Sweden’s Lundin Petroleum has informed that its 4Q 2014 profitability will suffer due to expensed exploration costs, impairment charge and foreign currency exchange loss, mainly related to the revaluation of loan balances.
The company says that these items are largely non-cash charges and will have no impact on operating cash flow or EBITDA.
During the fourth quarter of 2014, Lundin achieved an average production rate of 22,000 barrels of oil equivalent per day (boepd) resulting in an average production rate for the full year of 24,950 boepd. The average Brent oil price for the fourth quarter of 2014 was $76.58 per barrel.
During the fourth quarter of 2014 pre-tax exploration costs of $257 million will be charged to the income statement. The exploration costs in Norway relate mainly to the exploration wells drilled during the fourth quarter of 2014, including the Vollgrav South well on PL631, the Storm well on PL555, the Lindarormen well on PL584 and the Kopervik well on PL625. The total pre-tax exploration cost in Norway amounted to $198 million resulting in an after tax charge of $44 million. The exploration costs relating to the Kitabu-1 well on SB307/SB308, offshore Malaysia and the Gobi-1 well on the Gurita PSC in Indonesia amounted to an after tax charge of $54 million.
As a result of the significantly lower oil price at the end of 2014, Lundin Petroleum will incur a non-cash impairment charge in the fourth quarter of 2014 relating to the Brynhild field, Norway, amounting to $91 million after tax.
Lundin Petroleum says it will recognise a largely non-cash foreign exchange loss in its income statement for the fourth quarter of 2014 of $290 million. This foreign exchange loss mainly relates to the revaluation of loan balances at the prevailing exchange rates at the end of each reporting period. The US Dollar strengthened against the Euro during the fourth quarter of 2014 resulting in a foreign currency exchange loss on the US Dollar denominated external loan which is borrowed by a subsidiary using a functional currency of the Euro. In addition, the Norwegian Krone significantly weakened in the fourth quarter of 2014, generating a foreign currency exchange loss on an intercompany loan balance denominated in Norwegian Krone.
The net debt position of Lundin Petroleum at December 31, 2014 amounted to $2.6 billion resulting in available liquidity of $1.4 billion within its $4.0 billion credit facility. Lundin Petroleum says it continues to receive the strong support of its syndicate of international financial institutions under the $4.0 billion credit facility. The company says that these lenders have confirmed Lundin Petroleum’s access to the full facility amount.
2014 Norwegian Licensing Round
Lundin Petroleum’s subsidiary Lundin Norway AS has been awarded eight exploration licence interests in the 2014 Norwegian Licensing Round (Awards in Predefined Areas, APA). The awarded licences include six licences in the North Sea, one licence in the Norwegian Sea and one licence in the Barents Sea. Six of the awarded licences will be operated by Lundin Petroleum.