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BP’s Norwegian spin-off raises concerns in first outing

January 17, 2017

BP’s Norwegian spin-off has raised investor concerns over its billion-dollar spending plans and shrinking reserves in its first outing since its $6bn (£4.98bn) tie-up with Scandinavian explorer Det Norske last year.

BP Aker lost more than 2pc on the Oslo Stock Exchange on its first capital markets day after revealing bigger than expected spending plans and smaller than expected proven reserves.

Shares in the Norwegian super-independent slipped to lows of NOK157.80 (£15.30) as analysts sounded concern over a $700m cashflow squeeze for 2017.

Barclays Capital analyst James Hosie said the company’s headline figures “provide some notes of caution” amid a series of bullish presentations from the company’s management.

Aker BP chief executive Karl Johnny Hersvik said the company “is positioned for further growth” and will sustain its dividend of at least $250m a year in the medium term. He added that dividends will grow once its key Johan Sverdrup oil field is in production.

The oil company’s spending plans include between $900m-$950m to go towards developing its projects and as much as $300m to be spent on oil exploration, compared to Barclays’ forecasts of $700m and $150m respectively.

Aker BP has also earmarked a further $100m-$110m for dismantling projects that are ready to be shut down.

The company revealed its production costs would be slightly higher than expected at $11 a barrel. Meanwhile its proven reserves have tumbled 10.5pc in a year to 711m barrels, from its estimates of 795 million barrels at the end of 2015, which it set out last September.

In more optimistic news for the fledgling tie-up the company raised its target production of more than 250,000 barrels of oil a day by the early 2020s to 270,000 a day. But Mr Hosie said it was not clear where over half of this growth comes from based on the current outlook for its projects.

Aker BP aims to give the green light to three projects during 2017, including the Snadd and Valhall West Flank projects as well as the Storklakken development. It also outlined a seven-well exploration campaign to increase its proven reserves.

BP hived off BP Aker last year in a bid to remove ageing oilfields from its portfolio.

BP and Det Norske both own a 30pc stake in the business with the rest of the business held by Det Norkse parent company Aker Exploration.

By Jillian Ambrose

Source: The Telegraph

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