Swedish oil company Lundin Petroleum plans for its 2017 development, appraisal and exploration budget of $1.3 billion, an increase compared to $1.08 billion in 2016, to focus on Norway.
As at December 31, 2016, Lundin’s proved plus probable working interest reserves are 743.5 million barrels of oil equivalents (MMboe) and its best estimate contingent resources are 267 MMboe.
Lundin’s reserves at the end of the year represent reflect a positive reserves revision of 55.3 MMboe, excluding acquired reserves.
The average production in 2016 was 72,600 barrels of oil equivalent per day, in line with the mid-point of the 2016 revised production guidance. The main reason for the increase in reserves as at year end 2016 relates to Lundin’s two biggest assets, the Edvard Grieg and Johan Sverdrup fields, both located on the Utsira High in the Norwegian North Sea.
The reserves upgrade on Edvard Grieg is driven by drilling results to date which indicate more oil-in-place in the western flank of the field than originally foreseen. Lundin said it plans to drill a well to further appraise this part of the field in the first half of 2017.
The upgrade of reserves in the Johan Sverdrup field reflects better understanding of the reservoir, in particular the waterflood performance characteristics following the acquisition and evaluation of additional core data.
Further reserves increases have been attributed to the Alvheim field, offshore Norway, and also at the Bertam field, offshore Malaysia. 96 percent of the reserves relate to Norway and oil accounts for 93 percent of Lundin Petroleum’s reserves.
The contingent resources are 267 MMboe of which Norway represents 249 MMboe with the contingent resource position in Norway growing by 47 MMboe during the year.
The 2017 development expenditure is budgeted at $1.095 billion. With respect to committed development projects the 2017 capital budget represent the peak year of capital expenditure up to Johan Sverdrup first oil. Approximately 99 percent of the 2017 budgeted development expenditure, corresponding to $1.085 billion, relates to development projects in Norway with some minor expenditure items on the non-Norwegian assets.
Most of the expenditure in Norway relates to the ongoing development activity on Phase 1 for Johan Sverdrup, continued development drilling at Edvard Grieg and further infill wells on Alvheim and Volund.
The pre-tax appraisal budget for 2017 is $125 million, and is substantially allocated to Norway. The appraisal program involves two operated appraisal wells on Alta (40% WI) and Gohta (40% WI) respectively. One further appraisal well is planned to be drilled in the south western part of the Edvard Grieg field which is targeting gross unrisked resources of upto 30 MMboe and will spud at the end of the first quarter 2017.
The 2017 appraisal budget also includes expenditure on development concept studies for Johan Sverdrup Phase 2. Development concept selection for Phase 2 is expected in the first half of 2017 and FEED is expected to start thereafter.
The 2017 budgeted expenditure on exploration activity is $85 million.
Substantially all of the exploration budget for 2017 relates to activity in Norway with a total of five exploration wells planned. The operated Filicudi well in PL533 (WI 35%) in the southern Barents Sea is currently drilling ahead. One further operated exploration well is planned in the southern Barents Sea on PL609 (WI 40%) on the Loppa High targeting the Børselv prospect and the well is subject to partner approval.
One non-operated exploration well is planned in the Barents Sea targeting the multi-billion barrel Korpfjell prospect on PL859 (15% WI). Two non-operated wells are planned to be drilled in the Norwegian North Sea with one well targeting the Volund West prospect and one well targeting the Tonjer prospect, exploring the northern extension of Johan Sverdrup.
When it comes to the company’s fourth quarter 2016 performance, Lundin said it achieved a quarterly record average production rate of 83,400 barrels of oil equivalent per day (boepd) resulting in an average production rate for the full year of 72,600 boepd. The average Brent oil price for the fourth quarter of 2016 was $49.33 per barrel.
The profitability for the fourth quarter of 2016 will be negatively impacted by certain expensed exploration costs and impairment charges, as well as a foreign currency exchange loss mainly related to the revaluation of loan balances.
During the fourth quarter of 2016, pre-tax exploration costs of $46 million will be charged to the income statement. Exploration costs incurred in Norway during the fourth quarter amounted to $44 million and mainly related to the exploration well on the Neiden prospect in PL609 as well as to a number of Norwegian exploration licences in the process of relinquishment. The total after tax exploration cost will amount to a charge of $11 million.
Lundin Petroleum has decided to remove from its contingent resources the gas discoveries in the Sabah region offshore East Malaysia and the Tembakau gas discovery in PM307 offshore Peninsular Malaysia as well as the Morskaya oil discovery in the Russian Caspian Sea.
As a consequence of writing down the contingent resources associated with these discoveries, Lundin will incur a non-cash impairment charge in the fourth quarter of 2016 of $632 million with a corresponding tax credit of $83 million resulting in a negative impact on the fourth quarter net results of $549 million.
The net debt position of Lundin Petroleum at December 31, 2016, amounted to $4.1 billion resulting in available liquidity of $0.9 billion within its $5.0 billion reserve-based lending facility.