Aker Carbon Capture ASA

OSE:ACC

Earnings Call Transcript 2022-Q1

[David Phillips, executive]

Hello, and good afternoon, and welcome to our presentation for Aker Carbon Capture's first quarter results for 2022. My name is David Phillips. I'm the Head of the U.K. and Investor Relations. And I'm delighted to be joined by our CEO, Valborg Lundegaard; and our CFO, Egil Fagerland, to talk through our results.

Today's agenda, we're going to talk through -- with Valborg first to look through some of the highlights of the quarter, talk a little bit about ESG and some of the main events. Then Egil will run through financials, also with some comments on the outlook for 2022. And then we'll take your questions. And just to remind you, on the system you can put -- online, you can put your questions into the system any time. And when we get to that point of the presentation, we will try and take as many as we have time to allow.

So Valborg, over to you.

[Valborg Lundegaard, executive]

Good afternoon. This is the agenda for our presentation today, just to give you an outline of what we will be discussing following an active and interesting first quarter. We will address the highlights of the quarter, our areas of focus for ESG, trends in the carbon capture market, our operation and business development, the financial highlights of the quarter, the way forward for our strategy, and finally, we'll move to Q&A.

But first, before we start with the highlights from Q1, we have a short introduction to the company. Aker Carbon Capture is a pure-play CCUS company with the strength of the wider Aker Group behind it. We see many important benefits from this structure, including our customers will have our full attention. And for investors, this opens up for investment in a pure-play company, not a conglomerate of segments.

Our proprietary technology has been developed over 20 years, and it's validated through over 50,000 operating hours and certified for several applications. Aker Carbon Capture's technology is cost-effective, robust and flexible, meaning it can be applied to existing plants or new builds. The process uses a nontoxic biodegradable mixture of water and organic amine solvents to absorb the CO2 and has a market-leading HSE profile.

When our customers come to us, they want to reduce their emissions and not introduce new emissions or hazardous chemicals. That is why our technology's unique HSE characteristics are also a commercial differentiator.

Now the highlights of the quarter. Both the Brevik CCS and the Twence CCU projects are progressing according to schedule. At Brevik, the first carbon capture project at a cement facility in the world, we have placed all major purchase orders. On-site activity will pick up in June this year, and the main installation work will take place in 2023.

Also, at Twence, in the Netherlands, we're moving forward as planned. This first-of-a-kind modular plant will enable the removal of CO2 from flue gases at Twence's waste-to-energy facility, with captured CO2 to be used by greenhouses to enhance plant growth.

Our work has commenced on the FEED for BP's Net Zero Teesside Power in the U.K., as part of a consortium, including Aker Solutions, Siemens Energy and Doosan Babcock. This is the world's first commercial-scale gas-fired power station with carbon capture and marks a very important step forward for large-scale CCS.

We've continued to position for the future market through a significant and growing number of studies and tenders for customers.

In the latest IPCC report, CCUS remains central to climate-mitigating strategies. Overall, that connects to the message of hope that IPCC included: humanity has the tools to decarbonize.

In the first quarter, we continued to sign important MOUs. Together with Microsoft, we want to pursue joint innovation and explore opportunities to offer services in the CCUS market. Secondly, with Northern Lights, to build on learnings from the Longship Project and enable the accelerated deployment of CCS projects across Europe.

And as we mentioned at our Q4 report in February, we also signed MOUs focusing on the transportation and storage theme with Hoegh, Altera and Dan-Unity CO2.

We've also signed a collaboration agreement with SINTEF to accelerate the transfer of science and research to innovation in the market.

When we look at the financial results, I'm happy to share that through the past quarter we've seen continued strong revenue growth. Overall revenue for the first quarter was NOK 144 million, and we have a healthy cash position at NOK 1.5 billion.

In March, we signed an MOU with Microsoft to pursue joint innovation and explore opportunities to offer services in the CCUS market. By fully using the digital capabilities and domain expertise of our 2 companies, we can support industrial emitters to take action and accelerate the deployment of CCUS. Aker Carbon Capture and Microsoft will demonstrate the full value chain of carbon reduction and carbon removal, utilizing our proprietary carbon captive technology and Microsoft's digital capabilities to enable the ecosystem for the voluntary carbon market, providing traceability and data, ensuring high-quality carbon credits.

This MOU strengthens our legacy of successful collaboration. Last year, we jointly signed an MOU with Danish energy company, Orsted, to explore opportunities to deploy carbon capture at bioenergy plants in Denmark.

In February, we signed an MOU with Northern Lights to collaborate on the realization of CCS projects in Norway and across Europe. Northern Lights is developing an open and flexible infrastructure to transport CO2 from industrial emitters by ship to a receiving terminal on the west coast of Norway for intermediate storage before being transported by pipeline for permanent storage in a geological reservoir 2,600 meters under the seabed. Operations are scheduled to start in 2024.

To the Longship Project. Norway has taken a leadership position in enabling industrial decarbonization through CCS. This collaboration between Northern Lights and Aker Carbon Capture aims to build on learnings from the Longship Project and enable the accelerated deployment of CCS projects across Europe. Together with Northern Lights and with our Carbon Capture as a Service offering, we can now further develop source-to-source decarbonization on a pay-per-tonne-of-captured-CO2 model.

In March, we entered into a strategic collaboration agreement with SINTEF, which is one of Europe's largest independent research organizations, with international top-level expertise in the fields of technology, natural science, medicine and social science. SINTEF has conducted research on CCUS since its inception in the 1980s. Aker and SINTEF have collaborated for more than 25 years.

Our goal will be to further develop CCUS technology together to reduce CO2 emissions from industry and energy solutions. With this agreement, we accelerated the transfer of science and research to innovation in the market.

The partnership with SINTEF and access to their significant testing infrastructure and knowledge of CCUS and enabling technologies will not only allow Aker Carbon Capture to continue to improve our existing technology portfolio, but also enable us to collaboratively identify the next-generation CCUS technology and bring it to the market.

And to complete our progress on partnerships in Q1, we also signed 2 MOUs focused on transport and storage part of the value chain. As we have stated before, the progression of viable transport and storage infrastructure is ultimately one of the most important drivers for project timing for CCS, and we believe that working closely with key players in this area has the potential to accelerate the implementation of CCS overall.

Firstly, we have signed a collaboration agreement with Dan-Unity CO2 of Denmark. Dan-Unity CO2 is the world's first Carbon Capture and Storage specific shipping entity, established by Danish shipping companies, Evergas and Navigator Gas.

Secondly, we signed a collaboration agreement with Altera Infrastructure and Hoegh LNG, which are global maritime and infrastructure companies providing services in the CCS value chain.

Now I want to spend a few minutes revisiting some important targets and ambitions for Aker Carbon Capture, focusing here on our carbon footprint and ESG. The first target is to improve the carbon intensity of our products by 50% by 2030. This means that we will further reduce the carbon emitted during the construction of our products relative to the carbon captured, from current level of 0.2% for Just Catch and 1.6% for Big Catch.

The second target is to reach a carbon-negative position through carbon removal solutions by 2030. We know that carbon removal is needed for the world to reach net zero, and we believe that those who can, should do more. And that is why we have set this target.

It will require a dedicated effort across the company to reach these targets, such as continuously improve our technology in areas such as capture rate and energy efficiency, collaboration both with the supply chain with low-carbon materials and strategic partners such as transport and storage to reduce the footprint of the full value chain.

And lastly, purchase of Guarantee of Origin for renewable power for our plants in operation.

So we will continue to focus to realize carbon removals for our customers as well as utilize carbon-removal solutions to reach our own carbon-negative target.

We are also pleased to share some early highlights. The First Movers Coalition is set to fast-track the development of emerging green technologies. Aker ASA is a founding member and will, together with some of the world's largest companies, work to create predictability around demand for sustainable and low-carbon materials and products.

And we have issued our commitment letter to the Science Based Targets initiative, and we will continue to collaborate with them to get our targets approved.

Now we move into our commentary on the CCUS market as a whole. Although we've only seen a few months of 2022, already there have been numerous developments in this fast-growing market in terms of overall market outlook and in terms of policy support.

Firstly, we know that the latest major report from the IPCC, this report focused on the possible and potential routes to limit climate change and outlined a clear need for carbon capture, with both storage and utilization in addition to CDRs, that is carbon dioxide removal, to limit and to mitigate the extent of global warming.

The most recent survey from energy market analyst, BNEF, highlighted a strong increase in global investment into CCUS in the coming years, with the market set to see a cumulative spend of some $52 billion by mid-decade and further strong growth thereafter. Analysts at [indiscernible] see the CCUS market with a value of up to $55 billion annually by 2030.

But these projections fall short of the carbon capture capacity indicated in the IEA scenario for net zero emissions by 2050, which indicates the industry's capacity needs to grow by 8x to 11x by around the end of this decade. Clearly, this need for carbon capture means our industry is set for considerable long-term growth.

We've also seen clear momentum in the area of voluntary carbon removals, with a number of corporate emitters paying significantly higher prices for their carbon offset agreements and trading platforms growing to enable emitters and carbon-removal projects to transact more easily. This market is also expected to scale over the coming years.

Policy support continues to be firm, with a number of updates from Europe and North America. In Europe, there has been clear support for the stability and function of the EUA carbon market, including extending the MSR, the market stability reserve, withdrawal rate at 24%.

In North America, Canada set out its 2030 emission reduction plan that aims for a 40% reduction in emissions by 2030 versus those in 2005 and net zero by 2050. This includes significant investment in CCUS, also supported by a carbon pricing regime that sees CO2 at $170 per tonne by 2030.

And in the U.S., industry progress continues to accelerate, with a number of carbon capture-related funding arrangements from the Department of Energy and a strategic vision towards Net Zero 2050 from the Office of Fossil Energy and Carbon Management.

Now we move on to look in more detail at our business strategy. Since mid-2020, Aker Carbon Capture has focused on the European market, with Scandinavia, Benelux and U.K. leading the way. Here, the interest from customers continues to be the highest, and the regulatory environment to support adoption of CCUS continued to be the most mature. We also note that increased policy support and early-stage corporate activity around CCUS markets in North America.

We continue to prioritize 4 market segments where our technology has been tested and certified: cement, where we are now delivering the first facility in the world to capture CO2 at Brevik CCS; bio/waste-to-energy, where we are delivering a modular Just Catch facility for Twence; gas-to-power, where we are delivering a FEED for BP's Net Zero Teesside Power; and blue hydrogen, where we have validated our carbon capture technology for SMR hydrogen production for Preem.

And we are also seeing good engagement with a number of additional sectors where our technology is well suited to capture CO2, such as smelting, pulp and paper and engineered carbon, or char.

Now an update on where we are in terms of our future business progress and outlook. As a reminder, when we were established in 2020, we set out an ambitious target to secure contracts covering 10 million tonnes of CO2 by 2025, our 10 in 25 target. And we visualized our progress towards this across 4 categories: one, secured development contracts; then secured FEED contracts; then tenders and studies; and finally, prospects. There is a range of probability of the work becoming a firm contract, with the highest being with already sanctioned developments and the lowest with our long-term prospects.

Here, the 0.5 million tonnes represents our already secured EPC work with Norcem and Twence.

Then the FEED category, 4 million tonnes per annum, which reflects the Net Zero Teesside Power as well as other major nondisclosed work.

Then we have the tenders we are currently involved in and studies we do for our customers. This work represents a very active part of our business development and is equivalent to around 5.5 million tonnes per year. This has increased in the recent months from the 3 million tonnes that we highlighted at our Q4 results earlier this year and reflects a number of significant new studies in the waste-to-energy sector and also with a major cement plant, with Titan Cement in Greece.

This means that so far, we have effectively matured almost 10 million tonnes per year of prospects into firm contracts, FEED studies and tenders.

And finally, we have the prospects. These are the potential opportunities on our radar screen where we are in early discussions.

Now we turn to our key industry segments, starting with the cement industry. We are proud to be selected by Norcem HeidelbergCement for the Brevik CCS EPC delivery, the world's first carbon capture project at a cement facility. Our carbon capture technology has been successfully tested in Brevik over several years with our mobile test unit. The plant will have superior heat integration with the existing cement plant and will capture 400,000 tonnes of CO2 per year.

The EPC project commenced in January 2021. Key milestones have been achieved according to schedule and all major purchase orders placed. On-site activity will pick up in June this year, and the main installation work will take place in 2023.

The Brevik CCS project is part of Longship, the greatest climate project in Norwegian industry ever. This is the full CCS value chain development, including Brevik CCS, as well as the transportation and storage project, Northern Lights. Longship will be in operation in 2024.

The cement industry represents 6% to 7% of the global CO2 emissions, and CCS is a key solution to decarbonize this hard-to-abate sector.

Our second prioritized market segment is the bio/waste-to-energy. We started the Twence CCU EPC project in the fourth quarter of last year. The project will enable removal of CO2 from flue gases at Twence's waste-to-energy facility in the Netherlands, and the captured CO2 will be used in greenhouses to boost plant growth.

This Just Catch plant is a first-of-a-kind modular product in the carbon capture industry, with a capacity of 100,000 tonnes of CO2 per year. The groundbreaking ceremony in Hengelo is mid-May, putting us on track for startup end 2023.

Looking at Norway, Aker Carbon Capture and BIR are exploring carbon capture at BIR's waste-to-energy plant in Bergen, on Norway's west coast, close to the Northern Lights terminal.

Earlier, we signed an MOU with Lyse and Forus Energi to explore development of a full-scale CCS facility in the Stavanger/Sandnes region in southwestern Norway.

Traveling a bit south, we have signed an MOU with Orsted and Microsoft to explore the development of carbon removals at Orsted biomass-fired heat and power plants in Denmark.

Finally, in the U.K., we announced an MOU with Viridor to focus on accelerating decarbonization at its waste-to-energy sites and the delivery of 5 modular Just Catch plants within 2030.

At Redcar Energy Center, another waste-to-energy site, we are studying the implementation of a large-scale carbon capture plant, which is part of the vision for Net Zero Teesside.

Our third prioritized market segment is carbon capture for large-scale gas-to-power plants. In the fourth quarter, we secured a FEED study for BP's Net Zero Teesside Power in the U.K., where Aker Carbon Capture is the technology partner to a consortium of Aker Solutions, Siemens Energy and Doosan Babcock. The facility at Net Zero Teesside Power will have an electric output of up to 860 megawatts and a carbon capture capacity of about 2 million tonnes per year. This will be the world's first commercial-scale gas-fired power station with carbon capture.

The CO2 transportation and storage infrastructure will be developed by the Northern Endurance Partnership to serve the East Coast Cluster, confirmed as Track One in the U.K. industrial decarbonization strategy.

The U.K. government announced that its ambitions for CCS is between 20 million and 30 million tonnes of CO2 per annum by 2030. The announcement also includes the selection of Track One clusters, HyNet and East Coast, which will begin decarbonizing U.K. industry from 2026.

Now we see the market response to this. One major example is that SSE and Equinor have submitted proposals to the U.K. government's Phase 2 cluster sequencing for CCUS deployment for its planned Keadby 3 carbon capture power station and Peterhead carbon capture power station.

And now our fourth prioritized segment, blue hydrogen. We continue to see the need for both green and blue hydrogen to reduce emissions. IEA estimates that 33% and 38% of the global hydrogen market to be blue in 2030 and 2050, respectively. There are a number of prospects in this segment; for instance, the Aukra blue hydrogen project in northwestern Norway. And we note blue hydrogen is also EU taxonomy-aligned as a carbon efficient process.

Today, I want to highlight our extensive work with post-combustion carbon capture for SMRs, steam methane reforming, hydrogen plants. We have run over 3,000 hours of carbon capture on the SMR hydrogen unit at Preem's Lysekil facility in Sweden with strong results, including sustained high capture rates of around 90% CO2; very good solvent stability, as you can see from the picture on the lower-right side; very efficient energy performance; and importantly, promising energy cost savings from recycling waste heat at the facility. This complements our innovative cryogenic precombustion capture technology that is under development together with SINTEF, which works at large-scale ATRs, autothermal reforming hydrogen, plants.

Now our CFO, Egil Fagerland, will take us through business model development and financials.

[Egil Fagerland, executive]

Thank you, Valborg.

So we have essentially 2 main product offerings in Aker Carbon Capture: Big Catch, which can handle 400,000 tonnes, and more, of CO2 per year; and the standardized Just Catch solution, which targets 40,000 and 100,000 tonnes per year. The Just Catch is also available in the larger modular offshore version. It can, for instance, be used on FPSO vessels. We can deliver either of these on a EPC project basis, and for the Big Catch offering we can also deliver it on a license and key equipment basis. Our standardized Just Catch offering is the heart of our Carbon Capture as a Service business model.

For Carbon Capture as a Service, our estimated levelized cost for the full value chain offering is a range between EUR 70 and EUR 150 per tonne. There is no change since the Q4 report. But as a reminder, back in Q3 2021, we presented a range between EUR 75 and EUR 145 per tonne. What we have changed this quarter, if you look closely at the chart, are the error bars. In general, these have widened, reflecting the current uncertainty around costs, energies, energy costs and other aspects such as transport and storage solutions. For comparison, the EUA is now at almost EUR 90 per tonne, and most recent analyst 2030 targets range between EUR 80 to EUR 150 per tonne.

The CapEx for the Just Catch plant, including liquefaction, temporary storage and financing, is in an estimated range of EUR 30 to EUR 45 per tonne of CO2. This range reflects efficiency gains through implementation of serial production, which is partly offsetting cost inflations that we've seen in the market lately. As we are currently delivering a Just Catch 100 to Twence, we are placing purchase orders, and this has confirmed our cost estimates shared in this graph.

The OpEx, including solvent supply, energy, digital operations center, labor and maintenance, covers a range of EUR 10 to EUR 45 per tonne of CO2. And as we commented last quarter, further engagement with our customers has allowed us to identify a larger number of opportunities where we can reclaim excess heat, which significantly reduces energy costs. In addition, further potential for plant automation has been identified through digitalization.

The highest range we see for transport and storage, with EUR 30 to EUR 60 per tonne as the cost range, and the cost will vary mainly related to the distance from the emissions source to the available storage site. Also, transportation and storage infrastructure projects are large in nature, and we've widened the error bar to reflect the risk of cost inflation for such projects that are upcoming.

The EUA or the EU ETS has so far in 2022 been relatively volatile and now stands at EUR 85 per tonne. The volatility seen in Q1 is influenced by the geopolitical unrest related to the war in Ukraine, energy security concerns and prices feeding power generation, such as coal and natural gas.

Despite the recent volatility, it's worth noting that European Parliament voted in favor of maintaining the 24% MSR intake rate until 2030, rather than allowing it to drop to 12% from 2023. This proposal still needs EU Council approval, but we see it as a clear commitment to the EU ETS as a key tool to drive down emissions.

Analyst targets that we follow continue to be in the range between EUR 80 to EUR 150 per tonne in 2030, and this is supported by the IEA's Sustainable Development Scenario, at EUR 120 per tonne, to achieve Paris-aligned emission reduction targets.

These prices compare with our range for levelized cost of Carbon Capture as a Service based on our Just Catch facility, and some of those projects are profitable already at EUR 70 per tonne.

Now I will take you through the key financial highlights of the first quarter. Bear in mind that all the numbers that I mention are in Norwegian krone.

Let's start with the income statement. Overall revenue for the first quarter was NOK 144 million, which was up 127% compared to the same period last year. This reflects increasing activity on the Brevik CCS project, which is continuing to progress according to schedule. In addition, new projects such as Twence Just Catch EPC and BP Net Zero Teesside FEED contributed significantly to our revenues. Our mobile test unit was in operation in Poland, and we saw an increased activity for pre-FEED and feasibility studies in the first quarter.

Our reported first quarter EBITDA was negative NOK 61 million, which was a decrease of NOK 31 million from the same quarter last year. Profit has not yet been recognized on Brevik CCS EPC and Twence Just Catch EPC. We will start recognizing profit when the project outcome and estimates can be more reliably measured. However, compared to the fourth quarter in 2021, the increased resource utilization that we now see due to additional projects in our backlog has impacted the EBITDA favorably in this quarter. Feed, pre-FEED, mobile test unit campaigns and feasibility studies also contributed positively to the EBITDA in this quarter.

The overall negative EBITDA continued to be driven by activity related to research and development projects, digitalization projects, tenders, business development, sales and international growth activities, particularly in U.K. and Denmark.

And now over to the balance sheet. Our first quarter net current operating assets ended negative NOK 491 million, which represented a strong positive cash position on key projects. Overall operating assets and liabilities, represented by net capital employed, was negative NOK 470 million. This signals that our business activities are currently funded by working capital and other liabilities.

We have a very healthy cash position, at NOK 1.5 billion, which could cover our liabilities more than 2x.

Finally, our equity remains strong, at NOK 1 billion, at the end of the first quarter.

On the cash flow, we started the first quarter with NOK 1.321 billion in cash and cash equivalents. Through the quarter, we saw an overall change in our cash position of NOK 164 million inflow. The major drivers were loss before tax, change in net current operating assets and CapEx. The loss before tax represented a cash outflow of NOK 60 million. The net current operating assets represented a cash inflow of NOK 229 million, mainly related to project cash receipts. And CapEx, mainly related to the building of a new mobile test unit, product development and standardization efforts for our products, and that represented a cash outflow of NOK 6 million. In total, our cash and cash equivalents ended the first quarter at NOK 1.485 billion.

And now to our financial outlook. Here, we outline some key figures for our financial outlook, and this remains in line with what we presented in the fourth quarter presentation for 2021.

Firstly, our backlog scheduling. We ended the first quarter at NOK 1.8 billion of backlog. And by year of execution, we see NOK 600 million in revenues linked to this backlog for the remainder of this year, around NOK 1 billion in 2023 and around NOK 200 million in 2024.

Secondly, our operating expenses. As a fast-growing company, we see our costs expanded quarter-on-quarter in 2021. For the first quarter in 2022, we saw that salary and other personnel costs and operating expenses together totaled around NOK 76 million. Excluding salary and personnel costs associated with projects, which we call resource utilization, we expect these costs together to remain around similar levels as we move through 2022.

And thirdly, our net cash balance. We continue to benefit from a favorable cash position, ending the quarter at NOK 1.5 billion. This was helped by favorable movements in net current operating assets as we progressed with our projects. Through 2022, we continue to expect some of this cash to be used for our projects as they further mature and outflow of cash is required. Based on project movements alone, we would expect that the year would end at a cash balance slightly below NOK 1 billion. Also based on project cash flows alone, we would expect this trend to reverse somewhat in 2023.

Please note that these comments do not include any assumptions for cash spend on M&A, additional investment opportunities that might arise through the year or similar events.

And now Valborg will summarize our way forward.

[Valborg Lundegaard, executive]

Thank you, Egil. Nearly 2 years after the company was established, we are in operation, delivering Brevik CCS in Norway, Twence CCU in the Netherlands and working on BP's Net Zero Teesside Power in the U.K.

We have set ambitious targets and a clear direction to position for the huge market ahead of us. We have prioritized the European market and 4 market segments: cement, bio/waste-to-energy, gas-to-power and blue hydrogen. These remain our focus. And we also see opportunities emerging in North America and in a number of other industry segments where our technology is effective.

We cannot meet our ambitions alone. Therefore, we have entered into collaboration with a number of complementary partners to accelerate the adoption of CCUS. In the quarter, we have entered into collaboration with Microsoft, Northern Lights and SINTEF. We see this aspect of growth remaining very active in the years to come.

To turn CCUS economics positive, the cost must come further down. We have set a target of up to 50% CapEx reduction within the mid of the decade. There is not one quick fix. We must challenge the cost in many ways. We will continue to work with EPC and license models, but we must also bring the full value chain together: Carbon Capture as a Service. Our customer will simply pay per tonne CO2 captured. We believe this will accelerate the market as well as accelerate cost reduction.

So with strong signals for CCUS market growth, our ambition remains to secure contracts to capture 10 million tonnes per annum of CO2 by 2025.

In these challenging times, given the highly complicated international circumstances, I am proud that Aker Carbon Capture can rely on our dedicated, resilient and purpose-driven employees. They are all eager to make a difference in our crucial global challenge to mitigate the impact of climate change. This goal is also a huge business driver for CCUS, as confirmed by the U.N. IPCC.

As a pure-play carbon capture specialist, we're up for the challenge. We have a firm strategy, our market positioning is progressing as planned, and we are already delivering major projects, which will be reference projects in the industry. Our technology, which decarbonizes industry and helps to safeguard energy security, will be an important part of the green transition. We are actively recruiting and building a strong company ready to make a lasting impact.

Thank you. And now we move to the Q&A session of our presentation. Egil, will you please join me?

[David Phillips, executive]

Okay. Thank you, Valborg, and thank you, Egil. And thank you also to everyone on the call for getting questions in nice and early. There's a lot to go through. Some of them are quite long; you know who you are. I may have to summarize your questions to get them through in time. But we'll run to the hour and see what we can do.

So first up, Erwan from RBC. This is about cost reduction. Are ongoing market conditions changing anything with regards to our 50% CapEx reduction target by mid-decade?

[Valborg Lundegaard, executive]

Well, let me start, and you can continue, Egil. First, I would say that it's very important now with the ongoing projects, Brevik and Twence, that we have placed all purchase orders. And this is important to safeguard the delivery of the project.

Going forward, we will work on cost reduction in many different ways. We have highlighted earlier modularization and standardization. These, of course, are elements that are independent of the overall numbers, but will contribute to achieve more simplified solutions. We will also work on digitalization in the same way.

But of course, we see that the market is changing and we see effects, for instance, on raw materials. So maybe you can say something about the market effects.

[Egil Fagerland, executive]

We do see effects of raw materials, and this is volatile at the moment. However, I think our efforts, especially related to modularization and standardization, also of the Big Catch projects, is showing results, such that we can purchase more standardized equipment and fabricate the equipment in a more cost-efficient way, which should offset the changes that we've seen lately.

[David Phillips, executive]

Okay. And one quick follow-up. Studies. Do we expect to see a growing share of revenues or a growing level of revenues from studies in the future?

[Valborg Lundegaard, executive]

Well, as you can see from the presentation on our 10 in 25 slide, we have an increased activity level on studies and tenders. And this shows the increase in market activity, and I expect this to continue to grow. We believe in exponential growth in the CCUS market, and that is why we are recruiting people to be able to respond to our customer and our prioritized segments and regions.

[Egil Fagerland, executive]

In terms of revenues, as we add new major projects the percentage of revenues will be a lower share, but the number of studies will increase.

[David Phillips, executive]

Absolutely. Thank you. That's very clear.

Next up, Rachel from Morgan Stanley. Norcem. So the question is around, in the fourth quarter we talked about the challenges from decommissioning of the facilities, the COVID issues, et cetera. Could we just talk ? Could you just remind us again about the delays and possible cost overruns and how we picture this?

[Valborg Lundegaard, executive]

Yes. So it has been announced from Norcem, being the overall responsible of all activities in Brevik, that they have seen an increase in cost. And our contract represents 50% of the overall value of Norcem's activities. There are a number of other contractors on the site. And so far, the work that has taken place at site in Brevik is modification of existing facilities and a lot of civil work, and this was also areas that Norcem highlighted when it comes to the cost increase.

What we have seen is an increase on the fabrication costs, and this represents approximately 10%, but which is covered in our contract.

[David Phillips, executive]

Certainly. And that I think also answered the second part of Rachel's question as well. So great.

From [ Steven Irvine ]. Can we talk about the cost increase -- when you look at Brevik again and looking at placing purchase orders, how does that cost increase affect that process? And is it a passthrough? Are we liable for any cost increases? How does that dynamic work?

[Valborg Lundegaard, executive]

We have placed all purchase orders. We also see that there are no delay on the equipment being delivered to Brevik. The first equipment will be delivered in June. The fabrication scope in June is relatively limited. Most will be delivered next year. So we have float in the delivery time. But we have firm contracts with our suppliers, and we certainly believe that we came ahead of all this uncertainty in the market.

[David Phillips, executive]

Absolutely. Okay. Next up, [ Anders Rosenlund ]. A lot of questions on Brevik CCS. Very detailed, very well based. But just to the extent that we could remind everyone where we stand on this. The budget overruns have been reported. To what extent do these refer to our scope? I think you've said it already, but it would be good just to say it again.

[Valborg Lundegaard, executive]

As I have said, our contract represents 50% of Norcem's overall activity. We've seen overrun in this respect. They have clearly stated from Norcem's side that there are increases on the modification scope. They have had surprises when it comes to civil and groundwork. But from our side, we've had approximately 10% increase. Half of that is related to COVID effects. And this has been covered by Norcem as part of contract mechanisms.

[David Phillips, executive]

Absolutely. In the scope that's linked to ACC, the revisions of a budget, how can we describe it? Is it linked to change orders? Is it cost inflation? Is it -- are there fixed price elements in there? How best would we describe this?

[Valborg Lundegaard, executive]

So we have a lump-sum contract with Norcem. However, there is indexation mechanism, meaning that the values remaining will be adjusted on a yearly basis on an agreed index.

[David Phillips, executive]

Okay. So I mean, overall, from this whole picture, how do we see the implications for ACC panning out from Brevik CCS?

[Valborg Lundegaard, executive]

We are on track. I think that is very important to highlight. It's still early days in the project. We've completed engineering. We've placed the purchase orders, but we haven't started fabrication yet. And it will be very good that it's a limited scope this summer because then we can really make sure that we work together as a team, together with Norcem and all the other contractors in Brevik, and really practice and make very detailed plans for the work taking place in 2023, which will be very important to secure the schedule of the project.

[David Phillips, executive]

Absolutely. And the very last one from Anders. I can guess the answer for this one. But whatever happens, if Heidelberg was to, for instance, pull out of the project, what would that mean? I think we can all -- I guess the answer is, you should ask them.

[Valborg Lundegaard, executive]

I think that's certainly an answer for HeidelbergCement. But we know that our customer and HeidelbergCement as the group, they have a very ambitious CCS strategy, and I think this is a very important project for them. I would say equally important as it is to us. And for both of us, it's a reference project for the industry. It's the first carbon capture plant on a big cement plant in the world. And this is a segment where Carbon Capture and Storage is the only solution to decarbonize.

[David Phillips, executive]

All right. Great. Thank you. So moving on, Turner Holm, 2 questions. The first one, talking about the increase in studies and tenders. I think really Egil answered? Or, Valborg, you answered this anyway. The increase in the studies and tenders section versus Q4 was down to a handful of quite important studies in the waste-to-energy, and also we have cement. So that's been covered already.

Gas prices. How has the high gas price environment affected customer appetite for gas-to-power and blue halogen?

[Valborg Lundegaard, executive]

I think this is a very good question. We see now that the focus is very much on energy security. But through Carbon Capture and Storage, we can ensure that there is clean energy available. So the focus on hydrogen has increased. A lot of focus on green, but also blue. And I certainly believe that blue will pave the way for green. And we see that a gas-to-power plant is more and more focused around the world, not only in Europe and U.K., but we also see a lot of focus on that in North America.

[David Phillips, executive]

Okay. All right. Two quick questions from [ George Sherman ]. First one, maybe one for Egil, I think, how much revenue will you make per tonne if CO2 prices meet estimates in the market? I guess this really refers to Capture as a Service. So maybe it's worth just checking the revenue models again.

[Egil Fagerland, executive]

I think the important message is that we take payment per tonne captured. Our units are standardized at 100,000 tonnes. You see the cost range that we have, EUR 70 to EUR 150, depending on the quality of the project and the economics in that project. And we have 3 pricing models that we talk to our clients about. One is a variable-priced model, where we link it to their alternative pricing, with a base fee. We have a range price, where we have a floor and a roof that we operate within and move variable within that range. Or we can offer a fixed price per tonne model.

So depending on the pricing model that is preferable for the client, that gives our revenues. But of course, higher carbon pricing will give more value to the capture and storage process that we offer as a service.

[David Phillips, executive]

Absolutely. The next one is a very long term one, looking into 2030. George actually typed earrings. I think he means earnings. But looking at our earnings base in 2030, this is a very super long term question, but how do you think we should, we could picture this?

[Egil Fagerland, executive]

We have our 10 in 25 targets. I think that's the start of the exponential growth factor. If we're able to capture our share of the market and also grow into other regions, the revenue potential is significant. But we wouldn't comment on the bottom line earnings at this stage, such a long way into the future for CCS.

[David Phillips, executive]

Absolutely. It's a long, long way, indeed. Okay. Moving on. James Winchester. A bunch of questions here. So the $52 billion spend by mid-decade from BNEF, the numbers we referred to in the market view, how do we see the European market in that slice in that same time frame?

[Valborg Lundegaard, executive]

Good question. Maybe I can refer back to you, David?

[David Phillips, executive]

Well, the European market is a very big slice of that. The maturity of the CCS wave, if you like, is, as we know, a little bit more advanced in Europe. So if you look then to North America and Asia, although those other regions are catching up very fast. So I'll get back to you with a number on that. You could also look it up on your terminal, as well, James. It will be [ on a survey on ] there somewhere. But it's going to be a very, very important part of that and will most likely be weighted towards its favor the shorter-term outlook you look at.

Second one, U.K. clusters. What's the level of urgency around development in terms of the big U.K. clusters? And do we think things are on target for the first storage to be online in 2026?

[Valborg Lundegaard, executive]

We are working, focused on the BP Net Zero Teesside Power FEED. BP has an ambitious plan to move forward with the project. So we certainly believe that the plans that has been made for Track One will go as planned. Of course, there is always insecurity here; it comes to political support and so on. But there is no doubt that the operator, BP -- and also we saw SSE and Equinor submitted their proposals for Peterhead and Keadby 3. This competition, the companies really want to move forward. And there is a strong political will in U.K. to have clean energy.

[David Phillips, executive]

Absolutely. And last question for James. I think one for Egil. Working capital. Could you just remind us of the outlook or how that might trend in 2022 for us?

[Egil Fagerland, executive]

So I think the easiest way to look at it is to look at our cash position. We're now standing at NOK 1.5 billion, and we will see outflow of cash through the year, closing in to NOK 1 billion or slightly below NOK 1 billion at the end of 2022. And that will reverse somewhat in 2023 as we get new cash flows in on the same projects. But this is isolated on the projects that we have in our backlog today, and it's not including any M&A efforts or new investment opportunities that might arise through the year.

[David Phillips, executive]

Okay. Right. The last group of questions, from James Carmichael. Profits recognition for Brevik and Twence, when should we expect these to come?

[Egil Fagerland, executive]

I think the important element for us on these projects is that they are first-of-a-kind projects and they are large projects. So the important thing for us is to recognize profit when you can reliably estimate the outcome of these projects. Valborg mentioned that there will be early fabrication work this summer. That will tell us a lot. So this year is likely, but we have to do an assessment every quarter whether or not it's the right time to start recognizing on these projects.

[David Phillips, executive]

Okay. Thank you. Next, life cycle emissions, very much going back to Valborg's ESG slide. When do we think we'll be able to disclose the full life cycle emissions of our technology?

[Valborg Lundegaard, executive]

Well, I can't give you a specific date for that. I think it's important that we are open in all our reporting transparency. You will find a lot of information in our annual report, where we now explain much more details of the full value chain and also our services. But I can't give you an exact date for this.

[David Phillips, executive]

Okay. Last question. Talking about storage infrastructure, the timing around that and also looking at what that means in terms of future contract awards. Is it realistic to expect any further firm contract wins this year? And this is not just the U.K.; this is anywhere.

[Valborg Lundegaard, executive]

Well, we work with FEED contracts, we work with tenders and so on. We see high market activity. So of course, we believe in the market. And what we've seen so far is that there needs to be the full value -- demonstrate the full value chain, whether on Brevik, where it's CCS, or on Twence, where it's CCU. We are working closely with a number of customers who want to move forward, but we cannot be precise in any guiding of specific projects.

[David Phillips, executive]

Okay. Fine. There is actually one more question that popped up. Kate O'Sullivan. Is there a volume threshold for which we will disclose specific FEED studies? And also, do we have any sort of a sourcing limit around the number of large studies that we can run in parallel?

[Valborg Lundegaard, executive]

That's a good question. And I think this comes back to our growth strategy. We are recruiting, and we are continuously recruiting. Today, we have more than 250 people on our projects, our FEED studies and so on. However, we need partners. We cannot do this alone. And that is why it's so important for us with all the strategic collaboration we are entering into, whether it's MOUs or strategic partnerships. And that is why we highlight that in every quarterly presentation because of course it's an important part of our strategy and the only way really to respond to this market growth.

[David Phillips, executive]

Absolutely. And in terms of the threshold, I mean, sometimes we shouldn't forget that customers, especially in the early discussions, customers have a very high level of confidentiality. So quite often, they prefer that we don't mention the studies by name.

[Valborg Lundegaard, executive]

Absolutely.

[David Phillips, executive]

Absolutely. Okay. That is the last question. So maybe any last words, Valborg?

[Valborg Lundegaard, executive]

Thank you all for listening in, and we'll meet again next quarter. We will, hopefully, have some exciting news for you then, and we're looking forward to the dialogue with you. And you always have Mr. David Phillips. You can call him and set up meetings. We're open for discussions with you.