SDFI - Notes 1-10

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In January 2018, the Ministry of Petroleum and Energy completed its Awards in Predefined Areas (APA 2017), where 17 production licenses were awarded with SDFI participation. In the 24th licensing round in June 2018, two production licenses were carved out from existing licences with SDFI participation, and 11 production licenses were relinquished and 2 were sold. In January 2019, the Ministry of Petroleum and Energy completed its Awards in Predefined Areas (APA 2018), where an additional 14 production licenses were awarded with SDFI participation.

 
 

All figures in NOK million	Book value at 31 Dec 17	Historical cost at  1 Jan 18	Acc. de- preciation 1 Jan 17	Addition 2018	Impair- ment 2018	Dispo- sal 2018	Trans- fers 2018	De- preciation 2017	Book value at 31 Dec 18
Fields under development	25 398	25 398	0	7 815	0	0	0	0	33 212
Fields in operation	164 518	550 580	-386 061	11 024	-1 562	-141	298	-23 067	151 071
Pipelines and terminals	30 086	71 440	-41 355	307	0	0	0	-2 502	27 890
Capitalised exploration expenses	4 159	4 159	0	1 483	0	-989	-298	0	4 355
Total tangible fixed assets	224 161	651 577	-427 416	20 628	-1 562	-1 130	0	-25 569	216 529
Intangible assets	68	287	-219	1	0	0	0	-4	65
Financial fixed assets	238	238	0	-20	0	0	0	0	218
Total fixed assets (NGAAP)	224 467	652 103	-427 635	20 609	-1 562	-1 130	0	-25 573	216 811
Translation to cash basis	-29 646	-68 691	39 045	1 946	360	1 130	0	1 937	-24 273
Total fixed assets on cash basis	194 821	583 412	-388 591	22 555	-1 201	0	0	-23 636	192 539

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.

Depreciation assessments calculate utility value 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). The discount rate for calculating utility value is 7-8 per cent real value. Inflating is estimated at 2 per cent per year. When the utility value is assessed to be lower than the book value, the assets are written down to their utility value.

The general price assumptions used to calculate depreciation:

Nominal prices/year	2019	2020	2025	2030
Oil NOK/bbl	607	566	523	577
Gas price NOK/Sm3	2.6	2.4	2.1	2.4

Maria has been depreciated as a consequence of a significant reduction in the reserve base and lower well potential that has resulted in a need for a new drainage strategy and additional investments in Maria.

Intangible fixed assets include investments in further development of Etzel Gas Storage and a lesser amount in Åsgard Transport.

Financial fixed assets of NOK 218 million include, in addition to the shareholding in Norpipe Oil AS recorded at NOK 1, 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 Equinor Natural Gas LLC (ENG) 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 ENG 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 ENG are settled continuously on a monthly basis in connection with the purchase and sale of LNG.

 

All figures in NOK million	2018	2017
Licence	159 162	131 937
Market	23 001	23 120
Net profit agreements	406	428
Elimination internal sales	-5 138	-4 765
Total operating revenue	177 431	150 720
Conversion to cash basis	-1 968	-5 677
Total cash basis	175 463	145 043

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. 

 

All figures in NOK million	2018	2017
Crude oil, NGL and condensate	70 340	61 171
Gas	94 786	77 398
Transport and processing revenue	11 178	10 674
Other revenue	721	1 050
Net profit agreements	406	428
Total operating revenue (NGAAP)	177 431	150 720
Conversion to cash basis	-1 968	-5 677
Total cash basis	175 463	145 043

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	2018	2017
Production expenses
Licence	13 819	11 204
Market	3 621	3 058
Total production expenses	17 440	14 262
Transport and processing expenses
Licence	14 907	13 634
Market	-49	209
Elimination internal purchases	-5 138	-4 765
Total transport and processing expenses	9 720	9 078
Other operating expenses
Market	5 815	4 770
Total other operating expenses	5 815	4 770
Total operating expenses	32 975	28 110
Conversion to cash basis	-939	664
Total cash basis	32 036	28 775

Production costs for Licence include NOK 2.2 billion related to the accounting provision for the initial verdict in the case of Troll Unit. Over/underlift is included in the figures for Market. Gassled and other gas infrastructure is organisationally placed under Market for reporting of production expenses and transport and processing expenses. Other operating expenses Market primarily comprises the cost of purchasing gas for resale and purchases for inventory to optimise gas sales.

 

 

All figures in NOK million	2018	2017
Petroleum products	2 194	1 028
Spare parts	1 413	1 506
Total inventories	3 608	2 534

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 2018 letter of assignment to Petoro AS 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 2018 letter of assignment to Petoro AS 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	2018	2017
Interest income	5	2
Other financial revenue	2	1
Currency gain	1 698	1 986
Currency loss	-1 577	-1 595
Currency loss/gain unrealised	166	33
Interest expenses	-56	45
Other financial expenses	-171
Interest on decommissioning liability	-1 397	-1 400
Net financial items	-1 331	-928

Not relevant to the accounts on a cash basis 

 

The state, represented by the Ministry of Petroleum and Energy, owns 67 per cent of Equinor and 100 per cent of Gassco. These companies are classified as close associates of the SDFI. Petoro, as licensee for the SDFI, has significant equity interests in pipelines and onshore facilities operated by Gassco.

Equinor is the buyer of the government’s oil, condensate and NGL. Sales of oil, condensate and NGL from the SDFI to Equinor totalled NOK 70.3 billion (corresponding to 132 million boe) for 2018, compared with NOK 61.2 billion (145 million boe) for 2017.

Equinor markets and sells the state’s natural gas at the government’s expense and risk, but in Equinor’s name and along with Equinor’s own gas. The state receives the market value for the sale of these volumes. The state sold dry gas directly to Equinor as buyer at a value of NOK 387 million in 2018, compared with NOK 311 million in 2017. The state has covered its relative share of Equinor’s 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, totalling NOK 13.8 billion in 2018, compared with NOK 11.7 billion in 2017. Open accounts with Equinor totalled NOK 7.3 billion in favour of the SDFI, converted at the exchange rate on the balance sheet date, compared with NOK 8.4 billion in 2017.

Pursuant to the marketing and sale instruction, the SDFI also participates with a financial interest in Equinor Natural Gas LLC (ENG) in the US. Cash flows from ENG 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 Equinor or 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.