SDFI and Petoro annual report 2021
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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 2021, the portfolio consisted of 184 production licences, 10 fewer than at the beginning of the year. In January 2021, the Ministry of Petroleum and Energy completed its Awards in Predefined Areas (APA 2020), where 10 production licences were awarded with SDFI participation. 25 production licences were relinquished in 2021.

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 2021.

Assessment of significant factors

Appropriation and capital accounts

In accordance with the supplemental allocation letter dated 20 December 2021, the SDFI’s appropriation for investments1 totalled NOK 26.0 billion. The appropriation for operating income2 totalled NOK 168.5 billion. The appropriation for interest on the state’s capital3 totalled NOK 2.3 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 255.8 billion in 2021, compared with NOK 113.7 billion in 2020. These revenues were largely affected by significantly higher gas and liquids prices in 2021. Expenses reported in the appropriation accounts comprise payments of NOK 24.8 billion as investments and NOK 38.1 billion as operating expenses. Payments in 2020 amounted to NOK 27.6 billion related to investments and NOK 28.0 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 25.6 billion in 2021, compared with NOK 22.4 billion the previous year. 
1Ch./item 2440.30
2Ch./item 5440.24
3Ch./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 186 billion in 2021, NOK 127 billion higher than in 2020. The increase was mainly caused by significantly higher revenues as a result of increased oil and gas prices, but were partially offset by increased working capital and third-party gas purchases.
Total production amounted to 1,026 thousand barrels of oil equivalent per day (kboed), an increase of 38 kboed compared with the same period last year. 

Gas production amounted to 101 million standard cubic metres (mill. scm) per day, an increase of 3 per cent compared with the same period last year. This increase was mainly caused by increased gas extraction on Troll and Oseberg, partially offset by the production shutdown on Snøhvit following the fire on Melkøya. The average realised gas price was NOK 4.78 per scm, compared with NOK 1.25 in the same period last year. The strong increase in gas prices was mainly caused by low gas storage levels, strong LNG demand from Asia, as well as much lower LNG imports and renewables production in Europe compared with last year.
Liquids production amounted to 388 kboed, 14 kboed higher than the same period last year. The increase was caused by higher production capacity and accelerated production from Johan Sverdrup, as well as production from the Snorre Expansion Project. This increase was partially offset by natural production decline on several mature fields. The average realised oil price was USD 70, compared with USD 40 per barrel the last year. However, the price increase in USD was somewhat offset by a strengthened NOK, meaning that the achieved oil price measured in NOK was 603, compared with NOK 376 per barrel last year. 

Cash investments amounted to NOK 25 billion, just under 3 billion less than the last year. This reduction was mainly caused by lower development investments on Johan Sverdrup, Johan Castberg and Troll, as well as reduced production drilling, but was partly offset by increased development investments on Breidablikk and Ormen Lange, as well as operational investments on Snøhvit and Troll. 

Production costs ended at NOK 18 billion, NOK 4 billion higher than last year. The increase was mainly caused by higher electricity prices and environmental taxes, as well as increased maintenance activities on certain fields. The reduction in transport costs was mainly caused by reversal of previous provisions for an onerous contract for transport capacity.

Total exploration costs in 2021 came to NOK 1.5 billion, of which a net of NOK 0.1 billion has been recognised as capitalised exploration expenses. 

The financial result for 2021 was a net income of NOK 222 billion, NOK 174 billion higher than last year. The increase was mainly caused by significantly higher income as a result of increased prices on oil and gas, as well as reversal of previous impairments of fixed assets in the 1st and 4th quarters, as well as somewhat lower transport costs. The increase was partially offset by higher gas purchases, depreciation, as well as increased operating expenses.

The book value of assets at 31 December 2021 was NOK 307 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 187 billion, which is an increase of NOK 36 billion compared with last year. The increase was caused by the transfer to the state being 36 billion lower than the annual result for accounting purposes. Overall debt amounted to NOK 120 billion, of which 79 billion was related to estimated future removal obligations. Removal obligations were reduced by just over NOK 5 billion compared with 2020 as a result of updated removal estimates, a lower discount rate, in addition to the fact that the removal date is one year closer.

The portfolio’s estimated remaining reserves totalled 4,972 million boe at the end of the year, down by 73 million boe from the year before. Reserve growth amounted to 301 million boe and mainly comes from project decisions such as Ormen Lange phase 3, Oseberg Gas Project and Åsgard B low-pressure phase 3, in addition to extending drilling activities on Heidrun. With a production of 375 million boe, this yielded a reserve replacement rate of 80 per cent, compared with 20 per cent in 2020.
 

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 2022. 

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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