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Earnings Call Transcript 2022-Q2

[Euan Shirlaw, executive]

Good morning. I'm Euan Shirlaw, the CEO of Noreco. And I'm delighted today to be joined by Marianne Eide, our Chief Operating Officer; and Cathrine Torgersen, our EVP, Investor Relations and ESG, to present Noreco's second quarter '22 results.

As always, if there's any Q&A as we run through the presentation, please feel free to submit that through the online portal, and we'll address at the end. Today, we look forward to walking you through Noreco's strong second quarter performance as well as providing an update on the continued progress that we're making on Tyra and how Noreco is helping to deliver value and support EU energy security.

So where are we today? We told you in the start of the year that we were focused on delivery. And our Q2 results show that we are continuing to deliver operationally, financially and positioning ourselves for the long term. Our underlying business is operating at high levels, with strong asset performance from our 3 hubs currently on production. We're generating material cash flow, benefiting from positive commodity prices. And we're taking further steps towards producing more from the Danish Underground Consortium.

In Q2, we undertook proactive workovers and restimulations to support our production levels through the remainder of 2022 and beyond. We also identified short-cycle infill investment opportunities where investment decisions will be taken in the near term. And we're moving further towards first gas from Tyra, with significant upcoming milestones. By the end of the next quarter, TEG, the processing module, will be installed; and hookup and commissioning will be fully under way. Once onstream in mid-2023, Tyra leads to a positive step change for not only Noreco but, by producing 60,000 barrels of oil equivalent per day, unlocking more than 200 million barrels of gas-weighted potential and with a 20-year-plus operational life. Tyra will have an important role to play in safeguarding energy security in the EU for decades to come.

To supplement Tyra, we're also moving forward with long-term review of investment projects. Upstream-wise, that's focused on Adda, Halfdan North and Valdemar Bo South. However, we also recognize that the ambitions of the energy transition and energy security should be complementary rather than conflicting. As an upstream oil and gas company, it's important that we show that we can support both goals. And we look forward to telling you more about that today through progress that's being made on Project Bifrost.

And if we turn to the first page and bring those points together. We're continuing to deliver operationally, maximizing production, minimizing costs and reducing emissions. We're continuing to deliver Tyra. Progress has already been made from a robust fully funded Noreco base, with 7 out of the 8 platforms already installed and hookup and commissioning under way, but we also have important milestones coming up. The sail-away of TEG in Q3 will be followed by installation, at which point all 8 platforms will be in place offshore and hookup and commissioning will continue in earnest. Once onstream, Tyra will unlock over 1 Tcf equivalent of gas resources, drive significant production and cash flow growth for us and also support long-term energy security.

We're also delivering our potential. We've identified a wide set of long-term, value-additive opportunities such as taking proactive near-term steps to maintain and support production levels, accelerate identified near-term short-cycle investment opportunities, progress gas-weighted mature projects and assess the potential for further growth beyond this where economically beneficial to do so and consistent with our broader objectives. And that points to what will be a disciplined approach to capital allocation from Noreco going forward. We'll prioritize shareholder returns and measure future investments against the extent to which they support our objective of maximizing value. And we'll also look at that in the context of what the impact is on our long-term cash flow profile.

Against the current backdrop, Noreco's business is well placed to deliver from both a strategic and a shareholder value perspective. We've already made significant progress and we'll continue to do so over the next 12 months. Our key ambition is that the Noreco of tomorrow takes full advantage of the potential of our portfolio, continues to deliver strong underlying base production and contributes materially to our collective goal of supporting EU energy security. And with that in mind, let's turn over to look at the importance of Noreco delivering in the current context.

Today's context can generally be characterized by 2 themes: the energy transition and energy security. Against the tragic backdrop in the first half of 2022, energy security has come to the fore. There's been a structural change in the EU supply markets, requiring the replacement of significant Russian gas volumes. However, that's easier said than done in practice. Even with a continued recognition of the importance of the energy transition, with initiatives highlighted on both the demand and supply side, it's clear that incremental gas volumes will be required in Europe for the foreseeable future. Effectively that accentuated a problem that existed before the Russia-Ukraine situation, where we saw tight gas markets through winter 2021, 2022. Ultimately it requires tangible solutions. And the upstream oil and gas industry, particularly those producing inside the EU like Noreco, have an important role to play.

This context has several important impacts for us. One, we have higher gas price expectations near, medium and long term that increases the value of our existing production from Halfdan, Dan and Gorm, but it also increases the outlook for assets that will come on stream shortly like Tyra. And further, it supports the economics for future investments and unlocks incremental values.

So as I've mentioned, we've identified high-value short-cycle projects like infill drilling, but we're also working to unlock mature projects that were already in the process of being worked up. And this is all against a supportive shareholder backdrop. We're taking the opportunity to work with those stakeholders to help them achieve their overall goals, which typically focus on increasing gas production to offset the reduction of Russian volumes, but also doing so in a way that works for Noreco, either looking at an improved value proposition or lower risk. For Noreco, with significant reserves and resources, production and infrastructure offshore continental Europe, this is a backdrop that will be extremely supportive of our outlook. It will allow us to deliver our full potential and contribute materially to our overall goals, which are consistent with the objectives that we'll outline.

Moving on to looking at the operational outcome. Marianne will take you through in more detail, but at a high level, you can see that the underlying business is performing extremely well. First half production of 27,500 barrels a day from Halfdan, Dan and Gorm is above our full year guidance range of 24,500 to 26,500 barrels a day. Planned activity that we've undertaken in Q2 that will lead to -- sorry. Planned activity that we've undertaken in Q2 will support levels for the remainder of 2022. And well production in the third quarter is expected to be lower as a result of planned maintenance that we'll recover in the fourth quarter.

The operational performance has also translated into a strong financial result. In the second quarter, we generated EBITDA of $167 million; and for the first half as a whole, $274 million. It's worth noting that the performance in the first half of this year actually exceeds our total EBITDA generation in 2021 as a whole. I'll go through in more detail in the specific finance section, but generally speaking, this strongly supports our financial position with significant cash generation, a robust liquidity position and leverage of around 2.1x EBITDA. When we think about the future, it's clear that our overall operational methodology, combined with the supportive market backdrop, shows that we have a path to continuing our strong performance for the remainder of 2022 and beyond.

And moving on to that 2022-and-beyond period. When we think about Tyra: Tyra is at the core of Noreco's growth story. During 2022, added to the overall impact for Noreco has also been an element of strategic importance. The project will be a material contributor to energy security from both a Danish and EU perspective. Tyra is making significant progress and we're consistently moving forward to first gas. The last platform, TEG, will sail away in Q3 2022. At this point, all 8 platforms will be installed offshore. As a topsides redevelopment with a well-understood reservoir where all the wells have been drilled and a long history of previous production, the hookup and commissioning campaign will be the final stage prior to first gas in 2023. And when hookup and commissioning concludes in the middle of next year, we will have new state-of-the-art facilities and an outlook to 2042 that is only constrained by our current license expiry.

For Noreco, it will result in an almost doubling of production to roughly 50,000 barrels a day and increase our gas weighting. It will also lead to a significant reduction in operating costs and emissions and will allow us to generate material free cash flow from 2023 to 2027 of over $2.9 billion at current forward-curve prices.

Tyra is strategically important not only for us but also for Denmark and the EU as a whole. The progress made to date continues to bring us closer to delivering the finished project, the finished product, but Noreco's offering doesn't stop there, so let's turn over to think about how we think about our long-term potential.

The current landscape, where we have a strategically important portfolio, offers significant potential to both meet the energy security objectives of our key stakeholders and create value for our shareholders. We continue to reaffirm our commitment to and focus on shareholder returns. That remains a -- as strong as ever. And this will be delivered through a material and sustainable distribution profile. Through cycle, we'll also naturally delever once Tyra is onstream given the significant EBITDA contribution from the asset, but with an eye to the future, we'll also look to do more and create long-term value through recovering as much of the economic DUC resources as we can. Examples of that include acceleration of 2C investments like infill drilling, progressing mature projects and considering this future growth potential against the backdrop from a stakeholder perspective.

But we also recognize that we must look to protect the upstream value that we create. Cathrine will talk through our continued contribution to the energy transition and recent progress that we've made on Bifrost and the potential for CCS in the DUC, but the main message from us is that, to ensure our long-term relevance, energy security and the energy transition need to be consistent, not conflicting, objectives. Europe will require gas for a long time to come. And by developing Tyra at a time when few other E&Ps have progressed a project of this scale, we've helped already safeguard energy security, but the contribution to the energy transition also shouldn't be understated. Near term, Tyra, with modern facilities, will lead to significant reductions in emissions on a per-unit basis, but we can and will do more.

We're actively pursuing further reduction opportunities, and our commitment here is demonstrated to the linkage of these goals to the margin payable under our RBL facility. Longer term, Bifrost, which is a concept study for CCS in the DUC, is also a good example of how we're considering future sustainability-linked opportunities. And while still early stage, these have the potential to be an important part of Noreco's business going forward.

And as I hand you over to Marianne to go through the operations section in more detail, I'd like to leave you just with one message, which is that we are delivering operationally. We are delivering Tyra, and we are delivering our potential. These 3 areas are what will support Noreco's transition into a material cash flow generator from 2023 onwards.

[Marianne Eide, executive]

Okay, thank you, Euan.

And I'm very pleased to announce another strong quarter of operational performance today. And I'll start with DUC at a glance to remind everyone of where we are.

So DUC is a set of high-quality fields located around 225 kilometers west of the Danish coast, with an operation space in Esbjerg. Production started back in 1972 with a down field, so we can actually celebrate 50 years of production from DUC this month. DUC is producing more than 85% of Danish oil and gas, so very important for Danish energy supply. Noreco owns 36.8% of the DUC, which makes us the second largest producer in Denmark, only after TotalEnergies.

TotalEnergies has been the operator since 2018 and is doing an excellent job on day-to-day production operations and production optimization. Right now we are producing from 7 fields through 3 hubs: Halfdan, Dan and Gorm. These fields are oil-dominated mature fields, and Noreco's share of production today is 27,000 BOE per day. Next year, Tyra will come on stream and we will produce from an additional 6 fields. And we will shift to gas dominated with brand-new processing and accommodation infrastructure, and we will increase the Noreco production to more than 50,000 BOE per day. And we also have low-cost processing capacity available for further developments. We have a rich portfolio of opportunities in the DUC. And we have matured several projects, which I will get back to later in my presentation.

Year-to-date production performance has been excellent. High well potential from Gorm stimulations and Dan well interventions have contributed to this together with a very high operating efficiency. Q2 production has been strong and in the upper end of the guiding range. Compared with Q1, we have seen a small dip in production in Q2. This is caused by well interventions performed in May and June, when we have shut in wells in order to do work on them; stimulations on Halfdan; and preventative well maintenance on other facilities, so this should not be viewed negatively, but it's really an investment in high future production as well.

In the last quarterly presentation back in April, I told you that we would get the Maersk Reacher on contract from the 10th of June. We actually got it on contract 5th of June, and we have already done 8 asset stimulations on Halfdan. And even if it is early days, we are actually seeing higher gains than expected, which is excellent news for Q3 and Q4 production.

In Q3, we have the planned NOGAT shutdown, where the gas export pipeline to the Netherlands will be down for maintenance. We are working with the operator to ensure we minimize the production losses and have a flawless start-up. We are also continuing with well interventions to mitigate decline and analyzing production data to optimize the water injection and maximize recovery and minimize the fuel consumption.

Our production guidance of 24.5 to 26.5 published in May is still valid. And based on the results of the well interventions to date, we expect to be in a very good place.

I'm really excited about starting to drill production wells again next year. We now have a program of 7 wells lined up to be drilled with the Noble Sam Turner rig, which we already have on contract. We expect to take an investment decision on the first 5 wells in the second half of this year and for the last 2 wells to take the investment decision next year. These are all very profitable wells with a unit development cost around $10 per barrel. And as infill wells, these wells will not attract additional OpEx. From a subsurface risk point of view, these are low-risk wells drilled in reservoirs that we know well and we have many years of production history from. The drilling of these wells will also slightly increase the gas weighting of the production from our assets.

We expect to start drilling in the spring. And for the first 2 well, we should be seeing first production in the same year. The resources for these opportunities are not carried in Noreco's 2P reserves at the moment. These are classified as 2C, so that will be an addition when we take FID.

We are also continuing to do well interventions, and we have a portfolio of attractive opportunities that give healthy gains. Again the asset stimulations with the new recipe has proven to be excellent, but we will also be doing other interventions like re-perforations, water shutoffs as well as reinstatement of wells which have been shut in due to mechanical failure. This program of well interventions and infill drilling, combined with the very high operational efficiency, will be a very strong fundament for production in 2023 and 2024.

Even with exceptional performance from the base assets in the South, Halfdan, Dan and Gorm, it is Tyra that will transform the DUC asset. With Tyra, we will be able to unlock a development of around 200 million barrels gross of existing discoveries by establishing a gas processing capacity of 300 million standard cubic feet per day or approximately 60,000 barrels of oil equivalents per day. Well, today, we are producing around 80% oil and 20% gas. With Tyra on stream, we will produce around 45% gas.

The emissions intensity will be significantly reduced by installing state-of-the-art facilities. We also expect the operating efficiency to further increase. With Tyra, we will also be able to extend the production life of the DUC asset by phasing-in additional developments as processing capacity becomes available. We will also see a significant reduction in unit costs.

So we are now at the end of the Tyra project. FID was taken back in 2017. Construction has been taking place all over the world, in Singapore with SMOP, Italy with Rosetti and Indonesia with McDermott. In 2019, production was shut in and the Tyra wells were plugged. In 2020, the old Tyra East and Tyra West topsides were removed; and they have been recycled. And new jackets for TEG and TEH were also installed. Last year, we installed the 3 Tyra East wellhead and riser topsides. In April this year, we installed the 3 Tyra West wellhead and riser topsides in addition to the TEH accommodation module. And we have made a good start on offshore hookup and commissioning.

Later this year, we will conclude the yard construction phase with the sail-away of the TEG module from the McDermott yard in Indonesia. With load-out and sail-away behind us, we will have better clarity on whether there will be additional work to be carried out offshore. And TotalEnergies will update their offshore activity schedule. With the arrival of the TEG module offshore later this year, we will reach a peak of offshore activity. We have 2 flotels in the field with capacity of around 350 beds in addition to 80 beds on the TEH module.

With respect to project CapEx, we see that most of the costs has already incurred. At the end of 2021, we have spent DKK 17 billion. And an expenditure of DKK 5 billion remains of Noreco's cost estimate of DKK 22 billion, which is gross cost. Right now we are focusing on the completion of the TEG module in Batam in Indonesia and getting ready for sail-away from the yard in Q3 and going straight to the offshore location for installation. We will then continue the offshore hookup and commissioning, connecting the new Tyra facilities to the existing infrastructure and the existing wells in the field.

We need to connect to the existing gas and condensate export pipelines. We need to connect the 4 satellite fields with Tyra Southeast, Roar, Svend and Valdemar to the Tyra TEG processing platform. The wells and -- for these satellites have not been plugged but just have been closed in at the Christmas tree, so very straightforward to put them on stream again. We will also reinstate the production wells that were connected to the old wellhead platforms which have been plugged since 2019. We are talking about around 40 wells that have been temporarily abandoned. Back then, we set a deep plug to isolate the reservoir, filled the wells with water and then removed the Christmas trees before removing the wellhead platform topsides. We will now have new wellhead platform topsides. For each well, we will install a new Christmas tree. And we will then enter the wells to remove the plug and then use gas lift to get the water out of the well, and we are ready to go. We do not expect any major issues with the reinstatement of the wells.

What is positive is that, with the wells being closed in for approximately 4 years, we could expect some recharge of the reservoir, where the initial production when we start up will be higher than the original rate that we saw 4 years ago. In our forecasts, we have not taken this factor into account, so we have some upside here.

As Euan mentioned in his introduction, balancing the energy transition with security of supply is exactly what Noreco is going to do in Denmark. So Denmark is the leading country in the energy transition and was the first country to establish an end date for oil and gas production of 2050. Still, Danish authorities recognize the importance of gas and oil until 2050. And they have reached out to oil and gas companies, inquiring about opportunities to increase oil and gas production both on short- and longer-term bases. My sense is that there is a recognition that oil and gas is absolutely required until 2050 and there is a wish to maximize production until then. And obviously, we need to contribute to the most energy-efficient oil and gas production from a carbon intensity point of view.

As the second largest producer in Denmark, Noreco has a very important role to play. Tyra is recognized as the most important source of gas supply for Denmark and will transform Denmark from an importer to an exporter of gas, so Tyra will be supplying gas to homes and industries both in Denmark and in the EU. Getting Tyra on stream will also unlock other developments and provide significant gas processing capacity. We are working with our partners TotalEnergies and Nordsøfonden to reduce emissions from the DUC. Getting Tyra on stream will obviously significantly reduce our emissions intensity, but we are also looking at other opportunities to reduce our fuel gas consumption. We are also maturing the Bifrost CCS project. And CCS is one of the most important tools that Denmark has got to get to net zero.

With a DUC portfolio of discoveries, we can provide a supply of gas on a longer-term basis. And we can phase in Adda, which is a gas discovery 70% gas, 30% oil, when Tyra goes off plateau, to maintain a gas production rate of 300 million standard cubic feet per day. We can then follow on with Valdemar Bo South, which is an oil field but with around 35% gas; and then Halfdan North. These 3 fields are already mature, straightforward, low-cost developments, which will be tied back to existing infrastructure. The only investments required are simple wellhead jackets and the drilling of the wells. We can then fully utilize the investments that we have already made on -- in the Tyra processing facilities.

Our main priority is obviously to get Tyra on stream, but after that, it is all about keeping Tyra filled.

I will now be handing over to Cathrine, who will talk you through the Bifrost CCS project.

[Cathrine Torgersen, executive]

Thank you so much.

Marianne has briefly summarized the 5 pillars of our sustainability approach. The fifth and final pillar, which I will talk about, is carbon capture and storage, more specifically Project Bifrost. It's fair to call it a long-term ambition. However, it is progressing each day. And as such, I wanted to provide you with more information of the project itself and also give a quick update.

As a backdrop and as clearly stated by the Danish government last year, in order for Denmark to reach their climate targets, we are going to need a well-functioning CCS industry at a national level. Carbon storage is going to be key both onshore and offshore. Our participation in Project Bifrost is the first tangible step taken by Noreco to potentially extend the lifetime of our offshore facilities beyond 2050 and also contribute to developing Denmark as a CCS hub.

So Project Bifrost is a partnership between the DUC, Ørsted and DTU. And so DUC is the owner of producing fields in key parts of infrastructure, Ørsted is the owner of the pipelines connecting those fields to shore. Together we're now assessing the potential for CO2 storage on Harald, which you can see on the left-hand side on the map in front of you. The project received DKK 75 million in EUDP funding in 2021, and the work began in January this year, so this year and next year, we will carry out a study on Harald West, which is a sandstone reservoir. Then the study will include Harald East, which is a chalk reservoir. The study is then expected to broaden to cover the entirety of the DUC, which is also chalk, this to understand the total storage potential of our assets, including the use of existing pipelines to transport CO2.

The expected start-up capacity of Harald alone is 3 million metric tons of CO2 per year. And just to bring context to this number and by no means trying to compete: This is actually twice the start-up capacity as, for example, the well-known Northern Lights project in Norway. If you can turn to the next slide, please: Looking at the time line at the top right-hand side on the page, you will see that the expected start-up of operations at the Harald field will be in 2027, so for the next 5 years, we're going to see several milestones in this project. This year and next year, we will carry out the preliminary studies and selection of concept. In 2024, there is going to be what we call the FEED of the project, which is the front-end engineering design. This will further bring insight into technical considerations. This will then be followed by an FID or final investment decision and, later, execution, up until the point where we reach operations in 2027.

As mentioned, the expected start-up capacity of 3 million metric tons of CO2 per year is from 2027. However, given the project also assesses the suitability of the chalk reservoirs in the DUC, the scalability of this project is significant as the wells start becoming available. And we are assuming a scale-up potential of up to approximately 16 million metric tons of CO2 per year after 2050.

Today, we're only 6 months into the project. However, we have already had a satisfying amount of progress as the initial phase of the study has been conducted. One of the key highlights is that the injectability of the CO2 into the old wells has shown very positive signs. And no so-called showstoppers have been identified. Also the initial study of the offshore pipelines has been positive, with very promising outlook for the actual CO2 transportation. We're going to continue to update the market on progress of this very exciting project.

And I will now hand over the word to Euan, who will take you through Noreco's financial results for the second quarter.

[Euan Shirlaw, executive]

Thank you, Cathrine.

So the strong operating performance that we've just walked through has also translated into a similarly strong financial result. So in the second quarter, we delivered revenue of $265 million. That's up 48% versus the prior quarter. Our OpEx per barrel of $28.5 per BOE is down 7% over the last year. Our EBITDA in the second quarter of $167 million is up 56% versus the last quarter. And our operational cash flow of $183 million is up 111% versus the prior quarter.

During the period, we generated free cash flow, prior to investments, of $156 million, which gives you an insight into the cash generation capability of our underlying business focused on Dan, Gorm and Halfdan. And then if we look at the free cash flow post our investment in Tyra, that was $95 million during the quarter, which demonstrates that the current business is comfortably able to fund Tyra and also deliver excess cash. This has had a positive impact on our already robust capital structure where we continue to be fully funded for Tyra, with a total liquidity position of $342 million. The outlook for Noreco is also further strengthened by both the strong operational performance that we're experiencing and the current commodity price environment.

And turning over to look at that commodity price environment in a little bit more detail. With Tyra on stream, Noreco's gas weighting will increase from roughly 25% to roughly 50% or between 45% and 50%. Given the current market dynamics, that growing gas exposure is important not only from a strategic perspective but also value-wise. As you can see on this page, TTF has consistently traded above the Brent oil price on an oil equivalency basis over the last 12 months. And Noreco is already benefiting from this with the gas that we are currently producing today being sold on a TTF-linked basis, but importantly, going forward, if you look at the chart on the right-hand side of the page, you can see that this theme is expected to continue, with the TTF forward curve showing levels significantly above Brent out to 2025.

This financial outlook is supported by the underlying market fundamentals where we're effectively selling gas into a market that is gas short. And the positive market backdrop will support not only the value contribution of Tyra and our existing portfolio but also allow us to generate significant cash flow. And then turning to the next page, you can see here the steps that we've taken to lock in some of this positive commodity price environment.

So the primary purpose of our price hedging is that we want to have visibility over future cash flow. However, in the current environment, it's also enabled us to derisk the future delivery of some of our financial potential, so while we continue to have a broad theme that is increasing spot price exposure through 2022 and beyond, particularly relative to the levels that we've had during 2019 to 2021, we will also look to add volumes where we believe it makes sense to do so. And as you can see below, our oil hedging has remained consistent throughout Q2 2022. However, we have added additional gas volumes, given the market strength, for winter '22, '23 and summer '23.

Based on the production guidance that we've given for the year, in the remainder of 2022, we expect to be roughly 55% hedged on oil and roughly 35% hedged on gas. This hedging approach is what has supported our balance sheet and capital structure through various cycles, and it's provided us with the certainty over our ability to fund Tyra. However, turning to the next page, you can also see how that has delivered a strong capital structure and strong liquidity position.

So the capital structure, in short, remains robust. We have a stable balance sheet with no principal maturities pre Tyra first gas. Our net debt on an accounting basis at the end of Q2 was $1,019 million or just roughly $1 billion. And then on effectively a commercial basis excluding NOR13, it's $858 million. Our forecast leverage position has also improved materially to 2.1x net debt to EBITDA at the end of Q2. Our liquidity position at the end of the quarter is $342 million. And that's made up of $242 million of cash and undrawn capacity under our RBL of $100 million.

The outlook for liquidity and leverage are both supported by the strong commodity price environment and the high levels of asset performance. And in that vein, against the strengthening of our balance sheet, we announced in May 2022 with our Q1 2022 results that we were investigating the potential to simplify and enhance our capital structure. We're continuing to engage in a constructive dialogue with our investors, and we are still hoping to conclude that process in the second quarter -- sorry, in the second half of 2022. And I think the key message from us is that our overall objective remains the same. We're looking to deliver a simplified and improved capital structure, but importantly, that is to be to the benefit of both bondholders and shareholders.

As you've seen since 2019, we will look to continue to actively manage our capital structure where it makes sense to do so, but today when we look at where we are, we have a robust balance sheet that is supporting us as we look to deliver on our operational, financial and shareholder value creation goals.

Turning over to the next page. What we've shown here is an outlook for our liquidity and leverage profile taking account of the performance to date in terms of our starting position but also the outlook given the strong commodity price environment that you can see on the page. So the financial position that we have is set to continue to improve even in more conservative price environments. Liquidity continues to build pre-Tyra, and leverage is also expected to continue to decrease. It's significantly below the amended maximum levels from the process that we ran in the middle of 2021. And it's also below the incurrence test under NOR14, which is 2.5x EBITDA. And with that quantified outlook to our financial performance, let's move on to our closing remarks.

So I'd like to leave you really with one key message, which is, at the start of the year, we highlighted 3 areas for delivery: operational, Tyra and our potential. And through the first half, we've shown that we're delivering against those, and we'll continue to do so. We'll continue to optimize production and deliver strong performance. We'll continue to progress Tyra and deliver a step change for the company. And we'll continue to assess the long-term potential of our portfolio and deliver shareholder value.

And ultimately what that means is that we can meet our commitments to you, protecting our business through the energy transition, investing where we can create value, further deleveraging and importantly, establishing a sustainable and material shareholder returns profile on the basis of our cash generation.

And with that, I'd like to hand over for any Q&A.

[Cathrine Torgersen, executive]

Okay. So we have a couple of questions. I think both of them will be to Marianne. First question: You have previously talked of 50,000 barrels per day production post-Tyra. Today, you mentioned 60,000 capacity post-Tyra. Is the 60,000 just the capacity number? Or do you think you can produce more than 50,000 in 2024, given the 7 infill wells you expect to drill? If so, what do you think you can produce in 2024?

[Marianne Eide, executive]

So it's 2 different types of capacity numbers. The 50,000 BOE per day, that is Noreco net, while the 60,000, that is the overall capacity from a BOE point of view of Tyra on a gross basis. So we do not expect a huge increase in production from the infill drilling campaign, but it will contribute to keeping our production relatively flat and mitigate decline.

[Cathrine Torgersen, executive]

How likely is it for the firm to achieve 2C production and thereby ensure a broadly flat production profile over the next 5 years?

[Marianne Eide, executive]

So I think we're making good progress with the infill drilling and the 7-well campaign that we are starting. And our intention is to phase in additional discoveries and developments as we go off plateau. So our intention is absolutely to keep production flat going forward, but there will be uncertainty with respect to reservoir performance that can mitigate that.

[Cathrine Torgersen, executive]

And the final question. I think you answered this during the presentation, but it's worthwhile repeating. The 19 million barrels of pre-FID projects mentioned on Slide 12, are they currently classified as 2P or 2C?

[Marianne Eide, executive]

So they are classified as 2C. So none of the 19 MMBOE are included in 2P at the moment.

[Cathrine Torgersen, executive]

I think that was it for now. Thank you all for listening in.