Lundin to book $35 million in impairment charges

Swedish oil company Lundin Petroleum will expense pre-tax exploration costs and impairment charges of approximately $35 million for the second quarter of 2017, but this will be offset by a net foreign exchange gains and asset sale gains. 

According to the oil company’s Wednesday update, it will recognize a net foreign exchange gain of approximately $118 million as well as a gain on sale of assets of $52 million in relation to the IPC spin-off for the second quarter of 2017.

To remind, Lundin last February decided to spin-off its non-Norwegian producing assets, in Malaysia, France and the Netherlands, into a new company called International Petroleum Corporation (IPC).

Lundin also said that the profitability for the second quarter of 2017 will be impacted by certain expensed exploration costs and impairment charges, as well as a net foreign currency exchange gain mainly related to the revaluation of loan balances.

The IPC spin-off completed on April 24 will also result in a gain on sale of assets for the second quarter 2017. These items are largely non-cash and will have no impact on operating cash flow or EBITDA, the company noted.

 

Exploration Costs

 

During the second quarter of 2017, Lundin Petroleum will incur pre-tax exploration costs of approximately $22 million which will be charged to the income statement and offset by a tax credit of approximately $17 million.

Lundin explained that the exploration costs are mainly related to the unsuccessful Gohta appraisal well in PL492 and a dry well on the Volund West prospect as well as a number of Norwegian exploration licenses in the process of relinquishment.

 

Impairment Costs

 

Lundin Petroleum recently announced the divestment of a 39 percent working interest in the Brynhild field in PL148 in the Norwegian sector of the North Sea. Following the transaction, Lundin will retain the operatorship of the field with a 51 percent working interest. The field is a subsea tie-back oil field to the Shell-operated Pierce field on the UK Continental Shelf.

As a consequence of this divestment, Lundin Petroleum will incur a non-cash impairment charge in the second quarter of 2017 of $13 million with a corresponding tax credit of $10 million resulting in a negative impact on the second quarter net results of $3 million.

 

Foreign Exchange

 

Lundin Petroleum will recognize a net foreign exchange gain of approximately $118 million for the second quarter of 2017. The Norwegian Krone and the Euro strengthened against the US Dollar by approximately 2 and 7 percent respectively during the second quarter of 2017 and the foreign exchange gain mainly relates to the revaluation of loan balances at the prevailing exchange rates at the end of the reporting period.

 

IPC spin-off

 

Lundin Petroleum completed the IPC spin-off on April 24, 2017. The results of the IPC business are included in the Lundin Petroleum financial statements up until the end of April and are shown as discontinued operations. The gain on the spin-off of the IPC business amounted to approximately $52 million and will also be shown as discontinued operations.

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Posted on July 19, 2017 with tags .

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