SDFI - Notes 1-10

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In 2016, the Ministry of Petroleum and Energy awarded 22 production licenses with SDFI participation. In connection with Awards in Predefined Areas 2015 (APA 2015) on 19 January 2016, 13 production licenses were awarded with SDFI participation. Three of these are additional acreage for existing production licenses. Five production licenses with SDFI participation were awarded in the 23rd licensing round on 18 May 2016. Over the course of 2016, four production licenses were carved out from existing licences with SDFI participation, and 17 production licenses were relinquished. In January 2017, the Ministry of Petroleum and Energy completed its Awards in Predefined Areas (APA 2016), where an additional 13 production licenses were awarded with SDFI participation.
 
As of 1 January 2016, Petoro also became a licensee in the Dvalin license (PL435) by taking over a 20% participating interest from OMV. The SDFI share in PL435 increased as of 1 January 2017 by 15% through take-over of a 5% participating interest from Edison, as well as entry into a 10% participating interest as a result of Maersk withdrawing from the license. 

 
 

All figures in NOK million	Book value at 31 Dec 15	Historical cost at  1 Jan 16	Acc. de-preciation 1 Jan 16	Addition 2016	Impair-ment 2016	Disposal 2016	Trans-fers 2016	De-preciation 2016	Book value at 31 Dec 15
Fields under development	11 092	11 092	0	8 065	(2 654)	0	122	0	16 625
Fields in operation	174 439	512 558	(338 119)	16 574	(1 891)	(853)	366	(21 812)	166 791
Pipelines and terminals	35 222	71 538	(36 316)	1 378	(1 855)	0	0	(2 437)	32 307
Capitalised exploration expenses	4 763	4 763	0	1 541	0	(542)	(488)	0	5 273
Total tangible fixed assets	225 516	599 951	(374 435)	27 558	(6 400)	(1 396)	0	(24 249)	220 996
Intangible assets	76	287	-211	0	0	0	0	(4)	72
Financial fixed assets	280	280	0	82	0	0	0	0	362
Total fixed assets (NGAAP)	225 872	600 519	(374 647)	27 639	(6 400)	(1 396)	0	(24 253)	221 430
Translation to cash basis	(32 298)	(70 723)	38 325	1 068	(7 187)	7 795	0	1 009	(29 712)
Total fixed assets on cash basis	193 474	529 796	(336 321)	28 708	(13 587)	6 400	0	(23 244)	191 718

Tangible fixed assets for Snøhvit include a capitalised long-term financial charter for three ships used for LNG transport from the field.  These vessels are being depreciated over 20 years, which is the duration of the charter.
 
Significant impairment was undertaken in 2016 for individual assets on the basis of lower long-term price assumptions and factors specific to facilities and fields. The utility value is calculated using discounted future cash flows, which are discounted using a discount rate based on the weighted average cost of capital (WACC). Impairment tests are based on Petoro's best estimate of cash flows (market prices, production, costs and exchange rate assumptions). When the utility value is assessed to be lower than the book value, the assets are written down to their utility value.
 
Intangible fixed assets include investments in further development of Etzel Gas Storage and a lesser small amount in Åsgard Transport. 
 
Financial fixed assets of NOK 362 million include the following:

• Capacity rights for regasification of LNG at the Cove Point terminal in the US, with an associated agreement on the sale of LNG from Snøhvit to Statoil Natural Gas LLC (SNG) in the US. This activity is assessed as an investment in an associate and is recorded in accordance with the equity method. See also note 11. The SDFI participates in SNG under the marketing and sale instruction with regard to activities related to the marketing and sale of the government's LNG from Snøhvit. Cash flows from SNG are settled continuously on a monthly basis in connection with the purchase and sale of LNG.
• A total book value of NOK 3.98 million is recorded for shareholdings in Norsea Gas AS and Norpipe Oil AS. 

 
 

All figures in NOK million	2016	2015
License	122 869	150 690
Market	3 062	15 285
Net profit agreements	8	567
Elimination internal sales	(4 715)	(4 600)
Total operating revenue (NGAAP)	121 224	161 942
Conversion to cash basis	6 684	(3 107)
Total cash basis	127 909	158 835

Market primarily comprises revenue from the resale of gas, tariff revenues, unrealised losses and revenue from trading inventory. Trading inventory mainly relates to physical volumes. Gross reporting as of 2016 entails that purchases in trading inventory are not netted against operating revenues. Figures for 2015 have been corrected correspondingly in order to compare years.
 
 
 

All figures in NOK million	2016	2015
Crude oil, NGL and condensate	49 322	59 436
Gas	60 927	90 286
Transport and processing revenue	10 597	11 113
Other revenue	369	540
Net profit agreements	8	567
Total operating revenue (NGAAP)	121 224	161 942
Conversion to cash basis	6 684	(2 402)
Total cash basis	127 909	158 835

All crude oil, NGL and condensate from the SDFI are sold to Statoil, and all gas is sold by Statoil (under the sale instructions issued to Statoil) at the SDFI's expense and risk. Virtually all gas is sold to customers in Europe under bilateral contracts, or over the trading desk. About 30 per cent of the annual volumes is purchased by the four largest customers. Gross reporting as of 2016 entails that purchases in trading inventory are not netted against operating revenues. Figures for 2015 have been corrected correspondingly in order to compare years.

 

All figures in NOK million	2016	2015
Production expenses
License	14 060	15 264
Other infrastructure	555	1 445
Total production expenses	14 616	16 709
Transport and processing expenses
License	13 470	13 500
Market	200	842
Elimination internal purchases	(4 715)	(4 600)
Total transport and processing expenses	8 955	9 742
Other operating expenses
Market	5 866	9 526
Total other operating expenses	5 866	9 526
Total operating expenses	29 437	35 976
Conversion to cash basis	1 723	(754)
Total cash basis	31 160	35 222

Market primarily comprises the cost of purchasing gas for resale and purchases for inventory to optimise gas sales. Gross reporting as of 2016 entails that purchases in trading inventory are not netted against operating revenues, but are rather recorded gross as other operating expenses under Market. Figures for 2015 have been corrected correspondingly in order to compare years.

 

 

All figures in NOK million	2016	2015
Petroleum products	1 072	2 370
Spare parts	1 665	1 916
Total inventories	2 737	4 287

Petroleum products comprise LNG and natural gas. The SDFI does not hold inventories of crude oil, as the difference between produced and sold volumes is included in over/underlift.
 
Not relevant to the accounts on a cash basis. 

 

Interest on the state's fixed capital is incorporated in the accounts on a cash basis.  Interest amounts are calculated in accordance with the requirements in the 2016 letter of assignment to Petoro from the Ministry of Petroleum and Energy.
 
Interest on the state's fixed capital is charged to operations in order to take account of capital costs and to provide a more accurate picture of the use of resources. This is a calculated expense without cash effect.
 
The accounts on a cash basis include an open account with the government which represents the difference between charging to chapter/item in the appropriation accounts and changes in liquidity.
 
Interest on the open account with the government is calculated in accordance with the 2016 letter of assignment to Petoro from the Ministry of Petroleum and Energy. The interest rate applied is linked to the interest rate on short-term government securities and corresponds to the interest rate applied to short-term loans to the Treasury, calculated on the basis of the average monthly balance in the open account with the government.
 
Not relevant to the accounts based on the Accounting Act (NGAAP).

 

All figures in NOK million	2016	2015
Interest income	81	53
Other financial revenue	72	42
Currency gain - realised	4 904	6 778
Currency loss - realised	(4 091)	(5 288)
Currency loss/gain - unrealised	(1 797)	(547)
Interest expenses	(122)	(397)
Interest on decommissioning liability	(1 386)	(1 632)
Net financial items	(2 339)	(991)

Not relevant to the accounts on a cash basis. Comparative figures for 2015 have been converted to reflect unrealised currency loss/gain separately.

 

The state, represented by the Ministry of Petroleum and Energy, owns 67 per cent of Statoil and 100 per cent of Gassco. These companies are classified as close associates of the SDFI. Petoro has significant equity interests in pipelines and onshore facilities operated by Gassco.
Statoil is the buyer of the government's oil, condensate and NGL. Sales of oil, condensate and NGL from the SDFI to Statoil totalled NOK 49.3 billion (corresponding to 147 million boe) for 2016, compared with NOK 59.4 billion (152 million boe) for 2015.
Statoil markets and sells the government's natural gas at the government's expense and risk, but in Statoil's name and along with its own production. The government receives the market value for these sales. The government sold dry gas directly to Statoil at a value of NOK 369 million in 2016, compared with NOK 550 million in 2015. Statoil is reimbursed by the government for its relative share of costs associated with the transport, storage and processing of dry gas, the purchase of dry gas for resale and administrative expenses relating to gas sales. These reimbursements amounted to NOK 12.6 billion in 2016, compared with NOK 15.1 billion in 2015. Open accounts with Statoil totalled NOK 5.2 billion in favour of the SDFI, converted at the exchange rate on the balance sheet date, compared with NOK 4.2 billion in 2015.
 
Pursuant to the marketing and sale instruction, the SDFI also participates with a financial interest in Statoil Natural Gas LLC (SNG) in the US. Cash flows from SNG are settled continuously on a monthly basis in connection with the purchase and sale of LNG. The investment is recorded in accordance with the equity method, and is covered in more detail in Note 11.
 
Open accounts and transactions relating to activities in the production licences are not included in the above-mentioned amounts. Hence, no information has been included with regard to open accounts and transactions relating to licence activities with Statoil and Gassco.  The SDFI participates as a partner in production licences on the NCS. These are accounted for in accordance with the proportionate consolidation method.

 

Accounts receivable and other receivables are recorded at nominal value in NGAAP following deduction for foreseeable losses.