SDFI - Notes 1-10
Note 1 - Asset transfers and changes
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. Two production licences were awarded with SDFI participation in the 25th licensing round. Over the course of 2021, three production licences were carved out from existing licences with SDFI participation, and 25 production licences were relinquished. In January 2022, the Ministry of Petroleum and Energy completed its Awards in Pre-defined Areas (APA 2021), where an additional 7 production licences were awarded with SDFI participation.
Note 2 - Specification of fixed assets
Previous impairment totalling NOK 7,743 million has been reversed for fields in operation as a result of changes in applied short-term price trajectories, as well as updated production profiles and cost estimates. As regards the fields Ekofisk, Maria, Martin Linge and Valemon, previous impairment has been reversed totalling NOK 705 million, 844 million, 4,921 million and 1,273 million, respectively.
Impairment tests are based on Petoro’s best estimate of cash flows (market prices, production, costs and exchange rate assumptions). The real discount rate in the calculation of utility value is 7-8 per cent. Inflation is estimated at 2 per cent annually. When the utility value is assessed to be lower than the book value, the assets are written down to their utility value.
The price assumptions used to calculate impairments/reversal of previous impairments are:
| Real prices/year | 2022 | 2024 | 2026 | 2030 |
|---|
| Oil NOK/bbl | 654 | 549 | 468 | 468 |
| Gas price NOK/scm | 5.00 | 2.87 | 1.93 | 1.93 |
The long-term oil price is on par with what the IEA presumes in its Sustainable Development Scenario, which is in line with the Paris Agreement.However, the risk for periods with both somewhat lower and higher prices is still significant, and volatility can be expected.
The long-term gas price reflects an increased likelihood of scenarios with lower demand, increased competition in supply and price pressure in the global gas market. The projected gas price is somewhat higher than the price trajectory the IEA presumes in its Sustainable Development Scenario. However, the gas price expectation is considered to be consistent with achieving the objectives in the Paris Agreement.
Sensitivity analysis
The table below shows a marginal change in what the impairment or reversal of previous impairment would have been in 2021 under various alternative assumptions, presuming that all other assumptions remain constant. The fields affected are Ekofisk, Maria, Martin Linge and Valemon. 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.
Depreciation assessments calculate utility values by discounting future cash flows using a discount rate based on capital costs (WACC).
Intangible fixed assets include investments in further development of Etzel Gas Storage and a lesser amount in Åsgard Transport.
Financial assets totalling NOK 1,827 million include capacity rights for regasification of LNG at the Cove Point terminal in the US with an associated agreement regarding the sale of LNG from Snøhvit to Equinor Natural Gas LLC (ENG) in the US, as well as SDFI’s share of Equinor’s investment in Danske Commodities (DC). The SDFI participates in ENG under the marketing and sale instruction with regard to activities related to the marketing and sale of the state’s LNG from Snøhvit. Cash flows from ENG are settled continuously on a monthly basis in connection with the purchase and sale of LNG. SDFI’s share of DC is linked to gas activities under the marketing and sale instruction. These activities are assessed as investments in associated companies and recorded according to the equity method (see also Note 11).
Note 3 - Specification of operating revenue by area
| All figures in NOK million | 2021 | 2020 |
|---|
| License | 264,485 | 94,316 |
| Infrastructure and Market | 25,434 | 19,185 |
| Net profit agreements | (9) | (228) |
| Elimination internal sales | (3,769) | (4,333) |
| Total operating revenue (NGAAP) | 286,141 | 108,940 |
| | |
| Conversion to cash basis | (36,467) | 4,854 |
| Total cash basis | 249,674 | 113,794 |
Infrastructure and Market generally consists of revenues from the resale of gas, tariff revenues for transport and processing, unrealised losses and revenues from trading inventory. Trading inventory mainly relates to physical volumes.
Note 4 - Specification of operating revenue by product
| All figures in NOK million | 2021 | 2020 |
|---|
| Crude oil, NGL and condensate | 82,644 | 47,613 |
| Gas | 192,057 | 47,460 |
| Transport and processing revenue | 11,043 | 12,170 |
| Other revenue | 405 | 1,926 |
| Net profit agreements | (9) | (228) |
| Total operating revenue (NGAAP) | 286,141 | 108,940 |
| | |
| Conversion to cash basis | (36,467) | 4,854 |
| Total cash basis | 249,674 | 113,794 |
All oil, NGL and condensate from SDFI is sold to Equinor. All gas is sold by Equinor through the marketing and sale instructions issued to Equinor at SDFI’s expense and risk. Virtually all gas is sold to customers in Europe under bilateral contracts, or over the “trading desk”. About 35 per cent of annual gas volumes is purchased by the four largest customers.
Note 5 - Specification of production and other operating expenses by area
| All figures in NOK million | 2021 | 2020 |
|---|
| Production expenses | | |
| License | 13,245 | 11,261 |
| Infrastructure and Market | 4,466 | 2,813 |
| Total production expenses | 17,711 | 14,074 |
| | |
| Transport and processing expenses | | |
| License | 12,939 | 14,224 |
| Infrastructure and Market | (1,055) | 182 |
| Elimination internal purchases | (3,769) | (4,720) |
| Total transport and processing expenses | 8,115 | 10,247 |
| | |
| Other operating expenses | | |
| Expenses for gas purchases, storage and administration | 13,923 | 3,962 |
| Total other operating expenses | 13,923 | 3,962 |
| | |
| Total operating costs | 39,749 | 28,282 |
| Conversion to cash basis | (1,440) | (219) |
| Total cash basis | 38,308 | 28,063 |
A loss provision is recorded in 2020 under transport and processing expenses associated with a future transport capacity agreement totalling NOK 1.3 billion. This loss provision was reversed in 2021.
Over / underlift is included in the figure for Infrastructure and Market under production expenses. Gassled and other gas infrastructure is organisationally placed under Infrastructure and Market as regards reporting of production expenses and transport and processing expenses.
Note 6 - Inventories
| All figures in NOK million | 2021 | 2020 |
|---|
| Petroleum products | 599 | 236 |
| Spare parts | 1,530 | 1,462 |
| Inventory | 2,130 | 1,698 |
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.
Note 7 - Interest included in the SDFI’s appropriation accounts
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 2021 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 state which represents the difference between the recorded amount in the chapter/item in the appropriation accounts and ingoing and outgoing payments in the settlement accounts in Norges Bank.
Interest on the open account with the state is calculated in accordance with the 2021 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).
Note 8 - Net financial items
| All figures in NOK million | 2021 | 2020 |
|---|
| Interest income | 0 | 1 |
| Other financial revenue | 0 | 1 |
| Currency gain | 3,210 | 2,940 |
| Currency loss | (2,915) | (2,535) |
| Currency loss/gain - unrealised | (32) | 154 |
| Interest expenses | (134) | (95) |
| Other financial expenses | 0 | 0 |
| Interest on decommissioning liability | (1,426) | (1,605) |
| Net financial items | (1,296) | (1,141) |
Not relevant to the accounts on a cash basis.
Note 9 - Related parties
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 related parties of the SDFI. Petoro, as licensee for SDFI, has significant participating interests in pipelines and terminals operated by Gassco.
Equinor is the buyer of the state’s oil, condensate and NGL. Sales of oil, condensate and NGL from the SDFI to Equinor totalled NOK 83 billion (corresponding to 143 million boe) for 2021, compared with NOK 48 billion (135 million boe) for 2020.
Equinor markets and sells the state’s natural gas at the government’s expense and risk, but in Equinor’s name and along with its own production. The state receives the market value for these sales. The state sold dry gas directly to Equinor at a value of NOK 763 million in 2021, compared with NOK 167 million in 2020. Equinor 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 21.8 billion in 2021, compared with NOK 13.2 billion in 2020. Open accounts with Equinor totalled NOK 16.7 billion in favour of the SDFI, converted at the exchange rate on the balance sheet date, compared with NOK 5.2 billion in 2020.
Pursuant to the marketing and sale instruction, the SDFI 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 SDFI is also a participant in Equinor’s investment in Danske Commodities (DC) under the marketing and sale instruction for the part assigned to gas activities. This participating interest entitles Petoro to a share of future results. The investments are addressed 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.
Note 10 - Accounts receivable
Accounts receivable and other receivables are recorded at nominal value in NGAAP following deduction for foreseeable losses. 1. President and CEO’s letter and Directors’ report
2. Introduction to the enterprise and key figures 2021
3. Activities and results from the year
4. Management and control
5. Assessment of future prospects
Outlook is described in the Directors’ report, Chapter 1.2. 6. Annual accounts 2021
