ANNUAL REPORT 2021
Contents
6
7
11
12
13
27
28
29
30
31
32
33
34
35
36
40
41
50
51
123
124
125
126
2021
Highlights
OPERATION
•
Strong operational performance:
Net production from Halfdan, Dan
and Gorm of 26.9 mboepd
•
Positive impact from rig program:
The Noble Sam Turner rig program com-
menced a planned well-workover and main-
tenance campaign late in the first quarter,
with an ongoing positive effect on operating
performance during the year
•
Stable producing assets:
Current producing hubs with low decline
rates provide predictable outlook for 2022
with expected production of 23.5 – 25.5
mboepd
Stable base of 2P reserves:
Total 2P reserves of 200 mmboe at year end
and a nearly 100% reserves replacement ratio
on producing hubs
•
Valuable base of 2C resources:
Low risk organic growth opportunities
identified in high value, low capex projects
within the DUC
•
Proactive COVID-19 measures continued
to protect people and ensure business
continuity
•
Participant in CCS Project Bifrost:
Evaluation of the potential for CO
2
transport
and storage at the Harald field, with an ex-
pected start-up storage capacity of 3 million
tons of CO
2
per year
FINANCIAL
•
Fully funded to deliver the Tyra
Redevelopment project:
Total liquidity of
USD 223 million at the end of the year, with
cash on balance sheet of USD 123 million
and available undrawn RBL capacity of USD
100 million
•
Strong financial results enhanced by
high performance from producing
assets:
Total revenues of USD 565
million for the year, with EBITDA of
USD 250 million
•
Successful closing of USD 1.1 billion
RBL facility:
Amendment of the Compa-
ny’s existing USD 900 million facility, while
providing access to significant additional
liquidity at the same time as deferring
amortisation payments to the second half of
2024 and maturity to 2028
•
Successful written resolution obtained
from bondholders of NOR14:
Amending
certain financial covenants, providing the
Company with additional leverage headroom
•
Further reduced exposure to market risk:
The Company entered into a USD 1.0 billion
swap transaction to fix interest rate expo-
sure under the RBL facility
•
Lock-in of strong commodity prices:
With a positive commodity price environ-
ment at the end of 2021, Noreco entered into a
fixed-price swap contract for additional oil
and gas volumes for 2022 to 2024
5
ANNUAL REPORT 2021
2021 HIGHLIGHTS CONTINUED
•
A game-changing project:
To date the
largest project carried out on the Danish
Continental Shelf, expecting to increase net
production by 90%, decrease emissions by
30% and unlock gross reserves in excess of
200 mmboe
•
Tyra provides energy security to
Denmark:
Once on stream, Tyra will produce
enough gas to power the equivalent to 1.5
million Danish homes
•
High activity at yards and offshore:
Activity levels were high in the three
fabrication yards in Ravenna, Singapore
and Batam from the beginning of the year
and the offshore installation campaign on
the Tyra field was successfully initiated
•
Successful delivery and installation
of Tyra East wellhead and riser
platforms:
Tyra East topsides sailed away
from Sembcorp Marine, Singapore in July fol-
lowed by a successful offshore installation
•
Successful delivery of Tyra West wellhead
and riser platforms:
The Tyra West
topsides were completed at the end of 2021
and sailed from Singapore at the beginning of
2022 with an installation at the Tyra field in
April 2022
•
Successful delivery of Tyra Utility- and
Living Quarters:
After the end of the period,
in March 2022, the accommodation unit
sailed from the yard in Ravenna, Italy and will
be lifted and installed during April 2022
•
Significant de-risking of the project:
With only one module left in the fabrication
yard, the process module being fabricated in
Batam, the Tyra Redevelopment project has on
a continuous basis, been de-risked, with firs gas
expected from Tyra in Q2 2023
6
ANNUAL REPORT 2021
2021
Letter from
Executive Chair
During 2021, energy markets remained unpredictable, but we saw a gradual
upward trajectory in both oil and gas prices, which culminated in a sharp uptick
around the third quarter. Energy prices rose steeply from there and remain at
elevated levels today.
Riulf Rustad
Chair of the Board
“In 2021, global markets
continued to be volatile, but I
am proud of how Noreco as a
Company navigated the down-
turn and ended the year in a
strong position.”
Post-period end, the Russian invasion of Ukraine
led to prices increasing further and at the time of
writing they remain at levels not seen since 2014.
The new pricing environment has led to multiple
audiences demanding a greater level of energy
security over European energy supply. Given Tyra is
set to be the largest contributor of natural
gas to the Danish market, we take our role as a
domestic energy producer very seriously.
With this in mind, we continue to assess the
organic growth opportunities available to us with
our assets and believe there is the potential for us
to achieve a production profile beyond the
estimated 50 mboepd from 2023.
Following our strong operational performance in
2021, the Company continues to be on a robust
financial footing, with the business fully funded to
first gas at Tyra. Our operating performance,
combined with higher energy prices, meant that we
incrementally generated growing revenues during
the period, leaving us with additional financial
headroom.
As a Company, we operate within a business
framework that takes all facets of ESG into
account. We are particularly conscious of our
important role as a domestic energy provider
into the Danish market. With gas being deemed a
transitional energy source, we believe that
Noreco will be able to make a meaningful
contribution to Europe’s energy transition.
Our commitment to reducing emissions and
helping Europe decarbonise, while providing a safe
and reliable source of energy is paramount to us.
The proof of this can be seen with the work we have
done and the progress we continue to make with
Project Bifrost. This important CCS project has the
potential to set the benchmark for other CCS
developments in the region and demonstrates our
commitment to being part of the energy transition
solution, where we believe part of our future lies.
We plan to progress this project further during
2022 and we look forward to updating our
stakeholders on this workstream as appropriate.
For 2022, achieving first gas at Tyra in Q2 2023
remains our key deliverable; something we are
working hard towards achieving. In short, Tyra
coming online will be a game changer for Noreco.
At forecast prices, the resulting cash flows will
be significant and enable us to start returning
capital to shareholders.
In closing, I would like to thank all our stakeholders
for their continued support. Despite the consid-
erable uncertainty we have faced in recent years,
the Company is on a steady footing and remains
well placed to achieve its targeted corporate
objectives. We have an exciting year ahead and we
look forward to keeping the market updated
as we look to deliver further milestones over the
coming months.
7
ANNUAL REPORT 2021
Euan Shirlaw
Acting Managing Director
2021
Letter from Acting
Managing Director
The last year was characterised by the continued focus on the delivery of Tyra, with
consistent de-risking of the project ahead of planned first production in Q2 2023.
The expected contribution of Tyra to Noreco cannot be understated. It will see a
90% uplift in production to c.50mboepd and a material reweighting of production
to gas. It will also reduce emissions by 30% and lower production costs to
approximately $13 per boe. From a regional perspective, the project will provide
energy to the equivalent of 1.5 million Danish homes, offering a material
contribution to EU energy security at a time when it is much needed.
“This project will provide energy
to the equivalent of 1.5 million
Danish homes, offering a
material contribution to EU
energy security at a time when it
is much needed.”
Delivering Tyra requires both operational progress
and for Noreco to have the right structure in place to
support the project. During the last 12 months, the
Company’s position has been supported
by the significant economic contributions from
our three producing hubs and the effective, yet
balanced, management of cashflow volatility.
Noreco also enhanced its capital structure to
strengthen its already robust financing position and
the Company continues to be fully funded for the
successful delivery of Tyra.
Production
Production for the year was at the top end of the
forecast range at 26.9mboepd. This reflects a
further year of solid operational efficiency
combined with the success of the planned work-
over program and the restimulation of wells.
Operational efficiency for the year was achieved
despite the impact of compressor issues at the
Gorm Hub in January and February, which saw Q1
operational efficiency decline to 77%, planned
maintenance on the Gorm Hub in Q3, and the
delayed start of the workover program due to the
late arrival of the Nobel Sam Turner rig because of
COVID related issues.
The success of the planned maintenance program
at the Gorm Hub in Q3 saw the impact of lower
operational efficiency in October more than offset
in November and December, allowing the
Company to exit the year with operational
efficiency at 94%.
Operational efficiency was also supported by a
reduction in the maintenance backlog over the
course of the year.
The success of the workover program saw solid
incremental production delivered. In Q2 and Q3
2021, a total of 5 workovers were undertaken,
adding 5,000boepd to gross production. In Q4 a
further 4 workovers were completed, adding
additional valuable barrels. After the success of
the workovers at Halfdan in Q2 and Q3,
production from these assets remained high. In
addition to the workover program, the successful
restimulation of 11 wells at Gorm, saw a further
positive result, with production post stimulation
exceeding expectations.
8
ANNUAL REPORT 2021
Delivering Tyra
The redevelopment of what will ultimately be Tyra
II has been greatly de-risked over the course of
2021. Significant milestones achieved included the
successful July sail-away of the Tyra East wellhead
and riser platforms (TE-WHRP) from Sembcorp
Marine in Singapore. Having been loaded onto the
“BIGROLL” Heavy Transport Vessel, the three
platforms undertook the month- long journey to
Europe, arriving as planned in August. The
platforms were successfully lifted and installed on
the jackets by Sleipnir, the world’s largest crane
vessel.
Post the period end, in early January this year, the
project was again de-risked by the sail-away of the
Tyra West wellhead and riser platforms (TW-
WHRP) from Sembcorp Marine in Singapore. This
represented a similarly strong performance by the
contractor, with 100% mechanical comple- tion.
The TW-WHRP’s arrive d at Rotterdam on 15
February and were later transported to the Tyra
field where they were lifted onto the jackets in
April 2022.
Also, after the end of 2021, in March 2022, there
was the successful sail-away of the Tyra
accommodation module (“TEH”) from the yard
in Ravenna, Italy. Fabricated by EPC contractor,
Rosetti Marino, the 5,400-ton unit arrived on site
early April this year where it was lifted alongside
the TE-WHRPs.
The processing module, which is the only
remaining topside still in the yard, is expected to
sail-away in Q3 2022. Despite the impact of COVID
at the yard, mechanical completion is close to 100%
with manpower having been increased to further
progress prior to sail away and to reduce carryover
hours as much as possible.
Project Bifrost
“Our involvement in this project
offers a longer-term opportunity
and potential benefits that are
very much in line with Noreco’s
ambitions to play an active
and material role in the
energy transition.“
In September, Noreco announced its participa-
tion in Project Bifrost, a carbon capture (“CCS”)
project in the Danish North Sea, alongside its
partners in the DUC and Ørsted and the DTU.
The project will evaluate the potential for CO
2
transport and storage at the Harald field, with an
expected start up storage capacity of 3 million
tons of CO
2
per year.
In December a key enabler was reached, with the
approval of DKK 75 million of EUDP funding. The
project includes a study to assess the significant
potential of utilising additional DUC North Sea
reservoirs as they become available, in addition to
the possibility of using existing
pipeline infrastructure connecting the DUC fields to
Denmark.
This project follows recognition by the Danish
authorities of the importance and potential of
CCS projects to supporting climate change
ambitions and the launch of a CCS strategy by the
Danish Government in 2021.
9
ANNUAL REPORT 2021
HSE and Sustainability
Health and safety remain central to everything we
do at Noreco. It is inbuilt as part of our culture and
compliance with both legislation and best prac- tice
at the forefront of all planning and execution. To
that end, we are pleased to have seen further
progress in 2021, with a 50% decrease in record -
able incidents.
The Company’s approach to ESG and sustain-
ability is influenced by its defining principles;
driving an evolving and flexible approach, that is
meaningful and measured, and appropriate for the
interests of all stakeholders. Near term pillars
include improving DUC efficiency, the evaluation of
supportive projects such as CCS and being a
significant enabler of energy security in the EU.
These pillars are in addition to the Company’s
involvement in the wider energy transition
agenda, through the development of the Tyra II
natural gas project and the Bifrost CCS project. In
addition to natural gas being a transition fuel, Tyra
will deliver a 30% decrease in emissions and
provide a reliable and secure source of energy to
Denmark and Europe for decades.
Complementary to the internal governance
structures, the refinancing of the RBL debt facility in
May included a linkage to the achievement of
environmental KPIs to incentivise investment in
projects.
Financials
“The hedging program is a careful
balance of creating a floor, while
allowing Noreco to see
the benefit of higher spot
price exposure.“
Revenue increased quarter on quarter over the
course of the last 12 months and was at USD 565
million for the year as a whole, reflecting the
combination of solid production performance and
improving commodity prices. This result
was broadly in-line with the previous year where
the Company had price hedges at significantly
higher levels, again reflecting the solidity of our
producing assets and the increasingly favourable
commodity price environment, particularly for gas.
The solid performance at the revenue line in turn
delivered a strong EBITDA contribution in 2021, at
USD 250 million. In line with revenues, EBITDA
also demonstrated consistent growth quarter on
quarter through the year.
As indicated above, a core focus for the team in
2021 was to ensure the business had the
headroom in place to support the delivery of Tyra,
regardless of the commodity price environ-
ment. To that end, the Company successfully
refinanced the RBL facility in May, providing an
additional USD 200 million of headroom,
extending the facility by two years to 2028 and
deferring amortisations that are now scheduled to
commence in the second half of 2024. Again, to
further reduce exposure to pre-Tyra price risks,
Noreco successfully renegotiated certain financial
covenants with its NOR14 bondholders providing
the Company with additional leverage headroom.
A further support to the delivery of Tyra is the
successful implementation of commodity and
interest hedging programs to effective ly manage
cashflow volatility. The hedging program is a
careful balance of creating a floor, while allowing
Noreco to see the benefit of higher spot price
exposure. As a result, the Company will increas -
ingly benefit from exposure to spot prices once
Tyra II is on stream. The interest rate swap which
came into effect in Q3, fixes the rate on the RBL, of
USD 1.1 billion, at a blended rate of 0.4041% until
June 2024.
10
ANNUAL REPORT 2021
Team
To help strengthen the focus on the future prior-
ities for the business, strategic changes were made
to the management team during the year.
I undertook the role of Acting Managing Director,
alongside my existing role as Chief Financial
Officer, following the mutually agreed departure of
Noreco’s previous CEO.
Again, as part of the process to strengthen the team,
we welcomed Marianne Eide to Noreco in January
this year, as EVP Upstream, and Cathrine Torgersen
took on the role of ESG lead, along- side her existing
role as EVP Investor Relations. Marianne brings 30
years of North Sea oil & gas industry experience,
including having been a member of the Shell UK
Upstream Leadership team. The current team is as
such both refocused and well suited to efficiently
manage future chal- lenges and opportunities and
ultimately create shareholder value.
OUTLOOK
Noreco is well placed to deliver and maintain a material increase in its production profile, post
first gas from Tyra II next year. The Company has placed itself in a strong position with sufficient
financial headroom to meet its requirements under the project. This is a position
that is only further strengthened by current commodity price environment and the investment in a
second rig, the Maersk Reacher, to accelerate operational activity from mid-2022.
Noreco’s future is more than just Tyra II, with substantial 2C potential and high value organic
projects to develop, that will support ongoing production at a high level and free cash flow
generation. We will prioritise shareholder returns with a focus on establishing a sustainable and
long-term dividend profile.
The strength of the Company’s current position, combined with an ever-greater line of sight to the
delivery of Tyra and the added benefit of current commodity price levels, supports the confidence
we have in the business for this year and beyond.
11
ANNUAL REPORT 2021
Energy Transition
Meaningfulcontribution tothe Energy
Transition
Commitmenttofurther reducing
emissions intensity
Our Strategic
Approach to Value Creation
We are delivering
Operationally
We are delivering
Tyra
We are delivering
Our potential
Maximise Production
from our operational hubs
Minimise Costs
to support overall profitability
Reduce
Emissions
through targeted interventions
Unlocks > 1 Tcfe
(1)
to support long-term energy security in Denmark
Material Production
and Cashflow once onstream
Noreco is
Fully-Funded to First Gas
in Q2 2023
Monetise Remaining Economic Resources
in the DUC
Disciplined
Capital Allocation
that prioritises shareholder returns
Continued
Contribution
to the Energy Transition
Disciplined
ANNUAL REPORT 2021
Overview of Assets
The acquisition of Shell’s upstream assets in DUC which was completed
July 2019 transformed Noreco into the second largest oil and gas producer in
Denmark and the EU and a significant E&P player. The asset portfolio includes four
hubs and 11 producing fields of which three hubs are currently producing and one
hub is under redevelopment. The Company has a significant reserves base with 200
mmboe of 2P reserves.
76% Oil
24% Gas
200
2P RESERVES
mmboe (net)
26.9
PRODUCTION
mboepd (net)
84%
OPERATIONAL EFFICIENCY
TYRA
GORM
HALFDAN
DAN
12
12
ANNUAL REPORT 2021
13
ANNUAL REPORT 2021
DAN
ALMA
Prod
ucing fie
overy
ld
Disc
No pr
oductio
n
KRAK
A
RE
GNAR
OUR AS
SETS
Da
n Hu
b
32.1
NET RESERVES
mmboe
8.1
NET RESERVES
mboepd
87%
OPERATIONAL
EFFICIENCY
The Dan field, which is a core asset on the DCS, was discovered in 1971 and
brought on production in 1972. Dan was the first field in production in Denmark,
and close to 26% of total Danish oil production has been extracted from the Dan
field.
The Dan field is one of the largest North Sea chalk
fields with both Ekofisk and Tor Forma- tions,
both with oil rims overlying gas caps and
communication between the two formations. The
reservoirs are high porosity, but low perme- ability
with long transition zones. The Dan field has been
developed in several phases and now consists of a
total of 12 platforms, 38 active oil wells and 33
active water injectors. Dan has two satellite fields,
Kraka and Regnar (shut-in).
The Dan process centre consists of the Dan F
complex, the old Dan complex, and the satellites
Kraka and Regnar. Dan was brought on-stream in
1972, Kraka in 1991, Regnar in 1993. The oil produc-
tion from Dan is transported to Gorm while the gas
is transported to Tyra.
14
ANNUAL REPORT 2021
7.0
NET PRODUCTION
mboepd
DAN HUB
Highlights
•
Five workovers to replace top completions
on the wells MFB-21, MFF-15, MFF-29, MFF-
40 and MFF-22 were carried out success-
fully, adding circa 1000 bbls/d oil. MFB-21
had been closed since Dec-17, MFF-15 had
been closed since Dec-17, MFF-40 had been
closed since Oct-22 and MFF-22 had been
closed since Jun-19. MFF-29 had been
producing under derogation before the
workover.
•
Well head maintenance and SSSV testing
activities were conducted. Several subsur-
face safety valve repairs and replacements
were performed. One coiled tubing inter-
vention was performed for a conforma nce
treatment on MFF-10 to shut off a direct
connection to MFF-25.
1.1
NET PRODUCTION
mboepd
OUR ASSETS
Kraka Field
Kraka is a tie-back to the Dan field and is an oil field
located 8 km to the southeast of the Dan field. The
field was brought on production in 1991 and
produces oil and gas from the Ekofisk chalk ten
wells have been drilled and currently 7 oil wells are
producing.
The well A-11C on Kraka was reinstated after being
used as swing producer.
DAN HUB 2022 OUTLOOK
The on-going and planned development of Dan, Kraka and Regnar is based on several field
development plans and individual well proposals. These activities include well and reservoir
management (WRM) activities, drilling activities and development studies with the objective to
further increase oil recovery.
15
ANNUAL REPORT 2021
DAN HUB 2022 OUTLOOK
Planned activities on Dan for 2022 include:
•
The Halfdan production partial reroute to
Dan will be carried out using existing facili-
ties in 2022. The permanent solution is be-
ing assessed for optimization and prepared
to be completed end of 2023.
•
The Integrity Recovery Project (IRP)
campaign related to surface treatment of
corroded steelwork
Rig activities in 2022 include the workover of the
wells MFB-17 and MFB-08 to replace the tubing
comprising the top completion.
An intervention campaign is planned on Dan,
consisting of a total of 7.5 months of wireline
interventions. The specific interventions will be
integrity related to repair failing SSSVs, GLV
replacements etc to extend the life of the wells.
Further, a rig is contracted from Mid-July 2022 to
perform well interventions under the project
name WROM. The purpose of this project is to
perform well interventions, initially on Dan and
Halfdan, to reduce the backlog of optimisation
work. The current plan is to locate this rig at Dan
F from Mid-July to end 2022 to perform a range of
interventions including water shut offs, conform-
ance treatments, clean outs and stimulations.
The study to improve the history match on the
Dan Full Field History is still ongoing. As a part
of this process, the reservoir simulation model
results are used to generate synthetic 4D seismic
responses which are then compared with those
derived from real measured seismic data. This part
of the study will continue through 2022.
16
ANNUAL REPORT 2021
Prod
ucing fie
roductio
ld
n
GORM
No p
ROLF
DAGM
AR
SK
JOLD
OUR AS
SETS
Go
r
m
Hu
b
20.6
NET RESERVES
mmboe
3.8
NET RESERVES
mboepd
69%
The Gorm field was discovered in 1971 and brought on production in 1981,
the second Danish field in production after Dan. The Gorm hub also
includes Skjold, Rolf and Dagmar, and is the export hub for most of the
liquids produced in Denmark.
The field produces oil and gas from the Ekofisk
and Tor Chalk reservoirs. The field is a domal
structure divided into a deeper western A-block
and the shallower eastern B-block. In total 46
wells have been drilled, with currently 17 active
producers and 6 active water injectors. Gorm
serves as the second stage processing centre for
Halfdan, and as an oil transfer hub for Dan, Tyra,
and Halfdan. The oil is transported ashore to
Frederica via pipeline from the riser platform
Gorm E while gas is sent to Tyra. While Tyra is not
producing due to the ongoing re-development gas
is exported through the NOGAT pipeline to the
Netherlands.
OPERATIONAL EFFICIENCY
17
ANNUAL REPORT 2021
1.1
NET PRODUCTION
mboepd
GORM HUB
Highlights 2021
•
The well GAN-05B was reinstated and on
stream from Apr-21 after being closed in
since Nov-17.
•
Well intervention operations in the Gorm field
were focused on chemical scale inhibitor
squeeze along with associated Barium
Sulphate dissolver treatments and some
restimulations. The scale inhibitor squeeze
treatments were performed to reduce the
possibility of scale build-up in tubings and
around SSSVs and delivered a higher increase
of production compared with earlier years due
to a change of the chemical formula.
The list of interventions is detailed below.
•
Scale Inhibitor Squeeze: GFN-53, 57, 40B,
49D, 50C, 38, 48, 54D
•
Restimulations: GFN-36, 38, 53B, 45, GBN-
58B, GBN-12, GAN-05B
•
BaSO4 scale dissolvers: GAN-21; GAN-05B,
GFN-36
2.4
NET PRODUCTION
mboepd
0.3
NET PRODUCTION
mboepd
OUR ASSETS
Skjold Field
•
The Skjold field is an oil satellite tie-back to
Gorm. It was discovered in 1977 and brought
on production in 1982. The field is a dome
shaped structure with a relative thin chalk
reservoir on the crest, which thickens
towards the outer crest and flank areas.
In total thirty wells have been drilled, with
currently 16 active oil producers and 8 active
water injectors.
OUR ASSETS
Rolf Field
•
Rolf is an oil field, which has been developed
as a satellite to Gorm. The field was discov-
ered in 1981 and brought on production in
1985. The field produces from the Ekofisk
and Tor Chalk reservoir with intervals of
good permeability with fracture connect- ed
matrix porosity. Three wells have been
drilled, with currently one active oil producer.
18
ANNUAL REPORT 2021
GORM HUB 2022 OUTLOOK
Planned activities on Gorm for 2022 include:
•
The Halfdan production partial reroute
to Dan is being done using existing fa-
cilities. The permanent solution is being
assessed for optimisation and prepared
to be completed by end of 2023
•
About 4 months of slickline work is
planned on Gorm in 2022.
•
Some well optimisation work consisting
of water shut offs using the sliding side
doors in the completion, and perforation
of the Ekofisk in 2 wells.
•
Similar to 2021, scale inhibitor squeez- es
will be performed into the major
producing wells in Gorm to prevent scale
build up in the tubings and flow lines and
around the SSSVs
A “Gorm reconfiguration” project
was initiated in 2020 and continued to develop
this year with an objective to assess possible
strategies for operating the Gorm Hub past its
mature life and into its late life (up to the
Cessation of Production – COP). The
assessment integrates the entire value chain
from subsurface to export to shore of the Gorm
processing hub and its satellite fields and are
economically evaluated to form a firm
recommendation for the Gorm Hub. The study
and reconfiguration proposals for Gorm will
continue through 2022.
19
ANNUAL REPORT 2021
HALFD
AN NORTH
EAST
Prod
ucing fie
ld
OUR AS
SETS
HALFDAN
MAIN
Ha
lfda
n
Hu
b
60.7
NET RESERVES
mmboe
The Halfdan hub includes Halfdan and Halfdan North East. Halfdan is the largest
producing field in Denmark and the most important DUC asset in terms of value
and resources, both technically and commercially.
15.1
NET PRODUCTION
mboepd
89%
OPERATIONAL
EFFICIENCY
The Halfdan main field was discovered in 1998,
brought on stream in 1999 and Halfdan North East in
2004. There are no distinct boundaries sepa- rating
the Halfdan main field and Halfdan North East area.
Halfdan North East is a development of the gas
accumulation in the Ekofisk formation to the North
East of the Halfdan field. The main field produces oil
and gas from the Tor Chalk reservoir. The Halfdan
main oil accumulation is contiguous with the Dan
accumulation. It has been developed in four phases,
and 71 wells have been drilled, with currently 35
active oil producers and 26 active water injectors.
Halfdan North East has been developed in three
phases, and 21 wells have been drilled, with
currently 16 active gas producers.
Halfdan consists of two main groups of
platforms, Halfdan A and Halfdan B in addition
to an unmanned wellhead platform, Halfdan CA
(North East).
Produced oil is transported by pipeline to
Gorm while the gas is transported to Tyra West. Gas
can in addition be imported (for injection) and
exported to Dan. Injection water is supplied from
Dan.
20
ANNUAL REPORT 2021
14.0
NET PRODUCTION
mboepd
HALFDAN HUB
Highlights
•
Workovers on the 3 wells HBA-09, HBA-01
and HBA-25 were successfully completed,
where top completions were replaced.
•
The amount of well intervention work
achieved was not as planned due to issues
with cranes and consequent manning issues.
The need to prioritise safety critical work
meant that less well optimisation work than
planned. Routine preventive maintenance
was possible, thus well head maintenance
and SSSV testing activities were conducted.
FURTHER DEVELOPMENTS
HCA Gas Lift Halfdan North
The HCA gas lift project is planned to be executed in
Q3, 2023. The gas lift is required to support
well production and thereby optimise production
potential. Project scope comprises tie-in modifi-
cations to Halfdan B topside facilities as well as a gas
lift manifold to be installed at Halfdan C.
There are a number of projects and studies
ongoing for the greater Halfdan development.
The most mature is the Halfdan North project
which targets a reservoir located between the
producing Halfdan and Tyra SE fields.
In December 2020 the DUC submitted field
development plans to the Danish Energy
Agency for the potential field expansions of the
Halfdan North development.
HALFDAN HUB 2022 OUTLOOK
The main planned activities for Halfdan field in 2022 are:
•
The
Halfdan
production
partial
reroute
to
Dan
is
being
done
using
existing
facilities. The permanent solution is being assessed for optimisation and
prepared to be completed by end of 2023
•
Siemens SCADA/ESD/F&G Human Machine Interface/control room operator
stations are obsolete and will be replaced to maintain production reliability.
21
ANNUAL REPORT 2021
HALFDAN HUB 2022 OUTLOOK - CONT’D
7 workovers are currently expected to be
performed by the rig on Halfdan in 2022 on
HDA-08, HDA-22, HBA-10, HBA-04, HBA-03,
HBA-05 and HBA-07. These wells either have
tubing to C annulus leaks due to corroded tubings or
are predicted to fail soon. The workovers will all
consist of top completion replacements.
An intervention campaign on Halfdan is planned,
consisting of a total of 4.5 months of wireline
interventions. No coiled tubing interventions
are planned.
The Halfdan dynamic simulation model is currently
being updated with new production data and added
wells (HBB-10, HBB-4 and HBB5). The objectives of
this study are to improve the quality of history
match for the Halfdan Ekofisk Preliminary study
and support WRFM activities and reservoir
management decisions. The full field Halfdan
history match is expected to be completed in Q2-
2022.
22
ANNUAL REPORT 2021
LULITA
FREJA
HARALD EAST
HARALD WEST
SVEND
Producing field
Discovery
VALDEMAR
BOJE
ROAR
OUR ASSETS
Tyra Hub
TYRA
ADDA
75.5
NET RESERVES
mmboe
The Tyra Field is the largest natural gas field in the Danish Sector of the North
Sea. It was discovered in 1968 and production started in 1984.
The Tyra field has been at the core of Denmark’s energy infrastructure for
more than 30 years, processing 90% of the nation’s natural gas production.
The Tyra main field is a gas field discovered in
1968 and brought on production in 1984.
Tyra South East is an oil dominated field area
discovered in 1991 and brought on in 2002,
with first oil in 2015. The field produces mainly
from the Ekofisk and Tor Chalk reservoirs. A
total of 93 wells have been drilled on Tyra main
and South East, with currently 47 active oil and
gas producers. The Tyra field consists of two
main process centers, Tyra East and Tyra West,
which are linked to five unmanned satellite
fields, including Tyra Southeast, Harald,
Valdemar, Svend and Roar.
The gas is exported to shore and the oil is
exported to Gorm E. Due to subsidence, a
decision was made to redevelop the field and
production was temporarily suspended in
September 2019. The two previous integrated
process and accommodation platforms will be
replaced by one new process platform and one
new accommodation platform. The four
wellhead platforms and two riser platforms will
have their jackets extended by 13 metres, and the
current topsides will be replaced.
23
ANNUAL REPORT 2021
TYRA HUB
Highlights
Valdemar Field
All wells on Tyra and its satellites are safely
plugged and abandoned for the extended shut-
down related to the Tyra Redevelopment. The
project had significant progress during 2021. For
further details please see Tyra Redevelopment
section in the Asset Overview.
The Valdemar field is an oil and gas field
discovered in 1977 and further appraised in 1985
and brought on production in 1993. The Lower
Cretaceous chalk has been the primary devel -
opment target, and 26 wells have been drilled on
Valdemar, with currently 22 active oil and gas
producers.
Roar Field Harald North
Roar is a gas field with an oil rim tie-back to Tyra
East. The field was discovered in 1968 and
further appraised in 1981. The field was brought
on production in 1996. The field produces gas
and condensate from the Ekofisk and Tor Chalk
reservoir. Four gas producer wells have been
drilled, with all currently being active.
Harald is a gas/condensate field located in the
north-western part of the Danish sector. The
Harald field comprises two structures; Harald East
discovered in 1980 and Harald West discov- ered
in 1983. The fields were brought on produc- tion in
1997. The Harald West reservoir consists of
Middle Jurassic sandstones, and Harald East is an
elongated dome structure in the Upper Cretaceous
Ekofisk and Tor Formation. Four wells have been
drilled, two on Harald West and two on
Harald East, and all four wells are currently active. all
four wells are currently active.
Lulita Field
Lulita is an oil field with a gas cap discovered in
1991 which was brought on production in 1998.
The reservoir consists of Middle Jurassic sand-
stones. Two wells have been drilled. However only
one is producing. DUC holds a 50% interest in the
Lulita field with Ineos (40%) and Noreco (10%) as
partners.
24
ANNUAL REPORT 2021
OUR ASSETS
Tyra Redevelopment
Tyra is a natural gas field in the Danish sector of the North Sea currently
under redevelopment. The Tyra Redevelopment project is, to date, the
largest project carried out on the Danish Continental Shelf and is
expected to increase net production by 90% and unlock gross reserves in
excess of 200 mmboe. Redeveloped Tyra will decrease opex significantly
and lower emissions at the field by 30%. In addition, the completed
project will extend field life by at least 25 years and produce enough gas
to power what equals to 1.5 million homes in Denmark.
BACKGROUND
With FID taken in 2017, The Danish Underground
Consortium announced its plan to cease produc-
tion from the Tyra gas field by the end of 2019 and
to redevelop the field infrastructure. The Tyra hub
required redevelopment due to compaction of the
chalk reservoir, where the seabed had subsided by
six metes over a period of at least 30 years
of production. The redevelopment project was
necessary to ensure that both crew and equipment
safe, as well as maintaining an efficient level of
production. The final investment decision was
made in December 2017, following the approval by
the Danish authorities.
The execution of the project is both a global and
local effort. In addition to fabricating installa- tions
in both Europe and Asia, project efforts are being
executed locally in Esbjerg and offshore in the
Danish North Sea. The scope of the project includes
removing old facilities, modifying existing ones, and
installing new features. The two existing process
and accommodation platforms will be replaced by
one new process platform
and one new accommodation platform. The four
wellhead platforms and two riser platforms will
have their jackets extended by 13 metres, and the
current topsides will be replaced.
25
ANNUAL REPORT 2021
2021 MILESTONES & DEVELOPMENT
During 2021 several milestones were reached,
moving the project closer towards what will be a
state-of-the-art North Sea production and export
facility. Activity levels in the three fabrication yards
remained high throughout the year, and in July
2021 Noreco announced the sail away of the three
Tyra East wellhead and riser topsides. The topsides
were fabricated at Sembcorp Marine
Ltd in Singapore and were transported directly to
the Tyra field by HTV (Heavy Transport Vessel)
“BIGROLL BEAUFORT”. At the Tyra field, the
world’s largest crane vessel, Sleipnir, safely lifted
the three topsides off the vessel and onto the
jackets.The lifting of the topsides was followed by an
installation in September.
10 January 2022 the three Tyra West wellhead
and riser topsides were successfully delivered
from yard and sailed away to the North Sea.
The topsides were fabricated at Sembcorp
Marine Ltd in Singapore and were transported
by BIGROLL BEAUFORT. The transportation of
the topsides took a planned pit stop in the
Netherlands to accommodate for an optimal
installation window in the North in April 2022.
On 16 March 2022 the Company announced the
sail away of the new Tyra II utility and living
quarters (the “accommodation unit” or the “TEH”)
from Ravenna in Italy. The accommodation unit
was fabricated at the Piomboni yard by EPC
contractor Rosetti Marino and Heerema Marine
Contractors’ Barge H-408 safely sailed the 5,400
tons unit to the Tyra field in the Danish North Sea.
The utility and living quarters unit is 32.5 meters
tall and has seven levels, including a helideck, and
an area of 3,500 m2. In addition to housing
offshore crew, the unit also has a state-of-the-art
control room, a water system turning sea water into
drinking water and all fire water and emer- gency
power for Tyra II will be run from the unit.
The accommodation unit will be installed by the
world’s largest crane vessel, Sleipnir alongside the
lifting of the Tyra West topsides.
OUTLOOK 2022
With three out of four major yard deliveries taken, the high activity levels will
increasingly happen offshore at the Tyra field in the hook-up and commis -
sioning campaigns. In addition, the process module will continue fabrication at
the McDermott yard in Batam, Indonesia, before it sails to Denmark. First gas
from Tyra II is expected in Q2, 2023.
Sustainability
27
28
29
30
31
32
33
34
35
36
27
ANNUAL REPORT 2021
A Meaningful Participant in
the Energy Transition
Noreco will be a considerable European contributor of energy supply
through our existing and future business, whilst simultane- ously
striving for a continuous reduced environmental footprint and
partaking in innovative projects supporting the Energy Transition.
Our initiatives shall benefit the local community and the region we operate
in, and be value accretive to our stakeholders.
With hydrocarbons, and in particular natural gas,
expected to remain an important part of the energy
mix for the foreseeable future, reducing emissions
is the key component to ensure that Noreco’s
activities can continue to contribute with the
smallest environmental footprint possible. By
delivering Tyra, Noreco will both secure energy
supply for Denmark and materially reduce our
emissions intensity profile. Redevel - oped Tyra will
reduce emissions by 30% while at the same time
supply gas to power the equivalent of 1.5 million
Danish homes.
As part of the DUC, Noreco is committed to
reducing emissions from the DUC operations by
400-500 kton towards 2030, and thereby
contribute to the delivery of the Danish 70%
CO
2
target in 2030. However, to justify the
deployment of capital, the activities to deliver these
targets will need to support the broad objectives of
Noreco’s stakeholders, including
being value additive to the Company and its
shareholders. Hence sustainability at Noreco is
viewed through this lens.
In 2021 Noreco announced its participation in the
CCS partnership Project Bifrost. The project
includes the evaluation of the potential for CO
2
transport and storage at the Harald field, with an
expected start-up storage capacity of 3 million
tons of CO
2
per year with a long-term scalability of
16 million tons of CO
2
per year.
Beyond the environment, Noreco will continue to
advance a social agenda that supports its people
and communities through operating sustainably
and safely, while also follow prudent Corporate
Governance practices. The Company established
an ESG Committee in 2020 which is
contributing to the establishment and execution of
a long-term ESG strategy. To further improve
transparency, Noreco intends to publish an Envi-
ronmental, Social and Governance Report in 2022
where reporting will follow the Global Reporting
Initiative standards (“GRI”) and the Task Force on
Climate-Related Financial Disclosures framework
(“TCFD”).
COMPANY OBJECTIVES
& COMMITMENTS
•
Transparency
in
the
reporting
of
the Company’s operational and
environmental performance
•
Facilitation of improved techni
-
cal,
commercial and economic framing
of sustainability initiatives
achieved through partnerships
•
Contribute to meeting global
energy needs in a sustainable,
secure and affordable way
•
Tangible commitments through
sustainability-linked KPIs in the
Company’s Reserve Based
Lending Facility (RBL)
•
Support
Denmark’s
target
of
a
70% CO
2
reduction by 2030
•
Continuous emissions reduction,
with a particular focus on reducing
routine-flaring and improve
efficiency
•
Pursue extended lifetime of the
offshore installations by participa-
tion in early-stage CCS projects
•
Evaluate
through
partnerships
renewable technologies for
hydrogen and Power-to-X
(“PtX”) offshore, including
potential synergies between
Noreco’s offshore hydrocarbon
production facilities and offshore
renewable technologies
28
ANNUAL REPORT 2021
OUR ASSET
2021 Performance Status
Environmental data is based on Operator data for the DUC (Noreco
share 36.8%)
Remarks 2021 Performance
CO
2
emission
The main source of CO
2
is the fuel gas required for production. In addition, the figure also includes the
contribution from flaring and other fuels. The 2021 emission is low due to the production shut down of the
Tyra and Harald facilities during the Tyra Redevelopment. For 2021, 0.7 mm tons was part of the CO
2
emissions quota, and 0.03 mm tons were non-quota.
•
Total CO
2
emissions: 0.27 mm tons
•
Corresponding to 297 kton CO
2
e/year
Fuel consumed
Fuel is consumed by single cycle gas turbine powering generators, gas compressors and pumps. Natural gas
fuel consumption for 2021 is lower and diesel consumption is higher due to the production shut down of the
Tyra and Harald facilities during the Tyra Redevelopment. In 2021, 76% of the CO
2
emissions was due to
fueling with gas and 7% was due to diesel combustion.
•
Gas fuel CO
2
emissions:
0,20 mm tons (76%)
•
Diesel CO
2
emission:
0,02 mm tons (7%)
Flaring
Flaring of natural gas is occurring on all hubs when required to allow safe operation during production upsets
and non-routine operation. In 2021, 13% of the CO
2
emissions was due to flaring.
•
Flaring CO
2
emissions:
0.03 mm tons (13%)
Fugitive emissions
Venting of gas from production facilities is to ensure safe operation. Venting is primarily from systems
operating at atmospheric pressure, but it occurs also during facilities maintenance. The reported figure is
likely underestimated.
•
Venting CO
2
emission:
0.01 mm tons (4%)
Oil discharge to Sea
Water is produced from the fields together with the hydrocarbons. For the fields Dan and Halfdan, the produced
water is discharged to the sea after separation. In the fields Gorm and Skjold, the water is reinjected. The water
produced is partly formation water and partly injected sea water. In 2021, 25% of the produced water was
reinjected.
•
Discharged produced water:
6.2 mm m3
•
Volume of oil discharged: 34.1 tons
•
Oil concentration in water: 5.5 mg/L
Spills
Spills from closed systems and from handling of various liquids are reported in accordance with environmental
regulation. In 2021, 8 oil and diesel spills and 29 chemical spills were reported.
•
Oil and diesel spills: 0.33 tons
•
Chemical spills: 0.98 tons
NOx, SOx emission
The operation of gas turbine drives and diesel engines offshore causes emissions of nitrogen oxides and sulphur
oxides.
•
NOx: 1262 tons
•
SOx: 14.4 tons
29
ANNUAL REPORT 2021
NORECO’S ASSET
Achievements and
Near-Term Focus
In 2022 we will focus on several activities to establish the smallest environmental
footprint possible.
Tyra on stream
The 2023 reinstatement of the Tyra hub will reduce fuel consumption and provide a higher operating
efficiency. Redeveloped Tyra is expected to have 30% lower emissions compared to the old Tyra facility
and in addition lower the flaring by 90%.
Routine-flaring reduction
Routine flaring reduction initiatives have been evaluated during 2021. As part of this evaluation, a
step wise implementation of the Halfdan reroute for final oil stabilization is planned to remove
routing flaring. The first step was completed in Feb -2022 reducing the flaring to 60%, corre-
sponding to a reduction in CO
2
emissions of 3.3 kton CO
2
e/year. The second step to be completed in 2023,
will remove the routine flaring and reduce the CO
2
emissions by 3.7 kton CO
2
e/year.
Fuel reductions
8 various CFR initiatives were implemented in 2021 (compressor bundle replacement on HBD,
Dan FD flare tip closed, certified green electricity provided to vessels docked in Esbjerg harbor etc.). These
initiatives have resulted in an estimated reduction in CO
2
emissions of more than 12.9 kton CO
2
e/year
Further, 12 CFR initiatives are planned to be implemented in 2022-2024 (HDA compressor bundling, new
gas turbine air filter on HD and Dan etc) which can result in an estimated emission reduction of more than
11.8 kton CO
2
e/year with approximately 4,8 kton CO
2
e/year in 2022.
The use of onshore smart room monitoring of fuel consumption helps reduce the fuel consumption.
Electrification
During 2021 the electrification potential of the Danish North Sea was evaluated by a governmental work
group, with participation from the industry, including Noreco. The outcome indicated that
a full electrification of the mature assets was challenged by the high modification costs. However, the
new Tyra II facilities could potentially be subject for a tie-in to renewable power supply options in the
future.
Emission monitoring
Improvements are being made to emission monitoring by initiating annual leak detection and repair
campaigns (LDAR) with focus on a comprehensive register of sources, measurement equipment and
evaluation options for better quantification of fugitive emissions. Additionally, transition towards new
software additionally will improve reporting efficiency and data analytics. Further, novel technique
development will be supported with drone imaging technology and LIDAR 3Ds.
Chemicals
Chemicals are being phased out and replaced by green chemicals in a continued dialogue with the Danish
Environmental Protection Agency.
2021
CSS Project Bifrost
The Bifrost EUDP project (2022-2023) will perform all the groundwork
necessary for CO
2
engineering demonstration studies.
Timeframe until the beginning of CCS operations in Harald reservoirs:
2022 2023 2024 2025 2025 2027
Prelim.
Study
Concept
select
FEED FID Execution Operation
Long- term vision
Our vision is sustained in two pillars - scalability
and longevity, provided by the possibility of
reusing DUC’s infrastructure in the North Sea.
Innovation height
•
Depleted hydrocarbon reservoirs
(sandstone and chalk)
•
Re-use of existing wells and offshore
infrastructure
•
Cryogenic shipping and offshore
floating receiver facility
•
Offshore CO
2
injection
•
High scalability and longevity
•
Job retention and creation in the North Sea
High scalability
Our main differentiator is our large storage capacity,
which will be built upon the groundwork performed
in the EUDP project.
16 mtpa
Phase 3
8 mtpa
3 mtpa
Phase 1
Phase 2
2022 2027 2032 2037 2042 2047 2052
30
31
ANNUAL REPORT 2021
Decommissioning & Recycling
of the Tyra Facilities
50,000
tonnes of total weight
As part of the Tyra Redevelopment Project, the old Tyra production facilities were
removed by HMC’s crane vessel Sleipnir and Allseas’ vessel Pioneer Spirit. Recycling
of the retired Tyra assets in a safe and environmentally responsible way was a key
priority for the project.
More than
95%
expected to
be recycled
The facilities were transferred to the new recycling
yard of Modern American Recycling Services
(“M.A.R.S.”) at Frederikshavn in Denmark and to the
Sagro’s recycling yard in Vlissingen, Netherland in
2020. Removal of the 2 remaining jacket structures
is scheduled for 2022. Scrapping and recycling is
currently ongoing in the yards, and in January 2022
the final section of the TWA construction was safely
recycled at the M.A.R.S. yard at Frederikshavn.
Total weight old facilities: 50,000 tonnes (40,000 tons
topsides and 10,000 tons substructure).
The recycling of the old Tyra topsides at M.A.R.S. is
the largest recycling of offshore installations in
Denmark’s history and more than 95 % of the old
facilities are expected to be recycled.
32
ANNUAL REPORT 2021
THE COMPANY’S VIEW ON FUTURE OPPORTUNITY SET
Renewable Power as
an Enabler for
Transition
Renewable power supply is one of the key component of the Danish energy
transition. Locating renewable power in the vicinity of the Company’s oil and gas
facilities can forge synergies between existing installations and the new power
infrastructure. Notably, Noreco’s installations are located in shallow water also
allowing for cost effective utilization of wind farm developments in the vicinity.
Supply from a wind farm which has a mesh grid
connection with other off- shore windfarms and
with shore grids can be the enabler for a signifi-
cant reduction of emissions from Noreco’s oil and
gas installations. This both in respect of reducing
fuel consumption but also in order to increase
production efficiency. Renewable power can
thus be part of the solution to continue prod- ucing
remaining hydrocarbon reserves in a sustainable
way.
An electricity grid connection in the central North
Sea may also utilise the nearby power cable infra-
structure available or in the making (e.g. Viking Link,
German grid.)
A central North Sea wind farm with the Comp-
any’s facilities as an early offtake point can also be
a required front runner for a future Danish Energy
Island with renewable storage and grid
connections to Denmark, UK and other North Sea
countries.
Central North
Sea area for Wind Farm
Shallow water 35-45m
Nearby power
infrastructure e.g. Viking
Link, German Wind Farm
Partnering
opportunity between oil
and gas and renewable
stakeholders
Partnering with wind farm developers and
infrastructure stakeholders can become an early
enabler for the transition towards reduced emis-
sions from our assets.
Giga Watt Wind Farm
and Mesh Grid
connections by
3rd party
Renewable
Power
Multiple offtakes
from Offshore Wind
Farm – early supply
to oil and gas
Central North Sea Wind
Farm – Front runner for
Energy Island
Reduce
emissions of our
oil and gas
33
ANNUAL REPORT 2021
THE COMPANY’S VIEW ON FUTURE OPPORTUNITY SET
Subsurface CCS and
Energy Storage
Noreco’s subsurface assets may after hydrocarbon depletion become a significant
element in supporting the change towards a renewable society.
As part of the Danish Energy Transition there is a
need for shorter- and long-term CO
2
capture and
subsequent long term storage. The Company’s
assets may contribute to such a storage oppor-
tunity by being able to hold large quantities of CO
2
.
The storage can be established in our oil and gas
field when depleted. Here Noreco’s geolog- ical
understanding and technical expertise may prove
significant in assisting in the renewable transition.
In 2021 Noreco announced the CCS partnership
Project Bifrost. The project includes
the evaluation of the potential for CO
2
transport
and storage at the Harald field, with an expected
start-up storage capacity of 3 million tons of CO
2
per year.
Hydrogen production offshore in connection with
an extensive offshore wind farm development is a
possibility in order to allow for seasonal energy
storage and energy back-up during periods with
limited renewable production or during periods
of higher demand. Large seasonal storage of
hydrogen can be accommodated in the geolog - ical
salt formations below several of our oil and gas
fields in the central North Sea. In partnership with
renewable enterprises, Noreco’s under- standing
and surface capabilities can be applied to establish
the technical feasibility, the practical
implementation and the operation of such energy
storage. Here also the potential for reusing our
existing infrastructure and facilities may become an
enabler for lower costs. The planned Danish Energy
Island concept can, if placed close to
the fields which have geological salt formations,
become the main producer of the hydrogen utilizing
such energy storage.
Opportunity for
reuse of existing oil and
gas pipelines
Back-up for
interruption of
renewable supply
CCS
Seasonal energy
storage (Hydrogen)
in subsurface alt dome
caverns
Opportunity for
reuse of oil and
gas facilities
Partnering
opportunity
between oil and
gas and renewable
stakeholders
Depleted
field significant
potential for
CCS
Energy Island
34
ANNUAL REPORT 2021
THE COMPANY’S VIEW ON NORECO’S OPPORTUNITY SET
Facilities:
Offshore Hydrogen
& PtX Production
With the planned substantial expansion of the Danish offshore wind power to
supply renewable power to consumers in northern Europe, it will be of major
importance to establish necessary industrial solutions for producing and handling
hydrogen and PtX offshore.
Hydrogen and the PtX production technology will
need to be adapted to offshore operating environ-
ment and the facilities needs to be constructed to
allow for efficient maintenance and safe operation.
Here our knowledge from Noreco’s facilities and
our understanding of safe design practices can
be a partnering opportunity with enterprises
who are engaged in hydrogen as a renewable
energy source.
Initial evaluation of offshore hydrogen production
feasibility may utilize offshore oil and gas facilities as
test ground before being deployed on a larger scale.
The Company’s offshore facilities may provide support
for such testing and also provide the necessary
practical know-how needed for large capacity
industrial solutions.
Several electrolysis technologies are currently
being matured and progressed to serve the need for
utilizing surplus wind power. Noreco see it
important to be a contributor to such matura- tion
by assisting with our upstream knowledge. This
may also create potential to reuse Nore- co’s
offshore facilities in support of the energy
transition.
Arranging for hydrogen and PtX production close
to existing oil and gas installations and
integrating these solutions into a Danish Energy
Island concept all located in the Danish central/
southern North Sea will also allow for export of
hydrogen through existing gas infrastructure to
Denmark’s shore or to Netherlands.
Opportunity
for reuse of oil
and gas facilities
Offshore operational
and process safety
practices
Hydrogen
technology
(Solid Oxide Electro-
lyse Cells, Polymer
Electrolyte Membrane
Electrolysis)
partnering
Offshore Hydrogen
production
Energy Island
Opportunity
for reuse of existing
oil and gas pipelines for
hydrogen to Denmark
and the
Netherlands
Partnering
opportunity
between oil and
gas and renewable
stakeholders
35
ANNUAL REPORT 2021
THE DANISH OFFSHORE TECHNOLOGY CENTRE
Research and
Technology to Reduce
Environmental Impact
Together with its partners in the DUC, Noreco invests in research and devel-
opment to support and further grow its E&P activities. The DUC has a part-
nership with the DTU (Technical University of Denmark) and has together
established the DTU Offshore - Danish Offshore Technology Centre. The DTU
Offshore conducts research to improve future production of oil and gas from the
Danish North Sea. The Centre’s research seeks to increase sustainability through
improved cost efficiency and reduced environmental impact. In 2021 the DUC
contributed with funding amounting to DKK 98 million.
WORK CONDUCTED BY THE DHRTC
Advanced Water Flooding
Improve sweep efficiency of remaining oil in Tor
and Ekofisk formations
Lower Cretaceous
Improve recovery
Well and Production Technology
Improve integrity and performance of existing and
new wells
Operations and Maintenance Technology
Functional model of process for AI assisted
operator support
Enhanced Well Chemistry and Integrity
Extension of commercial field life by enhanced
methods for corrosion, scale and souring predic-
tion and mitigation
AI-assisted Structural Integrity
Ensure the safety of structures for continued
production
Produced Water Management
Reduce the environmental footprint associated with
oil and gas production
Abandonment
Cost effective abandonment for short and long- term
environmental protection
36
ANNUAL REPORT 2021
Biodiversity in the DUC
During the past years, the DUC, through the operator TotalEnergies, has carried
out a broad range of scientific studies to increase the understanding of the effects
of projects and operations on offshore biodiversity. Studies have been developed
and carried out by academics and environmental specialists with expertise in the
fields of marine mammal biology, underwater acoustics, metagenomics and
ecotoxicology.
The DUC supported marine mammal research
program initiated in 2013 has made another
significant scientific contribution by providing data
regarding the effect on harbor porpoises of
underwater sound generated by seismic surveys. The
results were published in the peer-reviewed
scientific journal Frontiers in Marine Sciences.
The DUC also supports researchers on the develop-
ment of new scientific methodologies in the studies of
biodiversity. For example, the partners collaborated
with researchers at DTU-aqua for the offshore
deployment and testing of state-of- the-art
technology in remote and automated biodi-
versity monitoring. The pilot study aimed at testing the
use of a second-generation environmental sample
processor (ESP) in an offshore environment. The ESP
was deployed close to the facilities to sample and
analyze environmental DNA of porpoise, dolphin and
fish species.
The Environmental Team in the DUC arranges
dedicated biodiversity awareness sessions with onshore
and offshore operator employees.
Offshore staff are encouraged to report wildlife
sightings around platforms and the information is
shared with large regional inventories of species like
basking sharks or bluefin tuna.
NORECO
2021 ANNUAL REPORT 37
PART III
38
Noreco’s Board of Directors
41
Directors Report
50
Reporting of payments to Governments
51
Corporate Governance Report 2021
56
Corporate Social Responsibility
58
Statutory Accounts 2021
73
Consolidated Statements
127
Auditors Report
133
Statement of Compliance
134
Alternative Performance Measures
136
Supplementary oil and gas information (unaudited)
138
Information About Noreco
From the Boardr
oom
NORECO
2021 ANNUAL REPORT
38
The Board of Directors
RIULF RUSTAD
Executive Chair
Riulf Rustad is a Norwegian businessman with a long track record from investments in sectors
such as oil & gas, oil services and offshore. Mr. Rustad operates through his platform Ousdal
AS and holds/has held various board positions, both in listed and unlisted companies. Mr.
Rustad was elected as Chairman of the board of directors of Noreco in 2016 , and was re-
elected at the Annual General Meeting of 26 May 2020 for a period of two years.
MARIANNE LIE
Board Member, Member of the Audit Committee and Chair of the Remuneration
Committee
Marianne Lie is a consultant at Fajoma Consulting AS. She holds various board positions
including in Wallenius Wilhelmsen ASA. She has previously held various board positions
including DNB ASA, R.S. Platou, Rainpower ASA and Fortum Corporation. Ms Lie has served
as a member of the board of directors in Noreco since 26 May 2016, and was re-elected at
the Annual General Meeting of 26 May 2020 for a period of two years.
TONE KRISTIN OMSTED
Board Member and Member of the Audit Committee
Tone Omsted holds a BA Hons. in Finance from University of Strathclyde. She has broad
experience from corporate finance and capital markets and currently serves as head of
investor relations at Entra ASA. Previous experience includes 14 years as an investment
banking executive at SEB Enskilda. She has also served on the board of directors of Panoro
Energy ASA. Ms Omsted has served as member of the board of directors of Noreco since 26
May 2016, and was re-elected at the Annual General Meeting of 26 May 2020 for a period of
two years.
COLETTE COHEN
Board Member and Chair of ESG Committee
Colette Cohen is a chemistry graduate from Queens University Belfast and also holds a
master’s degree in Project Management and Economics. Her career began with BP in 1991
and she has worked for companies including ConocoPhillips and Britannia in the North Sea,
Norway, the US & Kazakhstan. Colette was SVP for Centrica Energy’s E&P UK/NL and in
August 2016 became the CEO of The Net Zero Technology Centre. Ms Cohen has served as
member of the board of directors of Noreco since 7 August 2019 , and was re-elected at the
Annual General Meeting of 18 May 2021 for a period of two years.
NORECO
2021 ANNUAL REPORT
39
ROBERT J. MCGUIRE
Board Member and Member of the ESG Committee
Robert McGuire is a senior professional at MAEVA Group, LLC., a turnaround and
restructuring firm. He has a 25 year global track record as an advisor, investor and business
leader, has served on numerous boards and has extensive experience in the energy sector,
having led the European energy businesses at both Goldman Sachs and J.P.Morgan. He has
a BA from Boston College and an MBA from Harvard Business School. Mr McGuire was
elected as member of the board of directors of Noreco at an Extraordinary General Meeting
held 2 March 2020 for a period of two years.
PETER COLEMAN
Board Member and Member of the Audit Committee
Peter Coleman joined Taconic in April 2018 where he is a director focusing on European
credit, based in their London office. Prior to joining Taconic, Peter was a Managing Director
on the European Distressed Debt Team at SVP Global. Previously, he was an Investment
Director in distressed debt at Sisu Capital and prior to this, he was a director in the corporate
finance group and tax group at PricewaterhouseCoopers. Peter earned a dual LL. B. and
B.Com. from Victoria University in New Zealand in 1996. Mr Coleman was elected as a
member of the board of directors of Noreco at the Annual General Meeting on 19 May 2021
for a period of two years.
JAN LERNOUT
Board Member and Member of the Remuneration Committee
Jan Lernout is a partner and portfolio manager at Kite Lake Capital Management (UK) LLP,
which he founded in July 2010. Prior to that he was a partner and portfolio manager at Cheyne
Capital Management (UK) LLP and an Executive Director and member of the Investment
Committee in the European Special Situations Group (ESSG) at Goldman Sachs
International. He holds a Master in Commercial Engineering from KU Leuven and an MBA
from the University of Chicago Booth School of Business. He is a CFA Charterholder. Mr
Lernout was elected as a member of the board of directors of Noreco at the Annual General
Meeting on 19 May 2021 for a period of two years.
NORECO
2021 ANNUAL REPORT
40
The Executive Management
EUAN SHIRLAW
Acting Managing Director, Chief Financial Officer
Euan joined Noreco in 2019 as CFO and also holds the position of Acting Managing
Director. Euan has a background of providing strategic advice to a wide range of oil and
gas companies on acquisition, divestment and merger activity as well as raising debt and
equity capital. Prior to joining Noreco, Euan was a senior member of the oil & gas
advisory team at BMO Capital Markets having also focused on the Energy space while
working with Credit Suisse, RBC Capital Markets and Rothschild in London. He has a
MSc in Business and Accountancy from the University of Edinburgh.
MARIANNE EIDE
EVP Upstream
Marianne joined Noreco in 2022 and holds the position as EVP Upstream. She has 30
years of experience in the upstream oil and gas industry. Prior to joining Noreco, she held
senior management, commercial and technical roles with Shell, BG Group, Gaz de
France, Conoco and Equinor, both based in Norway and the United Kingdom. Marianne
has a MSc in Petroleum Engineering from the Norwegian Institute of Technology in
Trondheim.
CATHRINE F. TORGERSEN
EVP Investor Relations & ESG
Cathrine joined Noreco in 2019 and holds the position as EVP Investor Relations & ESG.
She previously had the role as Senior Account Director in Hill+Knowlton, where she
advised a wide range of oil & gas- and shipping companies. During her seven years in
Hill+Knowlton she was a member of the Management Team and was also leading the
Financial Communications practice. Prior to joining Hill+Knowlton, Cathrine worked with
institutional high yield sales at Pareto Securities Inc. in New York and Clarksons Platou
Securities. She has a BSc in Business Administration and Finance from Bocconi University.
HEGE HAYDEN
EVP People and Capability
Hege joined Noreco in 2019 and holds the position of EVP, People & Capability. She has
more than 20 years of broad operational and strategic HR experience as consultant and
leader. For the last 13 years she has worked within the E&P industry and prior to joining
Noreco she held the position as Director HR & Communications in VNG Norge AS. Hege
received her education in Business Administration at Økonomisk College (now Oslo
Metropolitan University).
DIRECTORS’ REPORT
NORECO
2021 ANNUAL REPORT
41
Directors’ Report
Norwegian Energy Company ASA ("Noreco" or
the "Company") is a Norwegian company listed
on the Oslo Stock Exchange. The Company was
established in 2005 and has a strategic focus on
value creation through increased recovery of
hydrocarbons, enabled by a competent
organisation with a long-term view on reservoir
management and the capability to invest in, and
leverage new technology.
Following the acquisition of Shell’s Danish
upstream assets in 2019, Noreco holds a 36.8%
non-operated interest in the Danish
Underground Consortium (“DUC”) and is the
second largest oil and gas producer in Denmark.
The DUC is joint venture between TotalEnergies
(43.2%), Noreco (36.8%) and Nordsøfonden
(20.0%) and comprises four hubs and 11
producing fields; Halfdan, Tyra, Gorm and Dan.
It is operated by TotalEnergies, which has
extensive offshore experience in the region and
worldwide.
Since the acquisition in 2019, Noreco has built a
meaningful presence in Denmark, and
established good relationships to its partners
TotalEnergies and Nordsøfonden in addition to
other key stakeholders such as the Danish
Energy Agency (DEA).
BUSINESS DEVELOPMENT
Noreco delivered strong production from the
Halfdan, Dan and Gorm hubs in 2021 with a
yearly average of 26.9 mboepd and an overall
operational efficiency at approximately 84.4%.
Ongoing well intervention work carried out by
Noble Sam Turner had a positive impact on
short- and long-term production and optimisation
work will remain a focus in 2022.
The Tyra Redevelopment is an ongoing project
within the DUC and is the largest project ever
that is carried out in the Danish Continental Shelf
(DCS). The project will provide a strong
foundation for future reserves growth, unlocking
gross reserves in excess of 200 mmboe.
Redeveloped Tyra will decrease operating
expenses significantly and lower emissions at
the field by 30 %. In addition, the completed
project will extend field life by at least 25 years
and produce enough gas to power equal to 1.5
million homes in Denmark. The Tyra hub was
temporarily shut-in in September 2019 and
during 2021 several important project milestones
were reached.
Activity levels in the three
fabrication yards remained high throughout the
year, and in July 2021 Noreco announced the
sail away of the three Tyra East wellhead and
riser topsides followed by an offshore
installation. In January 2022 the three Tyra West
wellhead and riser platforms were delivered from
yard, and in March 2022 the accommodation unit
was completed and sailed to the Tyra field. The
Tyra Redevelopment project is progressing
towards first gas in Q2 2023.
The annual revision of reserves, confirmed by an
independent CRS assessment, resulted in total
2P reserves at year end 2021 of 200 mmboe,
demonstrating strong contributions from the
producing assets with a reserves replacement
ratio of nearly 100 percent.
In 2021, Noreco together with its partners in the
DUC, entered into a CCS partnership, Project
Bifrost, with Ørsted and DTU on progressing
offshore CCS. Project Bifrost will evaluate the
potential for
CO
2
Harald field in the Danish North Sea with an
expected start-up storage capacity of 3 million
tons of
CO
2
granted funding in December 2021 of DKK 75
million under the “Energy Technology
Development and Demonstration Programme”
(EUDP), a Danish public subsidy scheme.
CAPITAL STRUCTURE
Convertible bond (“NOR13”):
convertible bond with an eight-year tenor and a
mandatory conversion to equity after five years.
NOR13 has PIK interest with additional bonds at
DIRECTORS’ REPORT
NORECO
2021 ANNUAL REPORT
42
a coupon rate of 8.0 %. Noreco may
alternatively, at its own discretion, pay cash
interest of 6.0 %. The Company has paid coupon
interest of 8.0 % (PIK) since issuance. Should
the instrument be in place beyond the five-year
conversion period, the interest rate on NOR13
will be reduced to 0.0 % for the remaining period.
Reserve-based lending facility (the RBL facility):
In Q2
2021 the Company amended, extended and
increased its previously facility that was entered
into in Q2 2019. Noreco’s RBL facility is a seven-
year 1st lien senior-secured reserve-based
lending facility with a total facility amount of USD
1,100 million, including a letter of credit sub-limit
of USD 100 million. At the end of 2021 USD 900
million was drawn under the RBL Facility, with an
additional USD 100 million letter of credit
outstanding. Principal repayments on the Facility
will commence from the second half of 2024 and
interest is charged on debt drawings based on
the SOFR rate and a margin of 4.0 to 4.5 %. The
Company has also established a link in margin
payable under the RBL and the achievement of
ESG targets on emissions intensity reduction
and power from renewables that will support
progression of the Company’s ESG strategy.
This provides a margin decrease for ESG targets
being met and a margin increase if ESG targets
are not met.
Senior unsecured note (“NOR14”):
million senior unsecured note with a coupon rate
of 9.0 % and a maturity in June 2026. In order to
reduce exposure to future market volatility,
Noreco successfully reached an agreement with
its bondholders in 2021 adding additional
headroom to certain of the financial covenants
GROUP FINANCIAL RESULTS FOR 2021
Selected data from consolidated statement of comprehensive income
All figures in USD million
2021
2020
Total revenue
565
566
EBITDA
1)
250
250
EBIT
1)
137
57
Result before tax
5
(18)
Net result for the period
(53)
17
Earnings per share
(2.2)
0.7
1) Please see Alternative Performance Measures for definitions
The Company had revenues
USD 565 million in
2021 mainly related to oil and gas sales from the
DUC fields; this compares to USD 566 million in
the previous year.
Production expenses
of USD 293 million in 2021
compared to USD 295 million in 2020. Of this
amount USD 297 million was directly attributable
to the lifting and transport of the Company’s oil
and gas production and USD 22 million related
to offshore insurance expenses, in addition to a
positive impact of USD 14 million related to an
under-lift adjustment and USD 13 million related
to stock scrapping adjustments. The cost per
boe in 2021 amounted to USD 30.2 per boe
compared to USD 26.6 per boe the previous
year. The increase compared to 2020 is mainly
driven by the high level on well intervention
activity.
Personnel expenses
compared to USD 12 million in 2020. The
decrease is due to lower share- based
payments, partly offset by restructuring costs.
Other operating expenses
million in 2021, compared to USD 8 million last
year. The increase is related to higher consultant
and legal fees.
Operating result (EBITDA
)
USD 250 million, compared to a profit of USD
DIRECTORS’ REPORT
NORECO
2021 ANNUAL REPORT
43
250 million in 2020.
Net financial items
USD 132 million in 2021, compared to an
expense of USD 75 million in 2020. This was
primarily driven by lower financial income in
2021, where in the comparable period in 2020
the Company realised income on commodity
price hedging as well as a positive fair value
adjustment on NOR13’s embedded derivative.
This was partially offset by lower financial
expenses as the Company experienced a net
foreign exchange gain in 2021, compared to a
net foreign exchange loss in 2020, which has
been driven by fluctuations in the
USD:DKK/EUR exchange rate.
Income Tax
of USD 58 million for the year, compared to an
income of USD 35 million in 2020. The tax cost
for 2021 mainly relates to tax on the underlying
taxable result for the year, cost of FX-
adjustments of losses carried forward in DKK
offset by value of investment uplift for the year.
Reference is made to note 13 in the consolidated
financial statements for further details to the
taxes this period.
The Group’s
net result
for the year is a loss of USD
53 million, compared to a loss of USD 17 million
in 2020.
Selected data from the consolidated statement of financial position
All figures in USD million
2021
2020
Total non-current assets
2,807
2,533
Total current assets
283
429
Total assets
3,090
2,962
Total equity
492
630
Interest bearing debt
1)
1,204
1,043
Asset retirement obligations
1,029
950
1) Please see Alternative Performance Measures for definitions
Total non-current assets
amounted to USD 2,807
million at the end of 2021, of which USD 1,899
million related to property, plant & equipment, in
addition to a deferred tax asset of USD 526
million, intangible asset of USD 166 million, USD
205 million restricted cash and USD 10 million in
derivatives.
Total current assets
amounted to USD 283 million
at the end of 2021, USD 88 million in trade- and
other receivables, mainly related to oil and gas
revenue, USD 20 million in prepayments mainly
related to offshore insurance premium that has
been paid in advance. In addition, USD 123
DIRECTORS’ REPORT
NORECO
2021 ANNUAL REPORT
44
million was held in cash and inventory of USD 51
million.
Equity
2021, compared to USD 630 million at the end of
2020. The decrease is mainly related to the fair
value adjustment of derivative instruments and
net loss for the current year, partly offset by
realized gain on hedge.
Interest-bearing debt
at the end of 2021. The convertible bond loan
NOR13 had a book value of USD 157 million at
the end of 2021. This is valued at amortised cost
and the embedded derivative is accounted for at
fair value through profit and loss. Noreco’s USD
1.1 billion RBL facility, drawn at USD 900 million
on 31 December 2021 and with maximum cash
drawing capacity of USD 1.0 billion, had a book
value of USD 857 million at the end of 2021. The
senior unsecured bond loan NOR14 had a book
value of USD 165 million at the end of 2021. The
RBL facility and the unsecured bond loan are
valued at amortised cost. In addition, the
interest-bearing debt includes deferred
consideration with a book value of USD 25
million at the end of 2021.
Asset retirement obligations
1,029 million at the end of 2021, compared to
USD 950 million at the end of 2020. USD 960
million is related to the DUC assets, USD 65
million to Nini/Cecilie, USD 2 million to Lulita and
USD 2 million to the Tyra F-3 pipeline. The
Nini/Cecilie asset retirement obligation is
secured through an escrow account of USD 65
million.
Selected data from the consolidated statement of cash flows
All figures in USD million
2021
2020
Cash flow from operating activities
50
348
Cash flow used in investing activities
(246)
(359)
Cash flow from financing activities
60
(15)
Net change in cash and cash equivalents
(137)
(26)
Cash and cash equivalents
123
259
Cash flow from operating activities
USD 50 million at the end of 2021, compared to
USD 348 million at the end of last year. Cash
flow from operating activities excluding changes
in working capital amounted to USD 245 million
in 2021, compared to USD 252 million in 2020.
The decrease in cash flow from working capital
is mainly due to the VAT liability related to 2020
of USD 156 million that was paid in 2021, with
the payment date delayed to Q1 2021 by the
Danish government as a response to the impact
of COVID-19 on the economy. In addition to a
change from an over-lift to under-lift position, the
Company’s inventory position and trade and
other receivables also increased.
Cash flow used in investing activities
negative USD 246 million at the end of 2021
compared to negative USD 359 million at the end
of last year. The cash flow used in investing
activities were related to DUC investments of
USD 228 million, with USD 213 million related to
the Tyra redevelopment, USD 21 million in
abandonment expenditure, a deposit of USD 15
million deposit into the cash call security
account, USD 2 million in tax refund for the
period prior to closing and a benefit received
from the volume guarantee of USD 15 million.
Cash flow from financing activities
positive USD 60 million at the end of the year,
compared to negative USD 15 million in 2020.
The cash flow from financing activities is related
to a RBL drawdown of USD 149 million, USD 54
million in paid interest and USD 27 million related
to transaction costs on NOR14 and the RBL
facility.
DIRECTORS’ REPORT
NORECO
2021 ANNUAL REPORT
45
Net change in cash and cash equivalents
to negative USD 137 million in 2021 compared
to negative USD 26 million in 2020. Cash and
cash equivalents were in total USD 123 million
at the end of 2021.
RISK MITIGATION
The Company actively seeks to reduce the risk it
is exposed to regarding fluctuating commodity
prices through the establishment of hedging
arrangements. Noreco applied hedge
accounting from 1 October 2019.
Noreco has to date executed this policy in the
market through a combination of forward
contracts and options.
For the period 2021 to 2023 (the “Recovery
Period”), a payment to Shell may be required if
actual production exceeds a pre-agreed level
that is currently above the Company’s internal
forecasts. The amount refunded to Shell during
the Recovery Period cannot exceed the value of
Noreco’s claims during the Protection Period.
Noreco enters into hedging contracts on both oil
and gas to reduce the Company’s exposure to
commodity price volatility. These contracts
protect the future minimum price Noreco will
receive on oil and gas for the periods and
volumes entered into. All hedging contracts are
with financial institutions within the RBL banking
syndicate, are secured and are financially settled
on a monthly basis. Due to the secured nature of
these contracts, Noreco is not subject to cash
collateralisation requirements or margin calls.
In addition to Company-driven hedging activities,
the RBL Facility contains a rolling hedge
requirement based on a minimum level of
production corresponding to the RBL banking
case forecast: 50% of oil equivalent volumes for
the following 12 months, 40% in the period from
12 to 24 months and 30% in the period from 24
to 36 months, subject to a maximum level in
each of these periods of 70%. Due to the volatile
oil market conditions in 2021, Noreco requested
and received waivers from its RBL bank
syndicate in June and December relating to the
hedging requirements in the 24 to 36 months
forward; based on this, the Company is not
required to meet the minimum hedging level
during this period until the end of June 2022. At
the end of 2021, Noreco is in full compliance with
these temporarily revised RBL hedging
requirements.
Volume hedged oil
(mmboe)
Average hedged
price ($/bbl)
Volume hedged gas
(MWh)
Average hedged
price (EUR/MWh)
2022
4.3
55.7
1,015,000
37.5
2023
4.0
52.4
-
-
2024
2.4
62.2
-
-
THE GOING CONCERN ASSUMPTION
Pursuant to the Norwegian Accounting Act
section 3-3a, the board confirms that the
requirements of the going concern assumption
are met and that the annual accounts have been
prepared on that basis. The financial solidity and
the Company’s working capital and cash position
are considered satisfactory in regards of the
planned activity level for the next twelve months.
Risk factors
The risks and uncertainties described in this
section are the material known risks and
uncertainties faced by the Group as of the date
hereof and represents those risk factors that the
Company believes to represent the most
material risks for investors. Accordingly,
investors should carefully consider these risks.
Risks related to the Company’s assets
The Company’s future production of oil and gas
is concentrated in a limited number of offshore
fields that are located in a congregated
geographical area. There are currently four
production hubs which are interconnected and
utilize the same infrastructure. In addition to this,
the fields within one hub are interconnected and
DIRECTORS’ REPORT
NORECO
2021 ANNUAL REPORT
46
one field can depend on another for gas injection
and other factors important to extract
hydrocarbons. Gas produced on each of the
hubs is normally processed and transported to
shore via the Tyra hub. Due to the ongoing Tyra
Redevelopment, gas is temporarily going to Dan
and sent to the NOGAT system in the Dutch
sector. The Gorm hub receives liquids from all
the other hubs and sends it to shore via a
pipeline on Gorm E. Consequently, the
concentration of fields, infrastructure and other
Noreco assets may result in that accidents,
problems, incidents or similar on one location
may affect a significant part of Noreco’s
business.
Reserves risk
The Company’s oil and gas production could
vary significantly from reported reserves and
resources. Should actual production deviate
from estimated reserves, this may have a
significant impact on the value of the Group’s
assets, the cash flow from operations and total
revenues over the lifetime of the assets. Material
deviations between actual results and estimated
reserves for one asset may also create
uncertainties about the estimated reserves of
other assets based on the same assumptions,
which may in turn be detrimental for investors’
confidence in Noreco’s reserves estimates.
Risks related to development projects
Noreco’s development projects and resource
portfolio will require substantial investments to
bring into production. The Company may be
unable to obtain needed capital or financing on
satisfactory terms, which could lead to a decline
in its oil and gas reserves. The Company makes
and expect to continue to make substantial
investments in its business for the development
and production of oil and natural gas reserves.
The Company is currently involved in one major
development project, the redevelopment of Tyra
II. While significant progress has been made on
the Tyra Redevelopment project, Noreco is
during 2022 exposed to the risks relating to the
fabrication and sail away of one remaining
module, and the ongoing installation, hook-up
and commissioning work conducted at the Tyra
field. The outcome of the future progress of the
development may have an impact on cost and/or
schedule. The Company intends to finance the
majority of its future investments with cash flow
from operations and borrowings under its RBL
Facility and other equity and debt facilities.
Decommissioning risks
There are significant uncertainties relating to the
cost for decommissioning of licences including
the schedule for removal of any installation and
performance of other decommissioning
activities. No assurance can be given that any
anticipated costs and time of removal will be
correct and any deviation from such estimates
may have a material adverse effect on the
Company’s business, results of operations, cash
flow and financial condition.
Third party risk
The Company is subject to third party risk in
terms of operators and partners as it does not
have a majority interest in any of its licences, and
consequently cannot solely control such assets.
Although the Company has consultation rights or
the right to withhold consent in relation to
significant operational matters, depending inter
alia on the importance of the matter, level of its
interest in the licence, which licence, the
contractual arrangements for the licence, etc,
the Company will have limited control over
management of such assets and
mismanagement by the operator or
disagreements with the operator as to the most
appropriate course of action may result in
significant delays, losses or increased costs to it.
Jointly owned licences also result in possible
joint liability, on certain terms and conditions.
Other participants in licences may default on
their obligations to fund capital or other funding
obligations in relation to the assets. In such
circumstances, the Company may be required
under the terms of the relevant operating
agreement or otherwise to contribute all or part
of such funding shortfall ourselves.
Risks related to commodity prices
The Company’s business, results of operations,
cash flow and financial condition will depend
significantly on the level of oil and gas prices and
market expectations of these and may be
adversely affected by volatile oil and gas prices.
The Company’s future revenues, cash flow,
DIRECTORS’ REPORT
NORECO
2021 ANNUAL REPORT
47
profitability and rate of growth depend
substantially on prevailing international and local
prices of oil and gas. As oil and gas are globally
traded commodities, Noreco is unable to control
or predict the prices it receives for the oil and gas
it produces; however, the Company has a
material hedging programme in place that
mitigates the short-term impact of price volatility.
The hydrocarbons produced from specific fields
may have a premium/discount to benchmark
prices such as Brent and this may vary over time.
Currency risks
The Group is exposed to market fluctuations in
foreign exchange rates. Revenues are in US
dollars for oil and in Euros and Danish kroner for
gas, while operational costs, taxes and
investment are in several other currencies,
including Danish kroner. The Company’s
financing is primarily in US dollars. Significant
fluctuations in exchange rates between euros
and Danish kroner and US dollars and Danish
kroner and Danish and Norwegian kroner may
materially adversely affect the reported results.
Risks related to Danish taxation and
regulations
All of Noreco’s petroleum assets are located in
Denmark and the petroleum industry is subject
to higher taxation than other businesses. There
is no assurance that future political conditions in
Denmark will not result in the relevant
government adopting different policies for
petroleum taxation than currently in place.
However, due to the Compensation Agreement
in place between the Danish State and the DUC,
any alterations in present legislation to the
disadvantage of the DUC licensees would be
compensated. The compensation would be
determined with a view to the impact of the
changes on the DUC but however cannot
exceed the net advantage deemed to have been
obtained by the State. This agreement
effectively reduces the risk associated with
Danish taxation and regulations and provides for
a high degree of influence for the DUC in the
design and adoption of any amendments to the
petroleum tax rules.
Risks related to debt financing
Noreco has partial exposure to floating interest
rates through the Company’s USD 1,100 million
RBL,
where the Company in 2021 fixed USD 1.0
billion of its interest rate exposure until June
2024. The Company also has exposure to fixed
interest rates, through the Company’s USD 185
million Convertible Bond and USD 175 million
Senior Unsecured Note. In addition, the
Company is subject under these financing
instruments to several covenants, including
maximum leverage relative to earnings and
demonstration of a minimum level of liquidity.
The Company’s material hedging programme
provides significant visibility over Noreco’s ability
to meet these requirements, however if the
Company is unable to then actions to rectify this
position may be required. There can be no
assurance that such actions will be available or
enough to allow Noreco to ultimately fulfil its
obligations.
Risks related to future capital requirements
Noreco’s future capital requirements will be
determined based on several factors; including
production levels, commodity prices, future
expenditures that are required to be funded and
the development of the Company’s capital
structure. To the extent the Company’s
operating cashflow is insufficient to fund the
business plan at the time, and in particular the
Tyra redevelopment project, additional external
capital may be required. Noreco currently has a
strong financial base, supported by existing
liquidity and hedging positions, however any
unexpected changes that result in lower
revenues or increased costs may necessitate
the raising of additional external capital. There
can be no guarantee that, if required, Noreco
would be able to access the debt or equity
markets on favourable terms, or if necessary be
able to adequately restructure or refinance its
debt. To mitigate this risk, Noreco maintains a
strong relationship with its banking syndicate
through continual engagement to underpin its
borrowing position and has commenced an
active investor relations strategy to support
access to the capital markets.
Financial reporting risk
While Noreco has in place internal controls
covering the Company’s financial reporting
function, any material error or omission could
DIRECTORS’ REPORT
NORECO
2021 ANNUAL REPORT
48
significantly impact the accuracy of our reported
financial performance and expose the Company
to a risk of regulatory or other stakeholder action.
Insurance risk
Although the Company maintains liability
insurance in an amount that it considers
adequate and consistent with industry standard,
the nature of the risks inherent in oil and gas
industry generally, and on the Danish
Continental Shelf specifically, are such that
liabilities could materially exceed policy limits or
not be insured at all, in which event the Company
could incur significant costs that could have
adverse effect on its financial condition, results
of operation and cash flow.
Political and regulatory risks
The Company is exposed to political and
regulatory risks. Exploration and development
activities in Denmark are dependent on receipt
of government approvals and permits to develop
its assets. The Danish Subsoil Act, among other
things, sets out different criteria for the
organization, competence and financial
capability that a licensee at the DCS must fulfil
at all times. The Company is qualified to conduct
its operations on the DCS, however, there is no
assurance that future political conditions in
Denmark will not result in the government
adopting new or different policies and
regulations on exploration, development,
operation and ownership of oil and gas,
environmental protection, and labour relations.
In December 2020, the Danish government
announced the “2050 North Sea Agreement”.
The agreement provides industry stability and
opportunities on the DCS, beyond the DUC
concession which expires in 2042. Further, the
Company may be unable to obtain or renew
required drilling rights, licences, permits and
other authorizations and these may also be
suspended, terminated or revoked prior to their
expiration.
Risks related to environmental regulations
The Company may be subject to liability under
environmental laws and regulations. All phases
of the oil and gas business present
environmental risks and hazards and are subject
to environmental regulation pursuant to a variety
of international conventions and state and
municipal laws and regulations. Environmental
legislation provides for, among other things,
restrictions and prohibitions on spills, and
releases or emissions of various substances
produced in association with oil and gas
operations. The legislation also requires that
wells and facility sites are operated, maintained,
abandoned and reclaimed to the satisfaction of
applicable regulatory authorities. The Company
is subject to legislation in relation to the emission
of carbon dioxide, methane, nitrous oxide and
other so-called greenhouse gases. Compliance
with such legislation can require significant
expenditures and a breach may result in the
imposition of fines and penalties, some of which
may be material, in addition to loss of reputation.
Reputational risks
Noreco may be negatively affected by adverse
market perception as it depends on a high level
of integrity and to maintain trust and confidence
of investors, DUC participants, public authorities
and counterparties. Any mismanagement, fraud
or failure to satisfy fiduciary or regulatory
responsibilities, or negative publicity resulting
from other activities, could materially affect the
Company’s reputation, as well as its business,
access to capital markets and commercial
flexibility.
COVID-19
The global pandemic has severely impacted the
daily lives of people as well as affected
companies and markets. Governments and
other authorities have imposed restrictions
which limits the prerequisites for continuing
normal business operations, including
movement of people and their ability to get to
their place of work. Noreco is well set up with IT
infrastructure and routines which allow all staff to
work remotely and as such are able to continue
operating the Company. The Company, through
its ownership in DUC, relies on a significant
number of operational staff and third-party
suppliers to maintain its operations at sufficient
levels. Total Energies Denmark A/S, as the
operator of DUC, has implemented extensive
measures to protect personnel and secure
business continuity, including among others
screening of offshore personnel by
DIRECTORS’ REPORT
NORECO
2021 ANNUAL REPORT
49
Total Energies health staff.
HEALTH, ENVIRONMENT AND SAFETY
Noreco puts emphasis on its employees
performing company activities in line with the
principals of business integrity and with respect
for people and the environment.
During 2021, Noreco was, through its ownership
in the DUC in which Tota lEnergies is the
operator, involved in production of oil and gas
which could cause emissions to the sea and air.
Noreco will conduct its business operation in full
compliance with all applicable national
legislation in the countries where it is operating.
The Company is committed to carry out its
activities in a responsible manner to protect
people and the environment. Our fundamentals
of HSEQ and safe business practice are an
integral part of Noreco’s operations and
business performance.
The Danish Offshore Safety Act is the legal
framework for promotion of a high level for health
and safety offshore and for creating a framework
enabling the companies to solve offshore health
and safety issues themselves. The Danish
Offshore Safety Act generally applies to all
offshore activities related to hydrocarbon
facilities, infrastructure and pipelines connected
hereto.
Licensees under the Danish Subsoil Act are
required to identify, assess and reduce health
and safety risks as much as reasonably
practicable, as well as be compliant with the
ALARP (As Low As Reasonably Practicable)
principle. Furthermore, the licensee shall ensure
that operators are able to fulfil the safety and
health obligations pursuant to the Danish
Offshore Safety Act.
PERSONNEL RESOURCES AND WORKING
ENVIRONMENT
At the end of 2021 the Group had 26 employees.
38 % of the employees were women. In
December 2021, and following a mutual
resignation of Chief Executive Officer David B.
Cook, Chief Financial Officer Euan Shirlaw was
appointed Acting Managing Director in addition
to his existing role.
At the end of 2021 the Company’s board of
directors consists of three women and four men,
all elected by shareholders. There are no
employee representatives on the Board. At the
end of 2021, more than 40 % of the board
members were women.
Noreco strives to maintain a working
environment with equal opportunities for all
based on qualifications, irrespective of gender,
ethnicity, religion, sexual orientation or disability.
The Company pays equal salaries and gives
equal compensation and opportunities for
positions at the same level, regardless of
gender, ethnicity, religion or disabilities. The
management’s compensation is described the
Executive Remuneration Report.
Sick leave in the Group was 0,89 % in 2021.
RESEARCH AND DEVELOPMENT
Noreco invests in research and development to
support and further grow its E&P activities. The
DUC has a partnership with the DTU (Technical
University of Denmark) and has together
established the DTU Offshore – Danish Offshore
Technology Centre. The DTU Offshore conducts
research to improve future production of oil and
gas from the Danish North Sea. The Centre's
research seeks to increase sustainability
through improved cost efficiency and reduced
environmental impact. In 2021 the DUC
contributed with funding amounting to DKK 98
million. The current ongoing work programme
includes:
●
●
harmful discharge vision)
●
●
●
for long-term environmental protection.
CORPORATE GOVERNANCE
DIRECTORS’ REPORT
NORECO
2021 ANNUAL REPORT
50
The board wishes to maintain an appropriate
standard on corporate governance and to fulfil
the recommendations in the Norwegian Code of
Practice for Corporate Governance. Corporate
governance in Noreco is based on equal
treatment of all shareholders which is reflected
by the decisions taken at the General Assembly.
In total, 12 board meetings were held in 2021,
participation was 98%.
Safeguarding the Company’s people, assets and
financial position were the board’s key priorities
during 2021, the second year of the pandemic.
The board has continued to work on developing
Noreco and how to best position the Company
for future value enhancing opportunities.
The annual general meeting, held on 19 May
2021, re-elected Colette Cohen to the board and
appointed Jan Lernout and Peter Coleman as
new board members. All matters on the agenda
were approved.
Further information on corporate governance
and corporate social responsibility can be found
in other sections of this report or on the
Company's web site,
www.noreco.com/corporate-governance
www.noreco.com/csr
DIRECTOR & OFFICER’S LIABILITY INSURANCE
The company has acquired and maintains a
Directors and Officers insurance policy to cover
the personal liability for financial losses that
directors and officers of the company and the
directors and officers of the company’s
subsidiaries may incur in their capacities as such
(“Directors and Officers Liability/Styre og
ledelsesansvar”). The policy is placed with a
reputable international carrier on market terms.
OWNERSHIP
There are no restrictions on the transfer of
shares in Noreco. The Company currently has
approximately 2.500 shareholders, and 16.35%
of the shares are held by Norwegian residents.
NORWEGIAN ENERGY COMPANY ASA
In 2021, the parent company was a holding
company, and the operating expenses mainly
consisted of shareholder costs, consultancy
fees, legal fees and payroll expenses. Net
financial loss mainly due to interest expenses
from bond loans and net foreign exchange loss
this year due to fluctuations in the USD:NOK
exchange rate, partly offset by interest received
from group companies. For comments on
financial risk and market conditions and
statement regarding going concern, please see
other parts of this annual report. These
comments are also valid for the parent company.
PARENT COMPANY FINANCIAL RESULTS FOR 2021
Personnel expenses
decreased from USD 7 million compared to
2020, mainly due to lower costs relating to share-
based payments and lower salary costs due to
lower average Full-time equivalent in this year.
Other operating expenses
million in 2021, compared to USD 4 million last
year.
The net operating result
5 million compared to a loss of USD 9 million in
2020.
Net financial items
USD 25 million in 2021, compared to an expense
of USD 14 million in 2020. The financial expense
in 2021 was mainly related to interest on bond
loans and foreign exchange loss mainly related
to bank accounts in DKK, partly offset by interest
income from intercompany loans.
The Company’s
net result
to a loss of USD 30 million compared to a gain
of USD 24 million in 2020.
ALLOCATIONS
The result for the year for Norwegian Energy
Company ASA in 2021 was a loss of USD 30
million. The board proposes the following
allocations:
DIRECTORS’ REPORT
NORECO
2021 ANNUAL REPORT
51
Allocated from other
equity
USD 30 million
Total appropriation
USD 30 million
OUTLOOK
Noreco has a stable business, underpinned by
the Company’s position in the DUC and further
supported by risk mitigations. The Tyra
Redevelopment is progressing and will
significantly enhance the Noreco’s base
production after start-up. The Company also
expects direct field operating expenditure to
decrease to USD 13 per barrel after Tyra is back
on production. Our intent to progress value-
additive organic DUC investment projects also
continues, and we will seek to sanction projects
as they are sufficiently matured. Noreco believes
economic investments in these projects will help
replace produced reserves and provide strong
financial returns benefiting the Company’s
shareholders. The Company has provided a
production guidance of 23.5 – 25.5 mboepd for
2022. The Company monitors the Russia–
Ukraine war closely and has not identified any
negative impact on the Company’s assets or
income
DIRECTORS’ REPORT
NORECO
2021 ANNUAL REPORT
52
Oslo
11 April 2022
Riulf Rustad
Tone Kristin Omsted
Marianne Lie
Colette Cohen
Executive Chair
Board Member
Board Member
Board Member
Robert J. McGuire
Jan Lernout
Peter Coleman
Euan Shirlaw
Board Member
Board Member
Board Member
Acting Managing Director
NORECO
2021 ANNUAL REPORT
50
Reporting of payments to
Governments
This report is prepared in accordance with the Norwegian
Accounting Act Section § 3-3 d) and Securities Trading Act §
5-5 a). It states that companies engaged in activities within the
extractive industries shall annually prepare and publish a report
containing information about their payments to governments at
country and project level. The Ministry of Finance has issued a
regulation (F20.12.2013 nr 1682 – "the regulation") stipulating
that the reporting obligation only applies to reporting entities
above a certain size and to payments above certain threshold
amounts. In addition, the regulation stipulates that the report
shall include other information than payments to governments,
and it provides more detailed rules applicable to definitions,
publication and group reporting.
The management of Noreco has applied judgment in the
interpretation of the wording in the regulation with regards to
the specific type of payment to be included in this report, and
on what level it should be reported. When payments are
required to be reported on a project-by-project basis, it is
reported on a field-by-field basis. Only gross amounts on
operated licenses are to be reported, as all payments within the
license performed by non -operators will normally be cash calls
transferred to the operator and are as such not payments to the
government. All activities in Noreco within the extractive
industries are located on the Danish Continental Shelf and all
are performed as non-operator. All the reported payments
below are to the Danish government.
Income tax
The income tax is calculated and paid on corporate level and
is therefore reported for the whole Company rather than
license-by-license. The income tax payments in 2021 for
Noreco Olie- og Gasudvinding Danmark B.V was USD 10.2
million pertaining to the income year 2020. In addition, a refund
was received pertaining to adjustments on income year 2017
also for Noreco Olie- og Gasudvinding Danmark B.V.
OTHER INFORMATION REQUIRED TO BE REPORTED
In accordance with the regulation (F20.12.2013 nr 1682)
Noreco is also required to report on investments, operating
income, production volumes and purchases of goods and
services. All reported information is relating to Noreco’s
activities within the extractive industries on the Danish
Continental Shelf:
●
specified in the cash flow analysis in the financial
statements
●
USD 558 million, as specified in Note 4 to the financial
statements
●
equivalents, see Note 5 to the consolidated financial
statements
●
reference is made to the Income Statement and the
related notes
CORPORATE GOVERNANCE REPORT
NORECO
2021 ANNUAL REPORT
51
Corporate Governance
Report 2021
Norwegian Energy Company ASA (“Noreco”
or “the Company") has made a strong
commitment to ensure trust in the Group and
to enhance value creation to shareholders
and society over time. The Company acts in
a responsible and prudent manner through
efficient decision-making and
communication between the management,
the board of directors (the “Board” or “Board
of Directors”) and the shareholders of the
Company represented by the Annual General
Meeting. The Company's framework for
corporate governance is intended to
decrease business risk, maximise value and
utilise the Company's recourses in an
efficient and sustainable manner, to the
benefit of shareholders, employees and
society at large.
The Company will seek to comply with the
Norwegian Code of Practice for Corporate
Governance (the "Corporate Governance
Code") which is available at the Norwegian
Corporate Governance Committee's website
www.nues.no. The principal purpose of the
Corporate Governance Code is to ensure (i) that
listed companies implement corporate
governance that clarifies the respective roles of
shareholders, the Board of Directors and
executive management more comprehensively
than that which is required by legislation and (ii)
effective management and control over activities
with the aim of securing the greatest possible
value creation over time in the best interest of
companies, shareholders, employees and other
parties concerned.
The Company will, from the time due to the
listing of its shares on Oslo Børs, be subject to
reporting requirements for corporate governance
under the Accounting Act section 3-3b as well as
Oslo Børs' "Continuing obligations of stock
exchange listed companies" section 7. The
Board of Directors will include a report on the
Company's corporate governance in each
annual report, including an explanation of any
deviations from the Corporate Governance
Code. The corporate governance framework of
the Company is subject to annual reviews and
discussions by the Board of Directors. According
to the Company's own evaluation, the Company
deviates from the Corporate Governance Code
on the following points:
(a) Item 4: The Board of Directors of the
Company has been, and is expected to be,
provided with authorisations to acquire own
shares and issue new shares. Not all of such
authorisations have separate and specific
purposes for each authorisation as the purposes
of the authorisations shall be explained in the
notices to the general meetings adopting the
authorisations.
(b) Item 11: Options have been and/or are
expected to be granted members of the Board of
Directors in addition to management through the
share option programme of the Company, first
implemented at a general meeting of 21 January
2016 and later extended and expanded.
(c) Item 14: Due to the unpredictable nature of a
takeover situation, the Company has decided
not to implement detailed guidelines on take-
over situations. In the event a takeover was to
occur, the Board of Directors will consider the
relevant recommendations in the Corporate
Governance Code and whether the concrete
situation entails that the recommendations in the
Corporate Governance Code can be complied
with or not.
1. IMPLEMENTATION AND REPORTING ON
CORPORATE GOVERNANCE
The Board of Noreco is responsible for
compliance with corporate governance
standards. Noreco is a Norwegian public limited
CORPORATE GOVERNANCE REPORT
NORECO
2021 ANNUAL REPORT
52
liability company (ASA), listed on the Oslo Stock
Exchange and established under Norwegian
laws. In accordance with the Norwegian
Accounting Act, section 3-3b, Noreco includes a
description of principles for corporate
governance as part of the Board of Directors’
Report in the annual report. The Company will
seek to comply with the Corporate Governance
Code. The Company's strategy is to continue its
value creation to replace and maximise recovery
of proven reserves and resources and to
continue to explore new opportunities in and
above the ground.
2. BUSINESS
The Company is a publicly owned oil, gas and
offshore industry company with a strategic focus
on value creation through increased recovery,
enabled by a competent organisation with a
long-term view on reservoir management and
the capability to invest and leverage new
technology.
On an annual basis, the Board defines and
evaluates the Company’s objectives, main
strategies and risk profiles for the Company’s
business activities to ensure that the company
creates value for shareholders.
The Company integrates considerations related
to its stakeholders, as well as social,
environmental and sustainability considerations
into its value creation and shall achieve its
objectives in accordance with the Company’s
Code of Conduct.
The Company's business is defined in the
following manner in the Company's articles of
association (the "Articles of Association") section
3:
The object of the Company is direct and indirect
ownership and participation in companies and
enterprises within exploration, production, and
sale related to oil and gas, and other activities
related hereto..
3. EQUITY AND DIVIDENDS
3.1. Equity
As of 31 December 2021, the Company's
consolidated equity was USD 492 million, which
is equivalent to approximately 16% of total
assets. The Company's equity level and financial
strength shall be considered in light of its
objectives, strategy and risk profile.
3.2. Dividend policy
The Company has not paid any dividends to
date, whether in cash or in kind.
The Company does not expect to make dividend
payments prior to completion of the Tyra
Redevelopment project. The Company may
revise its dividend policy from time to time. The
Company currently intends to retain all earnings,
if any, and to use these to finance the further
business of the Company.
3.3. Share capital increases and issuance of shares
At the Annual General Meeting held on 26 May
2020, The Board of Directors was authorised to
increase the Company's share capital by up to
NOK 24,549,014 until the Annual General
Meeting in 2021, but in no event later than 30
June 2021.
3.4. Purchase of own shares
The Board of Directors of the Company has been
authorised to acquire own shares with a total par
value of NOK 7,194,730, valid until the Annual
General Meeting in 2021, however in any event
no later than 30 June 2021. The authorisation
can be used in relation to incentive schemes for
employees/directors of the group, as
consideration in connection with acquisition of
businesses and/or for general corporate
purposes.
As of 30 March 2022, the Company holds
251,495 of its own shares, approximately 1.20
%.
4. EQUAL TREATMENT OF SHAREHOLDERS AND
TRANSACTIONS WITH RELATED PARTIES
4.1. Class of shares
The Company has one class of shares. All
shares carry equal rights in the Company, and
the Articles of Association do not provide for any
restrictions, or rights of first refusal, on transfer
of shares. Share transfers are not subject to
approval by the Board of Directors.
4.2. Pre-emption rights to subscribe
CORPORATE GOVERNANCE REPORT
NORECO
2021 ANNUAL REPORT
53
According to the Norwegian Public Limited
Liability Companies Act section 10-4, the
Company's shareholders have pre-emption
rights in share offerings against cash
contribution. Such pre-emption rights may;
however, be set aside, either by the general
meeting or by the Board of Directors if the
general meeting has granted a board
authorisation which allows for this. Any
resolution to set aside pre-emption rights will be
justified by the common interests of the
Company and the shareholders, and such
justification will be publicly disclosed through a
stock exchange notice from the Company.
4.3. Trading in own shares
The Board of Directors will aim to ensure that all
transactions pursuant to any share buy-back
program will be carried out either through the
trading system at Oslo Børs or at prevailing
prices at Oslo Børs. In the event of such
program, the Board of Directors will take the
Company's and shareholders' interests into
consideration and aim to maintain transparency
and equal treatment of all shareholders. If there
is limited liquidity in the Company's shares, the
Company shall consider other ways to ensure
equal treatment of all shareholders.
4.4. Transactions with close associates
The Board of Directors aims to ensure that any
not immaterial future transactions between the
Company and shareholders, a shareholder's
parent company, members of the Board of
Directors, executive personnel or close
associates of any such parties are entered into
on arm's length terms. For any such transactions
which do not require approval by the general
meeting pursuant to the Norwegian Public
Limited Liability Companies Act, the Board of
Directors will on a case-by-case basis assess
whether a fairness opinion from an independent
third party should be obtained.
4.5 Guidelines for directors and executive management
The Board of Directors has adopted rules of
procedures for the Board of Directors which inter
alia includes guidelines for notification by
members of the Board of Directors and executive
management if they have any material direct or
indirect interest in any transaction entered into
by the Company.
5. FREELY NEGOTIABLE SHARES
The shares of the Company are freely
transferable. There are no restrictions on
transferability of shares pursuant to the Articles
of Association.
6. GENERAL MEETINGS
The Board of Directors will make its best efforts
with respect to the timing and facilitation of
general meetings to ensure that as many
shareholders as possible may exercise their
rights by participating in general meetings,
thereby making the general meeting an effective
forum for the views of shareholders and the
Board of Directors.
6.1. Notification
The notice for a general meeting, with reference
to or attached support information on the
resolutions to be considered at the General
Meeting, shall as a principal rule be sent to
shareholders no later than 21 days prior to the
date of the General Meeting. The Board of
Directors will seek to ensure that the resolutions
and supporting information are sufficiently
detailed and comprehensive to allow
shareholders to form a view on all matters to be
considered at the meeting. The notice and
support information, as well as a proxy voting
form, will normally be made available on the
Company's website www.noreco.com/general-
meetings no later than 21 days prior to the date
of the general meeting.
6.2. Participation and execution
To the extent deemed appropriate or necessary
by the Board of Directors, the Board of Directors
will seek to arrange for the general meeting to
vote separately on each candidate nominated for
election to the Company's corporate bodies.
The Board of Directors and the nomination
committee shall, as a general rule, be present at
general meetings. The auditor will attend the
ordinary general meeting and any extraordinary
general meetings to the extent required by the
agenda items or other relevant circumstances.
The Board of Directors will seek to ensure that
an independent chairman is appointed by the
general meeting if considered necessary based
on the agenda items or other relevant
CORPORATE GOVERNANCE REPORT
NORECO
2021 ANNUAL REPORT
54
circumstances.
The Company will aim to prepare and facilitate
the use of proxy forms which allows separate
voting instructions to be given for each item on
the agenda and nominate a person who will be
available to vote on behalf of shareholders as
their proxy. The Board of Directors may decide
that shareholders may submit their votes in
writing, including by use of electronic
communication, in a period prior to the general
meeting. The Board of Directors should seek to
facilitate such advance voting.
7. NOMINATION-COMMITTEE
The nomination committee is provided and
governed by the Articles of Association, in
addition to instructions for the nomination
committee. The nomination committee shall
consist of three members who shall be
shareholders or shareholder representatives.
The members shall be elected by the general
meeting for a term of two years, unless the
General Meeting determines that the term shall
be shorter.
The members of the nomination committee
should be selected to take into account the
interests of shareholders in general. All
members of the committee should be
independent of the Board of Directors and the
executive personnel.
The nomination committee shall give its
recommendation to the general meeting on
election of and compensation to members of the
Board of Directors, in addition to election of and
compensation to members of the nomination
committee. The proposals shall be justified.
The Company should provide information on the
membership of the committee and provide
suitable arrangements for shareholders to
submit proposals to the committee for
candidates for election.
8. BOARD OF DIRECTORS: COMPOSITION AND
INDEPENDENCE
Pursuant to the Articles of Association section 5,
the Company's Board of Directors shall consist
of three to eight members, which are
shareholders’ elected members in accordance
with a decision by the General Meeting.
The composition of the Board of Directors should
ensure that the board can attend to the common
interests of all shareholders and meet the
Company's need for expertise, capacity and
diversity. Attention should be paid to ensuring
that the board can function effectively as a
collegiate body.
The composition of the Board of Directors should
ensure that it can operate independently of any
special interests. The majority of the
shareholder-elected members of the board
should be independent of the Company's
executive personnel and material business
contacts. At least two of the members of the
Board elected by shareholders should be
independent of the Company's main
shareholder(s), the executive personnel and
material business contacts.
The Board of Directors should not include
executive personnel, if the board does include
executive personnel, the Company should
provide an explanation for this and implement
consequential adjustments to the organisation of
the work of the board, including the use of board
committees to help ensure more independent
preparation of matters for discussion by the
board.
The Chairman of the Board of Directors should
be elected by the General Meeting.
The term of office for members of the Board of
Directors should not be longer than two years at
a time. The board members can be elected for
shorter term by the General Meeting. The annual
report should provide information to illustrate the
expertise of the members of the Board of
Directors, and information on their record of
attendance at board meetings. In addition, the
annual report should identify which members are
considered to be independent.
9. THE WORK OF THE BOARD OF DIRECTORS
9.1. The rules of procedure for the board of directors
The Board of Directors is responsible for the
overall management of the Company and shall
supervise the Company's business and the
CORPORATE GOVERNANCE REPORT
NORECO
2021 ANNUAL REPORT
55
Company's activities in general.
The Norwegian Public Limited Liability
Companies Act regulates the duties and
procedures of the Board of Directors. In addition,
the Board of Directors has adopted
supplementary rules of procedures, which
provides further regulation on inter alia the duties
of the Board of Directors and the managing
director, the division of work between the Board
of Directors and the managing director, the
annual plan for the Board of Directors, notices of
board proceedings, administrative procedures,
minutes, board committees, transactions
between the Company and the shareholders and
matters of confidentiality.
The board shall produce an annual plan for its
work, with a particular emphasis on objectives,
strategy and implementation. The managing
director shall at least once a month, by
attendance or in writing, inform the Board of
Directors about the Company's activities,
position and profit trend.
The Board of Directors' consideration of material
matters in which the chairman of the board is, or
has been, personally involved, shall be chaired
by some other member of the board.
The Board of Directors shall evaluate its
performance and expertise annually and make
the evaluation available to the nomination
committee.
9.2. The audit committee
The Company's audit committee is governed by
the Norwegian Public Limited Liability
Companies Act and a separate instruction
adopted by the Board of Directors. The members
of the audit committee are appointed by and
among the members of the Board of Directors. A
majority of the members shall be independent of
the Company's operations, and at least one
member who is independent of the Company
shall have qualifications within accounting or
auditing. Board members who are also members
of the executive management cannot be
members of the audit committee. The principal
tasks of the audit committee are to:
a) prepare the Board of Directors' supervision of
the Company's financial reporting process and
keep the Board of Directors informed about the
audit process;
(b) monitor the systems for internal control and
risk management;
(c) have continuous contact with the Company's
auditor regarding the audit of the annual
accounts;
(d) review and monitor the independence of the
Company's auditor, including in particular the
extent to which the auditing services provided by
the auditor or the audit firm represent a threat to
the independence of the auditor;
(e) prepare any election of the Company’s
auditor.
9.3. The remuneration committee
The compensation for the members of the Board
of Directors for their service as directors is
determined annually by the shareholders of the
Company at the annual general meetings of
shareholders, on the basis of the motion from the
Nomination Committee.
The Board of Directors has established a
guideline for salaries and other remuneration to
the managing director and other senior
executives. The guideline was endorsed by the
Annual General Meeting in May 2019. The
Board's declaration pursuant to Section 6-16a of
the Public Limited Liability Companies Act in
respect of salaries and other remuneration for
executives was approved at the Annual General
Meeting in May 2021.
The remuneration package for members of
management includes fixed and variable
elements. The fixed element consists of a base
salary and other benefits, such as free mobile
phone and life, accident and sickness insurance
in accordance with normal practice in the oil
industry.
Variable elements of remuneration may be used,
or other special supplementary payment may be
awarded other than those mentioned above if
this is considered appropriate.
CORPORATE GOVERNANCE REPORT
NORECO
2021 ANNUAL REPORT
56
Remuneration to the managing director will be
evaluated regularly by the Board of Directors to
ensure that salaries and other benefits are kept,
at all times, within the above guidelines and
principles.
10. RISK MANAGEMENT AND INTERNAL CONTROL
Risk management and internal control are given
high priority by the Board of Directors, which
shall ensure that adequate systems for risk
management and internal control are in place.
The control system consists of interdependent
areas which include risk management, control
environment, control activities, information and
communication and monitoring.
The Company's management is responsible for
establishing and maintaining sufficient internal
control over financial reporting. Company
specific policies, standards and accounting
principles have been developed for the annual
and quarterly financial reporting of the group.
The managing director and Chief Financial
Officer supervise and oversee the external
reporting and the internal reporting processes.
This includes assessing financial reporting risks
and internal controls over financial reporting
within the group. The consolidated external
financial statements are prepared in accordance
with International Financial Reporting Standards
(IFRS) and International Accounting Standards
as adopted by the EU.
The Board of Directors shall ensure that the
Company has sound internal control and
systems for risk management, including
compliance to the Company's corporate values,
ethical guidelines and guidelines for corporate
social responsibility. The Company's Code of
Conduct describes the Company's ethical
commitments and requirements related to
business practice and personal conduct. If
employees experience situations or matters that
may be contrary to rules and regulations or the
Company's Code of Conduct, they are urged to
raise their concern with their immediate superior
or another manager in the Company. The
Company has established a whistle-blowing
function that will enable employees to alert the
Company's governing bodies about possible
breaches of the Code of Conduct.
The Board of Directors shall conduct an annual
risk review in order to identify real and potential
risks and remedy any incidents that have
occurred. The Board of Directors should analyse
the most important areas of exposure to risk and
its internal control arrangements and evaluate
the Company's performance and expertise. The
Board of Directors shall undertake a complete
annual review of the risk situation, to be carried
out together with the review of the annual
accounts. The Board of Directors shall present
an in-depth report of the Company's financial
statement in the annual report. The Audit
Committee shall assist the Board of Directors on
an ongoing basis in monitoring the Company's
system for risk management and internal control.
In connection with the quarterly financial
statements, the Audit Committee shall present to
the Board of Directors reviews and information
regarding the Company's current business
performance and risks.
11. REMUNERATION OF THE BOARD OF DIRECTORS
The remuneration of the Board of Directors shall
be decided by the Company's General Meeting
of shareholders, and should reflect the Board of
Directors' responsibility, expertise, time
commitment and the complexity of the
Company's activities. The remuneration should
not be linked to the Company‘s performance.
The nomination committee shall give a
recommendation as to the size of the
remuneration to the Board of Directors. Pursuant
to the instructions for the nomination committee,
the recommendation should normally be
published on the Company's website at least 21
days prior to the General Meeting that will decide
on the remuneration.
The annual report shall provide details of all
elements of the remuneration and benefits of
each member of the Board of Directors, which
includes a specification of any remuneration in
addition to normal fees to the members of the
Board.
Members of the Board of Directors and/or
companies with which they are associated
should not take on specific assignments for the
Company in addition to their appointment as a
member of the board. If they do nonetheless take
CORPORATE GOVERNANCE REPORT
NORECO
2021 ANNUAL REPORT
57
on such assignments this should be disclosed to
the full board. The remuneration for such
additional duties should be approved by the
Board of Directors.
12. REMUNERATION OF THE EXECUTIVE
MANAGEMENT
The Board of Directors will in accordance with
the Norwegian Public Limited Liability
Companies Act prepare separate guidelines for
the stipulation of salary and other remuneration
to key management personnel. The guidelines
shall include the main principles applied in
determining the salary and other remuneration of
the executive management and shall ensure
convergence of the financial interests of the
executive management and the shareholders. It
should be clear which aspects of the guidelines
that are advisory and which, if any, that are
binding thereby enabling the general meeting to
vote separately on each of these aspects of the
guidelines. The guidelines will be made available
to and shall be dealt with by the ordinary general
meeting in accordance with the Norwegian
Public Limited Liability Companies Act.
The Board of Directors aims to ensure that
performance-related remuneration of the
executive management in the form of share
options, annual bonus programs or the like, if
used, are linked to value creation for
shareholders or the Company's earnings
performance over time. Performance-related
remuneration should be subject to an absolute
limit. Furthermore, the Company aims to ensure
that such arrangements are based on
quantifiable factors that the employee in
question can influence.
13. INFORMATION AND COMMUNICATIONS
13.1. General
The Board of Directors has adopted a separate
manual on disclosure of information, which sets
forth the Company's disclosure obligations and
procedures. The Board of Directors will seek to
ensure that market participants receive correct,
clear, relevant and up-to-date information in a
timely manner, taking into account the
requirement for equal treatment of all
participants in the securities market.
The Company will each year publish a financial
calendar, providing an overview of the dates for
major events such as its ordinary general
meeting and publication of interim reports.
13.2. Information to shareholders
The Company shall have procedures for
establishing discussions with shareholders to
enable the board to develop a balanced
understanding of the circumstances and focus of
such shareholders. Such discussions shall be
done in compliance with the provisions of
applicable laws and regulations.
All information distributed to the Company's
shareholders will be published on the
Company's website at the latest at the same time
as it is sent to shareholders..
14. TAKEOVERS
In the event the Company becomes the subject
of a takeover bid, the Board of Directors shall
seek to ensure that the Company's shareholders
are treated equally and that the Company's
activities are not unnecessarily interrupted. The
Board of Directors shall also ensure that the
shareholders have sufficient information and
time to assess the offer.
There are no defence mechanisms against
takeover bids in the Company's Articles of
Association, nor have other measures been
implemented to specifically hinder acquisitions
of shares in the Company. The Board of
Directors has not established written guiding
principles for how it will act in the event of a
takeover bid, as such situations are normally
characterized by concrete and one-off situations
which make a guideline challenging to prepare.
In the event a takeover were to occur, the Board
of Directors will consider the relevant
recommendations in the Corporate Governance
Code and whether the concrete situation entails
that the recommendations in the Corporate
Governance Code can be complied with or not.
15. AUDITOR
The Board of Directors will require the
Company's auditor to annually present to the
audit committee a review of the Company's
internal control procedures, including identified
weaknesses and proposals for improvement, as
well as the main features of the plan for the audit
of the Company.
CORPORATE GOVERNANCE REPORT
NORECO
2021 ANNUAL REPORT
58
Furthermore, the Board of Directors will require
the auditor to participate in meetings of the
Board of Directors that deal with the annual
accounts at least one board meeting with the
auditor shall be held each year in which no
member of the executive management is
present.
The Board of Directors' audit committee shall
review and monitor the independence of the
Company's auditor, including in particular the
extent to which services other than auditing
provided by the auditor or the audit firm
represents a threat to the independence of the
auditor.
The remuneration to the auditor for statutory
audit will be approved by the ordinary general
meeting. The Board of Directors should report to
the general meeting on details of fees for audit
work and any fees for other specific
assignments.
CORPORATE SOCIAL RESPONSIBILITY
NORECO
2021 ANNUAL REPORT
56
Corporate Social
Responsibility Policy
1. INTRODUCTION
Norwegian Energy Company ASA (the
“Company” and including its subsidiaries, the
“Group”) defines corporate social responsibility
(“CSR”) as achieving commercial profitability in
a way that is consistent with fundamental ethical
values and with respect for people, the
environment and society.
The Group shall respect human and labour
rights, establish good HSE (health, safety and
the environment) standards, facilitate good
dialogue with stakeholders and generally
operate in accordance with applicable regulatory
frameworks and good business practice.
At the core of the Company’s CSR policy is the
group’s five corporate values: collaborative,
responsible, ambitious, vigorous and
entrepreneurial. The values define who we are,
how we act and what employees of the Company
and Group stand for.
Each Group company has an independent
responsibility for exercising corporate social
responsibility in accordance with the Group’s
principles, but is free to design its own additional
activities and instruments. In addition, each
Group company has developed, adopted and is
operating according to a Compliance Manual
that provides detailed information and a series of
policies regarding the professional and ethical
standards and compliance requirements of all
Group companies.
2. PURPOSE
The purpose of this policy is to define clear areas
of focus for the Company’s approach to CSR and
clarify the responsibilities and expectations with
regard to the Company’s stakeholders.
3. MAIN CSR PRINCIPLES
The Company has identified seven main CSR
topics. The Group’s general approach to these
topics is described below. Continuous
improvement is emphasized, and priority shall
be given to areas where the need for
improvement and the potential for making an
impact are greatest.
3.1. Professional and ethical standards
It is the Group’s policy to maintain the highest
level of professional and ethical standards in the
conduct of its business affairs. The Group places
the highest importance upon its reputation for
honesty, integrity and high ethical standards.
These standards can only be attained and
maintained through the actions and conduct of
all personnel in the Group. It is the obligation of
the Group’s employees to conduct themselves in
a manner to ensure the maintenance of these
standards. Such actions and conduct will be
important factors in evaluating an employee’s
judgment and competence, and an important
element in the evaluation of an employee for
promotion. Correspondingly, insensitivity to or
disregard for the principles of the Group’s
professional and ethical standards will be
grounds for appropriate disciplinary actions.
The Group’s ethical and professional standard
are further detailed in the Group’s compliance
manuals.
3.2. Compliance with local culture and regulations
In promoting the Group’s principles for good
business operations, we shall always respect
local values and norms, and achieve success by
bridging the divide between different cultures.
Group companies shall always comply with local
regulatory requirements in the countries in which
we operate.
3.3. Respect for human and labour rights
CORPORATE SOCIAL RESPONSIBILITY
NORECO
2021 ANNUAL REPORT
57
Group companies are committed to respecting
fundamental human and labour rights, both in
our own operations and in our relations with
business partners. Our employees shall be
treated with respect and given orderly working
conditions. The Group companies shall work
continuously with issues such as non-
discrimination, the right to privacy, the right to
collective bargaining, employment contracts and
protection against harassment. Forced labour,
child labour and all forms of discrimination are
strictly forbidden.
3.4. Equal opportunities
It is the Group’s position that equal treatment of
all employees is applied, and that different
treatment or discrimination based on a person’s
gender, race, colour, national origin, age,
religion, sexual orientation or any other
characteristic protected by applicable law is
unacceptable. Furthermore, the Group is
committed to equal opportunity for all qualified
employees and job applicants. All employment
decisions (such as hiring, discipline,
terminations, promotions and job assignments)
are to be based on the Group’s needs and an
employee’s performance and potential. At the
end of 2021 the Group had 26 employees. 38 %
of the employees were women.
At the end of 2021 the Company’s board of
directors consisted of three women and four
men, all elected by shareholders, hence more
than 40 % of the board members were women.
3.5. Anti-corruption and bribery
The Group has zero tolerance regarding
corruption and bribery. Corruption undermines
all sorts of business activities and free
competition, and it is prohibited by law in all the
countries in which we operate. Corruption is
destructive for the countries involved and would
erode our reputation, exposing the Group and
the individual employee to considerable risk. The
Company expects that local management of
each Group subsidiary promotes a strong anti-
corruption culture. Each company shall make
active efforts to prevent undesirable conduct and
ensure that their employees are capable of
dealing with difficult situations.
3.6. Health, safety and the working environment
A healthy work environment contributes to a
better health, greater engagement and
increased job satisfaction. The goal is to create
a safe and healthy work environment that
contributes to motivated and committed
employees, which ultimately is important for the
Group’s continued success. This requires
continuous effort and is a natural part of the
Group’s daily operations. The Group has no
records of work-related accidents or injuries of
its employees in 2021.
During 2021, Noreco was, through its ownership
in the DUC in which Total Energies is the
operator, involved in production of oil and gas on
the Danish Continental Shelf.
The Danish Offshore Safety Act is the legal
framework for promotion of a high level for health
and safety offshore and for creating a framework
enabling the companies to solve offshore health
and safety issues themselves. The Danish
Offshore Safety Act generally applies to all
offshore activities related to hydrocarbon
facilities, infrastructure and pipelines connected
hereto.
Licensees under the Danish Subsoil Act are
required to identify, assess and reduce health
and safety risks as much as reasonably
practicable, as well as be compliant with the
ALARP (As Low As Reasonably Practicable)
principle. Furthermore, the licensee shall ensure
that operators are able to fulfil the safety and
health obligations pursuant to the Danish
Offshore Safety Act.
3.7. Environmental issues
The Group’s business in the oil and gas market
has an environmental impact. All phases of the
oil business present environmental risks and
hazards and are subject to strict environmental
regulation pursuant to a variety of international
conventions and state and municipal laws and
regulations. All activities are subject to the
receipt of necessary approvals or licences. The
Group aims to protect the environment to the
greatest extent possible, both in its own
operations, and through the Group’s partnership
in the DUC. In 2021 Noreco further enhanced its
work towards identifying tangible solutions that
will improve the long-term position of oil and gas
as a key part of the global energy mix. Through
cooperation with external experts and
CORPORATE SOCIAL RESPONSIBILITY
NORECO
2021 ANNUAL REPORT
58
development of internal specialised
competencies, the Company aims to develop
sustainable solutions that will reduce
greenhouse gas emissions on the Danish
Continental Shelf. For further information on the
Company’s environmental approach, please see
the Sustainability section of the Annual Report.
4. WHISTLEBLOWING
It is important that someone who discovers
wrongdoing and non-compliance with the
Company’s CSR policy and other policies is able
to report it without risk of retaliation or
discrimination. The Company established a
Whistleblowing Procedure in 2019 which
purpose is to encourage everyone to raise
concerns about matters occurring within or
related to the Group so that the problem can be
resolved promptly and efficiently using internal
company resources, rather than overlooking a
problem or seeking a resolution of the problem
outside the Company which may delay the
elimination of the problem and cause harm to the
Group and its employees.The Whistleblowing
Procedure applies to all officers, directors and
employees of the Company, whether temporary
or permanent, full-time or part-time, and
regardless of their location.
Anyone doing business for or on the Company’s
behalf, including the Company’s advisors,
agents, consultants, contractors, distributors,
lawyers, partners, sales representatives,
suppliers and other third parties with whom the
Company enters into a joint venture, partnership,
investment, teaming arrangement or other
business combination must comply with the
Group’s Whistleblowing Policy. Further details of
the Whistleblowing Policy can be found in the
Group’s compliance manuals.
5. ROLES AND RESPONSIBILITIES
The Group’s CSR policy is adopted by the
Company's board of directors and shall be
evaluated at least every second year.
The managing director of the Company is
responsible for ensuring the follow up of and
compliance with the content of the policy.
All Group subsidiaries are responsible for the
day-to-day practice of this policy.
The Company’s Corporate Social Responsibility
Policy can be found on The Company’s web site,
www.noreco.com/csr
NORECO
2021 ANNUAL REPORT
58
59
Income Statement
60
Balance Sheet
62
Cash Flow Statement
Notes
63
Note 1: Accounting Principles
66
Note 2: Revenue
66
Note 3: Investments in Subsidiaries
66
Note 4: Restricted Bank Deposits
67
Note 5: Borrowings
69
Note 6: Guarantees
70
Note 7: Shareholders’ Equity
70
Note 8: Share Capital and Shareholder Information
72
Note 9: Share-based Compensation
72
Note 10: Payroll Expenses, Number of Employees,
Remuneration etc.
73
Note 11: Write-down of Financial Assets
73
Note 12: Tax
74
Note 13: Other Operating Expenses and Audit Fees
74
Note 14: Related Party Transactions
NORWEGIAN ENERGY COMPANY ASA (PARENT COMPANY)
Statutory Accounts 2021
Income Statement for Norwegian Energy Company
ASA
(Parent company) for the year ended 31 December
NORECO
2021 ANNUAL REPORT
59
USD million
Note
2021
2020
Revenue
2, 14
2
2
Total revenues
2
2
Personnel expenses
10, 14
(4)
(7)
Other operating expenses
13, 14
(3)
(4)
Total operating expenses
(7)
(11)
Operating result before depreciation and write -downs (EBITDA)
(5)
(9)
Depreciation
(0)
(0)
Net operating result (EBIT)
(5)
(9)
Interests received from group companies
16
11
Interest income
0
1
Foreign exchange gains
0
11
Other financial income
-
0
Total financial income
16
22
Interest expense from bond loans
(33)
(31)
Interest expenses current liabilities
(0)
(0)
Interest expenses to group companies
(0)
(1)
Foreign exchange losses
(8)
(3)
Impairment of financial assets
11
(1)
(1)
Other financial expenses
(0)
(1)
Total financial expenses
(41)
(37)
Net financial items
(25)
(14)
Result before tax (EBT)
(30)
(24)
Tax
12
-
-
Net result for the year
(30)
(24)
Appropriation:
Allocated to/(from) other equity
(30)
(24)
Total appropriation
(30)
(24)
Balance sheet for Norwegian Energy Company ASA
(Parent company) for the year ended 31 December
NORECO
2021 ANNUAL REPORT
60
USD million
Note
31.12.21
31.12.20
ASSETS
Non-current assets
Financial non-current assets
Investment in subsidiaries
3
393
393
Loan to group companies
11
300
156
Restricted cash
4
65
71
Total non-current assets
758
620
Current assets
Receivables
Trade receivables
0
0
Receivables from group companies
-
20
Other current receivables
0
0
Total current receivables
0
20
Financial current assets
Bank deposits, cash and cash equivalents
18
183
Total financial current assets
18
183
Total current assets
18
203
Total assets
776
822
EQUITY AND LIABILITIES
Equity
Paid-in equity
Share capital
30
30
Share premium fund
707
707
Treasury share reserve
(0)
(0)
Total paid-in capital
736
736
Retained earnings
Other equity
(315)
(286)
Total retained earnings
(315)
(286)
Total equity
7, 8
421
450
Non-current Liabilities
Convertible bond loan
5
189
174
Bond loan
5
165
169
Loan from group companies
-
26
Total non-current liabilities
354
369
Current liabilities
Trade payables
0
0
Other current liabilities
1
3
Total current liabilities
1
3
Total liabilities
355
372
Total equity and liabilities
776
822
Balance sheet for Norwegian Energy Company ASA
(Parent company) for the year ended 31 December
NORECO
2021 ANNUAL REPORT
61
Oslo
11 April 2022
Riulf Rustad
Tone Kristin Omsted
Marianne Lie
Colette Cohen
Executive Chair
Board Member
Board Member
Board Member
Robert J. McGuire
Jan Lernout
Peter Coleman
Euan Shirlaw
Board Member
Board Member
Board Member
Acting Managing Director
Cash Flow for Norwegian Energy Company ASA
(Parent company) for the year ended 31 December
NORECO
2021 ANNUAL REPORT
62
USD million
Note
2021
2020
Net result for the period
(30)
(24)
Adjustments for:
Depreciation
0
0
Write-down
11
1
1
Share-based payments expenses
7
0
2
Net financial cost/(income)
24
14
Changes in:
Trade receivable
0
(1)
Trade payables
(0)
0
Other current balance sheet items
(6)
0
Net cash flow from operations
(11)
(8)
Cash flows from investing activities
Loans to group companies
(133)
(11)
Investment in furniture, equipment and machinery
3
(0)
-
Net cash flow from investing activities
(133)
(11)
Cash flows from financing activities
Share buyback
7
-
(10)
Transaction cost related to financing
(5)
(0)
Transaction cost related to equity issue
7
-
(0)
Interest paid
(16)
(16)
Net cash flow from (used) in financing activities
(21)
(27)
Net change in cash and cash equivalents
(165)
(46)
Cash and cash equivalents at the beginning of the period
183
228
Cash and cash equivalents at end of the year
18
183
NORECO
2021 ANNUAL REPORT
63
Notes
ACCOUNTING PRINCIPLES
Norwegian Energy Company ASA is a public
limited liability company registered in Norway,
with headquarters in Oslo (Nedre Vollgate 1,
0158 Oslo).
The annual accounts for Norwegian Energy
Company ASA (“Noreco” or the "Company”)
have been prepared in compliance with the
Norwegian Accounting Act (“Accounting Act”)
and accounting principles generally accepted in
Norway (“NGAAP”) as of 31 December 2021.
The Company is listed on the Oslo Stock
Exchange under the ticker “NOR”. The financial
statements for 2021 were approved by the board
of directors on 11 April 2022.
Going concern
The board of directors confirm that the financial
statements have been prepared under the
presumption of going concern, and that this is
the basis for the preparation of these financial
statements. The financial solidity and the
company’s working capital and cash position are
considered satisfactory in regards of the planned
activity level for the next twelve months.
Basis of preparation
The financial statements are prepared on the
historical cost basis. The subtotals and totals in
some of the tables may not equal the sum of the
amounts shown due to rounding.
Use of estimates
The preparation of financial statements in
compliance with the Accounting Act requires the
use of estimates. The application of the
company’s accounting principles also require
management to apply judgment. Areas, which to
a great extent contain such judgments, a high
degree of complexity, or areas in which
assumptions and estimates are significant for
the financial statements, are described in the
notes.
Revenues
Income from sale of services is recognised at fair
value of the consideration, net after deduction of
VAT. Services are recognised in proportion to
the work performed.
Classification of balance sheet items
Assets intended for long term ownership or use
have been classified as fixed assets.
Receivables are classified as current assets if
they are to be repaid within one year after the
transaction date. Similar criteria apply to
liabilities. First year’s instalment on non-current
liabilities and non-current receivables are
classified as current liabilities and assets. For
interest bearing debt where the company is
required to be in compliance with financial
covenants, the loans are classified as
1
NORECO
2021 ANNUAL REPORT
64
current liabilities if Noreco is in breach with the covenants to
that extent that the loan would be payable on the demand of
the creditor. If a waiver is agreed with the creditor prior to
approval of these financial statements, the classification is
carried forward in accordance with the payment schedule of the
initial borrowing agreement.
Investments in subsidiaries
For investments in subsidiaries, the cost method
is applied. The cost price is increased when
funds are added through capital increases or
when group contributions are made to
subsidiaries. Dividends received are initially
taken as income. Dividends exceeding the
portion of retained profit after the acquisition are
reflected as a reduction in cost price.
Dividend/group contribution from subsidiaries
are reflected in the same year as the subsidiary
makes a provision for the amount.
Asset impairments
Impairment tests are carried out if there is
indication that the carrying amount of an asset
exceeds the estimated recoverable amount. The
test is performed on the lowest level of fixed
assets at which independent cash flows can be
identified. If the carrying amount is higher than
both the fair value less cost to sell and
recoverable amount (net present value of future
use/ownership), the asset is written down to the
highest of fair value less cost of disposal and the
recoverable amount.
Previous impairment charges are reversed in
later periods if the conditions causing the write-
down are no longer present.
Debtors
Trade debtors are recognised in the balance
sheet after provision for bad debts. The bad debt
provision is made on basis of an individual
assessment of each debtor. Significant financial
problems at the customers, the likelihood that
the customer will become bankrupt or
experience financial restructuring and
postponements and insufficient payments, are
considered indicators that the debtors should be
written down.
Other debtors, both current and non-current, are
recognised at the lower of nominal and net
realisable value. Net realisable value is the
present value of estimated future payments.
When the effect of a write-down is insignificant
for accounting purposes this is, however, not
carried out. Provisions for bad debts are valued
the same way as for trade debtors.
Foreign currencies
The functional currency and the presentation
currency of the company is US dollars (USD).
Assets and liabilities in foreign currencies are
valued at the exchange rate on the balance
sheet date. Exchange gains and losses relating
to sales and purchases in foreign currencies are
recognised as other financial income and other
financial expenses.
Bonds and other debt to financial institutions
Interest-bearing loans and borrowings are
initially recognised at fair value, net of
transaction costs incurred. The subsequent
measurement is measured at amortised cost
using the effective interest method. Gains and
losses arising on the repurchase, settlement or
cancellation of liabilities are recognised either in
interest income and other financial items or in
interest and other finance expenses within Net
financial items. Financial liabilities are presented
as current if the liabilities are due to be settled
within 12 months after the balance sheet date, or
if they are held for the purpose of being traded.
Other liabilities
Liabilities, with the exception of certain liability
provisions, are recognised in the balance sheet
at nominal amount.
Taxes
The tax in the income statement includes
payable taxes for the period, refundable tax and
changes in deferred
tax. Deferred tax is calculated at relevant tax
rates on the basis of the temporary differences
which exist between accounting and tax values,
and any carry forward losses for tax purposes at
the year-end. Tax enhancing or tax reducing
NORECO
2021 ANNUAL REPORT
65
temporary differences, which are reversed or
may be reversed in the same period, have been
offset. Deferred tax and tax benefits which may
be shown in the balance sheet are presented
net. Net deferred tax assets are not recognized
due to uncertainty about future taxable profits
Tax reduction on group contributions given and
tax on group contribution received, recorded as
a reduction of cost price or taken directly to
equity, are recorded directly against tax in the
balance sheet (offset against payable taxes if the
group contribution has affected payable taxes,
and offset against deferred taxes if the group
contribution has affected deferred taxes).
Deferred tax is reflected at nominal value.
Cash flow statement
The cash flow statement has been prepared
according to the indirect method. Cash and cash
equivalents include cash, bank deposits, and
other current investments which immediately
and with minimal exchange risk can be
converted into known cash amounts, with due
date less than three months from purchase date.
Share-based payments
The Company operates a number of equity-
settled, share-based compensation plans, under
which the entity receives services from
employees as consideration for equity
instruments (options) of the Company. The fair
value of the employee services received in
exchange for the grant of the options is
recognised as an expense. The total amount to
be expensed is determined by reference to the
fair value of the options granted:
Fair value:
• Including any market performance conditions
• Excludes the impact of any service and non-
market
performance vesting conditions (for example,
profitability, sales growth targets and remaining
an employee of the entity over a specified time
period).
Non-market performance and service conditions
are included in assumptions about the number of
options that are expected to vest. The total
expense is recognised over the vesting period
(which is the period over which all of the
specified vesting conditions are to be satisfied).
At the end of each reporting period, the Group
revises its estimates of the number of options
that are expected to vest based on the non-
market vesting conditions. It recognises the
impact of the revision to original estimates, if
any, in the income statement, with a
corresponding adjustment to equity. When the
options are exercised, the Company issues new
shares. The proceeds received net of any
directly attributable transaction costs are
credited to share capital (nominal value) and
share premium. The social security contributions
payable in connection with the grant of the share
options is considered an integral part of the grant
itself, and the charge will be treated as a cash-
settled transaction.
NORECO
2021 ANNUAL REPORT
66
REVENUE
USD million
2021
2020
Management fee subsidiaries
2
2
Total Revenue
2
2
INVESTMENTS IN SUBSIDARIES
Investments in subsidiaries are booked according to the cost method.
USD million
Ownership/
Equity 31
Net
Book
Subsidiaries
Location
voting right
December
Loss
value
Altinex AS
Oslo
100%
224
(43)
393
Norwegian Energy Company UK Ltd
Great Britain
100%
(1)
(0)
-
Djerv Energi AS
Oslo
100%
0
(0)
-
Book value 31.12.21
393
The impairment test as of 31.12.2021 justifies the overall value of Altinex and its subsidiaries. The
intercompany receivables to the UK investment are impaired to zero.
RESTRICTED BANK DEPOSITS
USD million
2021
2020
Restricted cash pledged as security for abandonment obligation related to Nini/ Cecilie
1)
65
71
Total restricted bank deposits
65
71
1)
2
3
4
NORECO
2021 ANNUAL REPORT
67
BORROWINGS
5.1 SUMMARY OF BORROWINGS
USD million
Non-Current Debt
2021
2020
NOR 13 Convertible Bond
189
174
NOR 14 Senior Unsecured Bond
165
169
Total non-current debt
354
343
Total borrowings
354
343
Details on borrowings outstanding on 31 December 2021
NOR13
In July 2019, Noreco issued a subordinated convertible bond loan of USD 158 million with a tenor of
eight years. In the first five years after issue of this instrument, the lender has been granted a right
to convert the loan into new shares in the Company at a conversion price of NOK 240 per share. At
the end of this five-year period, if the lenders have not exercised their conversion option, the loan
has a mandatory conversion to equity based on the volume weighted average share price of Noreco
in the 20 days prior to the execution of this mandatory conversion. NOR13 carries an interest of 8,0%
p.a. on a PIK basis, with an alternative option to pay cash interest at 6,0% p.a., payable semi-
annually. Should the instrument be in place beyond the five-year conversion period, the interest rate
on NOR13 will be reduced to 0,0 percent for the remaining term of the loan.
NOR14
In December 2019 the Company issued a senior unsecured bond of USD 175 million. The
proceeds are utilised for general corporate purposes and the bond carries an interest of 9,0% p.a.,
payable semi-annually, with a six and a half-year tenor.
5.2 Covenants
NOR14
In July 2021, Noreco’s written resolution regarding the addition of further headroom under the
Leverage Ratio covenant through to the end of 2023 was resolved and approved by the Company’s
NOR14 bondholders. Based on this written resolution, the maximum Leverage Ratio has been
amended to 7.0x (from 5.0x) during the Tyra Redevelopment Period ending Q2 2023, 6.0x (from
3.0x) during Q3 2023 and 5.0x (from 3.0x) during Q4 2023. From Q1 2024 onwards, the maximum
Leverage Ratio will revert to 3.0x per the original bond terms. In addition to the change in maximum
permitted leverage, Noreco’s minimum liquidity threshold has increased to USD 75 million until the
end of 2023 (from USD 50 million until end Q2 2023 and USD 25 million during Q3 and Q4 2023)
5.3 Payment Structure
Principle
NOR14
Total
2026
168
168
Total
168
168
Interest
NOR13
NOR14
Total
Interest rate
-
9.00%
5
NORECO
2021 ANNUAL REPORT
68
2022
-
16
16
2023
-
16
16
2024
-
16
16
2025
-
16
16
2026
-
8
8
Total
-
71
71
NORECO
2021 ANNUAL REPORT
69
5.4 Pledged Assets
Pledged assets relate to the carrying value of the pledged shares under the reserve-based lending
facility entered into by the wholly-owned subsidiary Altinex AS, please see note 22 in the
Consolidated Financial Statement.
GUARANTEES
OVERVIEW OF ISSUED GUARANTEES ON 31 DECEMBER 2021.
The parent company of the Group, Norwegian Energy Company ASA ("Noreco") has issued a parent
company guarantee on behalf of its subsidiary Norwegian Energy Company UK Ltd and Noreco Oil
(UK) Limited. Noreco guarantees that, if any sums become payable by Norwegian Energy Company
UK Ltd or by Noreco Oil (UK) Limited to the UK Secretary of State under the terms of the license
and the company does not repay those sums on first demand, Noreco shall pay to the UK Secretary
of State on demand an amount equal to all such sums. Department for Business, Energy & lndustrial
Strategy, declined at this time to withdraw Noreco Oil (UK)’s §29 notice with respect to the Huntington
platform and pipeline. Under the forfeiture agreement between Harbour Energy plc (previously
Premier) and Noreco, Harbour Energy plc assumes the risk. While this contingent liability to the
Secretary of State would need to be recognised in any future sale of the company, Noreco Oil (UK)
Limited does have recourse against Harbour Energy plc if it defaults in its performance.
On 6 December 2007, Noreco issued a parent company guarantee to the Danish Ministry of Climate,
Energy and Building on behalf of its subsidiary Noreco Oil Denmark A/S and Noreco Petroleum
Denmark A/S.
On 31 December 2012, Noreco issued a parent company guarantee on behalf of its subsidiary
Noreco Norway AS. Noreco guarantees that, if any sums become payable by Noreco Norway AS to
the Norwegian Secretary of State under the terms of the licenses and the company does not repay
those sums on first demand, Noreco shall pay to the Norwegian Secretary of State on demand an
amount equal to all such sums. Noreco Norway AS was liquidated in 2018, however as per 31
December 2021 the guarantee has not been withdrawn.
In connection with completion of the acquisition of Shell Olie- og Gasudvinding Denmark B.V. in
2019, Noreco issued a parent company guarantee to the Danish state on behalf of the two acquired
companies for obligations in respect of license 8/06, area B and the Tyra West – F3 gas pipeline. In
addition, Noreco issued a parent company guarantee towards the lenders under the Reserve Based
Lending Facility Agreement, to Total E&P Danmark A/S for its obligations under the DUC JOA and
to Shell Energy Europe Limited related to a gas sales and purchase agreement (capped at EUR 30
million).
6
NORECO
2021 ANNUAL REPORT
70
SHAREHOLDERS’ EQUITY
Changes in equity
All figures in USD million
Share
capital
Share
premium
Treasury
reserve
Other
equity
Total
Equity 31 December 2020
30
707
(0)
(286)
450
Share-based incentive program
-
-
-
0
0
Net result for the period
-
-
-
(30)
(30)
Equity 31 December 2021
30
707
(0)
(315)
421
SHARE CAPITAL AND SHAREHOLDER INFORMATION
2021
2020
Ordinary shares
24,549,013
24,549,013
Treasury shares
(438,161)
(438,161)
Total shares
24,110,852
24,110,852
Par value in NOK
10
10
Noreco owns 438.161 of its own shares. All shares have equal rights. All shares are fully paid.
CHANGES IN NUMBER OF SHARES AND SHARE CAPITAL:
No. of shares
Share capital*
Share capital as of 31 December 2020
24,549,013
30
Share capital as of 31 December 2021
24,549,013
30
No. of shares
Treasury share
reserve*
Treasury shares as of 1 January 2020
-
-
Purchase of Treasury shares
(438,161)
(0)
Treasury shares as of 31 December 2020
(438,161)
(0)
Treasury shares as of 31 December 2021
(438,161)
(0)
*In USD million.
CHANGES IN 2020
The company bought back 438.161 of its own shares, of which 299.925 shares was bought as part
of a reverse book building process and 138.236 shares was bought in the market. The buyback
program was executed in accordance with the authorization given by the Noreco’s general meeting
on 28 June 2018, which was valid until 28 June 2020. After the completion of the buyback program,
Noreco owns 438.161 of its own shares, approximately 1,78 percent.
7
8
NORECO
2021 ANNUAL REPORT
71
OVERVIEW OF SHAREHOLDERS AT 31 MARCH 2022:
Shareholder*
Shareholding
Ownership share
Voting share
Euroclear Bank S.A./N.V.
6,967,295
28.38%
28.38%
Goldman Sachs International
5,676,572
23.12%
23.12%
BNP Paribas
1,439,352
5.86%
5.86%
The Bank of New York Mellon SA/NV
993,841
4.05%
4.05%
Barclays Bank PLC
807,575
3.29%
3.29%
Bank of America, N.A.
774,408
3.15%
3.15%
SOBER AS
654,320
2.67%
2.67%
J.P. Morgan Securities LLC
588,513
2.40%
2.40%
UBS Switzerland AG
495,649
2.02%
2.02%
J.P. Morgan Securities LLC
480,340
1.96%
1.96%
State Street Bank and Trust Comp
292,004
1.19%
1.19%
NORWEGIAN ENERGY COMPANY ASA
251,495
1.02%
1.02%
DnB NOR Bank ASA
247,216
1.01%
1.01%
The Bank of New York Mellon SA/NV
240,979
0.98%
0.98%
Morgan Stanley & Co. Int. Plc.
237,292
0.97%
0.97%
Goldman Sachs & Co. LLC
229,981
0.94%
0.94%
VELDE HOLDING AS
200,000
0.81%
0.81%
J.P. Morgan Securities PLC
162,325
0.66%
0.66%
OUSDAL AS
146,975
0.60%
0.60%
FINSNES INVEST AS
119,279
0.49%
0.49%
Total
21,005,411
85.6 %
85.6 %
Other owners (ownership <0,42%)
3,543,602
14.43%
14.43%
Total number of shares at 31 March 2021
24,549,013
100%
100%
*
Nominee holder
NORECO
2021 ANNUAL REPORT
72
SHARE-BASED COMPENSATION
Fair value of the options is calculated using the Black-Scholes-Merton option pricing model. Inputs
to the model includes grant date, exercise price, expected exercise date, volatility and risk-free rate.
Outstanding share options
Total share options outstanding as at 1 January 2020
956,954
Share options granted in 2020
420,000
Amendment to option program
(323,086)
Share options relinquished in 2020
(70,000)
Outstanding at 31 December 2020
983,868
Share options relinquished in 2021
(235,000)
Outstanding at 31 December 2021
748,868
For more details related to share-based payment, please see the Executive Remuneration Report
2021.
PAYROLL EXPENSES AND REMUNERATION
USD million
2021
2020
Salaries (incl. directors' fees)
(3)
(4)
Social security tax
(0)
(1)
Pension costs
1)
(0)
(0)
Costs relating to share based payments
(0)
(2)
Other personnel expenses
(0)
(0)
Total personnel expenses
(4)
(7)
Average number of employees
6.7
9.8
1)
ASA meet the Norwegian requirements for mandatory occupational pension ("obligatorisk tjenestepensjon"). The pension costs amount to USD 0,1 million
in 2021, compared to USD 0,2 million in 2020.
For further information on remuneration to key management personnel and board of directors, please
see note 7 in the Consolidated Financial Statement.
9
10
NORECO
2021 ANNUAL REPORT
73
WRITE DOWN OF FINANCIAL ASSETS
USD million
2021
2020
Net write-down loans to subsidiaries
(1)
(1)
Total write-down of financial assets
(1)
(1)
Write-down of loans to subsidiaries in 2021 and 2020 consists of impairment of loans to Noreco Oil
(UK) Ltd. and Norwegian Energy Company UK Ltd.
TAX
Reconciliation of nominal to actual tax rate:
USD million
2021
2020
Result before tax
(30)
(24)
Corporation income tax of income (loss) before tax -22%
(7)
(5)
Sum calculated tax expense
(7)
(5)
Permanent differences
0
(0)
Changes in deferred tax assets - not recognised
6
5
Prior year adjustments
-
-
Income tax expense
(1)
(0)
Deferred tax liability and deferred tax assets:
USD million
2021
2020
Net operating loss deductible
106
90
Interest limitation carried forward
36
20
Fixed assets
(0)
(0)
Current assets
9
17
Liabilities
(22)
(22)
Tax base deferred tax liability / deferred tax asset
130
105
Net deferred tax liability / (deferred tax asset) (22%)
(28)
(24)
Unrecognised deferred tax asset
28
24
11
12
NORECO
2021 ANNUAL REPORT
74
OTHER OPERATING EXPENSES AND AUDIT FEES
USD million
2021
2020
Lease expenses
(0)
(1)
IT expenses
(1)
(0)
Travel expenses
(0)
(0)
General and administrative costs
(0)
(0)
Consultant fees
(2)
(2)
Other operating expenses
(0)
(0)
Total other operating expenses
(3)
(4)
Expensed audit fee:
USD 1000, excl.VAT
2021
2020
Audit
(204)
(318)
Other assurance services
-
-
Total audit fees
(204)
(318)
RELATED PARTY TRANSACTIONS
Transactions with related party
USD million
2021
2020
a) Allocation of cost to group companies
3
2
b) Purchases of services
0
0
c) Sale of assets
-
-
Interest income and interest expenses to group companies are presented separately in the income
statement.
Services are charged between group companies at an hourly rate which corresponds to similar rates
between independent parties. Allocation of IT and management fee to group companies amounts to
USD 3 million for 2021.
Purchase of services includes consultancy cost from S&U Trading ApS (owned by former Board
Member Lars Purlund) of USD 0,1 million 2021.
BALANCES WITH GROUP COMPANIES
Carrying value of balances with group companies are stated on the face of the balance sheet and
are all related to 100 percent controlled subsidiaries.
Noreco did not have any other transactions with any other related parties during 2021. Please see
the Executive Remuneration Report 2021 for director's fee paid to shareholders and remuneration
to management.
13
14
NORECO
2021 ANNUAL REPORT
73
74
Consolidated Statement of Comprehensive Income
75
Consolidated Statement of Financial Position
77
Consolidated Statement of Change in Equity
78
Consolidated Statement of Cash Flows
79
Note 1: Summary of Significant Accounting Policies
90
Note 2: Financial Risk Management
92
Note 3: Critical Accounting Estimates and Judgements
94
Note 4: Revenue
95
Note 5: Production Expenses
95
Note 6: Exploration and Evaluation Expenses
96
Note 7: Payroll Expenses and Remuneration
96
Note 8: Other Operating Expenses
97
Note 9: Intangible Assets
98
Note 10: Property, Plant and Equipment
99
Note 11: Impairments
102
Note 12: Financial Income and Expenses
103
Note 13: Tax
105
Note 14: Earnings per Share
106
Note 15: Trade Receivables and Other Current Receivables
107
Note 16: Inventories
107
Note 17: Restricted Cash, Bank Deposits, Cash and Cash Equivalents
108
Note 18: Financial Instruments
113
Note 19: Share Capital
115
Note 20: Post-Employment Benefits
116
Note 21: Asset Retirement Obligations
118
Note 22: Borrowings
122
Note 23: Trade Payables and Other Payables
123
Note 24: Share-based Compensation
123
Note 25: Guarantees
124
Note 26: Investment in Jointly Owned Assets
124
Note 27: Contingencies and Commitments
126
Note 28: Related Party Transactions
126
Note 29: Subsequent Events
Consolidated Statements
Consolidated Statement of Comprehensive Income
NORECO
2021 ANNUAL REPORT
74
INCOME STATEMENT
USD million
Note
2021
2020
Revenue
4
Total revenues
Production expenses
5
(293 )
(295 )
Exploration and evaluation expenses
6
(1 )
(2 )
Personnel expenses
7
(11 )
(12 )
Other operating expenses
8
(11 )
(8 )
Total operating expenses
(316 )
(316 )
Operating result (EBITDA)
Depreciation / amortisation
10
(112 )
(193 )
Net operating result (EBIT)
Financial income
12
Financial expenses
12
(160 )
(177 )
Net financial items
(132 )
(75 )
Result before tax (EBT)
(18 )
Income tax benefit / (expense)
13
(58 )
Net result for the year
(53 )
Basic earnings/loss USD per share
14
(2 )
Diluted earnings/loss USD per share
14
(2 )
STATEMENT OF COMPREHENSIVE INCOME
USD million
Note
2021
2020
Net result for the year
(53 )
Other comprehensive income (net of tax):
Items that may be subsequently reclassified to profit or loss:
Realized cash flow hedge
(29 )
Related tax - realized cash flow hedge
(86 )
Changes in fair value
(372 )
Related tax - changes in fair value
(69 )
Currency translation adjustment
(3 )
Total other comprehensive income for the year (net of tax)
(85 )
Total comprehensive income for the year (net of tax)
(138 )
Consolidated Statement of Financial Position
as of 31 December
NORECO
2021 ANNUAL REPORT
75
All figures in USD million
Note
31.12.2021
31.12.2020
Non-current assets
Licence and capitalised exploration expenditures
9
Deferred tax assets
13
Property, plant and equipment
10
Right of Use asset
Restricted cash
17, 18
Derivative instruments
18
Total non-current assets
Current assets
Derivative instruments
18
Contingent consideration - volume protection
15
Trade receivables and other current assets
15
Inventories
16
Bank deposits, cash and cash equivalents
17
Total current assets
Total assets
Equity
Share capital
19
Other equity
Total equity
Non-current liabilities
Asset retirement obligations
21
Convertible bond loan
22, 18
Bond loan
22, 18
Reserve based lending facility
22, 18
Derivative instruments
18
Other non-current liabilities
22
Total non-current liabilities
Current liabilities
Asset retirement obligations
21
Tax payable
13
Derivative instruments
18
Trade payables and other current liabilities
23
Total current liabilities
Total liabilities
Total equity and liabilities
Consolidated Statement of Financial Position
as of 31 December
NORECO
2021 ANNUAL REPORT
76
Oslo
11 April 2022
Riulf Rustad
Tone Kristin Omsted
Marianne Lie
Colette Cohen
Executive Chair
Board Member
Board Member
Board Member
Robert J. McGuire
Jan Lernout
Peter Coleman
Euan Shirlaw
Board Member
Board Member
Board Member
Acting Managing Director
Consolidated Statement of Changes in Equity
NORECO
2021 ANNUAL REPORT
77
All figures in USD million
Share
capital
Share
premium
fund
Treasury
share
reserve
Currency
translation
fund
Cash flow
hedge
reserve
Other
equity
Total
equity
2020
Equity on 01.01.2020 restated
(2 )
(14 )
(131 )
Adjustment of prior year
(4 )
Net result for the period
Other comprehensive income
Realized cash flow hedge
(29 )
(29 )
Related tax - realized cash flow hedge
Changes in fair value
Related tax - changes in fair value
(69 )
(69 )
Currency translation adjustments
Total other comprehensive income
Share-based incentive program
Share buyback
(0 )
(10 )
(10 )
Total transactions with owners for the period
(0 )
(8 )
(8 )
Equity as of 31.12.2020
(0 )
(126 )
2021
Equity as of 01.01.2021
(0 )
(126 )
Net result for the period
(53 )
(53 )
Other comprehensive income
Realized cash flow hedge
Related tax - realized cash flow hedge
(86 )
(86 )
Changes in fair value
(372 )
(372 )
Related tax - changes in fair value
Currency translation adjustments
(3 )
(3 )
Total other comprehensive income
(3 )
(82 )
(85 )
Share-based incentive program
Total transactions with owners for the period
Equity as of 31.12.2021
(0 )
(67 )
(179 )
Consolidated Statement of Cash Flows
for the year ended 31 December
NORECO
2021 ANNUAL REPORT
78
All figures in USD million
Note
2021
2020
Cash flows from operating activities
Net result for the year
(53 )
Adjustments for:
Income tax benefit / (expense)
13
(35 )
Tax Paid
(10 )
Depreciation
10
Share-based payments expenses
Net financial items
12
Changes in:
Trade receivable
15
(29 )
Trade payables
1)
23
(142 )
Inventories and spare parts
16
(12 )
Prepayments
15
Over/under-lift
15
(14 )
Other current balance sheet items
(0 )
Net cash flow from operating activities
Cash flows from investing activities
Post completion payment
(2 )
Volume guarantee
15
Tax Paid
2)
(72 )
Investment in oil and gas assets
10
(228 )
(236 )
Investment in exploration licenses
6
(2 )
Abandonment paid
3)
(21 )
(74 )
Changes in restricted cash accounts
17
(15 )
(75 )
Net cash flow from investing activities
(246 )
(359 )
Cash flows from financing activities
Drawdown long-term loans
22
Lease payments
(1 )
(1 )
Share buyback
(10 )
Transaction costs related to financing
(27 )
(1 )
Transaction costs related to equity issue
(0 )
Interest paid
(54 )
(56 )
Settled hedges
(2 )
Other financial items
(5 )
(6 )
Net cash flow from financing activities
(15 )
Net change in cash and cash equivalents
(137 )
(26 )
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at end of the year
1) 2021 reflects the payment of the VAT liability related to 2020 of USD 156 million. The payment date was delayed to Q1 2021 by the Danish government
as a response to the impact of COVID-19 on the economy.
2) Tax paid which were attributable to the period before the acquisition of Shell Olie- og Gasudvinding Danmark B.V. on 31 July 2019 is classified as
investing activities.
3) Abandonment spent reclassified from financing activities to investing activities.
NORECO
2021 ANNUAL REPORT
79
Notes
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Norwegian Energy Company ASA (“Noreco”,
“the Company” or “the Group”) is a public limited
liability company registered in Norway, with
headquarters in Oslo (Nedre Vollgate 1, 0158
Oslo). The Company has subsidiaries in Norway,
Denmark, Netherlands and the United Kingdom.
The Company is listed on the Oslo Stock
Exchange.
The consolidated financial statements for 2021
were approved by the board of directors on 11
April 2022.
The principal accounting policies applied in the
preparation of these consolidated financial
statements are set out below. These policies
have been consistently applied to all the years
presented, unless otherwise stated. The Group
also provides the disclosure requirements as
specified under the Norwegian Accounting Law
(Regnskapsloven).
1.1 BASIS OF PREPARATION
The consolidated financial statements of
Norwegian Energy Company ASA (Noreco ASA)
have been prepared in accordance with
International Financial Reporting Standards
(IFRSs) and interpretations from the IFRS
interpretation committee (IFRIC), as endorsed
by the EU. The Group does also provide
information which is obligated in accordance
with the Norwegian Accounting Act and
associated N-GAAP standards.
The preparation of financial statements in
accordance with IFRS requires the use of certain
critical accounting estimates. It also requires
management to exercise its judgement in the
process of applying the Group’s accounting
policies. The areas involving a higher degree of
judgement or complexity, or areas where
assumptions and estimates are significant to the
consolidated financial statements are disclosed
in note 3.
In accordance with the Norwegian Accounting
Act, section 3-3a, the board of directors confirms
that the consolidated financial statements have
been prepared under the assumption of going
concern and that this is the basis for the
preparation of the financial statements. The
financial solidity and the company’s working
capital and cash position are
considered satisfactory in regards of the planned
activity level for the next twelve months.
The board of directors is of the opinion that the
consolidated financial statements give a true and
fair view of the Company’s assets, debt, financial
position and financial results. The board of
directors are not aware of any factors that
materially affect the assessment of the
Company’s position as of 31 December 2021,
besides what is disclosed in the Director’s report
and the financial statements.
The subtotals and totals in some of the tables
may not equal the sum of the amounts shown
due to rounding.
1.1.1 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES
No change in 2021.
Other amendments to standards
Other standards and amendments to standards,
issued are either not expected to impact
Noreco’s Consolidated financial statements
materially, or are not expected to be relevant to
the Consolidated financial statements upon
adoption.
1.2 CONSOLIDATION
Subsidiaries
Subsidiaries are all entities over which the group
has control. The group controls an entity when
the group is exposed to, or has rights to, variable
returns from its involvement with the entity and
has the ability to affect those returns through its
1
NORECO
2021 ANNUAL REPORT
80
power over the entity. Subsidiaries are fully
consolidated from the date on which control is
transferred to the group. They are de-
consolidated from the date that control ceases.
As of 31 December 2021, all consolidated
subsidiaries are 100 percent controlled by the
parent company, Norwegian Energy Company
ASA or other group companies. The proportion
of the voting rights in the subsidiary undertakings
held directly by the parent company does not
differ from the proportion of ordinary shares held.
The parent company does not have any
shareholdings in the preference shares of
subsidiary undertakings included in the group.
All subsidiary undertakings are included in the
consolidation.
The group had the following subsidiaries on 31 December 2021:
Name
Country of
incorp and place
of business
Nature of business
Ordinary shares
directly held
by parent (%)
Ordinary shares
held by the
group (%)
Noreco Denmark A/S
Denmark
Intermediate holding company
100%
Noreco Oil Denmark A/S
Denmark
Exploration and production activity
100%
Noreco Petroleum Denmark A/S
Denmark
Exploration and production activity
100%
Noreco Olie- og Gasudvinding Danmark B.V
Netherlands
Exploration and production activity
100%
Noreco DK Pipeline Aps
Denmark
Infrastructure oil and gas
100%
Norwegian Energy Company UK Ltd
Great Britain
Exploration activity
100%
100%
Noreco Oil (UK) Ltd
Great Britain
Exploration activity
100%
Altinex AS
Norway
Intermediate holding company
100%
100%
Djerv Energi AS
Norway
Dormant Company
100%
100%
The group applies the acquisition method to
account for business combinations. The
consideration transferred for the acquisition of a
subsidiary is the fair values of the assets
transferred, the liabilities incurred to the former
owners of the acquiree and the equity interests
issued by the Group. The consideration
transferred includes the fair value of any asset or
liability resulting from a contingent consideration
arrangement. Identifiable assets acquired and
liabilities and contingent liabilities assumed in a
business combination are measured initially at
their fair values at the acquisition date.
Acquisition-related costs are expensed as
incurred, except if related to the issue of debt not
at FVTPL or equity securities. If the business
combination is achieved in stages, the
acquisition date carrying value of the acquirer’s
previously held equity interest in the acquiree is
re-measured to fair value at the acquisition date;
any gains or losses arising from such re-
measurement are recognised in profit or loss.
NORECO
2021 ANNUAL REPORT
81
Any contingent consideration to be transferred or
received by the group is recognised at fair value
at the acquisition date. Subsequent changes to
the fair value of the contingent consideration that
is deemed to be an asset or liability is recognised
in profit or loss. Contingent consideration that is
classified as equity is not re-measured, and its
subsequent settlement is accounted for within
equity. Inter-company transactions, balances,
income and unrealised gains on transactions
between group companies are eliminated.
Unrealised losses are also eliminated. When
necessary, amounts reported by subsidiaries
have been adjusted to conform with the group’s
accounting policies.
Interest in jointly controlled assets
A jointly controlled asset is a contractual
agreement between two or more parties
regarding a financial activity under joint control.
The Group has ownership in licences that are not
separate legal companies. The company
recognizes its share of the assets, liabilities,
revenues and expenses of the joint operation in
the respective line items in the Company’s
financial statements based on its ownership
share.
1.3 SEGMENT REPORTING
The group’s segments were established on the
basis of the most appropriate distribution of
resource and result measurement. Operating
segments are reported in a manner consistent
with the internal reporting provided to the chief
operating decision-maker. The chief operating
decision-maker, who is responsible for allocating
resources and assessing performance of the
operating segments, has been identified as the
managing director. The whole group is
considered a single operating segment.
1.4 FOREIGN CURRENCY TRANSLATION
a) Functional and presentation currency
Items included in the financial statements of
each of the group’s entities are measured using
the currency of the primary economic
environment in which the entity operates (‘the
functional currency’). The consolidated financial
statements are presented in US dollars (USD),
which is the group’s presentation currency and
the parent company and main operating
companies functional currency.
b) Transactions and balances
Foreign currency transactions are translated into
the functional currency using the exchange rates
prevailing at the dates of the transactions or
valuation where items are re-measured. Foreign
exchange gains and losses are recognised in the
income statement as other financial income or
other financial expenses.
c) Group companies
The results and financial position of all the group
entities (none of which has the currency of a
hyper-inflationary economy) that have a
functional currency different from the
presentation currency are translated into the
presentation currency as follows:
I) assets and liabilities for each financial position
presented are translated at the closing rate at the
date of that statement of financial position;
II) income and expenses for each income
statement are translated at the average monthly
exchange rates (unless this average is not a
NORECO
2021 ANNUAL REPORT
82
reasonable approximation of the cumulative
effect of the rates prevailing on the transaction
dates, in which case income and expenses are
translated at the rate on the dates of the
transactions)
III) All currency translation adjustments are
recognised in other comprehensive income.
Goodwill and fair value adjustments arising on
the acquisition of a foreign entity are treated as
assets and liabilities of the foreign entity and
translated at the closing rate. Currency
translation adjustments arising are recognised in
other comprehensive income.
1.5 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment include
production facilities, machinery and equipment.
Items of property, plant and equipment are
measured at cost, less accumulated
depreciation and accumulated impairment
losses. Cost includes purchase price or
construction cost and any costs directly
attributable to bringing the assets to a working
condition for their intended use, including
capitalised borrowing expenses incurred up until
the time the asset is ready to be put into
operation.
For property, plant and equipment where asset
retirement obligations for decommissioning and
dismantling are recognised as a liability, this
value is added to acquisition cost for the
respective assets. Borrowing costs that are not
directly attributable to the acquisition,
construction or production of a qualifying asset
are recognised in the income statement using
the effective interest method.
When parts of an item of property, plant and
equipment have different useful lives, they are
accounted for as separate items (major
components) of property, plant and equipment
and depreciated separately.
Subsequent costs are included in the asset’s
carrying amount or recognised as a separate
asset, as appropriate, only when it is probable
that future economic benefits associated with the
item will flow to the Group and the cost of the
item can be measured reliably. The carrying
amount of the replaced part is derecognised. All
other repairs and maintenance are charged to
the income statement during the financial period
in which they are incurred.
Expenses related to drilling and equipment for
exploration wells where proven and probable
reserves are discovered are capitalised and
depreciated using the unit-of-production (UoP)
method based on the proven and probable
reserves expected to be produced from the well.
Development cost related to construction,
installation and completion of infrastructural
facilities such as platforms, pipelines and drilling
of production wells, are capitalised as producing
oil and gas fields. They are depreciated using the
unit-of-production method based on the proven
and probable developed reserves expected to
be recovered from the area for the economic
lifetime of the field. For fields where the oil share
of the reserves constitutes the most significant
part of the value, the capitalised cost is
depreciated based on produced barrels of oil.
This generally gives a more systematic
allocation of depreciation expenses over the
useful life than using all produced oil equivalents.
If realisation of the probable reserves demands
further future investments, these are added to
the basis of depreciation.
Acquired assets used for extraction and
production of petroleum deposits, including
licence rights, are depreciated using the unit-of-
production method based on proven and
probable reserves.
Historical cost price for other assets is
depreciated over the estimated useful economic
life of the asset, using the straight-line method.
The estimated useful lives are as follows:
- Office equipment and fixtures: 3-5 years
Depreciation methods, useful lives, residual
values and reserves are reviewed at each
reporting date and adjusted if appropriate.
1.6 INTANGIBLE ASSETS
Oil and gas exploration and development
expenditures
NORECO
2021 ANNUAL REPORT
83
The group applies the successful efforts method
of accounting for oil and gas exploration
expenditures. Expenditures to acquire interests
in oil and gas properties and to drill and equip
exploratory wells are capitalised as exploration
expenditures within intangible assets until the
well is complete and the results have been
evaluated, or there is any other indicator of a
potential impairment. Exploration wells that
discover potentially economic quantities of oil
and natural gas remain capitalised as intangible
assets during the evaluation phase of the
discovery. This evaluation is normally finalised
within one year. If, following the evaluation, the
exploratory well has not found potentially
commercial quantities of hydrocarbons, the
capitalised expenditures are evaluated for
derecognition or tested for impairment.
Geological and geophysical expenditures and
other exploration and evaluation expenditures
are expensed as incurred.
Capitalised exploration expenditures, including
expenditures to acquire interests in oil and gas
properties, related to wells that find proved
reserves are transferred from exploration
expenditures (intangible assets) to property,
plant and equipment at the time of sanctioning of
the development project.
Other intangible assets
Intangible assets acquired separately are
measured on initial recognition at cost. The cost
of intangible assets acquired in a business
combination is their fair value at the date of
acquisition. Following initial recognition,
intangible assets with definite lives are carried at
cost less any accumulated amortisation and
accumulated impairment losses, if any. Internally
generated intangible assets, excluding
capitalised development costs, are not
capitalised. Instead, the related expenditure is
recognised in profit or loss in the period in which
the expenditure is incurred. Intangible assets are
amortised over the useful economic life and
assessed for impairment whenever there is an
indication that the intangible asset may be
impaired. The amortisation period and the
amortisation method for an intangible asset is
reviewed at least at the end of each reporting
period. Changes in the expected useful life or the
expected pattern of consumption of future
economic benefits embodied in the asset are
considered to modify the amortisation period or
method, as appropriate, and are treated as
changes in accounting estimates. The
amortisation expense on intangible assets is
recognised in the Consolidated Statement of
Comprehensive income in the line-item
Depreciation and Amortisation.
1.7 IMPAIRMENT OF NON-FINANCIAL
ASSETS
a) Unit of account
The Group applies each prospect, discovery, or
field as unit of account for allocation of profit or
loss and financial position items.
When performing impairment testing of licence
and capitalised exploration expenditures and
production facilities, each prospect, discovery, or
field is tested separately as long as they are not
defined to be part of a larger cash generating
unit.
Developed fields producing from the same
offshore installation are treated as one joint cash
generating unit. The size of a cash generating
unit cannot be larger than an operational
segment.
b) Impairment testing
Intangible assets with an indefinite useful life are
not subject to amortisation and are tested
annually for impairment. For Oil and gas
exploration and development
expenditures, see
2.6 above regarding assessment of impairment
and derecognition. Property, plant and
equipment subject to amortisation are reviewed
for impairment whenever events or changes in
circumstances indicate that the carrying amount
may not be recoverable. An impairment loss is
recognised for the amount by which the asset’s
carrying amount exceeds its recoverable
amount.
The recoverable amount is the higher of an
asset’s fair value less costs of disposal and value
in use. For the purposes of assessing
impairment, assets are grouped at the lowest
levels for which there are separately identifiable
cash flows (cash-generating units). Non-
NORECO
2021 ANNUAL REPORT
84
financial assets other than goodwill that suffered
impairment write-downs are assessed for
potential impairment reversal at each reporting
date as to whether there is an indication that an
impairment loss may no longer exist or may have
decreased.
1.8 FINANCIAL ASSETS
1.8.1 CLASSIFICATION
The Group classifies financial assets and
financial liabilities according to IFRS 9 through
the mixed measurement model with three
primary measurement categories for financial
assets: amortized cost, fair value through OCI
and fair value through P&L. The classification
depends on the entity’s business model and the
contractual cash flow characteristics of the
financial assets. Management determines the
classification of its financial assets at initial
recognition.
(a) Financial assets and liabilities at fair value
through profit or loss
Financial assets at fair value through profit or
loss are financial assets held for trading that are
not measured at amortized cost or at fair value
through other comprehensive income. IFRS 9
requires that for a financial liability designated as
at fair value through profit or loss the effects of
changes in the liability’s credit risk shall be
included in other comprehensive income instead
of through profit and loss. Derivatives, including
embedded derivatives are also recognised at fair
value through profit or loss unless they are
designated as hedges. Assets in this category
are classified as current assets if expected to be
settled within 12 months, otherwise they are
classified as non-current.
(b) Financial assets and liabilities at
amortised cost
The Group measures financial assets at
amortised cost if both of the following conditions
are met:
-The financial asset is held within a business
model with the objective to hold financial assets
in order to collect contractual cash flows and,
- The contractual terms of the financial asset give
rise on specified dates to cash flows that are
solely payments of principal and interest on the
principal amount outstanding
Financial assets at amortised cost are
subsequently measured using the effective
interest (EIR) method and are subject to
impairment testing. Gains and losses are
recognised in profit or loss when the asset is
derecognised, modified or impaired.
These assets are included in current assets,
except for maturities greater than 12 months
after the end of the reporting period. These are
classified as non-current assets.
The Group’s financial assets categorised as at
amortised cost comprise trade and other
receivables, contract assets, restricted cash and
cash and cash equivalents in the statement of
financial position (notes 2.11 and 2.12).
The group measures interest-bearing loans and
borrowings (financial liabilities) at amortised cost
using the effective interest method.
1.8.2 RECOGNITION AND MEASUREMENT
Regular purchases and sales of financial assets
are recognised on the trade-date – the date on
which the Group commits to purchase or sell the
asset. Investments are initially recognised at fair
value plus transaction costs for all financial
assets not carried at fair value through profit or
loss. Financial assets carried at fair value
through profit or loss, are initially recognised at
fair value, and transaction costs are expensed in
the income statement. Financial assets are
derecognised when the rights to receive cash
flows from the investments have expired or have
been transferred and the Group has transferred
substantially all risks and rewards of ownership.
Financial assets at fair value through profit or
loss are subsequently carried at fair value. Trade
and other receivables are subsequently carried
at amortised cost using the effective interest
method. Gains or losses arising from changes in
the fair value of the ‘financial assets at fair value
through profit or loss’ category is presented in
the income statement within ‘Financial items’ in
the period in which they arise.
1.9 IMPAIRMENT OF FINANCIAL ASSETS
NORECO
2021 ANNUAL REPORT
85
The Group recognises an allowance for
expected credit losses (ECLs) for all debt
instruments (financial assets) not held at fair
value through profit or loss. ECLs are based on
the difference between the contractual cash
flows due in accordance with the contract and all
the cash flows that the Group expects to receive,
discounted at an approximation of the original
effective interest rate. The expected cash flows
will include cash flows from the sale of collateral
held or other credit enhancements that are
integral to the contractual terms.
The Group applies a simplified approach in
calculating ECLs for trade receivables and
contract assets. Therefore, the Group does not
track changes in credit risk, but instead
recognises a loss allowance based on lifetime
ECLs at each reporting date.
1.10 DERIVATIVE FINANCIAL INSTRUMENTS
AND HEDGING ACTIVITIES
Derivatives are initially recognised at fair value
on the date a derivative contract is entered into
and are subsequently re-measured at their fair
value. The method of recognising the resulting
gain or loss depends on whether the derivative
is designated as a hedging instrument, and if so,
the nature of the item being hedged.
The Group uses derivative financial instruments,
such as forward commodity contracts and
options, to reduce the exposure to commodity
price volatility. The Group has elected to apply
cash flow hedge accounting designating these
derivatives. Such derivative financial
instruments are initially recognized at fair value
on the date on which a derivative contract is
entered into and from the date of start of cash
flow hedge accounting. These are subsequently
remeasured at fair value and the effective portion
of the gain or loss on the hedging instrument is
recognised in other comprehensive income
(OCI), while any ineffective portion is recognised
immediately in profit or loss (financial income or
financial expenses). The cash flow hedge
reserve is adjusted to the lower of the cumulative
gain or loss on the hedging instrument and the
cumulative change in fair value of the hedged
item. The amount accumulated in OCI is
reclassified to profit or loss as a reclassification
adjustment in the same periods during which the
hedged cash flows affect profit or loss. If cash
flow hedge accounting is discontinued, the
amount that has been accumulated in OCI must
remain in accumulated OCI if the hedged future
cash flows are still expected to occur. Otherwise,
the amount will be immediately reclassified to
profit or loss as a reclassification adjustment.
Derivatives are carried as financial assets when
the fair value is positive and as financial liabilities
when the fair value is negative.
Commodity contracts that were entered into and
continue to be held for the purpose of the
delivery of a non-financial item in accordance
with the Group’s expected sale requirements fall
within the exception from IFRS 9, which is known
as the ’normal purchase or sale exemption’ or
the ‘own use’ scope exception. For these
contracts and the host part of the contracts
containing embedded derivatives, they are
accounted for as executory contracts. The
Group recognises such contracts in its statement
of financial position only when one of the parties
meets its obligation under the contract to deliver
either cash or a nonfinancial asset. The volume
hedging agreement with Shell ended 31.12.2020
and is not relevant in 2021.
1.11 TRADE RECEIVABLES
Trade receivables are amounts due from
customers for oil and gas sold or services
performed in the ordinary course of business. If
collection is expected in one year or less (or in
the normal operating cycle of the business if
longer), they are classified as current assets. If
not, they are presented as noncurrent assets.
Trade receivables are measured at amortized
cost using the effective interest method, less
provision for impairment.
1.12 CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash, bank
deposits and short-term liquid placements, that
immediately and with insignificant share price
NORECO
2021 ANNUAL REPORT
86
risk can be converted to known cash amounts
and with a remaining maturity less than three
months from the date of acquisition. In the
consolidated statement of financial position,
bank overdrafts are shown within borrowings in
current liabilities.
1.13 OVER/UNDER-LIFTING OF
HYDROCARBONS
Over/under-lifting occurs when the Group has
lifted and sold more or less hydrocarbons from a
producing field than what the Group is entitled to
at the time of lifting. Over-lifting of hydrocarbons
is presented as other current liabilities, under-
lifting of hydrocarbons is presented as other
current assets. The value of under-lifting is
measured at the lower of production expenses
and the estimated sales value, less estimated
sales costs and the value of over-lifting is
measured at production expenses. Over-lifting
and under-lifting of hydrocarbons are presented
at gross value. Over/under-lift positions at the
statement of financial position date, are
expected to be settled within 12 months from the
statement of the financial position date.
1.14 SHARE CAPITAL, TREASURY SHARE
RESERVES AND SHARE PREMIUM
Ordinary shares are classified as equity. Costs
directly attributable to the issue of new shares or
option shares are recognised as a deduction
from equity, net of any tax effects. Treasury
share reserves are recognised as a deduction on
equity at nominal value, the difference between
nominal value and purchase price is deducted
from other equity.
1.15 TRADE PAYABLES
Trade payables are obligations to pay for goods
or services that have been acquired in the
ordinary course of business from suppliers.
Trade payables are classified as current
liabilities if payment is due within one year or less
(or in the normal operating cycle of the business
if longer). If not, they are presented as
noncurrent liabilities.
Trade payables are measured at fair value and
subsequent measurements are considered trade
payables at amortised cost when using effective
interest rate.
1.16 BORROWINGS
Borrowings (financial liabilities) are classified as
measured at amortised cost. Borrowings that are
subsequently measured at amortised cost using
the effective interest method are recognised
initially at fair value, net of transaction costs
incurred. For hybrid (combined) instrument that
includes a non-derivative host contract that is not
accounted for at FVTPL and an embedded
derivative that is accounted for at FVTP such as
the convertible bond the company has elected
an accounting polity that all of the transaction
costs are always allocated to and deducted from
the carrying amount of the non-derivative host
contract on initial recognition. The subsequent
measurement depends on which category they
have been classified into. The categories
applicable for company are either financial
liabilities measured at fair value through OCI or
financial liabilities measured at amortised cost
using the effective interest method. The
convertible bond loan has been determined to
contain embedded derivatives which is
accounted for separately as a derivative at fair
value through profit or loss, while the loan
element is measured at amortized cost (note
3.1).
Borrowings are classified as non-current if
contractual maturity is more than 12 months from
the statement of financial position date.
Borrowings are classified as current liabilities
unless the Group has an unconditional right to
defer settlement of the liability for at least 12
months after the end of the reporting period. If
the Group is in breach with any covenants on the
statement of financial position date, and a waiver
has not been approved before or on the
statement of financial position date with 12
months duration or more after the statement of
financial position date, the loan is classified as
current even if expected maturity is longer than
12 months after the statement of financial
position date.
NORECO
2021 ANNUAL REPORT
87
Fees paid on the establishment of loan facilities
are recognised as transaction costs of the loan
to the extent that it is probable that some or all of
the facility will be drawn down. In this case, the
fee is deferred until the draw-down occurs. To
the extent there is no evidence that it is probable
that some or all of the facility will be drawn down,
the fee is capitalised as a prepayment for
liquidity services and amortised over the period
of the facility to which it relates.
A financial liability is derecognised when the
obligation under the liability is discharged or
cancelled, or when the contractual obligation
expires. When an existing financial liability is
replaced by another from the same lender on
substantially different terms, or the terms of an
existing liability are substantially modified, the
exchange or modification is treated as the de-
recognition of the original liability and the
recognition of a new liability. The difference in
the respective carrying amounts is recognised in
the statement of comprehensive income as a
gain or loss under financial items. Transaction
costs incurred during this process are treated as
a cost of the settlement of the old debt and
included in the gain or loss calculation.
1.17 BORROWING COSTS
General and specific borrowing costs directly
attributable to the acquisition, construction or
production of qualifying assets, which are assets
that necessarily take a substantial period of time
to get ready for their intended use or sale, are
added to the cost of those assets, until such time
as the assets are substantially ready for their
intended use or sale. Investment income earned
on the temporary investment of specific
borrowings pending their expenditure on
qualifying assets is deducted from the borrowing
costs eligible for capitalisation.
All other borrowing costs are recognised in profit
or loss in the period in which they incur.
1.18 CURRENT AND DEFERRED INCOME
TAX
The tax expense for the period comprises
current tax, tax impact from refund of exploration
expenses and deferred tax. Tax is recognised in
the income statement, except to the extent that
it relates to items recognised in other
comprehensive income or directly in equity. In
this case, the tax is also recognised in other
comprehensive income or directly in equity,
respectively.
The current income tax charge is calculated on
the basis of the tax laws enacted or substantively
enacted at the statement of financial position
date in the countries where the company and its
subsidiaries operate and generate taxable
income. Management periodically evaluates
positions taken in tax returns with respect to
situations in which applicable tax regulation is
subject to interpretation. It establishes provisions
where appropriate on the basis of amounts
expected to be paid to the tax authorities.
Deferred income tax is recognised on temporary
differences arising between the tax bases of
assets, and liabilities and their carrying amounts
in the consolidated financial statements.
However, deferred tax liabilities are not
recognised if they arise from the initial
recognition of goodwill; deferred income tax is
not accounted for if it arises from initial
recognition of an asset or liability in a transaction
other than a business combination that at the
time of the transaction affects neither accounting
nor taxable profit or loss. Deferred income tax is
determined using nominal tax rates (and laws)
that have been enacted or substantively enacted
by the statement of financial position date and
are expected to apply when the related deferred
income tax asset is realised, or the deferred
income tax liability is settled.
Deferred tax assets are recognised only to the
extent that it is probable that future taxable profit
will be available against which the temporary
differences can be utilised.
Deferred income tax assets are recognised on
deductible temporary differences arising from
investments in subsidiaries, associates and joint
arrangements only to the extent that it is
probable that the temporary difference will
reverse in the future and there is sufficient
taxable profit available against which the
NORECO
2021 ANNUAL REPORT
88
temporary difference can be utilised.
Deferred income tax assets and liabilities are
offset when there is a legally enforceable right to
offset current tax assets against current tax
liabilities and when the deferred income taxes
assets and liabilities relate to income taxes
levied by the same taxation authority on either
the same taxable entity or different taxable
entities where there is an intention to settle the
balances on a net basis.
Producers of oil and gas on the Danish
Continental Shelf are subject to the hydrocarbon
tax regime under which, income derived from the
sale of oil and gas is taxed at an elevated 64 %.
Any income deriving from other activities than
first-time sales of hydrocarbons is taxed at the
ordinary corporate income rate of currently 22 %.
The 64 % is calculated as the sum of the
“Chapter 2” tax of 25% plus a specific
hydrocarbon tax (chapter 3A) of 52%, in which
the 25% tax payable is deductible. When
calculating the 52% tax, the company is allowed
to deduct an uplift (i.e. increased depreciation
basis for tax purposes) of 30% of the
investments in property, plant & Equipment’s
(PP&E) over a period of 6 years. Through an
agreement from 2017 license holders on Danish
Continental Shelf have had the possibility of
applying new rules whereby the company will
have the possibility of increased uplift and
accelerated depreciation during the period from
2017 to 2025. At the same time the companies
utilizing the benefit are also liable for a windfall
tax that will materialize from 2022 through 2037
with an oil price (indexed from 2017) above USD
75. The windfall tax cannot exceed the indexed
benefit from the applied rules.
1.19 PENSIONS
The Group only has defined contribution plans
as of 31 December 2021. For the defined
contribution plan, the group pays contributions to
publicly or privately administered pension
insurance plans on a mandatory, contractual or
voluntary basis. The group has no legal or
constructive obligations to pay further
contributions if the fund does not hold sufficient
assets to pay all employees the benefits relating
to employee service in the current and prior
periods. The contributions are recognised as
employee benefit expense when they are due.
Prepaid contributions are recognised as an
asset to the extent that a cash refund or a
reduction in the future payments is available.
1.20 SHARE-BASED PAYMENTS
The Group operates a number of equity-settled,
share-based compensation plans, under which
the entity receives services from employees as
consideration for equity instruments (options) of
the Group. The fair value of the employee
services received in exchange for the grant of
the options is recognised as an expense. The
total amount to be expensed is determined by
reference to the fair value of the options granted:
Fair value:
• Including any market performance conditions
• Excludes the impact of any service and non-
market performance vesting conditions (for
example, profitability, sales growth targets and
remaining an employee of the entity over a
specified time period)
Non-market performance and service conditions
are included in assumptions about the number of
options that are expected to vest. The total
expense is recognised over the vesting period
(which is the period over which all of the
specified vesting conditions are to be satisfied).
At the end of each reporting period, the Group
revises its estimates of the number of options
that are expected to vest based on the non-
market vesting conditions. It recognises the
impact of the revision to original estimates, if
any, in the income statement, with a
corresponding adjustment to equity.
When the options are exercised, the Company
issues new shares. The proceeds received net
of any directly attributable transaction costs are
credited to share capital (nominal value) and
share premium.
The social security contributions payable in
connection with the grant of the share options is
considered an integral part of the grant itself, and
the charge will be treated as a cash-settled
NORECO
2021 ANNUAL REPORT
89
transaction.
1.21 PROVISIONS
Provisions are recognised when the Company
has a present obligation (legal or constructive)
arising from a past event, and it is probable
(more likely than not) that it will result in an
outflow from the entity of resources embodying
economic benefits, and that a reliable estimate
can be made of the amount of the obligation.
Restructuring provisions comprise lease
termination penalties and employee termination
payments. Provisions are measured at the
present value of the expenditures expected to be
required to settle the obligation using a pre-tax
rate that reflects current market assessments of
the time value of money and the risks specific to
the obligation. The increase in the provision due
to passage of time is recognised as interest
expense.
1.21.1 ASSET RETIREMENT OBLIGATIONS
Provisions reflect the estimated cost of
decommissioning and removal of wells and
production facilities used for the production of
hydrocarbons. Asset retirement obligations are
measured at net present value of the anticipated
future cost (estimated based on current day
costs inflated). The liability is calculated on the
basis of current removal requirements and is
discounted to present value using a risk-free rate
adjusted for credit margin. Liabilities are
recognised when they arise and are adjusted
continually in accordance with changes in
requirements, price levels etc. When a
decommissioning liability is recognised or the
estimate changes, a corresponding amount is
recorded to increase or decrease the related
asset and is depreciated in line with the asset.
Increase in the provision as a result of the time
value of money is recognised in the income
statement as a financial expense. If
abandonment cost through agreements with
partners have been limited to a given amount,
this then forms the basis for the recognized
liability.
1.22 CONTINGENT LIABILITIES AND
ASSETS
Contingent liabilities are defined as:
events, whose existence depends on uncertain
future events.
recognised because it is not probable that they
will result in a payment.
• The amount of the obligation cannot be
measured with sufficient reliability.
Specific mention of material contingent liabilities
is disclosed, with the exception of contingent
liabilities where the possibility of an outflow of
resources embodying economic benefits is
remote.
Contingent assets are not recognised in the
financial statements but are disclosed if there is
a certain probability that a benefit will accrue to
the Group.
1.23 REVENUE RECOGNITION
Revenue is recognized when the customer
obtains control of the hydrocarbons, which is
ordinarily at the point of delivery (lifting and
sales) when title passes (sales method).
Over/under lifting occurs when the Group has
lifted and sold more or less hydrocarbons from a
producing field than what the Group is entitled to
at the time of lifting. See note 1.13 for description
of accounting for over/under lifting of
hydrocarbons in the statement of financial
position.
1.24 PRODUCTION EXPENSES
Production expenses are expenses that are
directly attached to production of hydrocarbons,
e.g. expenses for operating and maintaining
production facilities and installations. Expenses
mainly consist of man-hours, insurance,
processing costs, environmental fees, transport
costs etc.
1.25 INTEREST INCOME
Interest income is recognised using the effective
interest method.
NORECO
2021 ANNUAL REPORT
90
1.26 CONSOLIDATED STATEMENT OF CASH
FLOWS
The consolidated statement of cash flows is
prepared according to the indirect method. See
note 2.12 for the definition of “Cash and cash
equivalents”.
1.27 SUBSEQUENT EVENTS
Events that take place between the end of the
reporting period and the date of issuance of the
quarterly or annual accounts, will be considered
if the event is of such a nature that it gives new
information about items that were present on the
statement of financial position date.
FINANCIAL RISK MANAGEMENT
2.1 FINANCIAL RISK FACTORS
The group's activities expose it to financial risks:
market risk (including currency risk, price risk,
interest rate risk), credit risk and liquidity risk.
The Group uses bond loans to finance its
operations in connection with the day-to-day
business, financial instruments, such as bank
deposits, trade receivables and payables, and
other current liabilities which arise directly from
its operations, are utilised.
Market risk
Market risk is the risk that the fair value of future
cash flows of a financial instrument will fluctuate
because of changes in the market prices. Market
risk comprises three types of risk: foreign
currency risk, price risk and interest rate risk.
Financial instruments affected by market risk
include loans and borrowings, deposits, trade
receivables, trade payables, accrued liabilities
and derivative financial instruments.
(a) Foreign currency risk
The group is composed of businesses with
various functional currencies including USD,
EUR, GBP and DKK. The group is exposed to
foreign exchange risk for series of payments in
other currencies than the functional currency,
mainly related to the ratio between NOK and
USD, DKK and USD, EUR and USD and GBP
and USD. The Group’s statement of financial
position includes significant assets and liabilities
which are recorded in other currencies than the
Group’s functional currency. As such the group’s
equity is sensitive to changes in foreign
exchange rates. See Note 15 Non-current
receivables, trade receivable and other current
receivables, Note 17 Restricted Cash, Bank
Deposits, Cash and Cash Equivalents, Note 18
Financial instruments, Note 21 Asset retirement
obligation, Note 22 Borrowings and Note 23
Trade payables and other payables, Note 27
Contingencies and commitments. A decrease in
the closing rate of NOK, EUR and DKK with 10
percent compared to USD would have the
following impact on financial assets, financial
liabilities and equity:
USD million
NOK
DKK
EUR
Financial Assets
1
69
5
Financial Liabilities
0
4
2
Effect Net Result/Equity
1
64
2
The Company considers the currency risk
relating to the different financial instruments be
low, as the main financial items held in a
currency other than the functional currency of the
respective components is offset by positions in
other components of the Group. With regards to
trade receivables and payables, the Company
deems the risk to be immaterial.
(b) Price risk
Noreco produces and sells hydrocarbons in
Denmark and is as a result exposed to changes
in commodity prices. The Group has a material
commodity price hedging programme in place
that mitigates the risk of near-term price
movements. As of 31 December 2021, Noreco
had commodity derivatives measured at fair
value. A change in the value directly affects the
company’s OCI and recorded equity, and hence
the group is exposed to the fair value
development of these financial instruments.
Assuming an increase in the commodity price at
31 December 2021 of 10% and assuming this
2
NORECO
2021 ANNUAL REPORT
91
change will have full effect on the whole curve,
the effect on the value of commodity derivatives
would have the following impact:
USD million
Equity
OCI
Net result
Commodity price +10%
-33
-33
0
Commodity price -10%
33
33
0
The effect on equity would be equal to the
change in value of the commodity derivatives.
The change in value of hedging contracts over
time will be offset by the realised value of the
contract when the hedge instrument matures,
therefore the underlying value to Noreco’s
business operations is not impacted by changes
in the derivative value at any point in time.
(c) Interest rate risk
The Group has loans with fixed and floating
interest rates. Loans with fixed interest rate
expose the Group to risk (premium/discount)
associated with changes in the market interest
rate. At year-end, the group has a total of USD
1,204 million (2020: USD 1,043 million) in
interest-bearing debt (carrying amount), the
principal amount was USD 1,260 million. The
Group’s RBL facility has a floating interest rate
comprising the aggregate of SOFR and 4.0% per
annum, while the Group’s Bond debt (NOR 13
and NOR 14) have a fixed interest rate exposure.
The reserve-based lending facility is linked to the
SOFR rate as set at the time of redetermination.
A variance of + 1% in the SOFR rate would result
in USD 9.0 million of interest charges to Noreco
per annum, however the Company has hedged
this interest rate until 30 June 2024 at a rate of
0.40% to cover any increase in SOFR rate. For
further information about the Group's interest-
bearing debt, see Note 22.
All bank deposits (USD 328 million) are at
floating interest rates. See note 17 Restricted
cash, bank deposits, cash and cash equivalents
for further information about bank deposits. The
Group considers the risk exposure to changes in
market interest to be at an acceptable level.
Liquidity risk
The Group has certain financial commitments
arising from its operations and other agreements
entered into which are expected to be met by
liquid assets, proceeds from external financing
and cash flow from operations. The Group
monitors its liquidity situation continuously to
ensure it will be able to meet its financial
obligations as they fall due. As of 31 December
2021, none of the Group’s interest-bearing debt
were falling due within the next 12 months.
Credit risk
The groups most significant credit risk arises
principally from recognised receivables related
to the group’s operation. The credit risk arising
from the production of oil, gas and NGL is
considered limited, as sales are to major oil
companies with considerable financial
resources. The counterparty in derivatives are
large international banks and insurance
companies whose credit risk is considered low.
2.2 CAPITAL RISK MANAGEMENT
The group's objectives when managing capital is
to safeguard the group's ability to continue as a
going concern in order to provide return for
shareholders and benefits for other stakeholders
and to maintain an acceptable capital structure
to reduce the cost of capital.
The group monitors the debt with the basis of
cash flows, equity ratio and the gearing ratio.
The group’s debt restricts the payment of
dividends until two quarters after the completion
of the Tyra redevelopment project; subsequent
to this date, NOR14 limits dividend payments to
50% of the group’s net profit after tax for the
previous year. See further information regarding
borrowings and covenants in Note 22.
2.3 FAIR VALUE ESTIMATION
The Group has certain financial instruments
carried at fair value. The different fair value
hierarchy levels have been defined as follows:
Level 1: Quoted prices (unadjusted) in active
markets for identical assets and liabilities
The fair value of financial instruments traded in
active markets is based on quoted market prices
at the statement of financial position date. A
market is regarded as active if quoted prices are
readily and regularly available from an
NORECO
2021 ANNUAL REPORT
92
exchange, dealer, broker, industry group, pricing
service, or regulatory agency, and those prices
represent actual and regularly occurring market
transactions on an arm’s length basis. The
quoted market price used for financial assets
held by the Group is the current bid price.
Level 2: Inputs other than quoted prices included
within level 1 that are observable for the assets
or liability, either directly or indirectly
The fair value of financial instruments that are
not traded in an active market (for example,
over-the-counter derivatives) is determined by
using valuation techniques. These valuation
techniques maximise the use of observable
market data where it is available and rely as little
as possible on entity specific estimates. If all
significant inputs required to fair value an
instrument are observable, the instrument is
included in level 2. If one or more of the
significant inputs is not based on observable
market data, the instrument is included in Level
3.
Specified valuation techniques used to value
financial instruments include:
• Quoted market prices or dealer quotes for
similar instruments;
• The fair value of interest rate swaps is
calculated as the present value of the estimated
future cash flows based on observable yield
curves;
• The fair value of forward foreign exchange
contracts is determined using forward exchange
rates at the statement of financial position date,
with the resulting value discounted back to
present value
Level 3: Inputs for other assets or liabilities that
are not based on observable market data
In level 3 there are one financial instrument, the
embedded derivatives convertible bond.
The fair value of the embedded derivatives is
calculated based on the Black-Scholes-Merton
valuation model. A change in the share price of
+/- 10 percent would have the following impact
on the embedded derivates, net result and
equity:
Sensitivity Analysis
Share price
(%)
10%
-10%
Embedded derivatives
USD million
(4)
4
Effect Net result/Equity
USD million
(4)
4
It is evaluated that there is no tax effect of
changes in fair value of the contingent
consideration and embedded derivatives. See
Note 18 for fair value hierarchy and further
information.
CRITICAL ACCOUNTING ESTIMATES
AND JUDGEMENTS
3.1 CRITICAL ACCOUNTING ESTIMATES
AND ASSUMPTIONS
Estimates and judgements are continually
evaluated and are based on historical
experience and other factors, including
expectations of future events that are believed to
be reasonable under the circumstances.
The estimates and assumptions that have a
significant risk of causing a material adjustment
to the carrying amounts of assets and liabilities
within the next financial year are addressed
below.
a) Estimated value of financial assets and
financial liabilities
The embedded derivatives in the convertible
debt have been recognised separately at fair
value through profit and loss. The value of this
embedded derivative has been calculated using
the Black-Scholes-Merton valuation model using
assumptions for share price, volatility of share
price, and other inputs which are subject to
significant uncertainty.
For financial assets at amortised cost, an
assessment is made on whether objective
evidence is present that financial assets or
groups of financial assets should be written
down.
For more details see note 18 Financial
Instruments.
3
NORECO
2021 ANNUAL REPORT
93
b) Income tax
All figures reported in the statement of
comprehensive income and the statement of
financial position are based on the group’s tax
calculations and should be regarded as
estimates until the tax for the year has been
settled. Tax authorities can be of a different
opinion than the company including what
constitutes exploration cost and continental shelf
deficiency in accordance with the Petroleum
Taxation Act. See also Note 13.
c) Asset retirement obligation
Production of oil and gas is subject to statutory
requirements relating to decommissioning and
removal obligation once production has ceased.
Provisions to cover these future
decommissioning and removal expenditures
must be recognised at the time the statutory
requirement arises. The costs will often incur
sometime in the future, and there is significant
uncertainty attached to the scale and complexity
of the decommissioning and removal involved.
Estimated future costs (estimated based on
current costs inflated) are based on known
decommissioning and removal technology,
expected future price levels, and the expected
future decommissioning and removal date,
discounted to net present value using a risk-free
rate adjusted for credit margin. Changes in one
or more of these factors could result in changes
in the decommissioning and removal liabilities.
See note 21 Asset Retirement Obligations for
further details about decommissioning and
removal obligations.
d) Depreciation and impairment of fixed
assets
The estimation of the recoverable amount of oil
and gas assets as well as the estimation of
available commercially depletable reserves is
subject to significant uncertainty, primarily
related to future oil and gas price levels.
Impairment assessments are made to the extent
there are indicators of reduced values of fixed
assets. Unit of production depreciations are
amended on a prospective basis following
regular reserves estimation updates performed
by the Group. For more details see note note 11
Impairments.
3.2 CRITICAL JUDGEMENTS IN APPLYING
THE ENTITY’S ACCOUNTING POLICIES
a) Accounting for convertible debt
The Group has issued bonds with conversion
rights and other embedded derivatives (but the
conversion feature is the main element). The
conversion feature has been determined to
constitute an embedded derivative and has been
separated from the loan contract. The loan
element has been recognised at amortised cost.
At initial recognition the loan was measured as
the residual amount of the proceeds from the
bond issue, less issue costs, less the calculated
fair value of the conversion feature. The process
of determining whether the conversion feature in
the convertible bond arrangement should be
treated as a liability or an equity component
requires the application of significant judgement.
The convertible bond is either a financial liability
(including certain embedded derivative features
which may require separation) or a compound
instrument (ie. such a liability plus an equity
conversion option). The group has assessed that
the holder’s conversion option does not involve
receiving a fixed number of shares by giving up
a fixed stated principal amount of bond, hence
the group has assessed this instrument is not a
compound instrument with an equity part.
Further multiple embedded derivatives have
been identified in the host contract that has been
assessed is not readily separable and
independent of each other as such are treated
as a single compound embedded derivative.
Also, the fair value measurement of the
conversion feature using the Black-Scholes-
Merton valuation model, requires significant
judgement when selecting and applying the
required assumptions.
NORECO
2021 ANNUAL REPORT
94
REVENUE
USD million
2021
2020
Sale of oil
416
528
Sale of gas and NGL
142
31
Other income
7
8
Total Revenue
565
566
Oil - lifted volumes (mmbbl)
7.20
7.90
Effective Oil price USD/bbl
57.8
66.8
Gas - lifted volumes (mmboe)
2.3
2.4
Effective Gas price EUR/MWh
30.4
6.6
Effective Gas price USD/boe
61.5
12.7
In 2021 sale of oil amounted to USD 416 million and sale of gas amounted to USD 142 million,
realised prices were USD 57.8 per bbl of oil and USD 61.5 per boe gas lifted during the year, adjusted
for settlement of price hedges in place with financial institutions.
During 2021, Noreco recognised the settlement of price hedges that were put in place with financial
institutions in the market as revenue, when these price hedges match the physical sale of oil. Price
hedges in excess of actual liftings are treated as financial income or expenses based on the required
accounting treatment for these instruments during the period.
Revenue per customer
2021
2020
Shell Trading International
90.1 %
91.8 %
Orsted Salg & Service AS
28.4 %
5.4 %
Shell Energy Europe Limited
8.2 %
1.4 %
CommonwealthBank
1)
-4.7 %
-
BNP Paribas
1)
-10.2 %
-
Natixis
1)
-11.9 %
1.4 %
Total Revenue
100.0 %
100.0 %
1)
financial institutions.
4
NORECO
2021 ANNUAL REPORT
95
PRODUCTION EXPENSES
USD million
2021
2020
Direct field opex
(211)
(177)
Tariff and transportation expenses
(44)
(44)
Production G&A
(42)
(56)
Field operating cost
(297)
(277)
Total produced volumes (mmboe)
9.8
10.4
In USD per boe
(30.2)
(26.6)
Adjustments for:
Change in inventory position
(1)
3
Over/under-lift of oil and NGL
14
(0)
Insurance & Other
(22)
(21)
Stock scrap
13
1
Production expenses
(293)
(295)
Production expenses for the year directly attributable to the lifting and transportation to market of
Noreco’s oil and gas production is in total USD 297 million, which equates to USD 30.2 per boe
produced during 2021. Actual production expenses in 2021 was in line with the expectation. The
increase compared to 2020 is mainly driven by the high activity level on well interventions to arrest
the decline.
EXPLORATION
USD million
2021
2020
Other exploration and evaluation costs
(1)
(2)
Total exploration and evaluation costs
(1)
(2)
5
6
NORECO
2021 ANNUAL REPORT
96
PERSONNEL EXPENSES
USD million
Note
2021
2020
Salaries
(10)
(8)
Social security tax
(1)
(1)
Pension costs
20
(1)
(0)
Costs relating to share based payments
24
(0)
(2)
Other personnel expenses
(0)
(0)
Total personnel expenses
(11)
(12)
Average number of employees
27
29
Please see the Executive Remuneration Report 2021 for compensation to key Management and
Board of Directors in the period 2017-2021.
OTHER OPERATING EXPENSES
USD million
2021
2020
Consultant fees
(8)
(5)
Other operating expenses
(3)
(3)
Total other operating expenses
(11)
(8)
USD 1000, excl. VAT
2021
2020
Auditor's fees
(575)
(763)
Other assurance service
(5)
(1)
Total audit fees
(580)
(765)
7
8
NORECO
2021 ANNUAL REPORT
97
INTANGIBLE ASSETS
INTANGIBLE ASSETS AT 31 DECEMBER 2021
USD million
Capitalized
exploration
expenditures
Contract -
own use
Licence
Total
Book value 31.12.20
2
-
173
175
Acquisitions
Acquisition costs 31.12.20
2
128
186
316
Additions
(0)
-
-
(0)
Acquisition costs 31.12.21
1
128
186
315
Accumulated depreciation, amortization and write-downs
Accumulated depreciation, amortization and write-downs 31.12.20
-
(128)
(13)
(141)
Depreciation / amortization
-
-
(8)
(8)
Accumulated depreciation, amortization and write-downs 31.12.21
-
(128)
(21)
(149)
Book value 31.12.21
1
-
165
166
INTANGIBLE ASSETS AT 31 DECEMBER 2020
USD million
Capitalized
exploration
expenditures
Contract -
own use
Licence
Total
Book value 31.12.19
-
86
181
268
Acquisitions
Acquisition costs 31.12.19
-
128
186
314
Additions
2
-
-
2
Acquisition costs 31.12.20
2
128
186
316
Accumulated depreciation and write-downs
Accumulated depreciation and write-downs 31.12.19
-
(42)
(5)
(46)
Depreciation / amortization
-
(86)
(8)
(95)
Accumulated depreciation and write-downs 31.12.20
-
(128)
(13)
(141)
Book value 31.12.20
2
-
173
175
9
NORECO
2021 ANNUAL REPORT
98
PROPERTY, PLANT AND EQUIPMENT
PROPERTY, PLANT AND EQUIPMENT AT 31 DECEMBER 2021
USD million
Asset under
construction
Production
facilities
Machinery &
equipment
Total
Book value 31.12.20
608
1,094
1
1
1,704
Acquisition costs
Acquisition costs 31.12.20
608
1,259
2
2
1,870
Additions
211
17
-
0
228
Acquisition of abandonment asset
-
71
-
-
71
Currency translation adjustment
-
(0)
(0)
0
(0)
Acquisition costs 31.12.21
819
1,347
1
2
2,168
Depreciation and write-downs
Depreciation and write-downs 31.12.20
-
(165)
(0)
(1)
(166)
Depreciation
-
(103)
(0)
(0)
(104)
Currency translation adjustment
-
0
0
(0)
0
Depreciation and write-downs 31.12.21
-
(268)
(0)
(1)
(270)
Book value 31.12.21
819
1,078
1
0
1,899
PROPERTY, PLANT AND EQUIPMENT AT 31 DECEMBER 2020
USD million
Asset under
construction
Production
facilities
Machinery &
equipment
Total
Book value 31.12.19
376
1,173
1
0
1,550
Acquisition costs
Acquisition costs 31.12.19
376
1,240
1
1
1,619
Additions
232
3
-
1
236
Acquisition of abandonment asset
-
15
-
-
15
Currency translation adjustment
-
0
0
0
0
Acquisition costs 31.12.20
608
1,259
2
2
1,870
Accumulated depreciation and write-downs
Accumulated depreciation and write-downs 31.12.19
-
(68)
(0)
(1)
(68)
Depreciation
-
(97)
(0)
(0)
(98)
Currency translation adjustment
-
(0)
(0)
(0)
(0)
Accumulated depreciation and write-downs 31.12.20
-
(165)
(0)
(1)
(166)
Book value 31.12.20
608
1,094
1
1
1,704
10
NORECO
2021 ANNUAL REPORT
99
IMPAIRMENTS
IMPAIRMENT TESTING
Impairment testing of our asset base is performed periodically and/or when impairment triggers are
identified. In Q4 2021 Noreco carried out a periodical impairment test for the fixed assets and related
tangible assets, with the last full impairment assessment being carried out in Q4 2020 and no
impairment triggers identified in-between.
Impairment is recognised when the book value of an asset or a cash-generating unit exceeds the
recoverable amount. The recoverable amount is the higher of the assets fair value less cost to sell
and value in use.
In Q4 2021, the recoverable amount was calculated as the expected future cash flow from the asset,
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. Cash flows
are projected for the estimated lifetime of the fields, which exceed periods greater than five years.
COMMODITY PRICES
Future commodity price levels are a key assumption and have a significant impact on the net present
value. Forecasted oil and gas prices are based on management's estimates and available market
data. Information about market prices in the near future can be derived from the futures contract
market. The information about future prices is less reliable on a long-term basis, as there are fewer
observable market transactions going forward. In the impairment test, the oil and gas prices are
therefore based on the forward curve from the beginning of 2022 to the end of 2024. From 2025, the
oil and gas prices are based on the company's long-term price assumptions.
Nominal oil prices applied in the impairment test are as follows:
Year
USD/BBL
2022
75.0
2023
72.5
2024
70.0
From 2025 onwards
65.0
Nominal gas prices applied in the impairment test are as follows:
Year
USD/BBL
2022
80.0
2023
40.0
2024
30.0
From 2025 onwards
24.0
OIL AND GAS RESERVES
Future cash flows are calculated on the basis of expected production profiles and probable remaining
reserves.
FUTURE EXPENDITURE
Future opex, capex and abandonment cost are calculated based on the expected production profiles
and the best estimate of the related cost.
11
NORECO
2021 ANNUAL REPORT
100
DISCOUNT RATE
The discount rate is derived from the weighted average cost of capital (“WACC”) for a market
participant. The post-tax nominal discount rate used is 8.6%.
NORECO
2021 ANNUAL REPORT
101
EXCHANGE RATES
The exchange rate from US Dollar to Danish Kroner is 6.30 throughout the forecast period. The US
Dollar to Euro exchange rate is 0.85 throughout the forecast period. The US Dollar to Euro rate has
been pegged to a Euro to Danish Kroner rate of 7.44, sensitivity analysis based on exchange rates
will maintain the Euro to Danish Kroner exchange rate.
INFLATION
The long-term inflation rate is assumed to be 2.0 percent.
IMPAIRMENT TESTING OF ASSETS INCLUDING TANGIBLE AND INTANGIBLE ASSET VALUES
Both the tangible and intangible asset value attached to a cash generating unit is tested as part of
the impairment assessment. The carrying value of the assets is the sum of tangible assets and
intangible assets as of the assessment date.
RESULT OF IMPAIRMENT ASSESSMENT
The impairment assessment has not resulted in any impairment charge being recognised.
SENSITIVITY ANALYSIS
The table below shows how the impairment or reversal of impairment of assets would be affected by
changes in the various assumptions, given that the remaining assumptions are constant.
Sensitivity
Change in NPV
Implied Impairment
(if applicable)
Long Term Price +10%
8%
-
Long Term Price -10%
-7%
(69.7)
USD:DKK FX rate +10%
-1%
-
USD:DKK FX rate -10%
3%
-
WACC +1.0%
-4%
(2.3)
WACC -1.0%
5%
-
Inflation Rate +1.0%
6%
-
Inflation Rate -1.0%
-5%
(12.0)
NORECO
2021 ANNUAL REPORT
102
FINANCIAL INCOME AND EXPENSES
Financial Income
USD million
2021
2020
Value adjustment derivatives and hedging contracts unrealized
1)
1
29
Value adjustment of embedded derivatives
2)
6
27
Value adjustment - FX Contract
-
3
Hedge income realized
-
24
Interest income
0
2
Change in fair value of bond debt
-
0
Foreign exchange gains
21
18
Total financial income
28
103
Financial Expenses
USD million
2021
2020
Value adjustment - volume protection
3)
-
(4)
Value adjustment - FX Contract
(1)
-
Amortised cost RBL
(5)
-
Utilized derivatives
(4)
(3)
Unrealized loss derivatives
(8)
-
Interest expense from bond loans
(44)
(39)
Interest expense from bank debt
(46)
(47)
Interest expenses current liabilities
(0)
(0)
Accretion expense related to asset retirement obligations
(35)
(36)
Foreign exchange losses
(15)
(45)
Other financial expenses
(4)
(3)
Total financial expenses
(160)
(177)
Net financial items
(132)
(75)
1) Fair value adjustment based on the value of bank hedging contracts deemed inefficient (i.e. above physical liftings that mature in the future).
2) Fair value adjustment of the embedded derivatives of the convertible bond.
3) Fair value adjustment of the volume protection – contingent consideration based on the change in future market pricing expectations during
the remaining period of the volume hedging agreement with Shell, which ended 31.12.2020.
12
NORECO
2021 ANNUAL REPORT
103
TAX
TAX RATES
Producers of oil and gas on the Danish Continental Shelf are subject to the hydrocarbon tax regime under which, income derived from the sale of
oil and gas is taxed at an elevated 64 %. Any income deriving from other activities than first-time sales of hydrocarbons is taxed at the ordinary
corporate income rate of currently 22 %. The 64 % is calculated as the sum of the “Chapter 2” tax of 25% plus a specific hydrocarbon tax (chapter
3A) of 52%, in which the 25% tax payable is deductible. Income generated in Norway and United Kingdom is subject to regular corporate tax at
22 %.
TAX EXPENSE
USD million
Income tax in profit/loss (Danish corporate income tax and hydrocarbon tax)
2021
Income tax current year
(1)
Income tax for prior years
5
Current income tax
4
Deferred tax movements
(36)
Prior year adjustment, deferred tax
(26)
Deferred tax expense
(62)
Tax (expense)/income
(58)
Income tax in profit/loss is solely derived from the group's activities on the Danish continental shelf, of which the major part is subject to the
elevated 64% hydrocarbon tax.
Tax (expense)/income related to other comprehensive income
Cash flow hedges
156
Tax (expense)/income related to other comprehensive income
156
Income tax on OCI is related to the unrealised fair value changes in derivatives designated in cash flow hedges. To the extent derivates are
associated with the sale of oil and gas, results from cash flow hedges are subject to 64 % hydrocarbon tax.
Reconciliation of nominal to actual tax rate
Hydrocarbon tax 64%
Corporate tax 22%
In total
Result before tax
50
(45)
5
Expected tax on profit before tax
32
64%
(10)
22%
22
Tax effect of:
Prior year adjustment
23
46%
(2)
5%
21
FX adjustment of net operating losses carried forward in DKK
36
71%
-
0%
36
Investment uplift on CAPEX projects
1)
(35)
-69%
-
0%
(35)
Permanent differences
2)
(4)
-8%
1
-2%
(3)
No recognition of tax assets in Norway and UK
-
0%
17
38%
17
Tax expense (income) in profit/loss
52
104%
6
14%
58
1)
The tax cost in the hydrocarbon tax regime is significantly positively impacted by the 39 % investment uplift on the Tyra Redevelopment project.
2)
Reconciliation of nominal to actual tax rate, continues
Hydrocarbon tax 64%
Corporate tax 22%
In total
Other comprehensive income before tax
(246)
9
(237)
Expected tax on other comprehensive income before tax
158
64%
(2)
22%
156
13
NORECO
2021 ANNUAL REPORT
104
Tax effect of:
Non-taxable currency translation adjustment
-
-
-
Tax in other comprehensive income
158
64%
(2)
22%
156
Current income tax payable
Tax payable relates to the Group's entities in Denmark. The amounts payable as of 31.12.21 were:
Hydrocarbon tax pertaining to pre-acquisition period 2019 not indemnified by the Seller
(10)
Corporate tax for prior years (Denmark)
(4)
Corporate tax for 2021 (Denmark)
(1)
Tax payables
(16)
Current income taxes for current and prior periods are measured at the amount that is expected to be paid to or be refunded from the tax
authorities, as at the balance sheet date. Due to the complexity in the legislative framework and the limited amount of guidance from relevant
case law, the measurement of taxable profits within the oil and gas industry is associated with some degree of uncertainty. Uncertain tax liabilities
are recognised with the probable value if their probability is more likely than not.
As of 31 December 2021, the Company has provided an estimated USD 10 million pertaining to hydrocarbon tax in the part of pre-acquisition
period, which is not indemnified by the Seller.
DEFERRED TAX
Deferred tax is recognized for temporary differences between the carrying amounts of assets and liabilities for financial reporting and the amounts
used for taxation purposes. Deferred tax is measured at the tax rates expected to be applied to temporary differences when they reverse, based
on the laws that have been enacted or substantively enacted at the reporting date. Deferred tax assets and liabilities are offset if there is a legally
enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority. Deferred tax assets
are recognized for unused tax losses, tax credits and deductible temporary differences. The deferred tax asset is only recognized to the extent it
is considered probable that future taxable profits will be available to utilize the tax losses and credits.
The recognized deferred tax asset relates to the following balance sheet items, all pertaining to the Group's activities on the Danish Continental
Shelf:
USD million
Deferred tax and deferred tax asset
01.01.21
Effect
recognized
in
profit/loss
Effect
recognized
in OCI
31.12.2021
Property, plant and equipment
582
42
-
625
Intangible assets, licenses
23
(6)
-
17
Inventories and receivables
22
4
-
27
ARO provision
(561)
(50)
-
(611)
Tax loss carryforward, corporate tax (22%)
(2)
(2)
Tax loss carryforward, chapter 2 tax (25%)
(1)
37
(59)
(23)
Tax loss carryforward, chapter 3a tax (52%)
(498)
36
(97)
(558)
Deferred tax asset, net
(432)
62
(156)
(526)
TAX LOSS CARRYFORWARDS
Tax losses are recognized in accordance with the expected utilisation hereof in subsequent income years based on the current business
outlook and economic projections.
Due to the limited taxable activity in UK and Norway, corporate tax losses in these jurisdictions are not capitalized.
Tax losses in Denmark and UK under the hydrocarbon tax regime may be carried forward indefinetly and the utilisation is not subject to an
annual cap. Losses are carried forward in DKK and GB
P.
Tax losses carried forward, Denmark
Million
DKK
Corporate tax (22%)
83
NORECO
2021 ANNUAL REPORT
105
Chapter 2 Hydrocarbon tax (25 %)
591
Chapter 3a Hydrocarbon tax (52%)
6,346
Tax losses carried forward, Norway
Million
NOK
Corporate tax Norway (22%)
1,036
Tax losses carried forward, UK
Million
GBP
Trade losses, UK (hydrocarbon s 330 (2)), USD
1,036
Trade losses, UK (hydrocarbon), USD
96
Pre-trading capital expenditure, UK (hydrocarbon)
41
EARNINGS PER SHARE
Earnings per share are calculated by dividing the profit attributable to ordinary shareholders of the
parent company by the weighted average number of ordinary shares in issue during the year. Share
options are out of the money as per 31.12.2021 and hence have no dilutive effect.
USD million
2021
2020
Profit (loss) attributable to ordinary shareholders from operations
53
17
Profit (loss) basis for fully diluted shareholders from operations
74
13
Shares issued 1 January
24,110,852
24,549,013
Share buyback
-
(438,161)
Shares issued at 31 December
24,110,852
24,110,852
Weighted average number of shares (basic)
24,110,852
24,176,476
Adjustment convertible bond loan
11,149,488
10,930,190
Weighted average number of shares (diluted)
35,260,340
35,106,666
Earnings per share (USD)
Earnings per share
2.2
0.7
Diluted earnings per share
2.2
0.4
14
NORECO
2021 ANNUAL REPORT
106
TRADE RECEIVABLES AND OTHER CURRENT ASSETS
USD million
2021
2020
Contingent consideration – volume protection
-
15
Trade receivables
40
51
Under-lift of oil/NGL
1
-
Prepayments
20
23
Other receivables
47
8
Total trade receivables and other current receivables
109
96
AGEING ANALYSIS OF TRADE RECEIVABLES ON 31 DECEMBER 2021
Past due
USD million
Total
Not past due
> 30 days
30-60 days
61-90 days
91-120 days
> 120 days
Trade receivables
40
38
-
-
-
-
2
Total
40
38
-
-
-
-
2
AGEING ANALYSIS OF TRADE RECEIVABLES ON 31 DECEMBER 2020
Past due
USD million
Total
Not past due
> 30 days
30-60 days
61-90 days
91-120 days
> 120 days
Trade receivables
51
51
0
-
-
-
-
Total
51
51
0
-
-
-
-
15
NORECO
2021 ANNUAL REPORT
107
INVENTORIES
USD million
2021
2020
Product inventory, oil
18
18
Other stock (spares & consumables)
34
21
Total inventories
51
40
RESTRICTED CASH, BANK DEPOSITS, CASH AND CASH EQUIVALENTS
USD million
2021
2020
Non-current assets
Restricted cash pledged as security for abandonment obligation related to Nini/Cecilie
65
71
Restricted cash pledged as security for cash call obligations towards Total
1)
140
125
Total non-current restricted cash
205
196
Current assets
Unrestricted cash, bank deposits, cash equivalents
123
259
Total bank deposits
328
456
1) Noreco has made a USD 140 million deposit into a cash call security account in accordance with
a cash call security agreement with Total E&P Denmark A/S as operator of the DUC. All payment
obligations from Noreco to the cash call security account have been made and there will be no
further increase.
16
17
NORECO
2021 ANNUAL REPORT
108
FINANCIAL INSTRUMENTS
18.1 FAIR VALUE HIERARCHY
The table below analyses financial instruments carried at fair value, by valuation method.
The different levels have been defined as follows:
Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2
Inputs other than quoted prices included within level 1 that are observable for the asset or
liability, either directly or indirectly.
Level 3 Inputs for the asset or liability that are not based on observable market data.
On 31.12.2021
USD million
Level 1
Level 2
Level 3
Total
Assets
Financial assets at fair value through profit or loss
- Derivative instruments interest swap
-
1
-
1
Financial assets at fair value hedging instruments
- Derivative instruments interest swap
-
9
-
9
Total assets
-
10
-
10
Liabilities
Financial liabilities at fair value through profit or loss
- Embedded derivatives convertible bond
-
-
12
12
Financial liabilities at fair value hedging instruments
- Derivative instruments price hedge
-
205
-
205
Total liabilities
-
205
12
217
On 31.12.2020
USD million
Level 1
Level 2
Level 3
Total
Assets
Financial assets at fair value through profit or loss
- Contingent considerations
-
-
15
15
- Derivative instruments price hedge
-
3
-
3
Financial assets at fair value hedging instruments
- Derivative instruments price hedge
-
57
-
57
Total assets
-
60
15
75
Liabilities
Financial liabilities at fair value through profit or loss
- Embedded derivatives convertible bond
-
-
18
18
Financial liabilities at fair value hedging instruments
- Derivative instruments price hedge
-
7
-
7
Total liabilities
-
7
18
25
18
NORECO
2021 ANNUAL REPORT
109
18.2 FINANCIAL INSTRUMENTS BY CATEGORY
On 31.12.21
USD million
Financial
assets at
amortised cost
Assets at fair
value through
profit or loss
Fair value -
hedging
instruments
Total
Assets
Derivative instruments interest swap
-
-
10
10
Trade receivables and other current assets
109
-
-
109
Restricted cash
205
-
-
205
Bank deposits, cash and cash equivalents
123
-
-
123
Total
437
-
10
447
USD million
Financial
liabilities at
amortised cost
Liabilities at fair
value through
profit or loss
Fair value -
hedging
instruments
Total
Liabilities
Derivative instruments price hedge
-
-
205
205
Embedded derivative convertible bond
-
12
-
12
Convertible bond loans
157
-
-
157
Senior unsecured bond loan
165
-
-
165
Reserve based lending facility
857
-
-
857
Deferred consideration
25
-
-
25
Trade payables and other current liabilities
130
-
-
130
Total
1,335
12
205
1,552
On 31.12.2020
USD million
Financial
assets at
amortised cost
Assets at fair
value through
profit or loss
Fair value -
hedging
instruments
Total
Assets
Contingent considerations
-
15
-
15
Derivative instruments price hedge
-
3
57
60
Trade receivables and other current assets
81
-
-
81
Restricted cash
196
-
-
196
Bank deposits, cash and cash equivalents
259
-
-
259
Total
537
18
57
612
NORECO
2021 ANNUAL REPORT
110
USD million
Financial
liabilities at
amortised cost
Liabilities at fair
value through
profit or loss
Fair value -
hedging
instruments
Total
Liabilities
Derivative instruments price hedge
-
-
7
7
Embedded derivatives convertible bond
-
18
-
18
Convertible bond loans
131
-
-
131
Senior unsecured bond loan
169
-
-
169
Reserve based lending facility
719
-
-
719
Deferred consideration
25
-
-
25
Trade payables and other current liabilities
286
-
-
286
Total
1,329
18
7
1,354
18.3 FINANCIAL INSTRUMENTS — FAIR VALUES
Set out below is a comparison of the carrying amounts and fair value of financial instruments as at
31 December 2021:
USD million
Total amount
outstanding*
Carrying
Amount
Fair
Value
Financial assets
Derivative instruments interest swap
10
10
Trade receivables and other current assets
109
109
Restricted cash
205
205
Bank deposits, cash, cash equivalents and quoted shares
123
123
Total
447
447
Financial liabilities
Derivative instruments price hedge
205
205
Embedded derivative convertible bond
12
12
Convertible bond loans
185
157
173
Senior unsecured bond loan
175
165
175
Reserve based lending facility
900
857
900
Deferred consideration
25
25
Trade payables and other current liabilities
130
130
Total
1,260
1,552
1,621
* Total amount outstanding on the bonds and under the RBL facility
The convertible bond loan has been determined to contain embedded derivatives which are
accounted for separately as derivatives at fair value through profit or loss, while the loan element
subsequent to initial recognition is measured at amortized cost, a total of USD 5.3 million in
transaction cost is included in the amortized cost. The embedded derivative is valued on an option
valuation basis, the carrying value is USD 12 million (initial value USD 54 million). As a result of the
buyback of 299,925 shares at a price of NOK 242 per share on 23 January 2020, the conversion
price for the NOR13 subordinated convertible bond issue was adjusted in accordance with the bond
terms, from USD 29.3398 to USD 28.9734 (NOK 240 to NOK 238), effective from the trade date of
the purchase of shares. The fair value calculation for the option portion of the NOR13 bond includes
this update to the conversion price.
NORECO
2021 ANNUAL REPORT
111
NORECO
2021 ANNUAL REPORT
112
The following table list the inputs to the model used to calculate the fair value of the embedded
derivatives:
2021
Valuation date
(date)
31 Dec 21
Agreement execution date
(date)
24 Jul 19
Par value of bonds
(USD)
184,999,212
Reference share price at time of agreement
(NOK)
232
Fair value at grant date
(USD)
53,942,754
PIK interest rate
(%)
8.00%
Expected life
(years)
1.9
Number of options
(#)
6,385,140
Conversion price
(NOK)
238
Fixed FX rate of agreement
(USD:NOK)
8.180
Risk-free rate (based on government bonds)
(%)
1.2%
Expected volatility
(%)
44.64%
Model used
Black - Scholes - Merton
The RBL facility is measured at amortized cost, in addition a total of USD 53 million in transaction
cost has been capitalized.
Transaction costs are deducted from the amount initially recognised and
are expense over the period during which the debt is outstanding under the effective interest method.
The senior unsecured bond loan is measured at amortized cost, in addition a total of USD 7.6 million
in transaction costs are deducted from the amount initially recognised.
18.4 HEDGING
The Group actively seeks to reduce the risk it is exposed to regarding fluctuating commodity prices
through the establishment of hedging arrangements. To the extent more than 100% of the projected
production is hedged any value adjustments to the instruments covering in excess of 100% are
considered ineffective and the value adjustment is treated as a financial item in the Income
Statement. The ineffective amount in 2021 charged to financial items in the Income Statement were
a loss of USD 2.4 million. Time value related to hedging arrangements is considered insignificant
and generally the valuation of the instruments do not take into consideration the time value.
Currently all the company’s commodity price hedging arrangements is executed solely in the
market through forward contracts.
Under its RBL facility, Noreco has a rolling hedge requirement based on a minimum level of
production corresponding to the RBL banking case forecast.
The company has entered a USD 1.0 billion swap transaction with a group of banks to fix the
Company’s floating interest rate exposure under its RBL facility from 1 Nov 2021 until 30 June 2024.
Noreco will as a result pay interest on its RBL cash drawings equal to 0.4041 percent plus the
applicable margin. Noreco applies hedge accounting to the Company’s hedging arrangements. To
the extent more than 100% of the Company’s interest under its RBL facility is hedged any value
adjustments to the instruments covering in excess of 100% are considered ineffective and the value
adjustment is treated as a financial item in the Income Statement. The ineffective amount in 2021
charged to financial items in the Income Statement were an income of USD 1 million.
NORECO
2021 ANNUAL REPORT
113
Maturity
As at 31.12.2021
Less than
1 to 3
3 to 6
6 to 9
9 to 12
More than
1 month
months
months
months
months
12 months
Commodity forward sales contracts:
Notional quantity (in mboe)
-
1,555
1,334
1,070
900
6,360
Notional amount (in USD million)
-
88
81
65
50
357
Average hedged sales price (in USD per boe)
-
56
61
61
56
56
HEDGE RESERVE MOVEMENT
The table below shows the movement in the hedge reserve from changes in the cash flow hedges
USD Million
Hedge Reserve
Balance as of 01.01.2021
14
Realized cash flow hedge
135
Related tax - realized cash flow hedge
(86)
Changes in fair value
(372)
Related tax - changes in fair value
242
Balance as of 31.12.2021
(67)
SHARE CAPITAL
Noreco owns 438,161 of its own shares. All shares have equal rights. All shares are fully paid.
CHANGES IN NUMBER OF SHARES AND SHARE CAPITAL:
No. of shares
Share capital*
Number of shares and share capital as of 01.01.2020
24,549,013
30
Number of shares and share capital as of 31.12.2020
24,549,013
30
Number of shares and share capital as of 31.12.2021
24,549,013
30
No. of shares
Treasury share
reserve*
Number of treasury shares and treasury share reserve as of 01.01.2020
-
-
Purchase of Treasury shares
(438,161)
(0)
Number of treasury shares and treasury share reserve as of 31.12.2020
(438,161)
(0)
Number of treasury shares and treasury share reserve as of 31.12.2021
(438,161)
(0)
*In USD million
CHANGES IN 2020
The company bought back 438.161 of its own shares, of which 299.925 shares was bought as part
of a reverse book building process and 138.236 shares was bought in the market. The buyback
programme was executed in accordance with the authorization given by the Noreco’s general
meeting on 28 June 2018, which was valid until 28 June 2020. After the completion of the buyback
19
NORECO
2021 ANNUAL REPORT
114
programme, Noreco owns 438.161 of its own shares, approximately 1,78 percent.
NORECO
2021 ANNUAL REPORT
115
OVERVIEW OF SHAREHOLDERS AT 31 MARCH 2022
:
Shareholder*
Shareholding
Ownership share
Voting share
Euroclear Bank S.A./N.V.
6,967,295
28.38%
28.38%
Goldman Sachs International
5,676,572
23.12%
23.12%
BNP Paribas
1,439,352
5.86%
5.86%
The Bank of New York Mellon SA/NV
993,841
4.05%
4.05%
Barclays Bank PLC
807,575
3.29%
3.29%
Bank of America, N.A.
774,408
3.15%
3.15%
SOBER AS
654,320
2.67%
2.67%
J.P. Morgan Securities LLC
588,513
2.40%
2.40%
UBS Switzerland AG
495,649
2.02%
2.02%
J.P. Morgan Securities LLC
480,340
1.96%
1.96%
State Street Bank and Trust Comp
292,004
1.19%
1.19%
NORWEGIAN ENERGY COMPANY ASA
251,495
1.02%
1.02%
DnB NOR Bank ASA
247,216
1.01%
1.01%
The Bank of New York Mellon SA/NV
240,979
0.98%
0.98%
Morgan Stanley & Co. Int. Plc.
237,292
0.97%
0.97%
Goldman Sachs & Co. LLC
229,981
0.94%
0.94%
VELDE HOLDING AS
200,000
0.81%
0.81%
J.P. Morgan Securities PLC
162,325
0.66%
0.66%
OUSDAL AS
146,975
0.60%
0.60%
FINSNES INVEST AS
119,279
0.49%
0.49%
Total
21,005,411
85.6 %
85.6 %
Other owners (ownership <0,42%)
3,543,602
14.43%
14.43%
Total number of shares at 31 March 2021
24,549,013
100%
100%
*
Nominee holder
POST-EMPLOYMENT BENEFITS
DEFINED CONTRIBUTION PLAN
The Group has defined contribution plans for its employees. Pension costs related to the company’s
defined contribution plan amounts to USD 558 thousand for 2021. For 2020 the corresponding costs
were USD 433 thousand.
The Norwegian Companies are obliged to have occupational pension in accordance with the
Norwegian act related to mandatory occupational pension. All Norwegian companies meet the
Norwegian requirements for mandatory occupational pension ("obligatorisk tjenestepensjon").
Correspondingly, the affiliates in Denmark and United Kingdom comply with the requirement for
mandatory occupational pension by local legislation
20
NORECO
2021 ANNUAL REPORT
116
ASSET RETIREMENT OBLIGATIONS
USD million
31.12.2021
31.12.2020
Balance on 01.01.
950
967
Provisions and change of estimates made during the year
65
23
Accretion expense
35
34
Incurred cost removal
(21)
(74)
Currency translation adjustment
(0)
0
Total provision made for asset retirement obligations
1,029
950
Break down of short-term and long-term asset retirement obligations
Short-term
26
24
Long-term
1,003
927
Total provision for asset retirement obligations
1,029
950
Estimates are based on executing a concept for abandonment in accordance with the Petroleum
Activities Act and international regulations and guidelines. The obligations are measured at net
present value, assuming an inflation rate of 2.0 percent and a nominal discount rate before tax of
5.0 percent. The credit margin included in the discount rate is 4.0 percent.
The asset retirement estimate from the operator includes both USD and DKK costs. The change in
estimate during the year includes a decrease of USD 52 million as a result of the weakening of DKK
to USD. Most of the removal activities are expected to be executed many years into the future. This
makes the ultimate asset retirement costs and timing highly uncertain. Costs and timing can be
affected by changes in regulations, technology, estimated reserves, economic cut-off date etc. The
provision at the reporting date represents management’s best estimate of the present value of the
future asset retirement costs required.
As part of the overall restructuring in 2015, an agreement was reached that entails that the partners
took over Noreco's share of the Nini/Cecilie licences, however Noreco remains liable for the asset
retirement obligation towards the license partners. The liability related to Nini/Cecilie is capped at
the escrow amount, which is currently USD 65 million/DKK 427 million.
The balance as per 31.12.2021 is USD 960 million for DUC, USD 65 million for Nini/Cecilie, USD
2.2 million for Lulita (non-DUC share) and USD 2.4 million for Tyra F-3 pipeline.
Sensitivity Analysis
The table below shows how the asset retirement obligation would be affected by changes in the
various assumptions, given that the remaining assumptions are constant.
Sensitivity
ARO
($'mm)
Change in
provision
Abandonment Cost Estimate increase +10%
1,057
10%
Abandonment Cost Estimate decrease -10%
865
-10%
21
NORECO
2021 ANNUAL REPORT
117
Discount rate +1.0%
830
-14%
Discount rate -1.0%
1,118
16%
Inflation rate +1.0%
830
-14%
Inflation rate -1.0%
1,115
16%
NORECO
2021 ANNUAL REPORT
118
BORROWINGS
22.1 SUMMARY OF BORROWINGS
31.12.2021
31.12.2020
USD million
Principal
amount
Book
value
Principal
amount
Book
value
NOR 13 Convertible Bond
185
157
171
131
NOR 14 Senior Unsecured Bond
175
165
175
169
Total non-current bonds
360
322
346
299
Reserve based lending facility
900
857
751
719
Deferred Consideration
25
25
25
25
Total non-current debt
925
882
776
744
Total borrowings
1,285
1,204
1,122
1,043
Cash flows
Non-cash changes
Movements in interest-bearing liabilities
31.12.20
Receipts /
payments
Deferred
consideration
Embedded
derivatives
Payment in
kind/Amorti
sation
31.12.21
Nor 13 Convertible Bond
131
-
-
-
27
157
Nor 14 Senior Unsecured Bond
169
(21)
-
-
17
165
Reserve based lending facility
719
91
-
-
47
857
Deferred Consideration
25
-
-
-
-
25
Total movement non-current interest-bearing liabilities
1,043
70
-
-
91
1,204
Total movement in interest-bearing liabilities
1,043
70
-
-
91
1,204
Note: Book values reported on the basis of amortised cost for NOR14, the reserve-based lending
facility and the convertible bond loan element of NOR13.
1) The Company issued a convertible bond loan of USD 158 million in 2019 where the lender
was granted a right to convert the loan into new shares in the Company by way of set-off
against the claim on the Company. The loan carries an interest of 8% p.a. on a PIK basis,
with an alternative option for the Company to pay cash interest at 6% p.a., payable semi-
annually. 2021 principal amount includes PIK interest issued.
2) The Company issued a senior unsecured bond of USD 175 million in 2019. The bond
carries an interest of 9% p.a., payable semi-annually. In July 2021, Noreco’s written
resolution regarding the addition of further headroom under the Leverage Ratio covenant
through to the end of 2023 was resolved and approved by the Company’s NOR14
bondholders. Based on this written resolution, the maximum Leverage Ratio has been
amended to 7.0x (from 5.0x) during the Tyra Redevelopment Period ending Q2 2023, 6.0x
(from 3.0x) during Q3 2023 and 5.0x (from 3.0x) during Q4 2023. From Q1 2024 onwards,
the maximum Leverage Ratio will revert to 3.0x per the original bond terms. In addition to
the change in maximum permitted leverage, Noreco’s minimum liquidity threshold has
22
NORECO
2021 ANNUAL REPORT
119
increased to USD 75 million until the end of 2023 (from USD 50 million until end Q2 2023
and USD 25 million during Q3 and Q4 2023).
3) The Company entered into an increased Reserve Based Lending Facility in Q2 2021. The
facility has a seven-year tenor with a maximum limit of USD 1.1 billion, with a maximum of
USD 1.0 billion available for cash drawdown by the Company. Interest is accrued on the
repayment amount with an interest rate comprising the aggregate of SOFR and 4.0% per
annum.
4) In accordance with the Sales Purchase Agreement USD 25 million of the consideration is
due the earliest of March 2023 or finalising Tyra Redevelopment.
22.2 DETAILS ON BORROWING
Details on borrowings outstanding on 31 December 2021
Reserve based lending facility
In April 2021, Noreco amended its existing senior secured reserve-based credit facility to commit to
a seven-year senior reserve-based credit facility of USD 1.1 billion. The facility is a reserve-based
credit facility secured against certain cash flows generated by the Group. The amount available
under the facility is recalculated every six months based upon the calculated cash flow generated by
certain producing fields and fields under development at an oil price and economic assumptions
agreed with the banking syndicate providing the facility. The facility is secured by a pledge over the
shares of certain Group companies, a pledge over the Company’s working interest in its share of the
DUC license and security over insurances, hedging contracts, project accounts, intercompany loans
and material contracts. The pledged assets on 31 December 2021 amounted to USD 1 818 million
and represented the carrying value of the pledge of the Group companies whose shares are pledged
as described in the section 5 below (Assets pledged as security for interest bearing debt).
Pledge value: carrying value of shares held in Altinex AS, Noreco Denmark A/S, Noreco Oil
Denmark A/S, Noreco Petroleum Denmark A/S by Noreco ASA.
NOR13
In July 2019, Noreco issued a subordinated convertible bond loan of USD 158 million with a tenor of
eight years where the lender was granted a right to convert the loan into new shares in the Company
at a conversion price of NOK 240 (USD 29.3) per share by way of set-off against the claim on the
Company. The loan has a mandatory conversion to equity after five years and carries an interest of
8% p.a. on a PIK basis, with an alternative option to pay cash interest at 6% p.a., payable semi-
annually. Should the instrument be in place beyond the five-year conversion period, the interest rate
on NOR13 will be reduced to 0.0 percent for the remaining term of the loan. The value of the
convertible bond at year end is USD 157 million, calculated on a straight-line basis including PIK
interest issued.
The convertible bond loan has been determined to contain embedded derivatives which are
accounted for separately as derivatives at fair value through profit or loss, while the loan element
subsequent to initial recognition is measured at amortized cost, a total of USD 4,5 million in
transaction cost is included in the amortized cost. The embedded derivative is valued on an option
valuation basis, the carrying value is USD 18 million (initial value USD 54 million). As a result of the
buyback of 299,925 shares at a price of NOK 242 per share on 23 January 2020, the conversion
NORECO
2021 ANNUAL REPORT
120
price for the NOR13 subordinated convertible bond issue was adjusted in accordance with the bond
terms, from USD 29.3398 to USD 28.9734, effective from the trade date of the purchase of shares.
The fair value calculation for the option portion of the NOR13 bond includes this update to the
conversion price. For inputs to the model used to calculate the fair value of the embedded
derivatives, please see note18.
NOR14
In December 2019, Noreco successfully completed the issue of a USD 175 million unsecured bond.
The proceeds are utilised for general corporate purposes and the bond carries an interest of 9% p.a.,
payable semi-annually, with a six and a half-year tenor.
22.3 COVENANTS
COVENANTS RELATING TO INTEREST BEARING DEBT
Reserve based lending facility
The reserve-based credit facility constitutes senior debt of the Company and is secured on a first
priority basis against certain of the Company´s subsidiaries and their assets. The reserve-based
credit facility agreement contains a financial covenant that the ratio of Net Debt to EBITDAX
(earnings before interest, tax, depreciation, amortisation and exploration) shall be: less than 6.0:1.0
at the end of financial years 2021 and 2022; less than 3.5:1.0 at the end of financial year 2023; and
less than 3.0:1.0 at the end of financial year 2024 onwards until the expiry of the facility. Each test
is carried out on the audited full year financial statements of Noreco ASA. Noreco must also
demonstrate minimum liquidity on a look forward basis of USD 50 million during the relevant period,
which is currently to the completion of the Tyra redevelopment project. The agreement also includes
special covenants which, among other, restrict the Company from taking on additional secured debt,
provide parameters for minimum and maximum hedging requirements and restrict declaration of
dividends or other distributions. Noreco is in compliance with these covenants at the end of 2021.
NORECO
2021 ANNUAL REPORT
121
NOR14
In July 2021, Noreco’s written resolution regarding the addition of further headroom under the
Leverage Ratio covenant through to the end of 2023 was resolved and approved by the Company’s
NOR14 bondholders. Based on this written resolution, the maximum Leverage Ratio has been
amended to 7.0x (from 5.0x) during the Tyra Redevelopment Period ending Q2 2023, 6.0x (from
3.0x) during Q3 2023 and 5.0x (from 3.0x) during Q4 2023. From Q1 2024 onwards, the maximum
Leverage Ratio will revert to 3.0x per the original bond terms. In addition to the change in maximum
permitted leverage, Noreco’s minimum liquidity threshold has increased to USD 75 million until the
end of 2023 (from USD 50 million until end Q2 2023 and USD 25 million during Q3 and Q4 2023).
22.4 PAYMENT STRUCTURE
Payment structure (USD million):
Year
NOR13
NOR14
Reserve Based
Lending Facility
Deferred
Consideration
Total
2022
-
-
-
-
-
2023
-
-
-
25
25
2024
-
-
38
-
38
2025
-
-
275
-
275
2026
-
175
275
-
450
2027
-
-
275
-
275
2028
-
-
38
-
38
Total
-
175
900
25
1,100
Interest payments (USD million):
Year
NOR13*
NOR14
Reserve Based
Lending Facility
Deferred
Consideration
Total
Interest rate
-
9.0 %
SOFR**
4.0 %
2022
-
16
41
1
57
2023
-
16
41
1
57
2024
-
16
40
-
56
2025
-
16
35
-
50
2026
-
8
21
-
29
2027
-
-
8
-
8
2028
-
-
1
-
1
Total
-
71
186
2
259
* NOR13 carries a variable interest charge of: (i) 6% per annum in cash, payable semi-annually, or;
(ii) 8% per annum payment in kind (“PIK”) cumulative interest, rolled up semi-annually, to add to
NOR13 capital on conversion at expiry of the bond. Currently the company has elected the PIK
interest of 8% and is therefore forecasting no cash interest payments on NOR13 in the above table.
** In Q3 2021 the Company entered a USD 1.0 billion swap transaction with a group of banks to fix
the Company’s floating interest rate (LIBOR/SOFR from 01 November 2021) exposure under its
Reserve Lending Facility from November 2021 until 30 June 2024. Noreco will as a result pay interest
on its RBL cash drawings equal to 0.4041 percent plus the applicable margin.
NORECO
2021 ANNUAL REPORT
122
22.5 ASSETS PLEDGED AS SECURITY FOR INTEREST BEARING DEBT
NET BOOK VALUE IN THE SEPARATE FINANCIAL STATEMENTS OF ASSETS PLEDGED AS SECURITIES
The Group has the following pledged assets for the Reserve Based Lending facility:
USD million
2021
2020
Noreco ASA shares in Altinex AS
393
393
Altinex AS shares in Noreco Olie- og Gasutvinding Danmark B.V and other companies
1,295
1,295
Loans from Parent to subsidiaries
300
130
Total net book value
1,988
1,818
TRADE PAYABLES AND OTHER PAYABLES
USD million
2021
2020
Trade payable
5
1
Liabilities to operators relating to joint venture licences
73
97
Over-lift of oil/NGL
-
13
Accrued interest
2
3
Salary accruals
2
1
Public duties payable
1)
14
159
Other current liabilities
33
13
Total trade payables and other current liabilities
130
286
1)
the first quarter of 2021, with the payment date having been delayed by the Danish government as a response to the impact of COVID-19 on the
economy.
Trade and other payables held in currency
USD million
2021
2020
USD
83
49
DKK
23
220
EUR
22
13
GBP
2
1
NOK
1
3
Total
130
286
23
NORECO
2021 ANNUAL REPORT
123
SHARE-BASED COMPENSATION
Please see the Executive Remuneration Report 2021 for more details on share-based compensation
to key Management and Board of Directors in the period 2017-2021.
Total share options outstanding as at 1 January 2020
956,954
Share options granted in 2020
420,000
Amendment to option programme
(323,086)
Share options relinquished in 2020
(70,000)
Outstanding at 31 December 2020
983,868
Share options relinquished in 2021
(235,000)
Outstanding at 31 December 2021
748,868
THE EXPENSE RECOGNISED DURING THE YEAR IS SHOWN IN THE FOLLOWING TABLE
:
USD million
2021
2020
Expense arising from equity-settled share-based payment transactions
0
2
Total expense arising from share-based payment transactions
0
2
THE FOLLOWING TABLE LIST THE INPUTS TO THE MODEL USED:
Weighted averages
2021
Fair value at valuation date (NOK)
83
Share price at valuation date (NOK)
143
Exercise price (NOK)
160
Expected volatility
57.49%
Expected life (years)
2.7
Expected dividends
n/a
Risk-free rate (based on government bonds)
0.35%
Model used
Black
- Scholes - Merton
GUARANTEES
OVERVIEW OF ISSUED GUARANTEES ON 31 DECEMBER 2021
The parent company of the Group, Norwegian Energy Company ASA ("Noreco") has issued a parent
company guarantee on behalf of its subsidiary Norwegian Energy Company UK Ltd and Noreco Oil
(UK) Limited. Noreco guarantees that, if any sums become payable by Norwegian Energy Company
UK Ltd or by Noreco Oil (UK) Limited to the UK Secretary of State under the terms of the licence
and the company does not repay those sums on first demand, Noreco shall pay to the UK Secretary
of State on demand an amount equal to all such sums. Department for Business, Energy & lndustrial
Strategy, declined at this time to withdraw Noreco Oil (UK)’s s29 notice with respect to the Huntington
platform and pipeline. Under the forfeiture agreement Premier assumes this risk as between Premier
24
25
NORECO
2021 ANNUAL REPORT
124
and Noreco so, while this contingent liability to the Secretary of State would need to be recognised
in any future sale of the company, Noreco Oil (UK) Limited does have recourse against Premier if it
defaults in its performance.
On 6 December 2007, Noreco issued a parent company guarantee to the Danish Ministry of Climate,
Energy and Building on behalf of its subsidiary Noreco Oil Denmark A/S and Noreco Petroleum
Denmark A/S.
On 31 December 2012, Noreco issued a parent company guarantee on behalf of its subsidiary
Noreco Norway AS. Noreco guarantees that, if any sums become payable by Noreco Norway AS to
the Norwegian Secretary of State under the terms of the licences and the company does not repay
those sums on first demand, Noreco shall pay to the Norwegian Secretary of State on demand an
amount equal to all such sums. Noreco Norway AS was liquidated in 2018, however as per 31
December 2021 the guarantee has not been withdrawn.
In connection with completion of the acquisition of Shell Olie- og Gasudvinding Denmark B.V. in
2019, Noreco issued a parent company guarantee to the Danish state on behalf of the two acquired
companies for obligations in respect of licence 8/06, area B and the Tyra West – F3 gas pipeline. In
addition, Noreco issued a parent company guarantee towards the lenders under the Reserve Based
Lending Facility Agreement and to Total E&P Danmark A/S for its obligations under the DUC JOA
and to Shell Energy Europe Limited related to a gas sales and purchase agreement (capped at EUR
30 million).
INVESTMENTS IN JOINTLY OWNED ASSETS
Investments in jointly own assets are included in the accounts by recognize its share of the assets,
liabilities, revenues and expenses related to the joint operation.
The Group holds the following license equities on 31 December 2021:
Licence
Field
Country
Ownership share
DUC
DUC
Denmark
36.8 %
1/90
Lulita Part
Denmark
20.0 %
7/86
Lulita Part
Denmark
20.0 %
8/06B
Denmark
36.8 %
CONTINGENCIES AND COMMITMENTS
FINANCIAL COMMITMENTS
As a partner in DUC, the Company has commitment to fund its proportional share of the budget and
work programmes of the DUC. In December each year the operating budget (which includes
26
27
NORECO
2021 ANNUAL REPORT
125
operating expenditures, capital expenditure related to production, exploration and abandonment) for
the following year is agreed amongst the DUC partners. For the coming four years the average
operating budget is expected to be around USD 230 million per year. Capital and abandonment
expenditure for individual projects, such as Tyra, are approved separately.
Noreco’s capital commitments are principally related to the ongoing Tyra redevelopment project. The
gross capital and abandonment expenditure budget for the Tyra redevelopment project at the time
of the investment decision was DKK 21 billion and DKK 17.0 billion had been incurred by the end of
2021. Based on the current project schedule, Noreco will be required to fund its proportional share
of this remaining expenditure over the next three years with Tyra to restart production by June 2023.
The DUC is obliged to use the specially constructed oil trunk line, pumps and terminal facilities and
to contribute to the construction and financing costs thereof as a result of an agreement entered into
with the Danish government. This obligation is approximately USD 18 million per year (2020: USD
22 million).
In addition to the above and in order to obtain the consent of Total E&P Danmark A/S to the
acquisition, Noreco Oil Denmark A/S agreed to deposit cash in a secured cash call security account
in favour of Total E&P Danmark A/S (the concessionaire in respect of the Sole Concession). The
cash call security account was funded in an amount of USD 50 million upon completion of the
transaction. This escrow amount increased by USD 15 million on a monthly basis during the second
half of 2020 up to a maximum amount of USD 140 million by January 2021. On 31 December 2021
the escrow account was USD 140 million. All payment obligations from Noreco to the cash call
security account have been made and there will be no further increase. The cash call security amount
will then decrease to USD 100 million at the end of the year in which the Tyra redevelopment project
is completed and can, on certain terms and conditions, be replaced with a letter of credit or other
type of security.
GUARANTEES
The Company has provided a parent company guarantee to the Danish Ministry of Climate, Energy
and Utilities related to the Group’s activities on the DCS, including Noreco’s participation in the DUC
and the Lulita licence. The Company has also provided a parent company guarantee towards the
lenders in relation to the Company’s USD 1.1 billion reserve-based lending facility and customary
obligations/guarantees under joint operating agreements. Noreco has also provided a parent
company guarantee to Shell Energy Europe Limited in relation to its subsidiary Noreco Oil Denmark
A/S’s obligations under a gas offtake and transportation agreement.
Furthermore, the Company has provided a parent company guarantee to Total E&P Danmark A/S
for its obligations under the JOA together with a guarantee from Shell. Noreco has provided standby
letters of credit of USD 100 million, issued under the USD 100 million sub-limit of the RBL facility for
the benefit of Shell in connection with this guarantee.
In relation to Noreco’s historic operations in the UK North Sea, the Company has issued a parent
company guarantee on behalf of its subsidiaries Norwegian Energy Company UK Ltd and Noreco
Oil (UK) Limited.
CONTINGENT LIABILITIES
In relation to the Nini and Cecilie fields, Noreco was in 2015 prevented from making payments for its
share of production costs and was consequently in breach of the licence agreements. In accordance
with the JOAs, the Nini and Cecilie licences were forfeitured and the licences were taken over by the
partners, whereas the debt remained with Noreco. Noreco and representatives from the bondholders
reached an agreement during 2015 which entails that the Danish Noreco entity remains liable for the
NORECO
2021 ANNUAL REPORT
126
abandonment obligation, but the liability is in any and all circumstances limited to a maximum amount
equal to the restricted cash account of USD 65 million (DKK 427 million), adjusted for interest. The
total provision made for the asset retirement obligations reflects this.
The Company has received a claim regarding the level of Ørsted pipeline tariffs charged since 2013.
As the relevant authority (Forsyningstilsynet) is currently reassessing their view, Noreco believes
that there is no basis for this claim prior to a new ruling setting the appropriate level of these tariffs.
Given the outcome of this and any consequent liability is not yet known, the Company has not
recognized a provision for this claim.
During the normal course of its business, the company may be involved in disputes, including tax
disputes. The company has not made accruals for possible liabilities related to litigation and claims
based on management's best judgment.
Noreco has unlimited liability for damage in relation to its participation in the DUC. The Company
has insured its pro rata liability in line with standard market practice.
Apart from the issues discussed above, the Group is not involved in claims from public authorities,
legal claims or arbitrations that could have a significant negative impact on the Company’s financial
position or results.
RELATED PARTY TRANSACTIONS
Purchase of services includes consultancy cost from S&U Trading ApS (owned by former Board
Member Lars Purlund) of USD 0,1 million.
The Group did not have any other transactions with any other related parties during 2021.
SUBSEQUENT EVENTS
There are no events with significant accounting impacts that have occurred between the end of the
reporting period and the date of this report. The Company monitors the Russia–Ukraine war
closely and has not identified any negative impact on the Company’s assets or income.
28
29
NORECO
2021 ANNUAL REPORT
127
NORECO
2021 ANNUAL REPORT
128
NORECO
2021 ANNUAL REPORT
129
NORECO
2021 ANNUAL REPORT
130
NORECO
2021 ANNUAL REPORT
131
NORECO
2021 ANNUAL REPORT
132
NORECO
2021 ANNUAL REPORT
133
Statement of Compliance
BOARD AND MANAGEMENT CONFIRMATION
Today, the board of directors and the managing director reviewed and approved the board of directors’ report and the
Norwegian Energy Company ASA consolidated and separate annual financial statements as of 31 December 2021.
To the best of our knowledge, we confirm that:
• the Norwegian Energy Company ASA consolidated annual financial statements for 2021 have been prepared in
accordance with IFRSs and IFRICs as adopted by the European Union (EU), and additional Norwegian disclosure
requirements in the Norwegian Accounting Act, and that
• the financial statements for Norwegian Energy Company ASA have been prepared in accordance with the Norwegian
Accounting Act and Norwegian Accounting Standards, and
• that the board of directors’ report for the group and the parent company is in accordance with the requirements in the
Norwegian Accounting Act and Norwegian Accounting Standard no 16, and
• that the information presented in the financial statements gives a true and fair view of the Company’s and the Group’s
assets, liabilities, financial position and results for the period viewed in their entirety, and
• that the board of directors’ report gives a true and fair view of the development, performance, financial position, principle
risks and uncertainties of the Company and the group.
Oslo, 11 April 2022
Riulf Rustad Tone Kristin Omsted Marianne Lie Colette Cohen
Executive Chair Board Member Board Member Board Member
Robert J. McGuire Jan Lernout Peter Coleman Euan Shirlaw
Board Member Board Member Board Member Acting Managing Director
Alternative Performance Measures
NORECO
2021 ANNUAL REPORT
134
Noreco chooses to disclose Alternative
Performance Measures as part of its financial
reporting as a supplement to the financial
statements prepared in accordance with IFRS.
This information is provided as a useful
supplemental information to investors, security
analysts and other stakeholders to provide an
enhanced insight into the financial development
of Noreco’s business operations and to improve
comparability between periods.
Abandonment spent (abex)
payment for removal and decommissioning of oil
fields, to highlight the cash effect for the period.
Adj. EBITDA
the volume guarantee in the period and reflects
a payment from Shell if the production
performance of the business is below
expectations set at the time of the signing of the
SPA. The purpose of the Adj. EBITDA is to show
how Noreco’s contribution from the operations,
had the performance been in line with
expectations and is currently reflected in the
company’s cashflow statement and balance
sheet only.
It is also adjusted for exceptional costs in relation
to
the transaction that are not reflective of the
underlying performance of the business, cost
from share-base payment arrangements.
Adjusted EBITDA
USD million
2021
2020
EBITDA
250
250
Claim volume floor guarantee
-
98
Non-payment insurance
7
7
Share-base payment
0
2
Adj. EBITDA
257
357
EBITDA
depreciation, depletion, amortization and
impairments. EBITDA assists in comparing
performance on a consistent basis without
regard to depreciation and amortization, which
can vary significantly depending on accounting
methods or non-operating factors and provides a
more complete and comprehensive analysis of
our operating performance relative to other
companies.
Effective Oil Price
price adjusted for derivative effects.
Interest-bearing debt
of the current and non-current interest-bearing
debt.
Net interest-bearing debt
as cash and cash equivalents reduced by current
and non-current interest-bearing debt. The RBL
facility and bond loans are included in the
calculation with the total amount outstanding and
not the amortised cost including transaction cost.
Interest-bearing debt
USD million
31.12.2021
31.12.2020
Convertible bond loan
(157)
(131)
Alternative Performance Measures
NORECO
2021 ANNUAL REPORT
135
Senior Unsecured bond loan
(165)
(169)
Reserve based lending facility
(857)
(719)
Other interest-bearing debt
(25)
(25)
Interest-bearing debt
(1,204)
(1,043)
Net Interest-bearing debt
USD million
31.12.2021
31.12.2020
Cash and cash equivalents
123
259
Convertible bond loan
(185)
(171)
Senior Unsecured bond loan
(175)
(175)
Reserve based lending facility
(900)
(751)
Other interest-bearing debt
(25)
(25)
Net interest-bearing debt
(1,162)
(862)
NORECO
2021 ANNUAL REPORT
136
SUPPLEMENTARY OIL AND GAS INFORMATION (UNAUDITED)
In March 2022 the Group reported oil and gas reserves, the report is reported separately from the
annual report 2021. RISC UK ltd (RISC) has independently assessed the year-end 2021 reserves
associated with Noreco’s interest in the Danish Underground Consortium (DUC) assets. Reserves
are reported according to Society of Petroleum Engineering Petroleum Resources Management
System (SPE PRMS) 2018 standards.
The reserves for the DUC portfolio and Lulita are shown below using the figures from the Annual
Statement of Reserves issued in March as basis.
TOTAL RESERVES AS OF 31.12. 2021
Liquids
Gas
Mill
Interest
Net mill
2P/P50
(mill bbl)
(mmboe)
boe
%
boe
Dan
71.3
5.0
76.3
36.8 %
28.1
Kraka
10.3
0.7
11.0
36.8 %
4.1
Gorm
21.7
-
21.7
36.8 %
8.0
Rolf
2.5
-
2.5
36.8 %
0.9
Skjold
31.8
-
31.8
36.8 %
11.7
Halfdan
103.5
10.7
114.1
36.8 %
42.0
Halfdan NE
2.8
14.6
17.4
36.8 %
6.4
Tyra
38.3
85.3
123.6
36.8 %
45.5
Valdemar
39.2
18.7
57.9
36.8 %
21.3
Roar
5.3
12.0
17.4
36.8 %
6.4
Harald
0.9
4.5
5.4
36.8 %
2.0
Lulita
0.7
0.5
1.2
28.4 %
0.3
Total
328.3
152.0
480.2
176.6
NORECO
2021 ANNUAL REPORT
137
Information About Noreco
ESEF information:
Name of reporting entity or other means of identification
Explanation of change in name of reporting entity or other
means of identification from end of preceding reporting
period
Domicile of entity
Legal form of entity
Country of incorporation
Address of entity's registered office
Principal place of business
Description of nature of entity's operations and principal
activities
Name of parent entity
Name of ultimate parent of group
Head Office Noreco
Headquarter
Nedre Vollgate 1, 0158 Oslo, Norway
Telephone
+47 22 33 60 00
Internet
www.noreco.com
Organisation number
NO 987 989 297 MVA
Financial Calendar 2022
10 May
Q1 2022 Report
19 May
Annual General Meeting
12 July
Q2 2022 Report
26 October
Q3 2023 Report
Board of Directors
Riulf Rustad
Chair
Marianne Lie
Tone Kristin Omsted
Colette Cohen
Robert J. McGuire
Jan Lernout
Peter Colman
Management
Euan Shirlaw
Acting Managing Director and Chief Financial Officer
Marianne Eide
EVP, Upstream
Cathrine Torgersen
EVP, Investor Relations & ESG
Hege Hayden
EVP, People & Capability
Investor Relations
Phone
+47 22 33 60 00
E-mail
investorrelations@noreco.com
Annual Reports
NORECO
2021 ANNUAL REPORT
138
Annual reports for Noreco are available on
www.noreco.com
Quarterly publications
Quarterly reports and supplementary information for investors and analysts
are available on
www.noreco.com
. The publications can be ordered by
e-mailing
investorrelations@noreco.com
.
News Releases
In order to receive news releases from Noreco, please register
on
www.noreco.com
investorrelations@noreco.com
.