Purpose
Since its establishment in 2001, Petoro has served as the licensee for the state’s participating interests in production licences, fields, pipelines and land-based facilities. Petoro is charged with managing the SDFI portfolio on the basis of sound business principles. As of the end of 2017, the portfolio consisted of 186 production licences, six more than at the beginning of the year. In January 2018, Petoro received participating interests for management in 17 production licences under the Awards in Predefined Areas (APA) 2017.
Confirmation
The annual accounts are presented in accordance with the Provisions on Financial Management in Central Government, circular R-115 from the Ministry of Finance, and requirements in the instructions on financial management of the SDFI in Petoro, with the exceptions granted for the SDFI. The board hereby confirms that the annual accounts, which comprise the appropriation and capital accounts prepared on a cash basis, provide a true and fair picture in accordance with the cash basis. The general ledger accounts report presents accounting figures for the SDFI as reported to the government accounts in accordance with the standard chart of accounts for state-owned undertakings.
The board confirms that the company accounts have been prepared in accordance with the Accounting Act and Norwegian generally-accepted accounting principles (NGAAP), and provide a true and fair picture of the SDFI’s assets, obligations and financial results at 31 December 2017.
Assessment of significant factors
Appropriation and capital accounts
According to the supplementary allocation letter dated 21 June 2017, the SDFI’s appropriation for investments totalled
1 NOK 27.0 billion. Pursuant to the supplementary allocation letter dated 14 December 2017, the appropriation for operating profit was
2 NOK 86.9 billion. The appropriation for interest on the state’s capital
3 was NOK 3.7 billion. Operating income in accordance with the cash basis is affected first and foremost by the price of oil and gas and the volume of the SDFI’s production sold. Statoil is responsible for marketing and sale of the SDFI’s products under standing instructions for marketing and sale.
The general ledger accounts report
in accordance with the cash basis presents net reported revenue including financial income of NOK 145 billion in 2017, compared with NOK 127.9 billion the previous year. This consists mainly of revenue from the sale of oil and gas. The revenue is affected by higher oil and gas prices in 2017, in addition to a higher gas volume. Expenses reported in the appropriation accounts comprise payments of NOK 26.6 billion as investments and NOK 28.8 billion as operating expenses. Payments in 2016 amounted to NOK 27.8 billion related to investments and NOK 31.2 billion related to operations. Payments to operations were primarily related to the operation of fields and facilities, processing and transport costs, as well as exploration and field development expenses. This is in addition to payments of financial expenses. Depreciation on fields and facilities amounted to NOK 24.6 billion in 2017, compared with NOK 23.3 billion the previous year.
The SDFI accounts based on the accounting act include a number of significant estimates which are subject to uncertainties and rely on discretionary assessments. These e.g. include capitalised exploration costs, estimates of reserves as the basis for depreciation, decommissioning expenses based on estimates for costs to be incurred far into the future, and assessment of impairment charges on tangible fixed assets.
The financial result for 2017 was a net income of NOK 98.9 billion, NOK 41.5 billion higher than in 2016. Net cash flow transferred to the state amounted to NOK 87.2 billion, compared with NOK 65.9 billion the previous year. Significantly higher oil and gas prices in 2017, compared with 2016, impacted both the cash flow and the financial result for the year. The price of oil averaged NOK 449 per bbl in 2017, compared with NOK 361 the previous year. The average price of gas was NOK 1.72 per scm in 2017, compared with NOK 1.62 per scm in 2016. Total production amounted to 1.110 million bbls of oil equivalent (o.e) per day, which was approx. 7 per cent higher than production in 2016. Gas production reached a record level in 2017, 13 per cent higher than in 2016. The increase is primarily due to higher, flexible gas production in order to exploit higher prices. Natural production decline from existing wells means that liquids production was nearly three per cent lower than in 2016.
Total operating expenses came to NOK 50.9 billion, compared with NOK 61.5 billion in 2016, as a result of lower depreciation and impairment. The cost of operating fields, pipelines and onshore facilities came to NOK 14.3 billion, on par with the previous year. Depreciation and impairment amounted to NOK 21.2 billion, NOK 9.4 billion lower than the previous year. This reduction is primarily due to the reversing of previous impairment linked to Draugen and Martin Linge as a result of cost efficiency measures and an increased reserve base, respectively, as well as an expectation of higher prices. Impairment has been undertaken for Valemon as a result of a reduced reserve base. Petoro was a participant in 12 of the 34 exploration wells completed on the Norwegian Shelf in 2017. A total of 8 new discoveries were made.
Costs incurred for investment in 2017 totalled NOK 25.5 billion, about NOK 3 billion lower than the year before. The reduction was greatest within production drilling as a result of reduced drilling activity linked to Troll, Martin Linge and Gullfaks.
The portfolio’s estimated remaining reserves of oil, condensate, NGL and gas totalled 5879 million boe at 31 December, down by 89 million boe from the year before. Reserve growth in 2017 primarily came from Johan Castberg, but also from the mature fields Snorre, Åsgard, Heidrun, and Visund. Nevertheless, the growth was not sufficient to offset the reduction in remaining reserves from production in 2017.
The book value of assets at 31 December 2017 was NOK 247 billion. The assets mainly consist of fixed assets related to field installations, pipelines and onshore plants, as well as current debtors. Previous impairment of the assets were reversed by about NOK 4.7 billion on the basis of higher price expectations and an increased reserve base. This was partially offset by impairment to fair value for a field totalling NOK 1 billion. The assets were impaired by about NOK 5 billion in 2016. Equity at 31 December came to NOK 168 billion. A previous error in the calculation of income not yet earned for a net profit agreement linked to an expected decommissioning liability for Valhall was corrected against equity. This correction amounted to NOK 3.2 billion. Future decommissioning liabilities are estimated at NOK 67.6 billion, which was on par with the previous year.
Additional information
The Office of the Auditor General (OAG) is the external auditor, and approves the annual accounts for the SDFI. On completing its annual audit, the OAG issues a final audit letter (report) which summarises the conclusion of its audit work. The result of the audit will be reported by 1 May 2018.
In addition, the board has appointed PwC to conduct a financial audit of the SDFI accounts as part of Petoro’s internal audit process. PwC submits a written report to the board concerning the annual accounts prepared on a cash basis and based on the accounting principles founded on Norwegian auditing standard RS800 “Special considerations in the auditing of accounts prepared pursuant to a special-purpose framework”. PwC’s audit work forms the basis for the OAG’s review of the annual accounts.
