SDFI - Notes 1-10

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In January 2017, the Ministry of Petroleum and Energy completed its Awards in Predefined Areas (APA 2016), where 13 production licenses were awarded with SDFI participation. Over the course of 2017, four production licenses were carved out from existing licences with SDFI participation, and 11 production licenses were relinquished. In January 2018, the Ministry of Petroleum and Energy completed its Awards in Predefined Areas (APA 2017), where an additional 17 production licenses were awarded with SDFI participation.

 
 

All figures in NOK million	Book value at 31 Dec 16	Historical cost at  1 Jan 17	Acc. de-preciation 1 Jan 16	Addition 2017	Impair-ment 2017	Dispo-sal 2017	Trans-fers 2017	De-preciation 2016	Book value at 31 Dec 17
Fields under development	16 625	16 625	0	11 278	2 568	0	381	0	30 852
Fields in operation	166 791	528 347	(361 556)	10 575	943	0	564	(19 810)	159 064
Pipelines and terminals	32 307	71 060	(38 753)	723	(362)	0	0	(2 582)	30 086
Capitalised exploration expenses	5 273	5 273	0	784	0	(952)	(945)	0	4 159
Total tangible fixed assets	220 996	621 306	(400 309)	23 360	3 149	(952)	0	(22 392)	224 161
Intangible assets	72	287	(215)	0	0	0	0	(4)	68
Financial fixed assets	362	362	0	(123)	0	0	0	0	238
Total fixed assets (NGAAP)	221 430	621 955	(400 524)	23 236	3 149	(952)	0	(22 396)	224 467
Translation to cash basis	(29 712)	(69 046)	39 334	3 328	(1 962)	952	0	(2 252)	(29 646)
Total fixed assets on cash basis	191 718	552 908	(361 190)	26 564	1 187	0	0	(24 648)	194 821

Tangible fixed assets for the Snøhvit field 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.

Previous impairment for certain assets linked to Draugen and Martin Linge were reversed in 2017 as a result of cost efficiency measures and an increased reserve base, respectively, in addition to an expectation of higher prices. Impairment has been undertaken for Valemon as a result of a reduced reserve base. 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 amount in Åsgard Transport.
 
Financial fixed assets of NOK 238 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 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.
• Shareholding in Norsea Gas AS and Norpipe Oil AS.  

All figures in NOK million	2017	2016
License	131 937	110 766
Market	23 120	15 165
Net profit agreements	428	8
Elimination internal sales	(4 765)	(4 715)
Total operating revenue (NGAAP)	150 720	121 224
Conversion to cash basis	(5 677)	6 684
Total cash basis	145 043	127 909

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. As of 2017, Gassled and other gas infrastructure is placed under Market, as regards organisation. The comparative figures for 2016 have been corrected correspondingly.

 

All figures in NOK million	2017	2016
Crude oil, NGL and condensate	61 171	49 322
Gas	77 398	60 927
Transport and processing revenue	10 674	10 597
Other revenue	1 050	369
Net profit agreements	428	428
Total operating revenue (NGAAP)	150 720	121 224
Conversion to cash basis	(5 677)	6 684
Total cash basis	145 043	127 909

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 annual gas volumes is purchased by the four largest customers.

 

All figures in NOK million	2017	2016
Production expenses
License	11 204	11 947
Other infrastructure	3 058	2 668
Total production expenses	14 262	14 616
Transport and processing expenses
License	13 634	13 352
Market	209	318
Elimination internal purchases	(4 765)	(4 715)
Total transport and processing expenses	9 078	8 955
Other operating expenses
Market	4 770	5 866
Total other operating expenses	4 770	5 866
Total operating expenses	28 110	29 437
Conversion to cash basis	664	1 723
Total cash basis	28 775	31 160

Market primarily comprises the cost of purchasing gas for resale and purchases for inventory to optimise gas sales. As of 2017, Gassled and other gas infrastructure is placed under Market, as regards organisation. The comparative figures for 2016 have been corrected correspondingly.

 

 

All figures in NOK million	2017	2016
Petroleum products	1 028	1 072
Spare parts	1 506	1 665
Total inventories	2 534	2 737

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 2017 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 2017 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	2017	2016
Interest income	2	81
Other financial revenue	1	72
Currency gain - realised	1 986	4 904
Currency loss - realised	(1 595)	(4 091)
Currency loss/gain - unrealised	33	(1 797)
Interest expenses	45	(122)
Interest on decommissioning liability	(1 400)	(1 386)
Net financial items	(928)	(2 339)

Not relevant to the accounts on a cash basis.

 

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 61.2 billion (corresponding to 145 million boe) for 2017, compared with NOK 49.3 billion (147 million boe) for 2016.
Statoil markets and sells the state’s natural gas at the government’s expense and risk, but in Statoil’s name and along with its own production. The state receives the market value for these sales. The state sold dry gas directly to Statoil at a value of NOK 311 million in 2017, compared with NOK 369 million in 2016. Statoil is reimbursed by the state 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 11.7 billion in 2017, compared with NOK 12.6 billion in 2016. Open accounts with Statoil totalled NOK 8.4 billion in favour of the SDFI, converted at the exchange rate on the balance sheet date, compared with NOK 5.2 billion in 2016.

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.