SDFI - Notes 1-10
Note 1 - Asset transfers and changes
In January 2024, the Ministry of Energy completed its awards in predefined areas (APA 2023), where 20 production licences were awarded with SDFI participation. Over the course of 2024, 3 production licences were carved out from existing licences with SDFI participation, and 15 production licences were relinquished. In January 2025, the Ministry of Energy completed its awards in pre-defined areas (APA 2024), where an additional 13 production licences were awarded with SDFI participation.
In November 2024, the Ministry of Energy signed contracts with seven companies to purchase ownership interests in the key gas transport infrastructure. Following these transactions, the state owns 100% of the Gassled gas transport system, 81.3% of the Nyhamna process plant and 90% of the Polarled pipeline. The agreements were entered into with financial effect from 1 January 2024, while the date of implementation was set at 23 December 2024. Overall remuneration totalled about NOK 18.1 billion as of the valuation date. The sellers were also compensated for outstanding tax balances of NOK 0.5 billion and interest of NOK 0.9 billion. In connection with the acquisitions, a pro & contra settlement was carried out to adjust for the cash flows during the period between the effective date of 1 January 2024 and implementation of the transactions in December 2024. Once the acquisition was complete, the net cash flow for the first ten months of 2024 was settled along with the remuneration. The cash flow for November and December 2024 will be treated as a post-settlement in 2025, and this anticipated post-settlement is estimated at NOK 2.1 billion and already allocated in the accounts. The net pro & contra settlement for the first ten months came to about NOK 6.8 billion and was subtracted from the original gross remuneration of NOK 19.5 billion, which means that the total remuneration disbursed by the state on the implementation date was about NOK 12.7 billion.
In 2024 and with effect from 1 January 2025, Petoro and Equinor implemented a value-neutral agreement to swap participating interests in the Halten Bank area. Through this agreement, Petoro receives ownership interests of 22.5 per cent in Tyrihans, 3.7 per cent in Johan Castberg, 9.3 per cent in the Carmen discovery and 10 per cent in the Beta discovery, and simultaneously traded ownership interests of 21.4 per cent in Heidrun and 7.5 per cent in Noatun to Equinor.
Note 2 - Specification of operating revenue by area
| All figures in NOK million | 2024 | 2023 |
|---|
| Licence | 281,308 | 311,158 |
| Infrastructure and Market | 26,367 | 44,609 |
| Net profit agreements | 1,237 | 1,051 |
| Elimination internal sales | (4,103) | (4,128) |
| Total operating revenue (NGAAP) | 304,809 | 352,690 |
| | |
| Conversion to cash basis | 9,065 | 10,803 |
| Total cash basis | 313,874 | 363,492 |
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 3 - Specification of operating revenue by product
| All figures in NOK million | 2024 | 2023 |
|---|
| Crude oil, NGL and condensate | 106,960 | 106,685 |
| Gas | 183,593 | 231,597 |
| Transport and processing revenue | 12,393 | 12,688 |
| Other revenue | 626 | 670 |
| Net profit agreements | 1,237 | 1,051 |
| Total operating revenue (NGAAP) | 304,809 | 352,690 |
| | |
| Conversion to cash basis | 9,065 | 10,803 |
| Total cash basis | 313,874 | 363,492 |
All oil, NGL, condensate and LNG from SDFI is sold to Equinor. All dry 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". Under gas revenues in 2023, the company allocated NOK 1.1 billion in net unrealised losses on outstanding financial derivatives associated with gas volumes. The unrealised loss was reversed in 2024. For more information about financial derivatives, please refer to Note 18 on financial instruments.
Note 4 - Specification of production and other operating expenses by area
| All figures in NOK million | 2024 | 2023 |
|---|
| Production expenses | | |
| License | 18,688 | 17,988 |
| Infrastructure and Market | 5,604 | 5,374 |
| Total production expenses | 24,292 | 23,362 |
| | |
| Transport and processing expenses | | |
| License | 15,457 | 15,813 |
| Infrastructure and Market | 68 | 86 |
| Elimination internal purchases | (4,103) | (4,128) |
| Total transport and processing expenses | 11,422 | 11,771 |
| | |
| Other operating expenses | | |
| Expenses for gas purchases, storage and administration | 5,561 | 15,804 |
| Total other operating expenses | 5,561 | 15,804 |
| | |
| Total operating costs | 41,275 | 50,937 |
| Conversion to cash basis | 1,924 | 4,173 |
| Total cash basis | 43,199 | 55,110 |
Production costs amounted to NOK 24 billion, 1 billion higher than the previous year. The increase was caused by general growth in operating and maintenance expenses on multiple fields, partly offset by reduced costs for electricity and environmental taxes.
Transport costs came to NOK 11 billion, which is on par with the previous year.
Reduced costs related to gas purchases, storage and administration are primarily caused by lower gas prices in combination with reduced volumes.
Over/underlift is included in the figure for Infrastructure and Market under production expenses. Gassled and other gas infrastructure are organisationally placed under Infrastructure and Market as regards reporting of production expenses and transport- and processing expenses.
Note 5 - Research and development
Petoro contributes to research and development (R&D) through the SDFI meeting its share of the operator's costs for general research and development pursuant to the Accounting Agreement. NOK 736 million was expensed by the SDFI for R&D in 2024 as regards charges from the operators during the accounting year.
Note 6 - Auditors
The SDFI is subject to the Appropriations Regulations, as well as the Regulations and Provisions on Financial Management in Central Government. In accordance with the Act relating to the Office of the Auditor General (OAG) of 7 May 2004, the OAG is the external auditor for the SDFI. The audit takes place during the period from 1 May 2024 – 30 April 2025, and the result of the audit will be reported in the form of an auditor's report by 1 May 2025.
PricewaterhouseCoopers AS (PwC) has also been engaged by Petoro's board of directors to perform a financial audit of the SDFI as part of the internal audit function. As internal auditor, PwC submits its audit report to the Board in accordance with international auditing standards. PwC's fee is charged to the accounts of Petoro AS.
Note 7 - Net financial items
| All figures in NOK million | 2024 | 2023 |
|---|
| Interest income | 167 | 195 |
| Other financial revenue | 0 | 1 |
| Currency gain | 3,175 | 7,298 |
| Currency loss | (2,014) | (3,479) |
| Currency loss/gain - unrealised | 762 | (1,544) |
| Interest expenses | (117) | (856) |
| Other financial expenses | 0 | 0 |
| Interest on decommissioning liability | (2,306) | (2,024) |
| Net financial items | (333) | (409) |
Not relevant to the accounts on a cash basis.
Note 8 - 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 2024 letter of assignment to Petoro AS from the Ministry of Trade, Industry and Fisheries.
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 2024 letter of assignment to Petoro AS from the Ministry of Trade, Industry and Fisheries. 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 9 - Specification of fixed assets
*Transfers apply for the Haltenbanken Vest and Tyrving fields, which came on stream in 2024. Capitalised exploration expenses associated with Johan Castberg have also been transferred to fields under development.
Additions in 2024 for pipelines and onshore facilities include the purchase of ownership interests in key gas infrastructure totalling NOK 11 billion. Working capital items netting NOK 0.4 billion NOK are classified as current assets and current liabilities. For additional information about these transactions, please refer to Note 1.
A reversal was undertaken on historical write-downs on the Martin Linge field totalling NOK 2,084 million, primarily as a result of updated production profiles.
Impairment tests are based on Petoro's best estimate of cash flows (market prices, production, investments, 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 following price assumptions have been used to calculate impairment for 2024: | Real prices/year | 2025 | 2027 | 2030 | 2050 |
|---|
| Oil NOK/bbl | 787 | 714 | 697 | 615 |
| Gas price NOK/scm | 5.0 | 3.5 | 3.1 | 2.9 |
Multiple different scenarios are taken into account in the preparation of price forecasts, including scenarios developed by the International Energy Agency (IEA) in the World Energy Outlook report.
However, the risk of periods with lower and higher prices is significant, and volatility can be expected.
Sensitivity analysis
The table under shows alternative calculations of the reversal (+) / impairment (-) in 2024 under various prerequisites for the entire SDFI portfolio, given that all other prerequisites be held constant. A price reduction of 10% on all products would have yielded a total reduction of NOK 1,713 million in historical impairment for the SDFI portfolio.
The SDFI portfolio has also been tested for loss in value based on scenarios from the IEA. Prices from these scenarios are stated in actual 2024 terms for 2030, 2040 and 2050. Future expected prices have been applied for 2025, and they have been linearly interpolated from the price for 2025 to the IEA's scenario prices for 2030, 2040 and 2050. The figures on the left represent alternative calculations of reversals of historical impairment, and the figures on the right reflect changes from reported reversals of historical impairment for 2024 totalling NOK 2,084 million. | IEA scenario | Prices for 2030, 2040 and 2050 | Alternative calculations of reversals /impairment for 2024 | Increase / (reduction) in reversals /impairment for 2024 | |
|---|
| Net zero | Oil 431-308-256 NOK/bbl, gas 1.7-1.6-1.6 NOK/scm | (1,024) | (3,108) | |
| Announced pledges | Oil 738-646-595 NOK/bbl, gas 2.3-2.0-2.0 NOK/scm | 2,150 | 66 | |
| Stated policies | Oil 810-789-769 NOK/bbl, gas 2.5-3.0-3.0 NOK/scm | 2,728 | 644 | |
Only the "net zero" scenario will result in impairment compared with the current base scenario for the SDFI portfolio. The analysis indicates that the risk of potential stranded assets in the SDFI portfolio is limited under current market assumptions.
Financial assets totalling NOK 3,104 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 Instructions 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 Instructions. These activities are assessed as investments in associated companies and recorded according to the equity method (see also Note 10).
Note 10 - Investments in associated companies
As of 1 January 2009, the SDFI's participation in Equinor Natural Gas LLC (ENG) in the US has been treated as an investment in an associate, which is recognised in accordance with the equity method. At the time it was established in 2003, the investment was recorded at the original acquisition cost of NOK 798 million.
The company's business office is located in Stamford in the US and it is formally owned 56.5 per cent by Equinor Norsk LNG AS, which reflects the SDFI's ownership interest under the marketing and sale instruction. The remaining 43.5 per cent is owned by Equinor North America Inc. As a result of the merger of former Statoil and Hydro's petroleum activities in 2007, the profit/loss is allocated in accordance with a disproportionate distribution model which gives 48.4 per cent to the SDFI.
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.
As of 2023, the SDFI has recognised an investment associated with Equinor's financial gas trading activity, including Global Financial Trading (GFT). GFT is operated from the United Kingdom and is formally owned by Equinor, but the SDFI participates in the investment through the Marketing and Sale Instructions for a share of the activities which affects the European gas market. The SDFI's participation in GFT is assessed as an investment in an associated company and is recorded in accordance with the equity method.
The SDFI recognised an investment associated with Equinor's acquisition of Danske Commodities (DC) under the marketing and sale instruction in 2019. DC is one of Europe's largest companies within short-term electricity trading. The company's activities also include gas trading. The company is headquartered in Aarhus, Denmark. The company is formally owned by Equinor, but the SDFI participates in the investment through the marketing and sale instruction for the part of the enterprise related to gas activities. The SDFI's participation in DC is assessed as an investment in an associated company and is recorded in accordance with the equity method. After the transaction date, the SDFI is entitled to a share of the result from gas activities that fall under the Marketing and Sale Instructions. Cash flows associated with the investment are settled in arrears per quarter. At the time of acquisition 2019, the investment was recorded at the original acquisition cost of NOK 1,190 million. The SDFI's share of investments in gas activities in DC is recognised as increased net capital injection or withdrawal. * The book value of the shareholding in Norpipe Oil AS constitutes zero kroner and is therefore not included in the table above.
