Driven by solid operational performance and continued cost reductions, Maersk Oil delivered a profit of USD 328m (loss of USD29m), positively impacted by USD 36m from sale of the Boa field and a one-off tax income of USD 42m. The Return on Invested Capital (ROIC) was 31.8% (negative 3%). The UK and Kazakhstan delivered high production efficiency, further supported by production from Algeria and other non-operated businesses. Ongoing cost reduction from organisational efficiencies and effort to focus the portfolio with the divestment of the Boa field in the UK continued, alongside lower exploration costs. The business was also supported by a higher oil price (USD 54 compared to USD 34) during the period.
“Maersk Oil is demonstrating its ability to deliver results in a difficult market,” says Maersk Oil CEO Gretchen Watkins. “Our continued solid operational performance highlights our ability to operate assets predictably, putting us in a good position for the future. A particular highlight in the period is our best ever quarterly Maersk Oil safety performance. We also continue to capture the benefits of increased organisational efficiency, with a more than 30% year on year reduction in operating expenses.”
Maersk Oil continues to progress its major North Sea sanctioned capital projects – Culzean in the UK North Sea and Johan Sverdrup in Norway – on schedule and within budget. Preparations for the summer installation of Culzean’s two remaining jackets are well advanced and good progress is being made on the riser platform jacket which will be installed on the Johan Sverdrup field later in 2017.
In the first quarter of 2017, Maersk Oil achieved significant milestones in its core North Sea geography, with the Danish government providing new fiscal terms in Denmark to enable Maersk Oil and its partners to move ahead with a full redevelopment plan for the Tyra field, adding one more major North Sea project to Maersk Oil’s portfolio. Additionally Maersk Oil achieved first oil from the Flyndre field in the UK and Norway, showing initial potential of up to 10,000 barrels of oil equivalent per day (boepd).
“These two milestones strengthen our position in the North Sea and reaffirm our commitment to invest in the region. The North Sea is the heartland of our activities,” says Watkins. “Taken together, our first quarter gives cause for optimism for the rest of 2017 but we are not complacent about the challenges ahead. We remain focused on the execution of our strategy of maximising value from safe and reliable operations, delivering world class projects and building our future business.”
Maersk Oil’s entitlement production was 275,000 boepd, compared to 350,000 boepd in Q1 2016. Lower production was primarily due to production decline in Qatar, where higher oil price and lower operating costs led to fewer entitlement barrels for cost recovery and in the UK due to natural decline from mature fields and a prior year comparative which included production from the decommissioned Janice installation. With Maersk Oil leaving Qatar in July, production is expected to be lower in the second half of the year. Production guidance continues to be 215,000- 225,000 boepd (313,000 boepd) for the full-year and around 150,000-160,000 boepd for the second half of the year, with breakeven costs per barrel between USD 40-45 for 2017 and beyond, excluding Qatar.
The annual update of Maersk Oil’s entitlement reserves and resources per end of 2016 shows 1.0bn boe of proved and probable reserves (2P+2C) at the end of 2016, an expected slight decline of 94m boe from 2015. This is primarily due production in 2016 of 114m boe and the addition to reserves in 2015 of Maersk Oil’s major North Sea projects, Culzean and Johan Sverdrup. Maersk Oil has line of sight to additional attractive medium term 2P reserves through Johan Sverdrup phase 2 and a redevelopment of Denmark’s Tyra field, triggered by the final investment decisions.