Aker BP ASA

OSE:AKRBP

Earnings Call Transcript 2020-Q1

[Kjetil Bakken, Vice President of Investor Relations]

Good morning, everyone, and welcome to Aker BP's First Quarter 2020 Presentation, which will be given today by CEO, Karl Johnny Hersvik; and CFO, David Tønne. My name is Kjetil Bakken, and I am the Head of Investor Relations here at Aker BP.Before we start, I would like to refer you to the disclaimer included on Slide 2 in the presentation deck. And assuming that you have already read that, I now leave the floor to Karl Johnny to kick off the presentation.

[Karl Johnny Hersvik, Chief Executive Officer]

Thank you, Kjetil, and good morning to everyone. I guess most of us agree that we are living in pretty extraordinary times. The combination of the COVID-19 pandemic and the collapse of the oil price has created a situation, which is, in my view, totally unprecedented. And there is no doubt, this is a highly dramatic situation, a situation which holds the potential to destroy companies, but it's also a situation where companies with robust strategies will be rewarded. I believe Aker BP is such a company, and it makes me very proud to see how the Aker BP team has handled the dual challenge of the situation.We have been able to keep our people safe and to keep our production running without interruptions, despite all the invasive measures taken to combat the effects of the coronavirus. We have also been able to rapidly adjust our investment plans, making sure that we not only survive the crisis, but that we position Aker BP for the opportunity to build an even stronger company for the future. The building blocks for this is already in place. And these building blocks will be familiar to everyone who has been following Aker BP over time.Our comprehensive improvement program, which aims to reshape our industry with a focus on higher efficiency and lower cost; our flexible portfolio, where we have systematically been building a large opportunity set around our operated assets; our robust financial platform to make sure we have the space to maneuver and the ability to control our own destiny; and a unique shareholder structure, which gives us access to world-class industrial competence and resources. These elements have all played part in our tackling of the current crisis. And I'm convinced that these qualities will play an important part in defining Aker BP in the future. I will talk more about the future shortly, but let me first give a few comments to our actual performance in the first quarter. Firstly, let me share a few words on how we are dealing with the actual COVID-19 situations. Our main priorities with regards to COVID are pretty simple. The first priority is to keep our people safe. The second priority is to keep production running and ensure business continuity. Early on, we established a COVID -- task force to coordinate a COVID-19 response. The task force has been converted to a dedicated project team in accordance with our well-established procedures for emergency response.We are collaborating with other oil and gas operators and industry partners to share, learn and standardize based on best practices. Operationally, this involves a series of practical measures. The offshore mining is reduced to the minimum required to deliver the production volume in 2020. We have implemented strict travel controls to keep the virus away from our installations, and those include charter flights, where commercial flights are deemed unsafe or unavailable, and even a quarantine hotel to ensure that our people has a safe place to stay prior to going offshore. We have established procedures for isolation and quarantine and to handle potentially infected personnel, and our onshore personnel are largely working from home. This has worked well so far. Our people remain safe, and our production has continued uninterrupted.Looking forward, we are not speculating in how long the COVID-19 restriction will have to remain in place, but have focused on building a robust system that can last for the duration. In the meantime, we have also acquired state-of-the-art testing equipment, which we will use to further reduce infection risk and avoid unnecessary quarantines. Finally, we have established contingency plans now to cover all realistic and some pretty unrealistic scenarios.In short, I think we have handled the COVID situation well, and we are well prepared for the continuation.Now let us have a look at the underlying business of Aker BP in Q1. The title on Slide #6, I think, sums it up pretty nicely. In Q1 2020, we delivered fantastic operational performance. In fact, this was our best quarter ever. The only downside was the oil price was not as high as you could have wished for. Our safety record has 0 incidents. This is, obviously, an area where there's never room for complacency, but it's still very good to note that we operated safely in Q1, as this is our primary priority.We have set a new production record in the quarter driven by continued ramp-up of Johan Sverdrup and the Valhall Flank West as well as general strong performance across the rest of our portfolio, illustrated in no small terms by the record-high production efficiency of more than 95%. This is a number which includes Valhall and Ula.Production costs continued to move down and ended at $8.7 a barrel in the quarter, continuing the downward trend from the previous quarters. And finally, our CO2 emissions ended below our targeted 5 kilowatts per barrel, firmly positioning Aker BP among the very best oil companies globally with regards to CO2 emissions.I'm also very pleased to see the progress of our field development projects. In December 2017, we submitted PDOs for these 3 field developments. That is Valhall Flank West, Ærfugl and Skogul. Now less than 2.5 years later, we have started production for all 3 on or ahead of schedule.Valhall Flank West started production from the first well in December. The drilling and completion campaign is continuing through Q3 this year and contributing to continued growth in production through the year. The total number of wells have increased from 6 in the PDO to currently 9, and the reserves have also been upgraded along the way.The Ærfugl project has also been subject to significant improvement since the PDO was submitted. Reserves have grown, and while Phase 1 of the project remains on schedule for production start towards the end of 2020, Phase 2 have been significantly accelerated compared to the original plan for a 2023 startup. The first well in Phase 2 has already been put on production, and the 2 remaining wells are now scheduled to start up in 2021. The smallest of these projects, Skogul, was put in production in Q1 and is performing very well so far.In sum, our project organization, together with our alliance partners, have done a fantastic job and demonstrated separate capabilities that you would normally only find in significantly larger companies.Now with that performance in mind, let's turn our eyes towards the future. Back in March, we announced several important adjustments to our investment program to account for the effects of the drop in oil price. The most significant element was that all non-sanctioned field development projects were put on hold. For 2020, this represent a CapEx reduction of 20% compared to previous guidance. We have also said that we were reducing our 2020 exploration spend by 20%. Since then, we have decided to postpone 2 additional wells and reduction has, therefore, been increased to 30% of the original guidance.Our estimate for production cost was reduced to $7 to $8 a barrel, down approximately 20% from the original guidance for 2020. This is driven partly by a reduction of all noncritical activities and partly by a weaker NOK, which have favorable impact on our cost level.Since then, we have also announced and launched a reorganization project. The purpose is to adjust our organization to a new and reduced activity set and ensure that Aker BP retains important competence and build a flexible and lean organization. The project involves both contractors and our own employees and will be concluded by the end of this quarter, with full implementation from October this year. We understand, of course, that this is a hard process for everyone involved, but it is necessary, and we'll do everything in our power to ensure that everybody is treated with equality and respects.In my mind, the swiftness of these actions demonstrate determination, and it also illustrates another important quality of Aker BP, the flexibility of our portfolio. I believe that our portfolio of project is one of the company's great strengths. We have systematically been building a huge portfolio -- a huge opportunity set around our assets. And the fact that we are also the operator for most of this mean that we have a lot of flexibility and control when it comes to timing, planning and execution. This is one of the reasons why we've been able to reduce our spending forecast very quickly.In light of the challenging market conditions and as we communicated in March, we have now moved to a sanctioned-only scenario. As presented in our capital market updates in February, our sanctioned-only scenario implies stable production around 200,000 barrels for the years going forward, coupled with a steep decline in CapEx. At the same time, it's very important for us to maintain the optionality for the future growth so that we are ready in the event that the market conditions improve.Government initiative may also improve the economics of the future growth opportunities. And it's very interesting to see the recent initiatives from the Norwegian government.So let me attach a few comments. On the 29th of April, the government announced a decision to reduce the country's total oil production from June to December 2020 in order to contribute to a fast stabilization of the global oil market. While it's too early to say something very exact about how this decision will affect Aker BP, as the distribution per field is yet to be concluded on. However, a pro rata impact on Aker BP would imply a production reduction of somewhere between 5,000 to 10,000 barrels per day for the full year. However, and let me be clear on this, due to the strong performance so far in 2020, combined with the recently announced increase in plateau rate in Johan Sverdrup, we remain comfortable on our 2020 production guidance of 205,000 to 220,000 barrels of oil equivalents per day. So that is, we are retaining our original production guidance despite the announced decrease.The other initiative from the government is the proposal of temporary changes to the tax system in order to support the oil and gas industry and the supply industry. The government is planning to submit a formal proposal to the Norwegian parliament on May 12. After that, the bill -- after that, the parliament will consider the bill.We think it's very positive that the Norwegian government is proposing measure to support the petroleum sector and, not in the least, the vendor part of the petroleum sector. However, the initial proposal has important weaknesses, which are likely to limit the impact on our future investment levels. In its current version, the proposal will only lead to marginal changes in Aker BP's investment plans, as previously communicated in March. However, our liquidity position for '20 and '21 will be significantly improved.The Norwegian Oil and Gas Association has forwarded an alternative proposal, which will increase both liquidity but also reduce breakeven on project and increase activity in the Norwegian oil and gas industry.Before I leave the floor to David for the financial section, I would like to say a few words about dividends. Aker BP has always been willing to pay attractive cash dividends, and we have also been very explicit in quantifying this ambition. We have paid quarterly dividends ever since the merger with BP in Norway in 2016. This ambition remains firm. However, under the prevailing unprecedented market conditions, we have concluded that it's most prudent to cancel the old dividend plan.One important driver of shareholder value for Aker BP has been our ability to seize value-accretive growth opportunities, both organic and inorganic. One of the hallmarks of Aker BP is our strong financial capacity, which is a key enabler for an opportunistic and countercyclical growth strategy. The purpose of the dividend reduction is to further strengthen this capacity. The Board has, therefore, decided to pay USD 71 million in dividends in May. This represent 1/3 of the old plan for 2020. Going forward, the Board will make a new assessment each quarter, but the ambition is to maintain this level for the remaining quarters of 2020. Since we have already paid $212.5 million in Q1, this would imply a full year dividend of $425 million, which is 50% of the original plan. We will revert with a new long-term dividend policy at a later stage when the oil market conditions allow.And with that, I leave the floor to David to walk you through the financials. David, the floor is yours.

[David Torvik Tønne, Chief Financial Officer]

Thank you, Karl, and good morning, everyone. Aker BP's net production in the first quarter was 208,000 barrels per day. With a small underlift, the sold volumes ended at 207,000 barrels per day. Commodity prices decreased throughout the quarter, and the realized average hydrocarbon price was $41, which is 28% lower than in Q4. Total income ended at NOK 872 million, which consisted of $779 million in petroleum revenues and $93 million in other operating income. The latter includes gains on commodity derivatives, where $14 million is realized gains, while $68 million is unrealized gains on put options with maturity later in 2020. For Q2, we have roughly 55% of oil production hedged at an average strike of $54 per barrel. After the quarter, we also put in place hedges for roughly 50% of Q3 and Q4 volumes at an average strike price of $26.Revenues in Q1 were obviously impacted by the fall in oil price. Furthermore, realized liquid prices were also negatively impacted by the timing of liftings. Cargoes are priced based on Platts Dated Brent in the 5 days after lifting, and we had few liftings in January when prices were relatively high, but relatively more liftings in February and March when prices were lower. Comparing realized liquid prices to average Dated Brent in previous quarters, we note that Aker BP typically has realized prices slightly above Dated Brent. However, in Q1, this timing effect was quite noticeable.Given the current market conditions, it's worth deep diving a bit further into realized prices, bridging this back to observed market prices. If we start with the average Dated Brent price in the quarter of $50.1, the estimated negative timing effect was roughly $6.7 per barrel for Aker BP. This was partly offset by the trading team realizing an average positive differential on Aker BP's crude qualities of $1.9 per barrel. If we then subtract the negative effect of lower price on NGL, the realized liquid price ended at $44.7.For transparency, we have also here shown the effect of the realized gains on our put options in the quarter. In total, this was roughly $14 million, and after adjusting for the difference in tax rate on financial derivatives versus petroleum revenues, the positive effect per barrel sold was roughly $3.2 per barrel.When underlying market conditions have deteriorated to the extent they have in Q1, with supply-demand balances highly misaligned, oil trading strategy and execution becomes much more important. One reason is that the relative size of margins becomes larger when Brent prices are low, but more importantly, because in the current distressed market, some sellers could, in fact, have difficulties finding a buyer for their crude. This could have an impact on crude quality differentials, and we have observed that cargoes that typically would sell at a premium are now sold at a discount to Brent in the market. This is also the case for some of Aker BP's crude qualities, and we could, in fact, see average differentials turn slightly negative in the second quarter.In the current stressed physical market, Aker BP is benefiting from a close collaboration with BP's global trading team. This collaboration is based on the marketing and offtake agreement where BP is trading Aker BP's crude, treating it as their own equity oil. Aker BP, therefore, benefits from the capabilities of a global organization, trading billions of barrels on a yearly basis and that has access to its own downstream network. Aker BP's own trading personnel is seconded into BP's trading organization, and together, they have established trading strategies for each crude quality. If we now move over to the income statement. I have already covered total income quite extensively, but again, worth noting that other income also includes unrealized gains on commodity derivatives of $68 million. Simply put, the unrealized gains for Q2 hedges are reflected in the P&L for Q1, while the cash flow effect will come in Q2, if market conditions persist.Production cost of sold volumes were $156 million. And the production cost related to the produced barrels amounted to $165 million, equaling a cost per produced barrel of $8.7, as Karl has already mentioned. The low production cost per barrel in Q1 was mainly driven by increased production for Johan Sverdrup as well as generally lower activity level and the weaker Norwegian kroner. The estimated production cost for the full year 2020 has been reduced to $7 to $8 per barrel, using an FX rate of NOK 10 per dollar.Exploration expenses amounted to $50 million in the quarter, $29 million was related to dry well costs on the Nidhogg well, which was concluded as a noncommercial discovery. Total cash spend on exploration activities in Q1 ended at $53 million. The forecasted exploration spend for the full year is, as Karl, reduced to $350 million compared to the previous guidance of $500 million, reflecting the reduced activity level as we have now postponed 4 of the original 10 wells planned.Summarizing the items discussed so far gives us an EBITDA of $666 million for the quarter, down 11% from Q4. Depreciation was $277 million in the quarter or $14.6 per barrel. Furthermore, this quarter, we recorded an impairment of $654 million. These impairments are triggered by the lower oil prices, which has had a negative effect on investment plans and asset valuations. $360 million of the total impairment is related to the producing fields Ula/Tambar and Ivar Aasen. And $294 million is related to exploration assets, including Gohta and Filicudi in the Barents Sea, and parts of Trell and Trine and the King Lear discoveries. Hence, operating loss was $266 million for the quarter.Net financial expenses were $149 million. The main reason for the increase from Q4 is the change in fair value of derivatives mainly related to FX forwards and interest rate swaps. Further details are included in Note 8 in the quarterly accounts.Loss before tax was $414 million in the quarter, and tax income amounted to $80 million and was largely caused by a reduction in deferred tax. The P&L tax rate in the quarter ended at 19%. The low effective tax rate mainly reflects the impairment of goodwill and intangible assets with no associated deferred tax in addition to negative impact from currency movements. The actual tax payments in the quarter amounted to $48 million, representing the fourth tax installment of the 2019 tax payable. The last 2 installments for 2019 are expected paid in Q2 and amounts to roughly $90 million. If commodity prices remain at current levels, Aker BP does not expect to pay cash taxes in the second half of 2020. Then finally, net loss in the first quarter ended at $335 million.Moving quickly over to the balance sheet. Goodwill decreased by $65 million and other intangible assets decreased by $536 million, both mainly due to the mentioned impairments. Property, plant and equipment increased by $37 million. We had additions of $361 million, where investments at Valhall and Ula made up roughly 65%. Depreciation amounted to $245 million, and impairment was $78 million.On the other side of the balance sheet, equity was reduced by $554 million, which is the sum of net income, dividends and the purchase of treasury shares for the employee share program. Bonds and bank debt increased by $307 million. In sum, total equity and liabilities amounted to $11.7 billion at the end of the quarter.A couple of things to note if we look at the first quarter cash flows. We started the first quarter with cash of $107 million. During the quarter, we drew debt of $337 million, and cash flows from operations amounted to $572 million. And we have the mentioned tax payments of $48 million. Cash flows to investments in total was $395 million across the various spend categories. And dividend amounted to $212.5 million.Then at the end of the quarter, our cash balance had increased with $216 million to $323 million. The book value of net interest-bearing debt, excluding lease debt, was roughly $3.3 billion. And our leverage ratio, net debt over EBITDAX was 1.2, the same as end of Q4 2019.In the low oil price environment like we're experiencing today, debt levels and leverage ratios are important but even more important is the financial capacity and liquidity position. Aker BP has, over the years, worked persistently to optimize the capital structure and create a robust balance sheet with ample liquidity and financial flexibility. In January this year, we continued that journey when we issued our first investment-grade bonds in total of $1.5 billion. Furthermore, in April, we utilized the first of 2 extension options on the liquidity facility of the RCF, extending the maturity from 2024 to 2025. We find the unanimous support from the loan syndicates to extend the commitments on existing low margins in these unprecedented times as a clear confirmation of our strong balance sheet.As mentioned, at the end of the quarter, net debt was $3.3 billion, a slight increase of $100 million from Q4 2019. At the same time, we had total liquidity and committed debt capacity of $7.3 billion. This means that Aker BP at the end of Q1 had $4 billion of available liquidity, where $3.7 billion was committed undrawn capacity on our RCF and roughly $300 million was cash on account.At our capital markets update in February, I talked extensively about our financial priorities and how we work to balance investing in profitable growth, returning parts of our value creation to shareholders and maintaining sufficient financial capacity. These 3 priorities remains the same, but the weak oil market and the high uncertainty in the global economy has prompted the need for decisive action to rebalance each of these elements.Karl has already walked you through the immediate reductions in investments and spend, which we currently estimate in total to roughly $600 million across the various spend categories in 2020. He also explained how the Board is retracting the previously communicated dividend plan and reducing the quarterly dividend for May to 1/3 of the previously guided amount. As we have the ambition to maintain this level for the remaining quarters of 2020, this implies a total dividend reduction of $425 million for the full year or 50% of the guided amount.Lastly, I've touched upon the timely bond issue of $1.5 billion in January, increasing our financial capacity significantly. And broadly speaking, have these 3 actions increased our liquidity position end of 2020 by roughly $2.5 billion compared to our starting point in the beginning of the year. The purpose is to retain our financial flexibility, not only to weather this current storm, but to best position the company for future value creation, including us -- including enabling us to be countercyclical if the right opportunities arise.Now before leaving the word over to Karl for some concluding remarks, I will quickly walk you through the updated guidance for 2020. As Karl has already covered, the production curtailment announced by the Norwegian state are likely to have certain negative impact on our production. However, due to the strong performance so far this year, combined with the recently announced increase in plateau at Johan Sverdrup, we remain comfortable with the guidance range of 205,000 to 220,000 barrels pay. Our CapEx plan for 2020 is now $1.2 billion, down from originally $1.5 billion. And the CapEx for 2020 now mainly reflects investments in projects that has already been sanctioned, including Johan Sverdrup Phase 2 and the completion of Valhall West Flank and Ærfugl.As Karl mentioned, there is a debate ongoing in Norway about temporary adjustments of the petroleum tax system. In the best case scenario, this could trigger additional investments already in 2020, but this is way too early to quantify now.As we have now reshaped the exploration program and reduced the plan from 10 to 6 wells, we are also reducing the estimated spend level accordingly. Updated guidance for 2020 is $350 million pretax, down 30% from the original plan. Most of the planned abandonment expenditure for 2020 is deemed safety critical, and we currently do not plan to change the activity level for 2020. And we keep the original guidance at $200 million.We guided production cost per barrel roughly at $10 for 2020. This was based on an FX rate of NOK 8.5 per dollar. In Q1, we realized a production cost of $8.7. For the rest of the year, the reduced activity level offshore due to COVID-19, acceleration of selected cost and improvement initiatives and the weakening of the Norwegian kroner all helps drive down the expected cost level. We, therefore, update our guidance for the full year to $7 to $8 per barrel.In sum, with these updated guiding figures, we estimate the company to be cash flow breakeven at a realized oil price of $30 Brent for the rest of the year, pre the expected dividend payments of $425 million.I will now hand over the word back to Karl for some closing remarks before we move on to Q&A.

[Karl Johnny Hersvik, Chief Executive Officer]

Thank you, David. Very clear and concise as usual. Just a few concluding remark. I believe that the unprecedented crisis we're in will create winners and losers also in the E&P space. So far, we have been focused in Aker BP on managing the COVID-19 situation, and I think we've been quite successful so far, retaining safety for our people and undeterred production throughout this crisis. We are now positioning Aker BP for the future and will continue to stick to our strategy.First and foremost, efficient operations and excellent execution continues to be a top priority and is of paramount importance in the situation we're in. We have, as I said, managed the COVID-19 situation without any disturbances. In addition, we've continued to increase production efficiency and set new production records in the last quarter.Excellent execution is also the very foundation for our continuing our improvement efforts. Just before the crisis hit, we had started to implement a new operating model across our assets. This work will increase -- will continue with increased pace. The current market demonstrate just how important it is to drive down cost through continuous improvement, and digitalization will continue to be one of our pillars in our improvement program.The financial flexibility that David talked you through is another important enabler for future growth, and we are continuing to assess growth opportunities, organic and inorganic. And let me be clear, our ambition is not only to survive this crisis. Our ambition is to come out of this crisis as an even stronger company for the future. We aim to be the leading E&P company.And with that, we'll conclude the presentation and open up for questions.

[Operator]

[Operator Instructions] We will now take our first question from Michael Alsford from Citi.

[Michael J Alsford, Director]

I've got a couple, please, but could you elaborate a little bit more on what you see as the weaknesses to the current tax reform proposals in Norway? And also, how though would it increase your liquidity in 2021 based on the current plans, would be the first question.Secondly, as you mentioned a couple of times in the presentation, you've had a track record of being countercyclical and obviously have significant financial flexibility. What are the right opportunities for you going forward? I'm thinking, what type of assets, maturity profile would you be looking for to build out from the current portfolio that you have?And then just finally, with the acceleration in your improvement plan, should we see a material reduction further in production costs as we head into 2021?

[Karl Johnny Hersvik, Chief Executive Officer]

Thank you, Michael. So let's start with the discussions on temporary tax adjustments. Just to be clear on the storyline here. So the Norwegian oil and gas, which is an association with oil companies and vendors, coupled with both the Norwegian trade unions and the Norwegian organization for employers, forwarded a proposal which contained 4 key elements. So the first one was direct expenses of CapEx in '20 and '21, an ability to use direct expenses for new decisions on capital expenditure in '20 and '21, an ability to use direct expenses for PDOs and likewise for top sides that was submitted before the expiry of 2022. And of course, in total, this would mean that the companies were given higher liquidity, but also that the breakevens on the CapEx projects will go down. The state net taxes would stay identical overtime to the existing model.So that was the original proposal from the industry. And the whole idea here was actually to make sure that the activities stayed up and that we retained employment, capacity and competency in the Norwegian oil and gas industry throughout this crisis, while it came with no extra burden to the Norwegian taxpayers.The proposal from the government largely follow the same line. However, there are a couple of important adjustments. And as the uplift is now significantly reduced, coupled with a reduction in time where the measures are only applicable until 2024 and it only applies to PDOs that are delivered or approved -- delivered inside '21 and approved inside '22, it means that the reductions on the breakeven on the CapEx programs is only marginally reduced from the existing regime. However, of course, the direct expenses of capital expenditures in '20 and '21, even if the price lift is reduced, is, of course, giving a huge liquidity. The exact number of liquidity will, of course, depend on the capital expenditure in those 2 years.Moving on, what are the real opportunities? Well, from an inorganic perspective, the market has been quite slow, I would say, and quite for obvious reasons, as the oil prices drop, then people are struggling to make head or tail of the future prices. It's very difficult to set a price for an asset transaction or a corporate transaction in the current markets.We are, of course, continuing to assess the situation. And as I said, we have had a history of being countercyclical. And you should expect that we will continue that strategy. That being said, we will retain discipline as we've also done in the past few years and only act when we can see value-accretive opportunities. And by value accretive, I mean value accretive to the shareholders of Aker BP.In terms of types of asset, I think we'll stick to the strategy we talked about at the Capital Market Day, that is that the key quality for us is the quality of the asset acquired. So we need to be able to understand, we need to be able to operate. I think that's even more importantly throughout this crisis that we're able to apply our business model. And we're, obviously, not looking for tail-end assets, at least not -- and certainly not from a stand-alone basis.And then your final question, yes, improvement plans. Yes. Well, in parts, I would say that the cost that you're now seeing in Q1 is impacted by 3 factors. So it's impacted in parts by significant reduction in activity program. I think we entered -- or exited January with about 1,200 men in total working on our assets offshore. I think the current numbers, as I said this morning, was 772. So it's a radical reduction in mining.Second, it's also been increased somewhat by lots of measures to combat COVID-19. And of course, we've had an effect of the FX, but this business picture is not really for the full quarter, right? This shot had hit us mid-March, so you should expect to see the impact of cost reductions even stronger in Q2 than you've seen so far in Q1. And also, you should expect to see a lowering of cost.And remember, at the Capital Market Day, we announced a target of setting a cost at $8.5 -- $7 in 2023, but that was done at an FX number of NOK 8.5. So yes, that's a long answer, but the short answer is, yes, you should expect to see lower costs going forward.

[Operator]

Our next question comes from Alwyn Thomas from Exane BNP Paribas.

[Alwyn Thomas, Analyst of Oil and Gas]

My first question, I'd like to start with a little bit more detail on the marketing relationship you have with BP that you talked a little bit about in one of the slides. Firstly, could I just ask whether you still own the barrel through to the refinery? Or did BP directly buy the barrels from you? And I guess, just a little bit more detail on the relationship as to how you ensure good -- the best possible prices for your barrels from BP.My second question, perhaps a little bit more broadly, with a strong operational performance in the first quarter. I wanted to ask, Karl, whether you could perhaps shed a little bit more light into what might happen in the second and third quarters due to the restrictions on, yes, with personnel and things. And I think in the report, you talked a little bit about Valhall potentially being impacted by restrictions on personnel and activity levels. So maybe just a little bit more detail on what you expected it to be on a day-to-day basis in terms of activity across your main hubs.

[Karl Johnny Hersvik, Chief Executive Officer]

Sure. Do you want to do the marketing question?

[David Torvik Tønne, Chief Financial Officer]

Yes, yes. No, I can start, and then you, Karl, could add on to it. So we have an agreement with BP, where they are marketing our oil. So -- and we, as I mentioned, have our own trading personnel seconded into that organization, so it's a joint collaboration.When it comes to, if we are owning the barrels, so that's -- it depends a bit on the different cargoes and the commercial agreements related to that. I will not go into detail and comment on that.And when it comes to sort of how do we work the relationship in order to make sure that we get the best prices, I think it's very much a collaboration which is built on the foundations of our alliance models and working together as one team. And BP, of course, being a large shareholder in Aker BP has, of course, incentives also to make sure that, that arrangement works well. So very supportive of the work that they are doing for Aker BP in this troubled times.I don't know, Karl, if you want to add something specific.

[Karl Johnny Hersvik, Chief Executive Officer]

First of all, I think we should be very -- I mean, we're very grateful for the support on marketing from BP. I think this would have been a very different story in Q1 selling these barrels, if that had not been the case. And how much direct economic impact that had, we'll have to come back when we see the exit point of this crisis, but just let me very clear on that.Second, if you are inferring to that we have an agreement with BP, which they buy our barrels and then we sell, that's not the shape of the arrangement. So the actual cargoes will either be sold as an FOB, which is at more asset, or delivered to refinery or other delivery points. That depends on the sale agreements of that specific cargo.Second, impact on our operations. So what we've done so far, we have not gone to a minimum mining. We have gone to a mining level where we felt that we could deliver the production guidance for 2020. That means that we are still executing necessary maintenance. We are still executing well lift operations. We are still stimulating wells. We're still running wireline, et cetera, et cetera. So the whole idea here was not to go into full emergency mode, but to reduce the mining to a level where we could better control the flow of personnel and materials offshore. And my assessment is that we will be able to sustain this activity level throughout 2020, if necessary.And then obviously, going from 1,200 to 772 has an impact on our ability to carry out work. So what has been now postponed is mostly non-production and non-safety critical maintenance. That can't be postponed forever, so at some point in time, we'll need to normalize that situation. However, what we're also seeing is that throughout this crisis, our plan attainment has gone up. Our ability to execute work has gone up, et cetera, et cetera. So we are actually seeing throughout the period now for March to end of April, a quite interesting increase in productivity.So one of the issues that we will focus on now going forward is how do we actually make sure that, that increase in productivity is also a part of what happens when we increase the activity level, so that we don't necessarily plan to go back to the 1,200 originally, but we need to increase maintenance somewhat. So this won't have any impact on production in 2020. We've set the level at such a level that we can actually sustain production with 2020.

[David Torvik Tønne, Chief Financial Officer]

And just one comment from my side, Alwyn, when it comes to the marketing of the oil. So just to be very clear. So of course, we are marketing the oil out in the open market, so we are benefiting from the trading capabilities of BP in that market. It's not that they are buying the oil from us.

[Alwyn Thomas, Analyst of Oil and Gas]

Okay. Could I maybe just ask, David, just very quickly on that? How far forward have you been able to sell cargoes, particularly with regards to 2Q being probably the most difficult quarter?

[David Torvik Tønne, Chief Financial Officer]

Yes. So we have sold quite a lot of the volumes for Q2. So we're very comfortable with offsetting the volumes for Q2. I think most or part of May has already been done. All of May is done, and we are working on June as we speak. So we're quite comfortable on that. And I think another point which is worth mentioning, of course, with regards to the broad set of capabilities that the BP trading organization has means that we do have various offset mechanisms. And I refer to the downstream networks of BP, which definitely is also an offset that we could use if markets are distressed. But as mentioned, we market the oil in the open market and then get the best prices possible.

[Operator]

Our next question comes from Teodor Nilsen from SB1 Markets.

[Teodor Sveen-Nilsen]

Two questions. The first is on production and production guidance, and given the fact that you most likely will reduce some of the production, some of your fields after the government's announcement. When should we expect you to provide an updated production guidance?And second question is a follow-up on the sold volumes you talked about in second quarter data. How has the realized prices been on those dollars compared to the benchmark prices that we can observe?

[Karl Johnny Hersvik, Chief Executive Officer]

So first question. We are expecting to get revised production allowance letters within a week or so. At least that's the previously communicated time line. But we are, of course, in dialogue with the relevant authorities on this issue. And if there are changes that will require changes to guidance, we'll forward that to the market immediately. But based on the current analysis, and as we said, the very strong performance both in Q1 and continuing into Q2, we're now actually quite comfortable with the existing guidance.And then prices for realized prices, David?

[David Torvik Tønne, Chief Financial Officer]

Yes. So as I mentioned in quite some detail during my report. So for Q1, we saw premiums of roughly $2 per barrel being realized. And in Q2, we do see that more cargoes have been sold at 0 or close or negative premiums. So we do expect on average to see slightly negative premiums for the second quarter.

[Operator]

And the next question comes from Anders Holte from Kepler.

[Anders Torgrim Holte, Equity Research Analyst]

Congrats on a quarter. At least operational cash flow was very good, which is good to see. Just a couple of questions that I have. Firstly, I saw that you mentioned in your report that you are secure now with options for $26 for half of your production for the second half of this year. I mean how should we put that in context to where the Brent is trading at the moment and sort of your own view of oil prices for the rest of the year?And also, I see that you're now saying that you are moving to the sanctioned-only scenario for your production and for your CapEx plans. And as we expect, CapEx kind of comes off sharply. And even if I look into 2023, for example, on your slides there, it seems that there is [ quite a split ] through maintenance CapEx in those numbers. Now is that something we should add on top of your regular CapEx? Or how should we think about the maintenance on the sanctioned-only part of your production?

[Karl Johnny Hersvik, Chief Executive Officer]

Okay. You want to talk about the put options and how that relates to the forward prices?

[David Torvik Tønne, Chief Financial Officer]

Sure. Sure, I'll definitely do that. So how do you -- should we think about it? So we used put options to protect downside, and that's been part of our prudent financial policy for years. And we typically put in place put options half a year, a year in advance, and that's what we did also before 2020. When it comes to the put options that we put in place, now in Q2, we definitely hope that we will not be utilizing those put options. But of course, we need to also consider the difference between the Brent first screen oil price that typically are being looked at by market participants, showing today an oil price of, I guess, $30, $31 closed yesterday and what Dated Brent plus prices out in the physical market, which is, for the past couple of weeks, has been trading significantly lower.So -- but then that's -- Dated Brent closed yesterday at roughly $23, and the put options that we have in place for the second part of the year is with a strike price of $26. So I think this is part of our prudent financial policy and to protect downside. And given the fact that we now, with the revised plans that we put in place, are expected to be free cash flow neutral at $30 oil price for the remaining parts of the year, I think we've set our setup for success in even a very volatile market going forward.

[Karl Johnny Hersvik, Chief Executive Officer]

And remember, this is also a part of this strategy that we follow for a long time now to retain financial flexibility and knock that up in distressed situations where we do not control our destiny. And I think it's also a very important point David answered, that the difference between the Brent first position that you normally see on your Bloomberg Terminal, or whatever, had the actual realized prices, which we sell on which is a 5-day average of Dated Platts following the last -- or the bill of lading assets, the last drop of oil going over to the tanker, has been significantly different. Platts Dated has been down to $8 -- to $10 lower than first position. I think it actually bottomed out at $13 lower, which means that this put option should not be viewed directly linked to the Brent first position but should be viewed linked to Platts Dated. So you can, of course, find different ways of actually assessing that Platts Dated if you want to.Now when it comes to the sanctioned portfolio, David?

[David Torvik Tønne, Chief Financial Officer]

Yes. So when you look at the CapEx profiles that we showed at the Capital Markets update, that is the total CapEx that we expect. So we don't separate between sort of maintenance CapEx and other CapEx in those charts. So normal operational maintenance is included in part of the production costs. So this is the total amount of expected CapEx in a sanctioned-only scenario.

[Kjetil Bakken, Vice President of Investor Relations]

And production corresponds to investments.

[David Torvik Tønne, Chief Financial Officer]

Yes. And of course, as Kjetil is reminding me here, of course, the production corresponds, of course, to that investment level also.

[Operator]

And our next question comes from Karl Fredrik Schjøtt-Pedersen from ABG Sundal Collier.

[Karl Fredrik Schjøtt-Pedersen]

The question -- or going back to the tax proposal for tax exemptions or temporary tax relief. Starting off with a question on what type of projects or what concrete types of projects that you sanctioned given the Norwegian Oil and Gas Association's proposal? And what will then fall out in this proposal from the Norwegian government? That's the first question.And the second question is, what do you estimate as your liquidity boost in 2020, 2021 from the Norwegian government proposal, and if so, that you would rather forgo that liquidity boost to better get your economics on new investments?

[Karl Johnny Hersvik, Chief Executive Officer]

Okay. Thank you, Karl Fredrik. So when it comes to your first your question. When we have looked at our portfolio, most of the projects that are in our current portfolio, inclusive Hod communities, the get-go and not insignificantly, NOAKA, will be executed under a NOAKA proposal. That's the whole idea, right? It's to create a proposal, which had no negative effects to Norwegian society while improving activity in the vendor industry.If you move over to the current proposal, that is the time limits combined with the other elements means that this will probably be linked to project that have either a very short duration, which is normally infill wells or short tieback wells or have already been very close to PDO. So my guess when I said that we were not making any changes as of this moment is that it will have limited impact on our activity. There might be a few more infill wells and then what might be a few tiebacks that we would reconsider. But the changes in breakeven are so small, that is even these projects will have to fulfill a requirement, which is significantly stricter than the usual $35 that we've used as benchmark for a long time now.And then when it comes to our liquidity boost, I think we'll come back to that in numbers when we see the actual proposal. But you could, of course, make a calculation based on the CapEx and the proposal from the government that you can find on the government website.

[Karl Fredrik Schjøtt-Pedersen]

And is it so that you would rather forgo the liquidity boost than have a higher preference for incentives towards new investments? Is that the understanding?

[Karl Johnny Hersvik, Chief Executive Officer]

The whole point is that this is a combination, right? So the key issue here is to make sure that we retain value creation in the entire portfolio. And the thing that we have managed to achieve within all proposal is the combination of a liquidity boost that allows the companies to invest and a reduction in breakeven that makes it attractive to invest while not hampering the Norwegian taxpayers with an additional bill for that boost.So it's very difficult to kind of judge these elements up against each other. This is a total package.

[David Torvik Tønne, Chief Financial Officer]

And one comment from my side also. I hope it's clear from the presentation today that currently, we don't have a issue with liquidity.

[Operator]

Our next question comes from Yoann Charenton from Societe Generale.

[Yoann Charenton, Equity Analyst]

I will have 3 questions, if I may. On next year production, if you were to sustain the current activity level during this year but still allowing for maintenance, could you please provide some more color on the impact on next year production? Are we really looking at a flattish output trend as we move to 2021?Then maybe I should add the 2 other questions. So for 2020 investment and production guidance, are you able to say what is broadly speaking, the scheduling of spending and production throughout the year?And then last question on NOAKA. Have you had any time at all to achieve progress on the NOAKA negotiation with Equinor in the CMD?

[Karl Johnny Hersvik, Chief Executive Officer]

Thank you, Yoann. Well, first, the simplest question first. When it comes to next year production, as I said a couple of times now, we actually do believe that the current activity level will be sustainable at least throughout 2020. We might have to increase it slightly in 2021 to pick up some more of the backlog that we're now building on maintenance. But as I said, the backlog is lower than we expected because productivity in our plan, it has gone up. So I'm not, at least not today, anticipating major changes in our plans for '21 either. And I think the guidance we provided in the sanctioned-only scenario in the Capital Market Day is a good proxy also for the '21 year.Now when it comes to scheduling of investment, David?

[David Torvik Tønne, Chief Financial Officer]

No. I don't think we can add too much color on sort of the phasing of investment spend over the next couple of quarters. I think for sake of good order, you could probably think of it as really flat when it comes to CapEx. And similarly, I think we already gave some guidance with regards to production development throughout the year in our Capital Markets update, and that remains fairly the same, although that some of the turnarounds that were scheduled during summer was not going to be executed due to the COVID-19 situation.

[Karl Johnny Hersvik, Chief Executive Officer]

And then finally, NOAKA, I think most of our minds in the entire industry have been on managing COVID-19, and also, we had an excellent collaboration with all participant in this industry, while preparing for the proposal from the industry on the short-term tax changes. So the NOAKA discussion is where we left it in March. However, I'm looking forward to picking up that ball again as soon as possible.

[Operator]

Next question comes from Chris Wheaton from Stifel.

[Christopher Courtenay Wheaton, Analyst]

Two questions, if I may. Firstly, Karl Johnny, to you, what -- has the corona crisis changed to what you think the right level of debt that the company should have in the future in terms of net debt to EBITDAX or a function of the asset base? I'm interested if it's changed that because, to me, that seems the balancing item as to how much you can pay your dividend versus how much your investment plans are going to cost.Secondly, if I may, a question for David on the impairments. I was surprised to see Ivar Aasen in the midst of impairments. Could you perhaps explain a little bit more why it feels so new, as Ivar Aasen is clearly a technologically very advanced field? It's had to have impairments at the current oil price.

[Karl Johnny Hersvik, Chief Executive Officer]

Thank you, Tex (sic) [ Chris ]. So of course, we are discussing the whole capital allocation framework in the midst of this. So that is the balance between what we do with dividends, what we do with organic investments, et cetera, et cetera. So I'm not going to conclude on that discussion, but this is obviously a topic that is front and center of the discussion currently. And then, of course, the current level is based on our historic assessment both for the market and the activity program. So at least we felt that, that was correct in the previous scenarios. Whether that's correct also in the future, we'll come back to that.

[David Torvik Tønne, Chief Financial Officer]

Just one comment from my side as well, Chris, is that we are definitely now seeing the benefit of the prudent financial policy that we have had in place. We're not taking on too much leverage and, of course, having a lot of liquidity in the balance sheet. So we're very happy about that. And of course, the bond issuance in January was, maybe a bit by luck, perfectly timed just ahead of the crisis, and that puts us in a fantastic situation now not having to run to the market and get additional liquidity when credit spreads have drastically widened. So I think that's an important element.When it comes to your question around Ivar Aasen. So I understand the rationale for your question, of course, but we need to consider also at what time Ivar Aasen was built, right? So that was a field which we built in a very different oil price environment. And I guess, at the time of PDO, the breakeven for that project was $60.So the reason for why Ivar Aasen is now slightly impaired is just due to the fact that when the oil prices dropped and then you do the impairment testing with the 3-year forward curve, a lot of the value is in the production in the coming years. It's simple math, basically.

[Operator]

Next question comes from James Carmichael from Berenberg.

[James Carmichael, Research Analyst]

Just a couple of quick ones. So I appreciate these details are still being worked through, but I was just wondering, given the MPE seems to have indicated that it wants to maintain sort of Norway's overall asset export levels. So does that suggest that fields like Skarv will be insulated from the production cuts when they're sort of fully worked out?And then just secondly, on the dividend point, I think in the AGM, you approved the possible issuance of shares in lieu of cash dividends at the request of investors. So just wondering, if you can talk us through the thinking there and whether you anticipate using that this year, that would be great.

[Karl Johnny Hersvik, Chief Executive Officer]

So Skarv, if we take that. Skarv is actually consisting of 2 petroleum regions, 1 gas region and 1 oil region. So the production curtailment, the way we see it, is directly linked to oil and oil assets. So for Skarv, this will mean a reduction in oil, but it won't necessarily mean a reduction in the gas production. So a little bit based on how the associated gas and the pure gas production is evening out and optimization across the asset. This could have less -- this will have less, but it won't mean that Skarv is excluded from the current curtailment.Now in the AGM, we -- as you put, we included the option of a possible share scheme when it comes to dividend. The currently communicated strategy is to stay with cash dividends to a total amount in 2020 of $425 million. So -- and I think that's the communicated plan when it comes to dividend this year.

[Operator]

Next question is from James Thompson from JPMorgan.

[James Thompson, Analyst]

I had a couple, if that's all right, Karl. Firstly, I just wondered if you could update us on your alliance structures that you have in place with your food service companies. How are these -- I mean, it's early days, obviously, in this low oil price environment. But could you maybe give us a bit more -- a bit of an update on how these are performing, these structures, and whether that you need any changes at all there?My second question just involves Liatårnet. I noticed that you have pushed the appraisal of that well out. Just interested, I guess, in my view, NOAKA seems to be one of the primary targets for the Norwegian government in terms of continuing to keep activity -- development activity high on the continental shelf. So I was surprised that you are not going to appraise that given the complexity of the discovery. I thought that would form a core part of the NOAKA field development, at least in the first phase.And then finally, I mean, obviously, you've done a good job on OpEx. Group OpEx is coming down nicely. Just wondering if there was any fields or any of your satellites that may be at risk of an early shut in or also in production. Just through this very low oil price environment, I guess, I'm thinking fields around the Ula area, things like that. Just any color there on fields which might be at risk if $30 oil persists in the short to medium term.

[Karl Johnny Hersvik, Chief Executive Officer]

Okay. Thanks. All good questions. So let me start with the alliances. I think if we were grateful for the alliances before the COVID-19, I think we're extremely grateful for the alliances now. So this is both allowing us flexibility. It's allowing us a framework to work within, where we share trust and we share information. And it's also allowed us to move extremely quickly to change our activity sets and activity levels. So I think this alliance structure had even more robustness to it than we originally thought when we initiated the project. That, of course, doesn't mean that it's not without issues. Particularly the wellhead alliance, facility alliance, it was struggling when projects such Hod, which were planned to be delivered on PDO, it's now suspended. So this is also sort of one of the -- but this is not only hitting the alliances. It's hitting the entire vendor industry. But I think as a setup and as a strategy, I think the alliances has performed even better than we expected.I think the other key comment to make here is that, given that you have an incentive element in these alliances where all parties are incentivized to reduce cost and increase performance, one of the things that pretty much happened after the COVID-19 situation broke out was that a lot of cost reduction initiatives popped up pretty spontaneously in these different alliances as well. And these were initiatives which otherwise, we would have to coordinate and drive and change, et cetera. Now it happened spontaneously at the front end of the business. And this also happens to plan attainment, productivity increases, et cetera. So both the way of organizing work, but also the commercial model, is driving the right behavior when you have these kind of crisis and these kind of radical changes to the environment.Now Liatårnet, which was your second comment. First of all, there is plenty of oil in the NOAKA area. So there is no lack of oil, and the original field development will stand very nicely on its own even without the Liatårnet volumes. And so that's one of the kind of commercial reasons for pushing out this.From a technical perspective, this is a rather complicated test. It's a shallow reservoir on consolidated sands, which means that the original delineation was set in place to do a PVT sample and to address the top surface. Now with recent processing of seismic, I think we have pretty good control over how that reservoir is distributed and controls. And as I said, with the sufficient amount of oil in the NOAKA area, there's no reason to push forward this delineation. And then, of course, it also gives us more time to both do a production test and a PVT sample in the same well. And thereby, potentially saving one appraisal well.Now OpEx, and of course, if this continues for a long, long time, we need to reconsider lots of things. But in the short to medium term, this hasn't really impacted the way we think about our assets. And the way we think about early shut in. So we're continuing the program as we set out in the Capital Market Day and the sanctioned-only scenario. So I think that's a good reflection of the strategy that we have today.If you want to add anything there?

[David Torvik Tønne, Chief Financial Officer]

Yes. Just on production costs, so if we look across the portfolio now, all our assets has a production cost of roughly $10 per barrel or lower and, of course, Johan Sverdrup being the lowest with roughly $2 per barrel, apart from the mentioned Ula that you mentioned. But I think it's also important to think about -- or when you think about Ula is that a large part of the OpEx and production cost that Ula has linked to well maintenance work. Actually, in 2020, almost as much as 50% is linked to that. And that's, of course, well maintenance work that we do to sustain production. But given that it's not adding new reservoir, it's not booked as CapEx. So that's an important element and a driver for high production cost at Ula compared to some of the other assets. So of course, in a scenario that you're talking about, you would probably defer some of that well maintenance work before shutting down production and the assets in full.

[James Thompson, Analyst]

Okay. Okay, so -- but you're not deferring any of the well maintenance work now. It's all still planned in OpEx this year, even with a reduced head count?

[Karl Johnny Hersvik, Chief Executive Officer]

No, no, no. So we're not addressing any of that. So what we basically taken out when it comes to Ula is mostly activity that were related to Ula redevelopment project and a long-term duration of Ula, right? And that means that if market prices come back and there's another investment, I would say, environment, we have plenty of time to come back and redo these projects.

[Operator]

Next question comes from Al Stanton from RBC.

[Al Stanton, MD & Oil & Gas Equity Analyst]

So Karl Johnny, I was just looking for some clarification on your closing remark about Aker BP being a leading E&P company. I was wondering if you could just address 2 issues, one is your definition of leading. How important is growth to you? When we look at the majors, they're all rolling back from growth targets. So I was interested in how you define leading.And also, I was wondering if you left out the geography. I was perhaps anticipating comments at leading E&P company in Norway or the North Sea. I was just wondering if we should read anything into the lack of defined geography in your statement.

[Karl Johnny Hersvik, Chief Executive Officer]

Thank you, Al. Well, it's always a pleasure to take questions, so don't worry about that. I didn't say that we were the leading. I said we aim to be the leading, which is not necessarily a change from our current vision.But the point I'm trying to make is that as this kind of crisis evolve, they create winners and losers. And I've said this once before, back in 2014 for those who followed the story back then that I thought Det norske at that point in time was ideally positioned to take benefit of the low price environment back in 2014 and 2015. I got a little bit of flak for that statement, but I think history has demonstrated that we were, in fact, ideally positioned to take benefit of that crisis.And now with the management that we've seen in this team, and I'm extremely proud of my team through this COVID-19 situation, I think we're already starting to discuss how are we going to take benefit of this crisis. A good saying that never waste a good crisis.And then I don't think you should read too much into this. This is not a thematic game. For us, it's more a directional statement that we are not worried about our survival. We are worried about coming out of this crisis as a stronger, more robust and even more productive company.

[Al Stanton, MD & Oil & Gas Equity Analyst]

Focused on Norway exclusively?

[Karl Johnny Hersvik, Chief Executive Officer]

I think what we said also in the capital market update is that when we look back on the inorganic moves we've done, the big driver is the quality of the assets. And that, I think, is a pretty clear statement. I've been trying to do business development internationally for a long, long time, and I know how difficult it is. So I also want to be clear that we are going to be extremely disciplined also in this crisis. And only act when we see opportunities that we firmly believe can create shareholder value and are able to articulate that on a very pronounced matter and where we fundamentally understand how we, as a company, can create a sustained competitive advantage over the other players in the area.

[Operator]

Our next question is from Teodor Nilsen from SB1 Markets.

[Teodor Sveen-Nilsen]

Just one follow-up on tax. David, you said that you don't expect to pay any cash tax in second half of 2020, which it should be expected. But it's just now that you actually will get repaid some of the tax loss in December 2021. And at which oil price should you see pay out in 2021?

[David Torvik Tønne, Chief Financial Officer]

Yes. You broke up a bit, Teodor, but yes, of course, there is a chance that you do get exploration refund in 2021, that's definitely clear.

[Operator]

And our last question comes from Halvor Strand Nygård from SEB.

[Halvor Strand Nygård, Analyst]

I understand you now have moved to the sanctioned-only scenario with what that includes in terms of CapEx and production. And I'm just wondering, and returning to the CMD presentation, you state that you have around 200 million barrels or some 20% for your contingent resources and have a breakeven below $20. And by not sanctioning those projects now, is that a reflection of being prudent in terms of CapEx and balance sheet, given the high volatility or other considerations?And then a follow-up on that, with the sanctioned-only scenario, it looks like you will roughly save some $4 billion in CapEx next 3, 4 years. And considering organic versus inorganic activity, how would a potential M&A deal look like and stack up against the attractiveness of the overall current portfolio of opportunities that you now have postponed?And lastly, on dividend, with the current market conditions, the Board states that the dividend would be $70 million per quarter for the remainder of the year. And I'm just wondering, and I know it's the Board and not you deciding the dividend. But given current market conditions, your cash flow over the next years would improve as CapEx then pulls up a grip. In your opinion, would that open for higher dividend payments over next years? Or would the current run rate serve as a proxy?

[Karl Johnny Hersvik, Chief Executive Officer]

Yes. So let me start with the project that are in the hopper with very low breakevens. So the reason we have now moved to a sanctioned-only scenario is -- then I'll come back to my statement about moving swiftly and with determination. It wasn't like we were completely unprepared for this event. So we had established in Aker BP scenarios for a lot of these events, including a low oil price scenario. And the easiest thing to do when the crisis hit was to pick out that scenario and just run down the action list. That got us moving extremely quickly on a lot of different workflows simultaneously and has brought us to where we are today, with a controlled COVID-19 situation, a revised scenario on investments and in control of all statements.And then, of course, there is a certain element of prudence in this. When we acted on this, we did not know where this oil price would end up. There were reports out there of $5 to $10 in May. There were reports about tank top in June, et cetera, et cetera. So to us, it was prudent to move all the way down to the sanctioned-only scenario and then slowly open back up when we got more clarity on that. So it does mean that this project won't be sanctioned given an economic environment that allows sanctioning. But it means that we acted according to a scenario, and again, we chose to be conservative and chose to retain financial flexibility over what could probably be seen as a little bit of an excel exercise, maximizing that. So it's a practical approach to things.And then stacking up against M&A and inorganic, as M&A versus organic. I mean this is always the discussion when you have 900 million barrels in your hopper. Where do you actually create the most value? Is that through an inorganic move? Or is it through an organic move in your existing portfolio? I think what we've demonstrated over the last few years is that an ability to not fall in love with these organic opportunities, but still be able to go out and execute inorganically when we can see that, that is actually the most value-accretive move. So we're continuing to kind of benchmark the inorganic and the organic opportunities with one single mindset, and that's a maximized value creation to our shareholder. So to us, it's pretty -- we're pretty agnostic to where these barrels are coming from, if they're coming from the market, if they're coming from an asset transaction or a corporate transaction, or they're coming through some sort of the geo field development position.And then the last one was this discussion on dividend. I think as we've stated previously, or rather as the Board have stated in their reports, they will come back with more clarity on this going forward. But I think it's important to also note that we are remaining firm on our ambition to distribute attractive cash dividends to our shareholders. We are here to make sure that the shareholders have an interest in staying in Aker BP as a shareholder. So that's a very clear direction also from the Board.So I think we're now almost run out of time. So I want to say thank you for all those who have followed us. Thank you for excellent questions. And if there are more questions, which I'm sure there are, I'm sure that Kjetil will be happy to spend the remaining part of his day answering all those questions in detail.So thank you all for joining us at this first quarter call in 2020. And guys, I hope you stay safe, and your family stay safe and healthy. Thank you.