453

-8,349,140

Onshore income

-588,226

313,409

2,363,482

747,282

968,915

2,020,093

Base for 56% special tax 22% income tax 56% special tax

1,323,549

411,005

Payable/Receivable tax on the result

2,292,464

2,431,098

Receivable/Payable previous year's tax assessments

112,671

100,001

-1,065,000

-1,146,000

Acquisition of ExxonMobil fields / Point Resources net tax payable

8,770,785

-495,323

Payable tax at year-end

10,110,920

889,776

Tax instalment for the year

Temporary timing differences as of 31.12 Properties, plant and equipment Decommissioning/environmental Pension liability Other Fiscal loss carry forward Basis for deferred ordinary taxes Uplift carry forward and future uplift Onshore activity Basis for deferred special taxes

2019

2018

51,543,295

38,731,459

-30,433,718

-17,824,847

-225,187

-260,713

3,439,702

995,774

0

-8,082

24,324,092

21,633,591

-3,428,654

-1,894,203

-969,621

-476,587

19,925,817

19,262,801

Ordinary tax 22%

5,351,300

4,759,390

Special tax 56%

11,158,458

10,787,169

212,264

0

16,722,022

15,546,559

Items taxed at other tax rates Deferred tax liabilities

Deferred taxes includes taxes related to items recognised directly in equity for pensions (note 2.5) and put options (note 5.6). For 2019 a total of KNOK 49,000 in tax income has been recognized through equity.


Notes / Annual report

7.1 Related parties VĂĽr Energi has a number of transaction with other wholly owned or controlled companies by the shareholders. Revenues are mainly related to sale of oil, gas and NGL. The expenditures are mainly related to technical services, seconded personnel, insurance guarantees and rental cost. Current assets NOK 1000

2019

2018

Customers Eni Trading & Shipping SpA

1,815,544

883,762

Eni SpA

72,717

107,987

Eni Angola SpA

19,464

5,759

8,472

10,250

1,916,197

1,007,758

Other Total customers Bank deposits Banque Eni/Eni Corporate

-

126,018

Eni Finance International

-

4,786,982

Total bank deposits

-

4,912,999

All receivables are due within 1 year. Current liabilities NOK 1000

2019

2018

Suppliers Eni SpA

160,952

Eni Trading & Shipping SpA

159,501

7,558

-

17,391

Eni International Resources Ltd.

3,122

10,750

Other

1,890

6,976

325,465

140,350

Eni Insurance Ltd.

Total suppliers

97,675

Sales revenue NOK 1000 Eni Trading & Shipping SpA Eni SpA Total sales revenue

2019 14,445,646

2018 17,238,819

782,992

1,109,164

15,228,638

18,347,983

Operating and capital expenditure NOK 1000 Eni SpA

2019 304,736

2018 298,497

Eni International Resources Ltd.

41,001

45,645

Eni Insurance Ltd.

5,681

186,014

340,522

73,563

Eni Trading & Shipping SpA Technomare SpA Other Total operating and capital expenditures

382

1,585

9,333

22,363

701,655

627,667

Financial income NOK 1000 Eni SpA

2019

2018

-

4,485

Eni Finance International

1,990

16,657

Total financial income

1,990

21,142

Financial expenses NOK 1000 Eni SpA

2019 914

2018 21,057

Eni Finance International

62

174,118

Total financial expenses

976

195,175

77


78

Annual report / Notes

7.2 License ownerships Licenses BALDER BAUGE BRAGE BØYLA EDDA EKOFISK ELDFISK EMBLA FENJA FRAM GOLIAT GRANE GUNGNE HEIDRUN HYME JOHAN CASTBERG KRISTIN MARULK MIKKEL MORVIN NORNE ORMEN LANGE RINGHORNE ØST SIGYN SKULD SLEIPNER VEST SLEIPNER ØST SNORRE STATFJORD STATFJORD NORD STATFJORD ØST SVALIN SYGNA TOR TORDIS TRESTAKK TYRIHANS URD VIGDIS ÅSGARD PL001 PL001 CS PL018 PL018 B PL027 PL027 B PL027 C PL027 FS PL027 GS PL028 PL028 C PL028 S PL029 PL037 PL044 PL046 PL053 B PL055 PL055 B PL055 D PL055 E* PL057 PL062 PL072 PL072 B PL073 PL073 B PL074 PL074 B PL089 PL090 PL090 E PL090 I PL091

WI % 90,0% 17,5% 12,3% 20,0% 12,4% 12,4% 12,4% 12,4% 45,0% 25,0% 65,0% 28,3% 13,0% 5,2% 17,5% 30,0% 19,1% 20,0% 48,4% 30,0% 6,9% 6,3% 70,0% 40,0% 11,5% 17,2% 15,4% 18,6% 21,4% 25,0% 20,6% 13,0% 21,0% 10,8% 16,1% 40,9% 18,0% 11,5% 16,1% 22,1% 90% 100% 12% 12% 90% 100% 90% 100% 90% 90% 13% 90% 85% 25% 13% 13% 12% 12% 12% 12% 12% 5% 10% 40% 50% 12% 15% 39% 39% 16% 25% 25% 25% 41%

Operator Vår Energi Equinor Wintershall Dea Aker BP ConocoPhillips ConocoPhillips ConocoPhillips ConocoPhillips Neptune Energy Equinor Vår Energi Equinor Equinor Equinor Equinor Equinor Equinor Vår Energi Equinor Equinor Equinor Norske Shell Vår Energi Equinor Equinor Equinor Equinor Equinor Equinor Equinor Equinor Equinor Equinor ConocoPhillips Equinor Equinor Equinor Equinor Equinor Equinor Vår Energi Vår Energi ConocoPhillips ConocoPhillips Vår Energi Vår Energi Vår Energi Vår Energi Vår Energi Vår Energi Equinor Vår Energi Vår Energi Equinor ConocoPhillips Equinor Wintershall Dea Wintershall Dea Wintershall Dea Wintershall Dea Wintershall Dea Equinor Equinor Equinor Equinor Equinor Equinor Equinor Equinor Equinor Equinor Equinor Equinor Equinor

Licenses PL091 D PL091 E PL092 PL094 PL094 B PL095 PL107 B PL107 D PL121 PL122 PL122 B PL122 C PL122 D PL124 PL128 PL128 B PL128 D PL128 E PL134 PL134 B PL134 C PL134 D PL145 PL169 PL169 B1 PL169 B2 PL169 E PL185 PL199 PL201 PL209 PL219 PL220 PL229 PL229 B PL229 D PL229 E PL229 F PL237 PL250

WI % 41% 41% 55% 34% 22% 5% 5% 5% 35% 20% 20% 20% 20% 10% 12% 7% 12% 12% 30% 30% 30% 30% 20% 13% 7% 10% 13% 12% 15% 67% 10% 50% 15% 65% 65% 50% 50% 65% 22% 6%

Operator Equinor Equinor Equinor Equinor Equinor ConocoPhillips Equinor Equinor Equinor Vår Energi Vår Energi Vår Energi Vår Energi Equinor Equinor Equinor Equinor Equinor Equinor Equinor Equinor Equinor ConocoPhillips Equinor Equinor Equinor DNO Norge Wintershall Dea Equinor Vår Energi Equinor Equinor Equinor Vår Energi Vår Energi Vår Energi Vår Energi Vår Energi Equinor Shell

PL257

15%

Equinor

PL263 C PL275

10%

Equinor

12%

ConocoPhillips

PL293 PL312

60%

Vår Energi

41%

Equinor

PL312 B PL340

41%

Equinor

20%

Aker BP

PL340 BS

20%

Aker BP

PL348 PL348 B

18%

Equinor

18%

Equinor

PL375

20%

Equinor

PL393

50%

Equinor

PL473

39%

Equinor

PL479

34%

Equinor

PL489

40%

Vår Energi

PL516

12%

Equinor

PL532

30%

Equinor

PL554

30%

Equinor

PL554 B

30%

Equinor

PL554 C

30%

Equinor

PL554 D

30%

Equinor

PL586

45%

Neptune

PL608

30%

Equinor

PL740

50%

DNO Norge

PL740 B

50%

DNO Norge

PL740 C

50%

DNO Norge

PL777

20%

Aker BP

PL777 B

20%

Aker BP

PL777 C

20%

Aker BP

PL777 D

20%

Aker BP


Notes / Annual report

Licenses PL784 PL796 PL796 B PL822 S PL843 PL869 PL901 PL911 PL912 PL917 PL917 B* PL930 PL938 PL946 PL947 PL947 B* PL951 PL956 PL977 PL978 PL980 PL984

WI % 20% 20% 20% 40% 20% 20% 50% 60% 30% 20% 20% 20% 20% 40% 40% 40% 20% 70% 40% 40% 60% 30%

Operator Aker BP Equinor Equinor Aker BP Aker BP Aker BP Vår Energi Vår Energi ConocoPhillips ConocoPhillips ConocoPhillips Equinor Neptune Equinor Equinor Equinor Aker BP Vår Energi Aker BP Aker BP Vår Energi DNO Norge

Licenses PL984 BS* PL985 PL987 PL987 B* PL988 PL1001 PL1005 PL1010 PL1025 S PL1035* PL1042* PL1043* PL1065* PL1070* PL1072* PL1073* PL1074* PL1075* PL1078* PL1079* PL1080*

WI % 30% 40% 20% 20% 30% 20% 40% 40% 30% 30% 30% 40% 40% 30% 70% 70% 40% 60% 30% 30% 30%

Operator DNO Norge Vår Energi Suncor Suncor Lundin ConocoPhillips Aker BP Wintershall Dea Vår Energi Suncor Aker BP Vår Energi Vår Energi Total Vår Energi Vår Energi Vår Energi Vår Energi Equinor Vår Energi Equinor

* Awarded in APA 2019

79


80

Annual report / Notes

7.3 Proved developed reserves (un-audited) Million boe

Total reserves -48,8

Production 2018 Changes in estimate 2018

14,0

Addition through merger 2018

69,3

Proved developed reserves as at 31.12.18

294,7

Production 2019

-56,7

Changes in estimate 2019

40,0

Addition through merger 2019

195,2

Proved developed reserves as at 31.12.19

473,2

Concession periods expire as follows:

Year

Ekofisk

PL 018/PL 018 B

2028

Heidrun

PL 095

2024

Heidrun

PL 124

2025

Kristin

PL 134D

2027

Mikkel

PL 092

2024

Mikkel

PL 121

2024

Norne

PL 128/PL 128 B

2026

Urd

PL 128

2026

Skuld

PL 128

2026

Åsgard

PL 062/PL 074/PL 094/

2027

PL 094 B/PL 134/PL 237/PL 479 Tyrihans

PL 073/PL 073 B/PL 091

2029

Marulk

PL122

2025

Goliat

PL229

2042

Balder Ringhorne

PL 001/PL 027/PL 027C

2030

PL 169/PL 028 Ringhorne Øst

PL 027/PL 169E

2030

Brage

PL 053B/PL 055/PL 185

2030

PL 055B/PL 055D Snorre

PL 057

2040

Bøyla

PL 340/PL 340BS

2029

Hyme

PL 348

2029

Bauge

PL 348/PL 348B

2029

Fram

PL 090 / 090E

2024

Grane

PL 001CS / PL 169B1

2030

Gungne

PL 046

2028

Ormen Lange

PL 208 / PL 208 / PL 250

2041

Sigyn

PL 072

2022

Sleipner East

PL 046

2028

Sleipner West

PL 029 / PL 046

2028

Statfjord Unit

PL 037

2026

Statfjord East

PL 037 / PL 089

2040

Statfjord North

PL 037

2026

Sygna

PL 037 / PL 089

2040

Svalin

PL 169

2030

Tordis

PL 089

2040

Vigdis

PL 089

2040


Notes / Annual report

* Awarded in APA 2019

81


82

Annual report

Financial Statements 2019 Parent company Statement of income Balance sheet Statements of cash flow

83 84 86

Notes to the consolidated financial statements

88

Background information 1.1 Corporate information 1.2 Accounting principles

88 88

Operational performance 2.1 Business combinations (including proforma) 2.2 Petroleum revenues 2.3 Other operating revenues 2.4 Production costs 2.5 Staff costs and remuneration 2.6 Other operating expenses 2.7 Exploration cost

88 90 91 91 87 91 92

Asset base 3.1 Intangible assets 3.2 Tangible assets 3.3 Impairment 3.4 Other non-current assets 3.5 Inventories 3.6 Investment in shares

92 93 93 93 94 94

Special items and provisions 4.1 Other non-current liabilities 4.2 Abandonment obligation 4.3 Commitments and contingent liabilities

94 94 94

Financial instruments, capital structure and equity 5.1 Financial liabilities and borrowings 5.2 Other current liabilities 5.3 Other receivables and financial assets 5.4 Changes in shareholder’s equity 5.5 Financial income and financial expenses 5.6 Financial instruments 5.7 Cash and cash equivalents

95 96 96 96 97 97 97

Tax 6.1 Tax

98

Other disclosures 7.1 Related parties 7.2 License ownerships 7.3 Proved developed reserves (un-audited)

99 100 102


Annual report

Statement of income Full year NOK 1000

Note

2019

2018

Sales revenue

2.2

24,866,949

22,113,050

Other operating revenue

2.3

245,902

0

25,112,852

22,113,050

-7,769,118

-4,111,251

-1,250,571

-1,119,631

Total operating revenue Production costs

2.4, 2.5

Transportation costs Other operating expenses

2.6

-405,125

-94,402

2.7, 3.1

-932,128

-226,050

Depreciation

3.1, 3.2

-8,634,916

-8,020,869

Impairment and reversal of impairments

3.2, 3.3

573,089

0

-18,418,769

-13,572,203

6,694,083

8,540,846

Exploration costs

Total operating cost Operating profit/(loss) (EBIT) Net financial items

5.5

Profit/(loss) before income taxes Taxes on ordinary income Profit/(loss) for the period

6.1

111,184

-431,923

6,805,267

8,108,923

-4,288,806

-5,730,425

2,516,461

2,378,498

(1) Includes figures from underlying assets from business combination with ExxonMobil Exploration and Production Norway AS completed in December 2019. (2) Income statement of 2018 only includes continuing entity’s operation, Eni Norge AS following business combination and merger with Point Resources AS end of 2018.

83


84

Annual report

Balance sheet Year end NOK 1000

Note

2019

2018

ASSETS Non-current assets Intangible assets Goodwill

3.1

5,673,107

236,350

Capitalized exploration wells

3.1

768,588

575,231

Other intangible assets

3.1

921,867

0

Wells and production facilities

3.2

93,239,354

58,743,431

Facilities under construction

3.2

16,472,823

6,146,781

Other property, plant and equipment

3.2

272,242

218,677

Investment in shares

3.6

2,204,093

2,028,288

Other non-current assets

3.4

70,204

1,116,787

119,622,279

69,065,544

Tangible fixed assets

Financial assets

Total non-current assets Current assets Inventories

3.5

1,699,859

735,021

Trade receivables

7.1

4,507,451

2,155,090

Other receivables and financial assets

5.3

5,956,391

1,088,918

Cash and cash equivalents

5.7

Total current assets TOTAL ASSETS

1,233,276

8,376,437

13,396,977

12,355,466

133,019,256

81,421,010

(1) Includes figures from underlying assets from business combination with ExxonMobil Exploration and Production Norway AS completed in December 2019 (2) Balance sheet for 2018 includes activities of Eni Norge AS and Point Resources AS following business combination and merger with Point Resources AS at the end of 2018.


Annual report

Year end NOK 1000

Note

2019

2018

EQUITY AND LIABILITIES Equity Share capital

5.4

399,425

399,425

Share premium

5.4

21,151,241

21,151,241

Other equity

5.4

Total equity

532,881

0

22,083,547

21,550,666

Non-current liabilities Interest-bearing loans and borrowings

5.1

40,462,433

4,924,541

Deferred tax liabilities

6.1

16,806,745

15,556,516

Non-current abandonment obligation

4.2

29,623,036

18,768,035

Pension liability

2.5

226,559

260,713

Other non-current liabilities

4.1

886,522

733,489

88,005,294

40,243,294

Total non-current liabilities Current liabilities Current abandonment obligation

4.2

882,192

436,000

Accounts payables

7.1

2,196,502

1,812,309

Taxes payable

6.1

10,031,772

831,198

Current interest-bearing loans

5.1

1,363,893

0

Accrued dividend

5.4

1,800,000

14,770,399

Other current liabilities

5.2

6,656,056

1,777,145

22,930,414

19,627,050

Total liabilities

110,935,708

59,870,344

TOTAL EQUITY AND LIABILITIES

133,019,256

81,421,010

Total current liabilities

(1) Includes figures from underlying assets from business combination with ExxonMobil Exploration and Production Norway AS completed in December 2019 (2) Balance sheet for 2018 includes activities of Eni Norge AS and Point Resources AS following business combination and merger with Point Resources AS at the end of 2018.

Sandnes, 24 March 2020

Philip D. Hemmens Chairman

Tor Espedal Board member

Stefano Maione Board member

Alessandro Puliti Board member

Massimo Mondazzi Board member

Grete Myklebust Board member

Fay-RenĂŠe F. Nilsen Board member

Judith R. Solland Board member

Kristin F. Kragseth Chief Executive Officer

85


86

Annual report

Statements of cash flow Full year NOK 1000

Note

Profit/(Loss) before income taxes

2019

2018

6,805,267

8,108,923 8,020,869

Depreciation, depletion and amortisation

3.1, 3.2

8,634,916

Reversal of impairment of tangible fixed assets

3.2, 3.3

-573,089

0

0

-3,432 -27,118

Inventory write-down Impairment of exploration wells

3.1

157,756

(Gain)/loss on sale and retirement of assets

2.3

-159,794

0

Utilization of decommissioning provision

4.2

-533,160

-73,041

Accretion expenses (asset retirement obligation)

4.2

Changes in inventories, accounts and other payables, trade and other receivables, and provisions Income tax received/(paid) Accrued pension cost

2.5

Net cash flows from/-used in operating activities

535,573

291,196

-1,354,171

653,949

-1,803,056

-1,142,061

-35,482

-28,675

11,674,761

15,800,610

Expenditures on exploration and evaluation assets

3.1, 3.2

-351,314

-269,418

Expenditures on other property, plant and equipment

3.1, 3.2

-10,727,919

-4,761,359

1,273,053

0

2.1

-28,776,002

897,732

-38,582,182

-4,133,045

0

16,550,599

-14,712,310

-1,000,000

Proceeds from sale of assets (sales price) Business combination Net cash flows from/-used in investing activities Proceeds from other paid-in capital Dividends Proceeds from loans and borrowings

5.1

34,471,761

0

Payments of long-term loan and borrowings

5.1

0

-19,077,570

Net cash from/-used in financing activities

19,759,451

-3,526,971

Net change in cash and cash equivalents

-7,147,970

8,140,594

Cash and cash equivalents, beginning of period

8,376,437

182,112

4,809

53,731

1,233,276

8,376,437

Effect of exchange rate fluctuation on cash held Cash and cash equivalents, end of period

*The cash flow statement is disclosed post merger.


Content / Annual report

87


88

Annual report / Notes

Notes to the financial statements 1.1 Corporate information The financial statements of Vår Energi AS (“Vår Energi” or “the Company”) for the year ended 31 December 2019 were authorised for issue in accordance with a Board resolution on 24 March 2020. Vår Energi AS is a limited liability company incorporated and domiciled in Norway and the Company’s shares are privately held. The head office is located at Vestre Svanholmen 12, 4313 Sandnes, Norway. Vår Energi AS is an independent exploration and production (E&P) company with a diverse portfolio of production, development and exploration assets on the Norwegian Continental Shelf (NCS). On 10 December 2019, Vår Energi acquired ExxonMobil’s partneroperated business in Norway from ExxonMobil Exploration and Production Norway AS. The acquisition included transfer of ExxonMobil’s onshore E&P staff in Norway and the shares in subsidiary Vår Energi Marine AS (renamed from Standard Marine Tønsberg AS). More detailed information is included in note 2.1.

1.2 Accounting principles Refer to Note 1.2 in the Consolidated Financial Statements disclosing information to the Company’s accounting policies.

2.1 Business combinations (including proforma) Acquisition of ExxonMobil’s Partner Operated Assets in Norway On 10 December 2019, Vår Energi acquired ExxonMobil’s ownership interests in Partner Operated fields and licenses on the Norwegian Continental Shelf. The acquisition included more than 20 producing fields, including 6 fields with ownership interests also previously held by Vår Energi. In addition, the acquisition included licenses with future development projects and exploration potentials. As part of the acquisition of the assets, 33 employees were transferred from ExxonMobil to Vår Energi. As part of the transaction, Vår Energi acquired 100% of the shares in Standard Marine Tønsberg AS. Standard Marine Tønsberg AS subsequently changed name to Vår Energi Marine AS. The company has a long term in-chartering agreement with Knutsen NYK Shuttle Tankers 16 AS for one shuttle tanker vessel, MT Ingrid Knutsen, and a corresponding out-chartering agreement with Teekay Navion Offshore Loading Pte Ltd. The transaction with ExxonMobil is recorded as a Business Combination and was completed on 10 December 2019. For tax and economic purposes, the effective date of the assets transferred was 1 January 2019.

NOK 1000 Purchase consideration Cash consideration

28,776,002

Deferred payment*

2,894,524

Payment for acquired assets and liabilities

31,670,526

* Described in the section below Deferred payments The part of the purchase price is to be paid 30 December 2022. Outstanding payments are subject to interest. Assets acquired and liabilities assumed The fair values of the identifiable assets and liabilities of ExxonMobil’s operated upstream business in Norway as at the date of acquisition were:


Notes / Annual report

NOK 1000 ASSETS Non-current assets Oil and gas properties

43,338,304

Exploration prospects

919,230

Financial assets Total non-current assets

151,067 44,299,113

NOK 1000 ASSETS Current assets Inventories Net working capital Cash and short term deposits

1,663,210 221,111 0

Deferred tax asset

750,295

Total current assets

2,744,105

Total assets

47,043,217

Non-current liabilities Shippers Liability Gassled

420,351

Provision for abandonment

11,697,475

Total non-current liabilities

12,117,826

Current liabilities Taxes payable

8,764,580

Total current liabilities

8,764,580

Total liabilities

20,882,407

Total identifiable net assets at fair value

26,160,811

Consideration paid on acquisition

31,670,526

Goodwill arising on acquisition

5,509,715

According to § 10 in the Norwegian Petroleum Tax Act transaction shall be done after tax and the buyer is therefore not entitled to claim tax deduction for the part of consideration that exceeds the tax position acquired from the seller. None of the goodwill recognised is expected to be deductible for income tax purposes. Preliminary purchase price allocation The valuation is based on currently available information about fair values as of the acquisition date. Final completion statement and audit of amounts in 2020. If new information becomes available within 12 months from the acquisition date, the Company may change the fair value assessment in the Purchase price allocation. Any adjustments will result in a corresponding adjustment of goodwill.

Net cash flow from acquisition Net cash acquired Cash paid Net cash flow on acquisition

0 28,776,002 -28,776,002

89


90

Annual report / Notes

Pro-forma figures (Un-audited): The Board of Directors considers the pro-forma numbers presented in the table below to represent an approximate measure of the performance of the combined group on an annualised basis and to provide a reference point for comparison in future periods. The pro-forma figuers for the Company has been calculated as if the ExxonMobil asset acquisition and the Eni - Point Resources merger had taken place 1 January 2018. The pro-forma figures for 2019 have been collected directly from ExxonMobil, the preliminary completion statement and NPD. Pro-forma figures for 2018 have mainly been taken from the corresponding Annual Report.

Pro-forma 1 January - 31 December (NOK 1 000) Sales revenue Other operating revenue

2019

2018

43,151,023

57,499,329

255,930

113,434

Production costs

-13,075,985

-14,118,347

EBITDAX

30,330,968

43,494,416

-940,099

-858,719

29,390,869

42,635,697

296,0

334,6

Exploration costs EBITDA PRODUCTION (kboed)

2.2 Petroleum revenues NOK 1000 Revenue from crude oil sales

EU

Norway

2019

2018

15,969,980

3,537,207

19,507,187

15,237,018

Revenue from gas sales

3,919,946

1,853

3,921,799

5,228,516

Revenue from NGL sales

1,345,929

92,034

1,437,964

1,647,516

Total petroleum revenues

21,235,855

3,631,094

24,866,949

22,113,050

2019

2018

boe*

56,678,071

48,783,030

boe

155,282

133,652

USD/bbl

63,70

69,79

boe

56,093,158

47,089,855

Key operational figures Production Average production per day Average oil price including hedging effects Volumes sold * boe = Barrel of oil equivalent


Notes / Annual report

2.3 Other operating revenues NOK 1000

Note

Gain from sale of assets Oil put options

5.6

2019

2018

160,810

-

-62,991

-

Other operating income

148,083

-

Total other operating revenues

245,902

-

Asset sale relates to divestment of 10% ownership interests in six Vår Energi-operated licenses across the Balder and Ringhorne fields in the North Sea to Mime Petroleum AS. Other operating income includes insurance reimbursement on Goliat.

2.4 Production costs NOK 1000

2019

2018

6,444,541

3,680,019

Environmental taxes

418,961

184,786

Over-/underlift & physical stock adjustments

567,927

61,160

Insurances

335,984

183,535

Production and processing costs

Purchase of natural gas Total production cost

1,705

1,750

7,769,118

4,111,251

2.5 Staff costs and remuneration Refer to Note 2.5 in the Consolidated Financial Statements disclosing information to the Company’s staff costs and remuneration.

2.6 Other operating expenses NOK 1000 R&D cost

2019

2018

170,727

94,402

Legal provisions

138,093

-

Net profit interest

78,335

-

Other expenses

17,970

-

405,125

94,402

Total other operating expenses

R&D cost Vår Energi participates in a variety of research and development (R&D) projects. The objective is to support ongoing and future activities carried out by the Company in the areas of exploration, development and production. The Company is engaged in large scale projects aiming to develop climate emissions reduction capabilities, such as offshore wind, carbon capture and storage (CCS) and low emissions technologies. Vår Energi’s R&D portfolio includes more than 50 projects, mainly administered in the form of Joint Industry Projects (JIPs) or consortia, but also as bilateral R&D contracts.

91


92

Annual report / Notes

2.7 Exploration costs Refer to Note 2.7 in the Consolidated Financial Statements disclosing information to the Company’s exploration costs.

3.1 Intangible assets NOK 1000 Cost as at 1 January 2018

Goodwill -

Other intangible assets -

Capitalized exploration wells 278,700

Total 278,700

Additions Additions through business combination Reclassification Disposals / Expensed exploration wells

236,350 -

-

269,412 27,118

269,412 236,350 27,118

Cost as at 31 December 2018

236,350

-

575,231

811,580

-

-

-

-

236,350

-

575,231

811,580

236,350 5,509,715 5,746,065

2,767 919,230 921,997

575,231 351,314 -157,957 768,588

811,581 354,080 6,428,945 -157,957 7,436,650

-72,958 -72,958

-130 -130

-

-73,088 -73,088

5,673,107

921,867

768,588

7,363,562

Bal 31/12-18 236,350 236,350

Depreciation -72,958 -72,958

Addition 5,509,715 5,509,715

Total 163,392 5,509,715 5,673,107

Depletion and impairment as at 1 January 2018 Depreciation Provision for impairment Disposals Depletion and impairment as at 31 December 2018 Net book value as at 31 December 2018 Cost as at 1 January 2019 Additions Additions through business combinations Reclassification Disposals / Expensed exploration wells Cost as at 31 December 2019 Depletion and impairment as at 1 January 2019 Depreciation Provision for impairment Disposals Depletion and impairment as at 31 December 2019 Net book value as at 31 December 2019 Goodwill NOK 1000 Eni-Point Merger (10 Dec 2018) ExxonMobil asset acquisition (10 Dec 2019) Total


Notes / Annual report

3.2 Tangible assets Cost as at 1 January 2018

Wells and production facilities

Facilities under construction

Other property, plant and equipment

Total

103,068,817

1,197,589

356,362

104,622,768

2,631,912

2,646,516

870

5,279,297

19,485,721

2,428,343

206,843

22,120,907

125,667

-125,667

-

-

-

-

-

-

125,312,116

6,146,781

564,075

132,022,972

-58,571,188

-

-322,027

-58,893,215

Additions Additions through business combinations Reclassification Disposals Cost as at 31 December 2018 Depletion and impairment as at 1 January 2018 Depreciation

-7,997,498

-

-23,371

-8,020,869

Provision / reversal of impairment

-

-

-

-

Disposals

-

-

-

-

-66,568,686

-

-345,398

-66,914,084

Net book value as at 31 December 2018

58,743,431

6,146,781

218,677

65,108,889

Cost as at 1 January 2019

125,312,116

6,146,781

564,075

132,022,972

Additions

4,789,062

6,735,235

104,390

11,628,686

39,036,263

4,302,041

-

43,338,304

414,853

-711,233

-

-296,380

-1,806,340

-

-

-1,806,340

167,745,954

16,472,823

668,465

184,887,243

-66,568,686

-

-345,398

-66,914,084

-8,544,538

-

-50,825

-8,595,363

573,089

-

-

573,089

33,534

-

-

33,534

-74,506,600

-

-396,223

-74,902,823

93,239,354

16,472,823

272,242

109,984,419

2019

2018

Increase/decrease in asset retirement cost**

11,905,001

1,746,845

Depreciation of capitalized asset retirement cost

-1,810,003

-370,976

Depletion and impairment as at 31 December 2018

Additions through business combinations Reclassification Disposals Cost as at 31 December 2019 Depletion and impairment as at 1 January 2019 Depreciation Provision / reversal of impairment* Disposals Depletion and impairment as at 31 December 2019 Net book value as at 31 December 2019

As at 31 December 2019 KNOK 129,162 of the gross book value relates to capitalized interest. Spesification of increase in asset retirement cost and depreciation NOK 1000

*See note 3.3 for information regarding impairment charges **Includes additions through business combination

3.3 Impairment Refer to Note 3.3 in the Consolidated Financial Statements disclosing information to the Company’s impairments.

3.4 Other non-current assets Refer to Note 3.4 in the Consolidated Financial Statements disclosing information to the Company’s Other non-current assets.

93


94

Annual report / Notes

3.5 Inventories NOK 1000

2019

Inventory, spare parts & drilling material

1,517,678

Physical oil inventory Total inventory

2018 679,105

182,181

55,916

1,699,859

735,021

3.6 Investment in shares Shares in subsidiaries NOK 1000

2019 Business location

Book Value

Point Resources FPSO Holding AS

Sandnes, Norway

2,050,901

100%

Vår Energi Marine AS

Sandnes, Norway

145,672

100%

Other investments in shares

Ownership

2019

NOK 1000

Business location

Book Value

Norpipe AS

Tananger, Norway

1,526

6,52%

Kjørsvikbugen, Norway

600

0,48%

Tananger, Norway

5,395

6,34%

Tjeldbergodden Utvikling AS Ormen Lange Eiendom DA

Ownership

4.1 Other non-current liabilities Refer to Note 4.1 in the Consolidated Financial Statements disclosing information to the Company’s Other non-current liabilities.

4.2 Abandonment obligation Refer to note 4.2 in the Consolidated Financial Statements disclosing information to the Company’s abandonment obligation.

4.3 Commitments and contingent liabilities Other contractual obligations Minimum work programs The Company is required to participate in the approved work programs for the licences. Together with the licence partners there is an obligation to participate in exploration wells according to the licence agreements. There were no remaining drilling commitments at December 31 2019.

NOK 1000 Within one year After one year but not more than five years More than five years Total operating lease commitments

Finance lease commitments After Point Resources AS sold the shares in ExxonMobil Property Norway (2) AS in 2017 it immediately entered a finance lease for the office building located in Grenseveien 6, 4313 Sandnes. The rent is adjusted annually in accordance with the Norwegian consumer price

Operating lease commitments Vår Energi has entered into lease agreements for drilling rigs, helicopter, storage vessel and other vessels to secure planned activities. The company has lease agreements for offices in Sandnes, Oslo and Hammerfest. In addition as a partner in the Ekofisk-license the company has a leasing agreement for the offices and base in Tananger. Future minimum lease payments under non-cancellable operating leases as at 31 December are as follows:

2019

2018

1,280,260

1,201,600

4,155,613

2,799,233

427,207

403,590

5,665,080

4,404,423

index. The contract expires October 2037. The lease agreement does not provide explicit extension or purchase rights. Future minimum lease payments, together with the present value of the net minimum lease payments are as follows:


Notes / Annual report

2019 NOK 1000

Minimum payments

Present value of payments

Within one year

19,894

18,777

After one year but not more than five years

84,677

63,665

335,749

114,740 197,182

More than five years Total minimum lease payments

440,321

Less amounts representing finance charges

-243,138

-

Present value of minimum lease payments

197,182

197,182

Liability for damages/insurance The Company’s operations involve risk for damages, including pollution. Installations and operations are covered by an operations insurance policy.

Contingencies As part of the purchase agreement between Point Resources AS and ExxonMobil in 2017, Point Resources AS agreed to pay an annual contingent consideration to ExxonMobil the following 5 years after transaction close if the yearly average oil price exceeds a certain threshold. The maximum contingent consideration each year is KUSD 25,000. As of 31 December 2019, the fair value of future contingent consideration was estimated to KUSD 9,000 / KNOK 76,000 and was recognised as a liability (KNOK 31,800 current). Through the merger between Point Resources AS and Eni Norge AS, this contingent consideration has been transferred to Vår Energi AS.

Guarantees The Company has provided guarantees with KNOK 14,900 in favour of Aker BP ASA in relation to decommissioning cost on Snorre. Other obligations Related to the decommissioning of Jotun B, there is a cancellation fee of KUSD 15,600 in the contract with Heerema.

In addition, the purchase agreement defined a contingent consideration related to possible development of the Forseti structure. As of 31 December 2019, the fair value of this consideration was estimated to KUSD 29,000 / KNOK 258,000 and was recognised as a liability.

Vår Energi has contingent liabilities in respect of agreements with pipeline and processing companies, whereby it may be required to provide such companies with additional funds against future transportation and processing of petroleum liquids and natural gas delivered by Vår Energi to these companies.

5.1 Financial liabilities and borrowings Interest-bearing loans and borrowings NOK 1000

Maturity

2019

2024

38,373,672

3,975,410

Deferred payment ExxonMobil

2022

2,764,791

878,464

Deferred payment ExxonMobil

2020

-

413,319

-676,029

-342,652

40,462,433

4,924,541

RBL credit facility

Prepaid RBL loan expenses Total non-current interest-bearing loans and borrowings Current interest-bearing loans and liabilities Deferred payment ExxonMobil Total current interest-bearing loans and borrowings

Maturity 2020

2018

2019

2018

1,363,893

-

1,363,893

-

In relation to the reserve based lending facility, Vår Energi AS is obliged to submit a liquidity test ahead of making distributions to shareholders in addition to 1 April and 1 October to ensure that liquidity levels comply with what is outlined in the RBL agreement. In addition, there are covenants related to a maximum ratio of net debt divided by EBITDAX and a minimum ratio of EBITDA to Interest Expenses. The Company is in compliance with its covenants as at 31 December 2019. ExxonMobil non-current deferred payment in 2019 relates to assets acquired in 2019 while current deferred payment in 2019 relates to assets acquired in 2017.

95


96

Annual report / Notes

Credit facilities - utilised and unused amount NOK 1000

2019

Drawn amount credit facilities Undrawn amount credit facilities

2018

38,373,672

3,975,410

8,237,429

19,758,231

Letter of Credit amounting to KNOK 14,888 has been issued to Aker BP which reduces available loan. Security related to the Company’s borrowing base facility include mortgages over the Borrower’s license interests in all underlying assets, from time to time; assignment of the Borrower’s claims under the insurances providing coverage for any underlying asset; and assignment of the Borrower’s monetary claims under each hedging agreement.

5.2 Other current liabilities NOK 1000

Note

2019

2018

Net overlift of hydrocarbons

1,515,898

472,819

Net payables to joint operations

1,051,385

774,106

Employees

189,507

150,002

Accrued public charges and indirect taxes

190,824

185,168

19,894

19,409

Lease commitment Grenseveien office

4.3

Contingent consideration

4.3

31,763

97,252

Oil put options liability

5.6

292,008

102,710

2,634,090

-

Currency forward contracts Other payables Total other current liabilities

730,686

-24,323

6,656,056

1,777,145

5.3 Other receivables and financial assets NOK 1000

Note

2019

Net underlift of hydrocarbons

499,360

183

332

Employees Prepaid expenses Oil put options

5.6

Currency forward contracts Receivables decommissioning costs for Jotun

4.2

41,840

84,702

146,064

135,399

2,748,300

-

422,555

359,600

121,491

9,525

5,956,391

1,088,918

Other Total current receivables

2018

2,475,958

5.4 Changes in shareholder’s equity NOK 1000 Opening Balance

Share Capital

Share Premium

Other Equity

Total Equity

399,425

21,151,241

-

Group contribution

-

-

-30,872

-30,872

Dividends Accrued

-

-

-1,800,000

-1,800,000

Transactions booked to equity (1)

-

-

-152,707

-152,707

Profit and loss for the year

-

-

2,516,461

2,516,461

399,425

21,151,241

532,881

22,083,547

Closing balance

21,550,666

Share capital amounted to KNOK 399,425 as of 31 December 2019 which consisted of 399,425 shares at par value NOK 1,000. Every share has equal voting rights, 1 share equals 1 vote. Shareholders are ENI International B.V. with 278,000 shares and Point Resources Holding AS with 121,425. (1) Change in estimate on pension liability and fair value adjustment of oil put options booked to equity post tax.


Notes / Annual report

5.5 Financial income and financial expenses NOK 1000

Note

Interest income on bank accounts and receivables Dividends Other financial income Financial income Currency forward contracts

2019

2018

111,869

42,235

1,760

2,282

-

-

113,629

44,517

114,210

16,267

Other exchange rate gain/(loss)

1,097,734

34,536

Net exchange rate gain / (loss)

1,211,944

50,803

Interest expenses

-662,170

-236,047

-552,220

-291,196

-

-

Financial expenses

-1,214,389

-527,243

Net financial items

111,184

-431,923

Accretion expenses (asset retirement obligation) Other financial expenses

4.2

5.6 Financial instruments Refer to Note 5.6 in the Consolidated Financial Statements disclosing information to the Company’s ďŹ nancial instruments.

5.7 Cash and cash equivalents NOK 1000 Bank deposits, unrestricted Bank deposit, restricted, employee taxes Total bank deposits

2019

2018

1,162,620

8,262,593

70,656

113,844

1,233,276

8,376,437

97


98

Annual report / Notes

6.1 Income Taxes Profit and loss - NOK million

2019

2018

Basis for taxes: Income before taxes

6,805,267

8,108,923

Marginal tax rate (78%)

5,308,108

6,324,960

Tax effect of: - Permanent and other differences

601,846

-2,411

- Items taxed at other tax rates

-377,036

-17,927

- Earned uplift

-1,263,641

-555,073

19,528

-19,124

4,288,806

5,730,425

2,219,521

2,431,098

19,528

-3,940

- Previous years’ adjustment This year’s tax cost Specification of the year’s tax cost Payable tax Previous years payable taxes Deferred tax related to tax rate change Deferred tax This year's tax cost

-

-17,927

2,049,757

3,321,194

4,288,806

5,730,425

6,805,267

8,108,923

Payable tax as of 31.12 Income before taxes Permanent difference Change in timing differences Utilization of carry forward loss

771,599

9,036

-3,504,264

1,239,026

-

-573,972

Base for 22% income tax

4,072,602

8,783,013

Uplift

-1,452,453

-8,349,140

Onshore income

-256,667

313,409

2,363,482

747,282

22% income tax

895,972

2,020,093

56% special tax

1,323,549

411,005

Payable/Receivable tax on the result

2,219,521

2,431,098

Base for 56% special tax

Receivable/Payable previous year's tax assessments

112,671

100,001

Tax instalment for the year

-1,065,000

-1,146,000

Acquisition of ExxonMobil fields / Point Resources net tax payable

8,764,580

-553,901

‘10,031,772’

831,198

Payable tax at year-end Temporary timing differences as of 31.12

2019

2018

Properties, plant and equipment

51,928,398

38,763,205

Decommissioning/environmental

-30,433,718

-17,824,847

Pension liability Other Fiscal loss carry forward

-225,187

-260,713

3,439,702

1,001,207

-

-

Basis for deferred ordinary taxes

24,709,195

21,678,852

Uplift carry forward and future uplift

-3,428,654

-1,894,203

-1,354,724

-521,848

Basis for deferred special taxes

Onshore activity

19,925,817

19,262,801

Ordinary tax 22%

5,436,023

4,769,347

Special tax 56%

11,158,458

10,787,169

212,264

-

16,806,745

15,556,516

Items taxed at other tax rates Deferred tax liabilities

Deferred taxes includes taxes related to items recognized directly in equity for pensions (note 2.5) and put options (note 5.6). For 2019 a total of KNOK 49,000 in tax income has been recognized through equity.


Notes / Annual report

7.1 Related parties VĂĽr Energi has a number of transaction with other wholly owned or controlled companies by the shareholders. Revenues are mainly related to sale of oil, gas and NGL. The expenditures are mainly related to technical services, seconded personnel, insurance guarantees and rental cost. Current assets NOK 1000 Customers Eni Trading & Shipping SpA Eni SpA Eni Angola SpA Other Total customers Bank deposits Banque Eni/Eni Corporate Eni Finance International Total bank deposits

2019

2018

1,815,544 72,717 19,464 8,766 1,916,491

883,762 107,987 5,759 10,250 1,007,758

-

126,018 4,786,982 4,912,999

All receivables are due within 1 year. Current liabilities NOK 1000 Suppliers Eni SpA Eni Trading & Shipping SpA Eni Insurance Ltd. Eni International Resources Ltd. PR Jotun DA Other Total suppliers Sales revenue NOK 1000 Eni Trading & Shipping SpA Eni SpA Total sales revenue

2019 160,952 159,501 3,122

2018 97,675 7,558 17,391 10,750

3,438

-

1,890 328,903

6,976 140,350

2019 14,445,646 782,992 15,228,638

2018 17,238,819 1,109,164 18,347,983

2019 304,736 41,001 5,681 340,522 382 383,918 1,169 594 9,333 1,087,336

2018 298,497 45,645 186,014 73,563 1,585 22,363 627,667

Operating and capital expenditure NOK 1000 Eni SpA Eni International Resources Ltd. Eni Insurance Ltd. Eni Trading & Shipping SpA Technomare SpA PR Jotun DA Point Resources Holding AS Point Resources FPSO AS Other Total operating and capital expenditures Financial income NOK 1000 Financial income Eni SpA Eni Finance International Total financial income

2019

2018

1,990 1,990

4,485 16,657 21,142

Financial expenses Eni SpA Eni Finance International Total financial expenses

914 62 976

21,057 174,118 195,175

99


100

Annual report / Notes

7.2 License ownerships Licenses BALDER BAUGE BRAGE BØYLA EDDA EKOFISK ELDFISK EMBLA FENJA FRAM GOLIAT GRANE GUNGNE HEIDRUN HYME JOHAN CASTBERG KRISTIN MARULK MIKKEL MORVIN NORNE ORMEN LANGE RINGHORNE ØST SIGYN SKULD SLEIPNER VEST SLEIPNER ØST SNORRE STATFJORD STATFJORD NORD STATFJORD ØST SVALIN SYGNA TOR TORDIS TRESTAKK TYRIHANS URD VIGDIS ÅSGARD PL001 PL001 CS PL018 PL018 B PL027 PL027 B PL027 C PL027 FS PL027 GS PL028 PL028 C PL028 S PL029 PL037 PL044 PL046 PL053 B PL055 PL055 B PL055 D PL055 E* PL057 PL062 PL072 PL072 B PL073 PL073 B PL074 PL074 B PL089 PL090 PL090 E PL090 I PL091

WI % 90,0% 17,5% 12,3% 20,0% 12,4% 12,4% 12,4% 12,4% 45,0% 25,0% 65,0% 28,3% 13,0% 5,2% 17,5% 30,0% 19,1% 20,0% 48,4% 30,0% 6,9% 6,3% 70,0% 40,0% 11,5% 17,2% 15,4% 18,6% 21,4% 25,0% 20,6% 13,0% 21,0% 10,8% 16,1% 40,9% 18,0% 11,5% 16,1% 22,1% 90% 100% 12% 12% 90% 100% 90% 100% 90% 90% 13% 90% 85% 25% 13% 13% 12% 12% 12% 12% 12% 5% 10% 40% 50% 12% 15% 39% 39% 16% 25% 25% 25% 41%

Operator Vår Energi Equinor Wintershall Dea Aker BP ConocoPhillips ConocoPhillips ConocoPhillips ConocoPhillips Neptune Energy Equinor Vår Energi Equinor Equinor Equinor Equinor Equinor Equinor Vår Energi Equinor Equinor Equinor Norske Shell Vår Energi Equinor Equinor Equinor Equinor Equinor Equinor Equinor Equinor Equinor Equinor ConocoPhillips Equinor Equinor Equinor Equinor Equinor Equinor Vår Energi Vår Energi ConocoPhillips ConocoPhillips Vår Energi Vår Energi Vår Energi Vår Energi Vår Energi Vår Energi Equinor Vår Energi Vår Energi Equinor ConocoPhillips Equinor Wintershall Dea Wintershall Dea Wintershall Dea Wintershall Dea Wintershall Dea Equinor Equinor Equinor Equinor Equinor Equinor Equinor Equinor Equinor Equinor Equinor Equinor Equinor

Licenses PL091 D PL091 E PL092 PL094 PL094 B PL095 PL107 B PL107 D PL121 PL122 PL122 B PL122 C PL122 D PL124 PL128 PL128 B PL128 D PL128 E PL134 PL134 B PL134 C PL134 D PL145 PL169 PL169 B1 PL169 B2 PL169 E PL185 PL199 PL201 PL209 PL219 PL220 PL229 PL229 B PL229 D PL229 E PL229 F PL237 PL250

WI % 41% 41% 55% 34% 22% 5% 5% 5% 35% 20% 20% 20% 20% 10% 12% 7% 12% 12% 30% 30% 30% 30% 20% 13% 7% 10% 13% 12% 15% 67% 10% 50% 15% 65% 65% 50% 50% 65% 22% 6%

Operator Equinor Equinor Equinor Equinor Equinor ConocoPhillips Equinor Equinor Equinor Vår Energi Vår Energi Vår Energi Vår Energi Equinor Equinor Equinor Equinor Equinor Equinor Equinor Equinor Equinor ConocoPhillips Equinor Equinor Equinor DNO Norge Wintershall Dea Equinor Vår Energi Equinor Equinor Equinor Vår Energi Vår Energi Vår Energi Vår Energi Vår Energi Equinor Shell

PL257

15%

Equinor

PL263 C PL275

10%

Equinor

12%

ConocoPhillips

PL293 PL312

60%

Vår Energi

41%

Equinor

PL312 B PL340

41%

Equinor

20%

Aker BP

PL340 BS

20%

Aker BP

PL348 PL348 B

18%

Equinor

18%

Equinor

PL375

20%

Equinor

PL393

50%

Equinor

PL473

39%

Equinor

PL479

34%

Equinor

PL489

40%

Vår Energi

PL516

12%

Equinor

PL532

30%

Equinor

PL554

30%

Equinor

PL554 B

30%

Equinor

PL554 C

30%

Equinor

PL554 D

30%

Equinor

PL586

45%

Neptune

PL608

30%

Equinor

PL740

50%

DNO Norge

PL740 B

50%

DNO Norge

PL740 C

50%

DNO Norge

PL777

20%

Aker BP

PL777 B

20%

Aker BP

PL777 C

20%

Aker BP

PL777 D

20%

Aker BP


Notes / Annual report

Licenses PL784 PL796 PL796 B PL822 S PL843 PL869 PL901 PL911 PL912 PL917 PL917 B* PL930 PL938 PL946 PL947 PL947 B* PL951 PL956 PL977 PL978 PL980 PL984

WI % 20% 20% 20% 40% 20% 20% 50% 60% 30% 20% 20% 20% 20% 40% 40% 40% 20% 70% 40% 40% 60% 30%

Operator Aker BP Equinor Equinor Aker BP Aker BP Aker BP Vår Energi Vår Energi ConocoPhillips ConocoPhillips ConocoPhillips Equinor Neptune Equinor Equinor Equinor Aker BP Vår Energi Aker BP Aker BP Vår Energi DNO Norge

Licenses PL984 BS* PL985 PL987 PL987 B* PL988 PL1001 PL1005 PL1010 PL1025 S PL1035* PL1042* PL1043* PL1065* PL1070* PL1072* PL1073* PL1074* PL1075* PL1078* PL1079* PL1080*

WI % 30% 40% 20% 20% 30% 20% 40% 40% 30% 30% 30% 40% 40% 30% 70% 70% 40% 60% 30% 30% 30%

Operator DNO Norge Vår Energi Suncor Suncor Lundin ConocoPhillips Aker BP Wintershall Dea Vår Energi Suncor Aker BP Vår Energi Vår Energi Total Vår Energi Vår Energi Vår Energi Vår Energi Equinor Vår Energi Equinor

* Awarded in APA 2019

101


102

Annual report / Notes

7.3 Proved developed reserves (un-audited) Million boe

Total reserves -48,8

Production 2018 Changes in estimate 2018

14,0

Addition through merger 2018

69,3

Proved developed reserves as at 31.12.18

294,7

Production 2019

-56,7

Changes in estimate 2019

40,0

Addition through merger 2019

195,2

Proved developed reserves as at 31.12.19

473,2

Concession periods expire as follows:

Year

Ekofisk

PL 018/PL 018 B

2028

Heidrun

PL 095

2024

Heidrun

PL 124

2025

Kristin

PL 134D

2027

Mikkel

PL 092

2024

Mikkel

PL 121

2024

Norne

PL 128/PL 128 B

2026

Urd

PL 128

2026

Skuld

PL 128

2026

Åsgard

PL 062/PL 074/PL 094/

2027

PL 094 B/PL 134/PL 237/PL 479 Tyrihans

PL 073/PL 073 B/PL 091

2029

Marulk

PL122

2025

Goliat

PL229

2042

Balder Ringhorne

PL 001/PL 027/PL 027C

2030

PL 169/PL 028 Ringhorne Øst

PL 027/PL 169E

2030

Brage

PL 053B/PL 055/PL 185

2030

PL 055B/PL 055D Snorre

PL 057

2040

Bøyla

PL 340/PL 340BS

2029

Hyme

PL 348

2029

Bauge

PL 348/PL 348B

2029

Fram

PL 090 / 090E

2024

Grane

PL 001CS / PL 169B1

2030

Gungne

PL 046

2028

Ormen Lange

PL 208 / PL 208 / PL 250

2041

Sigyn

PL 072

2022

Sleipner East

PL 046

2028

Sleipner West

PL 029 / PL 046

2028

Statfjord Unit

PL 037

2026

Statfjord East

PL 037 / PL 089

2040

Statfjord North

PL 037

2026

Sygna

PL 037 / PL 089

2040

Svalin

PL 169

2030

Tordis

PL 089

2040

Vigdis

PL 089

2040


Annual report

103


104

Annual report / Auditor’s Report

To the General Meeting of Vår Energi AS

Independent Auditor’s Report Report on the Audit of the Financial Statements Opinion We have audited the financial statements of Vår Energi AS, which comprise: •

The financial statements of the parent company Vår Energi AS (the Company), which comprise the balance sheet as at 31 December 2019, the income statement and cash flow statement for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and

The consolidated financial statements of Vår Energi AS and its subsidiaries (the Group), which comprise the balance sheet as at 31 December 2019, the income statement and cash flow statement for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion: •

The financial statements are prepared in accordance with the law and regulations.

The accompanying financial statements give a true and fair view of the financial position of the Company as at 31 December 2019, and its financial performance and its cash flows for the year then ended in accordance with the Norwegian Accounting Act and accounting standards and practices generally accepted in Norway.

The accompanying consolidated financial statements give a true and fair view of the financial position of the Group as at 31 December 2019, and its financial performance and its cash flows for the year then ended in accordance with the Norwegian Accounting Act and accounting standards and practices generally accepted in Norway.

Basis for Opinion We conducted our audit in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, including International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company and the Group as required by laws and regulations, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

PricewaterhouseCoopers AS, Kanalsletta 8, Postboks 8017, NO-4068 Stavanger T: 02316, org. no.: 987 009 713 VAT, www.pwc.no State authorised public accountants, members of The Norwegian Institute of Public Accountants, and authorised accounting firm


Auditor’s Report / Annual report

Independent Auditor's Report - Vår Energi AS

Other information Management is responsible for the other information. The other information comprises information in the annual report, except the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Board of Directors and the Managing Director for the Financial Statements The Board of Directors and the Managing Director (Management) are responsible for the preparation in accordance with law and regulations, including fair presentation of the financial statements in accordance with the Norwegian Accounting Act and accounting standards and practices generally accepted in Norway, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Company’s and the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern. The financial statements use the going concern basis of accounting insofar as it is not likely that the enterprise will cease operations.

Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, including ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. For further description of Auditor’s Responsibilities for the Audit of the Financial Statements reference is made to https://revisorforeningen.no/revisjonsberetninger

(2)

105


106

Annual report / Auditor’s Report

Independent Auditor's Report - Vår Energi AS

Report on Other Legal and Regulatory Requirements Opinion on the Board of Directors’ report Based on our audit of the financial statements as described above, it is our opinion that the information presented in the Board of Directors’ report concerning the financial statements, the going concern assumption and the proposed allocation of the result is consistent with the financial statements and complies with the law and regulations.

Opinion on Registration and Documentation Based on our audit of the financial statements as described above, and control procedures we have considered necessary in accordance with the International Standard on Assurance Engagements (ISAE) 3000, Assurance Engagements Other than Audits or Reviews of Historical Financial Information, it is our opinion that management has fulfilled its duty to produce a proper and clearly set out registration and documentation of the Company’s accounting information in accordance with the law and bookkeeping standards and practices generally accepted in Norway.

Stavanger, 24 March 2020 PricewaterhouseCoopers AS

Gunnar Slettebø State Authorised Public Accountant

(3)


Content / Annual report

107


varenergi.no Company registration number 919160675

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Vår Energi Årsrapport 2019  

Årsrapport 2019

Vår Energi Årsrapport 2019  

Årsrapport 2019

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