Objective
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 2016, the portfolio consisted of 180 production licences, 6 more than at the beginning of the year. In January 2017, Petoro received participating interests in 13 production licences under the Awards in Predefined Areas (APA) 2016.
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 2016.
Assessment of significant factors
Appropriation and capital accounts
According to the supplementary letter of assignment dated 23 December 2016, the SDFI’s appropriation for investments
3 is NOK 28 billion and for operating income
4 NOK 63.5 billion. The appropriation for interest on the state’s capital
5 is NOK 3.9 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 127.9 billion in 2016, compared with NOK 158.8 billion the previous year. This consists mainly of revenue from the sale of oil and gas. The revenue is particularly influenced by lower oil and gas prices in 2016, as well as lower gas volumes. Expenses reported in the appropriation accounts comprise payments of NOK 27.8 billion as investments and NOK 32.0 billion as operating expenses. This is in addition to payments of financial expenses. Depreciation of fields and facilities amounted to NOK 23.3 billion in 2016, compared with NOK 23.7 billion the previous year. Payments to operations were primarily related to the operation of fields and facilities, processing and transport costs, as well as exploration and field expenses. Payments in 2015 amounted to NOK 28.9 billion related to investments and NOK 34.7 billion related to operations.
The SDFI accounts based on the accounting act include a number of significant estimates which are subject to uncertainties and rely on judgements. 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 2016 was a net income of NOK 57.4 billion, NOK 31.6 billion lower than in 2015. Net cash flow transferred to the government amounted to NOK 65.9 billion, compared with NOK 93.8 billion the previous year. Significantly lower oil and gas prices in 2016, compared with 2015, impacted both the cash flow and the financial result for the year. The price of oil averaged USD 361 per bbl in 2016, compared with USD 420 the previous year. The average price of gas was NOK 1.62 per scm in 2016, compared with NOK 2.14 per scm in 2015. Total production amounted to 1 040 000 barrels of oil equivalent (boe) per day, down 3 per cent from production in 2015, primarily due to lower gas production. The high gas production in 2015 was due to shifting gas volumes from 2014 to 2015. Regularity remained good in 2016.
Total operating expenses including exploration costs as well as depreciation and amortisation amounted to NOK 61.5 billion, down about 9 per cent from the previous year. The cost of operating fields, pipelines and onshore facilities came to NOK 14.6 billion, down by about 13 per cent from the previous year. Operating expenses were influenced by depreciation and amortisation costs in 2016 on a few fields. Petoro was a participant in 12 of the 36 exploration wells completed on the Norwegian Shelf in 2016. A total of five new, but small discoveries were made.
Investments in 2016 amounted to NOK 28.3 billion, which was virtually on par with 2015. Production drilling accounts for approximately one-half of the investments. Exploration costs recognised on the balance sheet in 2016 also totalled NOK 1.1 billion.
At the end of 2016, the portfolio’s anticipated remaining reserves of oil, condensate, NGL and gas amounted to 5 968 million barrels of oil equivalent (boe). This is down 308 million boe from the end of 2015. The reduction in SDFI portfolio reserves is mainly attributed to production, in addition to the fact that there have been no major development decisions in 2016.
The book value of assets at 31 December 2016 was NOK 241 billion. The assets mainly consist of operating facilities related to field installations, pipelines and onshore facilities, as well as current accounts receivable. The assets have been depreciated by about NOK 6 billion in 2016, primarily as a result of lower price expectations and field-specific incidents. Year-end equity was NOK 153 billion. Future decommissioning obligations are estimated at NOK 67.5 billion.
Additional information
The Office of the Auditor General (OAG) is the external auditor, and approves the annual accounts for the SDFI. The OAG’s report is expected to be ready during the second quarter of 2017. On completing its annual audit, the OAG issues a final audit letter (report) which summarises the conclusion of its audit work.
PricewaterhouseCoopers (PwC) has been engaged by the board to perform a financial audit of the SDFI accounts as part of the company’s internal audit function. 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 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.
