They have 83m boe in 2P reserves. At a production of 35-40k boe/d this represents a reserve life of around 6 years. Keep in mind that they are constantly doing improvements on their fields and extended reserves life by 15 years at Draugen. Furthermore, they will continue to do M&A in the following years and grow production & reserves.
Yes: a) 1/3rd of their reserves are Draugen, b) 1/3rd the other currently-producing fields (which have 1-3 years reserves left), and c) 1/3rd Stratjford.
So it all depends on Stratjford ramping up to replace 2/3rd of their 2023 production in b).
On the positive side, running an old field should be a lot less risk than building new wells.
Exactly ! This is what was mentioned during the call several times. Statfjord is a gigantic field, with huge potential. Also Lime Production (co owner of Brage and Yme) reported record production from Brage and Yme for January.
Digging through OKEA, it may be cheap on an FCF basis because of low reserves. Looking at slides 11 (top left - production) and 9 (bottom right - 2P reserves). Most of their fields (Brage, Gjoa, Yme, Ima Asen) have only 1-3 years 2P reserves. Thats 2/3rds of their production! Only Draugen has 10 years. That would be why the market considers Stratjford so important.
I am coming around to agreeing with Var Energi. Though I wish they paid less dividends.
Those sound like massive decline rates. If the FCF is going back to buy new assets to replace production that would kill the thesis.
Q. They note that Q4 numbers look higher because of the lift date of volumes. Is is possible that these lift numbers are over estimating cash flow here ?
Good point. Yes, volume was a lot higher in Q4 than in Q1-Q3. Especially for Brage. But even if we take the average for Brage over 2023 (lets eyeball it and say 4.2 kboepd), we still get less than 2 years reserves. And these are 2P reserves (50-100% chance of recovery).
I am a beginner in this area, my guess is that since OKEA's business is buying old assets, they are trying to squeeze the last drops of juice out of the fruit, the market gives them low PE because the future uncertainty obtaining more fruit/juice.
I agree it's a sound business model of squeezing out the last drop of value from the assets. I guess what I struggle with is, how much of the FCF is real FCF.
"The company is guiding for CAPEX of 2.8-3.3 Billion NOK," Do you know how much is maintainance and growth capex?
They said, that the Statfjord acquisition resulted in higher cost and therefore higher CAPEX. So excluding Statfjord, we can probably reduce this CPEX by 1 Billion. Sadly they don’t provide much further info. What I want to point out, is that Statfjord is massive.
Q4-report: «Statfjord is the third largest field on the NCS with more than 6bn bbl initial oil in place volumes; each 1% increase in recovery factor will add 60 mmboe gross reserves».
Looking at the track record of OKEA, even a small increase in efficiency and drilling, could have a huge impact on the company.
They said in the call that cash flow was higher because of higher production and lifted volumes sold from Q3 in Q4. But if I look at how many barrels they sold, I see around 26k boe/d. Anyways, even if this is true, we can calculate the average cash flow from operating activities. It would be 1.234 Billion NOK. Although production was higher in Q4 then in Q3. If we annualize this number, we still get to around 5 Billion NOK. Statfjord will boost this number by 20-40%, so my rough estimate of 6 Billion NOK is not overstated, even if q4 was higher because of lifted volumes.
The valuation for Var Energy looks cheap when compared to the big US oil companies like Exxon and Chevron. It also looks like good value when compared to big European oil companies like Shell and Equinor.
But what about the valuation when compared to a company like Harbour Energy assuming the Wintershall transaction happens without any problems?
Assuming current share prices for Var and Harbour stay the same :
Var Energy will have about 300k boepd and a Market Cap of about £ 6 Billion
And Harbour Energy will have about 500k boepd and a Market Cap of about £ 4.5 Billion
The price / boepd for Harbour Energy will be less than 50% of Var Energy and both will have most of their
production from Norway
So is Harbour Energy even better value than Var Energy?
Harbour is cheap. With VAR we have to think 2 year into the future. CAPEX will drop, Margins will I car see and production will likely hit 400k boe/d. Harbour Energy will post the acquisition be very cheap, but Cash Flow will be negatively impacted for the next period of time (CAPEX). Nonetheless both appear attractive at current valuations, especially in the context of rising oil prices.
I find amazing that illiterate people dare to write about finance... People that cannot figure out basic things like that "positive headwinds" are actually called tailwinds (positive headwinds do not exist... oxymoron?). How valuable is the reasoning of someone that cannot make 1+1 = 2 ?
They have 83m boe in 2P reserves. At a production of 35-40k boe/d this represents a reserve life of around 6 years. Keep in mind that they are constantly doing improvements on their fields and extended reserves life by 15 years at Draugen. Furthermore, they will continue to do M&A in the following years and grow production & reserves.
Yes: a) 1/3rd of their reserves are Draugen, b) 1/3rd the other currently-producing fields (which have 1-3 years reserves left), and c) 1/3rd Stratjford.
So it all depends on Stratjford ramping up to replace 2/3rd of their 2023 production in b).
On the positive side, running an old field should be a lot less risk than building new wells.
Exactly ! This is what was mentioned during the call several times. Statfjord is a gigantic field, with huge potential. Also Lime Production (co owner of Brage and Yme) reported record production from Brage and Yme for January.
https://www.okea.no/wp-content/uploads/2024/02/okea-q4-2023-quarterly-report.pdf
Digging through OKEA, it may be cheap on an FCF basis because of low reserves. Looking at slides 11 (top left - production) and 9 (bottom right - 2P reserves). Most of their fields (Brage, Gjoa, Yme, Ima Asen) have only 1-3 years 2P reserves. Thats 2/3rds of their production! Only Draugen has 10 years. That would be why the market considers Stratjford so important.
I am coming around to agreeing with Var Energi. Though I wish they paid less dividends.
Those sound like massive decline rates. If the FCF is going back to buy new assets to replace production that would kill the thesis.
Q. They note that Q4 numbers look higher because of the lift date of volumes. Is is possible that these lift numbers are over estimating cash flow here ?
I gave the wrong link above, the correct one is slide 11 here: https://www.okea.no/wp-content/uploads/2024/02/okea-q4-2023-quarterly-results-presentation.pdf
Good point. Yes, volume was a lot higher in Q4 than in Q1-Q3. Especially for Brage. But even if we take the average for Brage over 2023 (lets eyeball it and say 4.2 kboepd), we still get less than 2 years reserves. And these are 2P reserves (50-100% chance of recovery).
I am a beginner in this area, my guess is that since OKEA's business is buying old assets, they are trying to squeeze the last drops of juice out of the fruit, the market gives them low PE because the future uncertainty obtaining more fruit/juice.
I agree it's a sound business model of squeezing out the last drop of value from the assets. I guess what I struggle with is, how much of the FCF is real FCF.
"The company is guiding for CAPEX of 2.8-3.3 Billion NOK," Do you know how much is maintainance and growth capex?
They said, that the Statfjord acquisition resulted in higher cost and therefore higher CAPEX. So excluding Statfjord, we can probably reduce this CPEX by 1 Billion. Sadly they don’t provide much further info. What I want to point out, is that Statfjord is massive.
Q4-report: «Statfjord is the third largest field on the NCS with more than 6bn bbl initial oil in place volumes; each 1% increase in recovery factor will add 60 mmboe gross reserves».
Looking at the track record of OKEA, even a small increase in efficiency and drilling, could have a huge impact on the company.
They said in the call that cash flow was higher because of higher production and lifted volumes sold from Q3 in Q4. But if I look at how many barrels they sold, I see around 26k boe/d. Anyways, even if this is true, we can calculate the average cash flow from operating activities. It would be 1.234 Billion NOK. Although production was higher in Q4 then in Q3. If we annualize this number, we still get to around 5 Billion NOK. Statfjord will boost this number by 20-40%, so my rough estimate of 6 Billion NOK is not overstated, even if q4 was higher because of lifted volumes.
The valuation for Var Energy looks cheap when compared to the big US oil companies like Exxon and Chevron. It also looks like good value when compared to big European oil companies like Shell and Equinor.
But what about the valuation when compared to a company like Harbour Energy assuming the Wintershall transaction happens without any problems?
Assuming current share prices for Var and Harbour stay the same :
Var Energy will have about 300k boepd and a Market Cap of about £ 6 Billion
And Harbour Energy will have about 500k boepd and a Market Cap of about £ 4.5 Billion
The price / boepd for Harbour Energy will be less than 50% of Var Energy and both will have most of their
production from Norway
So is Harbour Energy even better value than Var Energy?
Harbour is cheap. With VAR we have to think 2 year into the future. CAPEX will drop, Margins will I car see and production will likely hit 400k boe/d. Harbour Energy will post the acquisition be very cheap, but Cash Flow will be negatively impacted for the next period of time (CAPEX). Nonetheless both appear attractive at current valuations, especially in the context of rising oil prices.
I find amazing that illiterate people dare to write about finance... People that cannot figure out basic things like that "positive headwinds" are actually called tailwinds (positive headwinds do not exist... oxymoron?). How valuable is the reasoning of someone that cannot make 1+1 = 2 ?