SDFI and Petoro annual report 2020
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Compliance report for the SDFI annual accounts

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 2020, the portfolio consisted of 194 production licences, 6 fewer than at the beginning of the year.  In January 2020, the Ministry of Petroleum and Energy completed its Awards in Predefined Areas (APA 2019), where 14 production licenses were awarded with SDFI participation. Twenty production licences were relinquished in 2020.

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 view 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 view of the SDFI’s assets, obligations and financial results at 31 December 2020.

Assessment of significant factors

Appropriation and capital accounts

In accordance with the supplemental letter of assignment dated 15 December 2020, the SDFI’s appropriation for investments1 totalled NOK 28.0 billion. The appropriation for operating income2 totalled NOK 60.2 billion.  The appropriation for interest on the state’s capital3 totalled NOK 2.5 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. Equinor handles marketing and sale of SDFI’s products through the marketing and sale instructions issued by the Ministry of Petroleum and Energy. 

The general ledger accounts report on the cash basis shows net reported revenues including financial income totalling NOK 113.7 billion in 2020, compared with NOK 153.0 billion in 2019. The revenue was greatly affected by lower gas and liquids prices in 2020, partially offset by higher oil sales. Expenses reported in the appropriation accounts comprise payments of NOK 27.6 billion as investments and NOK 28.0 billion as operating expenses. Payments in 2019 amounted to NOK 26.3 billion related to investments and NOK 30.5 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 of fields and facilities amounted to NOK 22.4 billion in 2020, compared with NOK 22.7 billion the previous year. 
1 Ch./item 2440.30
2 Ch./item 5440.24
3 Ch./item 5440.80
The SDFI accounts 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.  

Net cash flow to the state from SDFI totalled NOK 59 billion in 2020, NOK 37 billion lower than in 2019. This decline was mainly caused by lower prices for gas and liquids, in part offset by increased liquids production as a result of Johan Sverdrup phase 1 starting up in October 2019, as well as a positive change in working capital.

Total production reached 988 thousand barrels of oil equivalent per day (kboed), an increase of 24 kboed compared with the previous year. 

Gas production amounted to 98 million standard cubic metres (mill. Sm3) per day, which is on par with the previous year. Gas extraction was higher on Troll than in 2019 due to price optimisation, but this was offset by lower production from particularly Snøhvit as a result of the fire in late September, as well as from Åsgard. The average realised gas price was NOK 1.25, compared with NOK 1.92 per Sm3 the previous year. 

Liquids production came to 374 kboed, 24 kboed (7%) higher than the previous year. This increase was caused by Johan Sverdrup starting up at the end of 2019. Excluding production from Johan Sverdrup, production declined by 51 kboed (14%), mainly as a result of natural production decline on multiple fields, as well as reduced production on the fields included in the Government’s revised production permits. The average realised oil price was USD 40, compared with USD 65 per barrel the previous year. The price drop in USD was somewhat offset by a weaker NOK, meaning that the achieved oil price measured in NOK was 376, compared with NOK 572 per barrel last year. 

Costs incurred for investment totalled NOK 28 billion, just under NOK 1 billion higher than the year before. The increase in investment was mainly caused by higher drilling activity on multiple fields compared with the previous year. Development investments have been reduced due to the completion of Johan Sverdrup phase 1 in 2019.

The financial result for 2020 was a net income of NOK 48 billion, NOK 49 billion lower than the previous year. This decline was mainly caused by lower revenue as a result of reduced prices for oil and gas, and impairment on fixed assets in the first and fourth quarters. The reduction was partially offset by increased oil production from Johan Sverdrup.

Production costs ended at NOK 14 billion, 0.3 billion higher than the previous year. However, production costs in 2019 were reduced by 1.3 billion as a result of the final settlement in the COSL case. This means that costs in 2020 compared with 2019 were actually reduced by NOK 0.9 billion. The decline was mainly caused by reduced electricity costs, as well as somewhat lower maintenance expenses in connection with prioritisations made as a result of Covid-19.

The book value of assets at 31 December 2020 was NOK 256 billion. The assets mainly consist of fixed assets related to field installations, pipelines and onshore plants, as well as current debtors. Equity at year-end came to NOK 151 billion. Overall debt amounted to NOK 105 billion, of which 84 billion was related to estimated future removal obligations.

The portfolio’s estimated remaining reserves totalled 5,045 million boe at the end of 2020, down by 290 million boe from the year before. Production in 2020 came to 362 million boe. The reserve growth of 72 million boe was primarily the result of the decision to develop Breidablikk. This yields a reserve replacement rate for 2020 of 20 per cent, compared with 40 per cent in 2019.

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 2021. 

The Board has appointed PwC to conduct a financial audit of the SDFI accounts as part of Petoro’s internal audit process.  PwC submits its audit report to the Petoro AS board regarding the annual accounts pursuant to the accounting principles on a cash basis and in accordance with international auditing standards.  PwC’s audit work forms the basis for the OAG’s review of the annual accounts.
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