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Earnings Call Transcript 2022-Q4

[Euan Shirlaw, executive]

Good morning, and welcome to Noreco's Fourth Quarter and Full Year Financial Results Presentation for 2022. Together with the team, I look forward today to walking you through the positive progress that we've made in 2022, how that's enabled us to deliver strong and record financial results for the period, and ultimately, also provide some perspectives on the long-term future for the company. In a year that's seen significant volatility from a macro political and commodity price perspective, I'm delighted to be able to report that Noreco has performed extremely well throughout. That all starts fundamentally with the asset.

I'll hand over shortly to Marianne, who will walk through in a little bit more detail how we delivered during the last 12 months and how we see that, that is repeatable going forward. Marianne will also provide some more insight into some of the future activity that we have, such as the infill wells and the longer term development projects and will also provide an update on the Tyra project as it progresses towards first gas at the end of 2023.

I mentioned at the start that it all starts with the asset, and that's absolutely true, but it's also important that, that translates through to financial performance. So I'm very pleased to also introduce to you today to Jacqueline Boye, our EVP of Finance, who's been with the company since 2019 to walk you through that in a little bit more detail.

Finally, we'll touch on our long-term positioning with regard to the energy transition, Cathrine Torgersen, our EVP of IR and ESG, will give some insight into our areas of focus and also some more information on some specific activities that we've undertaken recently.

And with that, let's turn over to the presentation itself. So I wanted to start by taking a little bit of a step back to look at the journey that we've been on since 2019. It's a journey that started with the acquisition of Shell's 36.8% working interest in the Danish Underground Consortium, which is operated by TotalEnergies, and it's one where we find ourselves today already a material producer of oil and gas in the EU. From 3 producing hubs and a 2P reserves base of 200 million barrels, we produced 26,700 barrels a day in 2023 and generated significant free cash flow. That's a strong story in and of itself. It's one that demonstrates the value of having a balanced portfolio with both production and development assets, because ultimately, it's that production that enabled us to take advantage of the attractive commodity prices throughout the period. But what really differentiates Noreco is where we go from here.

By the end of 2023, we'll have Tyra on stream and it will also have production from the first 2 of 7 planned infill wells. They will have started production. And that combined will enable us to have a production profile that more than doubles to over 55,000 barrels a day by 2025. At that point, our cash flow will also significantly increase and we will be one of the leading independent producers of gas in the EU. But our potential also doesn't stop there. With a framework that is focused on disciplined capital allocation, we have a portfolio of further opportunities that will support Noreco's production profile for years to come.

We've seen the important contribution of activities such as the HCA re-stimulation campaign in 2022 already, and further opportunities are being progressed similar to that. We have sanctioned the first 2 of 7 planned infill wells that we'll see in 2023, the first well being drilled in the DUC since 2019. We're also progressing some medium term development projects, the first of which is Valdemar Bo South, which will come on stream in 2026 and is scheduled for FID within the next 12 months. And then beyond that, we also have a broader portfolio of 2C resources, which provides us with significant optionality and that we are continuing to assess against the commodity price environment.

So in sum, it's an attractive portfolio that's already delivering and will continue to deliver in the future. But it's not just attractive from a financial or value perspective, it's also strategically important. What we saw during 2022 was a material shift in the energy supply landscape. It's one that completely changed how Europe, in particular, thought about energy security. The themes of secure, reliable, affordable access to energy moved from being an abstract concept to one that was immediately relevant, and Noreco has an important role to play here. We're already a material producer of oil and gas. We have tangible growth on the horizon with Tyra and the other activities that we're progressing. And finally, we have a willingness to do more.

While gas prices recently have come down from their record highs, they are still attractive from a historical perspective. And I think that underpins one of the key themes that we see when we look at the supply-demand dynamic going forward, which is that while LNG is being used to effectively balance supply, the marginal cost is significantly higher than we have been used to and that will lead to higher prices going forward.

There are 2 other key points when we think about the strategic perspective that I think is worth mentioning. The first is that the objectives of the energy transition and energy security should be viewed as being complementary rather than conflicting. We can see that tangibly today when we look at coal, which is often being used throughout 2022 to plug gaps from a demand perspective when gas has been unaffordable. You can also look at LNG, which is seen as being the contribution that will in the long-term balance the demand-supply dynamic. And that also comes with a higher carbon intensity and a higher footprint than, for example, production within the DUC, but also production within the EU more generally, all of which points to the benefit of producing more gas domestically.

And then the second point was to say that, while I think it is helpful from a long-term perspective that gas prices have come down from their recent highs, it's also something that is difficult to celebrate on an absolute basis given the amount of demand destruction that was required to get there. And I think that's an important perspective from the -- for the EU as a whole. Given our desire to remain internationally competitive, it's important that industry has a cost base that reflects that. And with energy being a key input to that, that requires a solution that goes beyond where we are today. And again, that's supported both Noreco's offering with our relatively low cost compared to some of the import alternatives.

Then against that context, that's set how we focus the activities that we've carried out during 2022. At the start of the year, we highlighted the 3 key areas that we were focused on. The first is delivering operationally, where during 2022, we had production of 26,700 barrels a day, which was largely flat versus 2021 and demonstrated the fact that the operator have been able to effectively mitigate the natural decline of the reservoir. That also corresponded to a period when there were significantly high gas and oil prices, which allowed us to generate free cash flow of $246 million during 2022. And that's a fundamental shift from where we were in 2021 where we had a free cash flow outflow of $137 million. It also enabled us to leave 2022 with meaningful liquidity and a robust financial position with $468 million available at the end of the year.

The second aspect that we're focused on is delivering Tyra. The project was derisked significantly during 2022 with the all 8 offshore modules now being installed. The focus now is clearly on the hook-up and commissioning campaign and making progress as we move towards the first gas date, which on a P50 basis is December 2023. Once the project is on stream, it will lead to a significant development in Noreco's production profile, but also the cash that we generate.

And then point 3 is delivering our long-term potential, and that talks actually quite clearly to the cash flow that will be generated from Tyra. Going forward, we have and will have a robust capital allocation framework, and that's one that we'll prioritize returns to shareholders.

Turning over to look at each of those areas in a little bit more detail. From an operational perspective, we have a well-managed asset base with an active operator. As I mentioned, production was broadly flat year-on-year at 26,700 barrels a day. And as we look to 2023, we expect the underlying performance of the reservoir to continue to be strong with relatively high levels of planned activity from both the maintenance and an activity perspective when it comes to drilling the infill wells. That operational performance also translated into strong EBITDA generation, where as you can see, there was a more than 100% or close to 150% increase in our EBITDA in 2022 versus 2021.

When we turn over to look at Tyra, Tyra is core not only to Noreco's growth story, but it's also core to the overall principle of energy security within the European Union and also Denmark. As a brief reminder, it's a top-size redevelopment where the wells have all already been drilled with a well understood reservoir and all 8 modules have now been installed offshore. The focus on the hook-up and commissioning campaign will continue during 2023. And when we have first gas at the end of the year, it will lead to production of roughly 50,000 barrels a day, a significant reduction in our OpEx cost and also a significant reduction in our emissions.

Then finally, turning over to look at delivering our potential. Our very clear and focused objective is around activities that both maximize shareholder value and enable us to make material and long-term distributions to shareholders. So all the activities that we look at carrying out will be viewed through that lens and that framework. As you can see on the page on the right-hand side, and we talked about it a little bit on the first page, but we have a portfolio of organic investment opportunities that we will continue to assess in light of the current environment and where we see that they can contribute to our long-term cash flow profile.

And with that, I'll hand over to Marianne to talk through the asset performance.

[Marianne Eide, executive]

Good morning, all. I'm very pleased to tell you about the operational performance for 2022. So 2022 was a fantastic year where we ended the year at 26,700 boe per day, which was 5% higher than our upper guidance at the beginning of the year. And there are 2 main reasons for this good performance. You got high operational efficiency. We ended the year at 88% if you include the NOGAT third-party 10-year shutdown of the gas export line and 90% if you only look at the factors controlled by the DUC. And this is, I would say, an exceptional good performance by our operator, TotalEnergies.

A high number of well interventions. Obviously, we had the famous Halfdan re-stimulation, but we also did repairs of wells that have been out of production due to technical failure. We did reperforations to access new reservoir zones. We did water shut-off as well as the normal scale squeezes, which contributed to a very strong underlying reservoir performance. Looking at the quarterly production from 2021, you see a pretty flat production performance through '21 and '22. And that we to a high degree have managed to mitigate the natural reservoir decline through the high level of activity.

Looking forward to 2023, we still expect this very strong underlying reservoir performance. If you look at Q1 and Q4, we are around 26,000 barrels of oil per day. So very little decline through the year and similar to what we started 2021 with. In Q2 and Q3, we have a lower production due to planned shutdowns. We will start in May with the Halfdan reroute project, which will eliminate the routine flaring. We've also got a regular shut down for maintenance of Halfdan B in August. And in addition to this, we will also need to shut-in some nearby wells when drilling the Halfdan infills. So that means that we will have an operational efficiency of around 86% for 2023.

I'm really pleased to say that we will now start a long campaign of infill drilling this year. And that we will deliver 2 new wells in 2023 in addition to building on the 2022's success with respect to the well activity done from both the individual platforms and the additional capacity that we have for well interventions with the Maersk Reacher. Next year, we expect to sanction further 3 infill wells and then take FID on the remaining 2 wells in the 7 well infill campaign in 2024. The wells will be drilled back-to-back, and we have secured the Shelf Drilling Winner at a favorable day rate.

The 2 Halfdan wells will add around 3 mmboe reserves, 50-50 oil and gas. And the net Noreco record cost for the 2 wells is $39 million, which also includes plugging of 2 old wells to free-up the new well slots. We will get a nice initial boost when the wells come on stream with around 3,000 barrels of oil equivalents a day, but with a fast decline. The wells will be put on production as soon as drilling is completed and are expected on stream in the third and the fourth quarter.

As you know, getting the Tyra redevelopment on stream will transform our business in the DUC. We will be able to unlock significant volumes from Tyra and the satellites and also future developments. We will have a gross plateau production of 300 million standard cubic feet per day or 60,000 boe per day from Tyra, which is around 22,000 boe per day for Noreco on top of production from Halfdan, Dan and Gorm. Our gas production share will increase from 24% gas in '23 to 45% when Tyra is on plateau.

Looking at the status of the offshore pick-up and commissioning, as Euan said in his introduction, we have significantly derisked the Tyra redevelopment last year with the completion of the offshore installation of all 8 platform top sites. So we have 4 key work fronts on Tyra, and I'll start with the TEH, which is the living quarter and which is the platform to the very right of this photo of the Tyra East complex. TEH has been in regular use with 80 beds and single cabins since September last year, and I was lucky enough to spend a night there last week. And I can confirm, it's a lovely platform and a real home away from home. In addition to a living quarter, the TEH is also hosting the central control room and it's also providing fire water for the entire Tyra East complex. But the work is complete and it is working well from an accommodation point of view.

We then have the 3 Tyra East wellhead and riser platforms. To the very left, in this photo, you can see the riser platform. So this is where our gas and condensate will be exported. So where the money is made. The 2 platforms in the middle are 2 wellhead platforms where production wells that were producing prior to the redevelopment versus standard and are now being connected to the new top sites. There was a bit of a slow start on Tyra East, but we are now making very good progress on the riser installation and well reinstatement.

Moving on to Tyra West, we are behind schedule because the decision was made to move a key part of the Tyra West crane to the TEG crane. This was done because Tyra West not on critical path and we are expecting to have the Tyra West crane operational soon. And in addition, we have made real progress on TEG having the full crane in operation since December last year. TEG, the process module is the most complex module and where the majority of offshore hook-up and construction will be done during this campaign. We are making progress on key activities. The gas turbine generator is the most important part of an offshore mega project. And so of that is on a critical path. And what we're working is also to maximize the offshore productivity, which is key, and we feel that TotalEnergies is working very hard to make this happen.

Looking at the milestones, so far, we have met the milestones according to the rebaseline [ time line ] that we communicated back in August. We know that the Tyra West standalone operations, which is the next upcoming milestone, will be delayed because of this part of the crane that was sacrificed for the TEG crane. The next milestone on the fire water is key because we cannot move forward with the commissioning program on TEG without having a safe operation and fire water in place. To meet the upcoming milestones, we need to complete a very large volume of offshore work. And again, I would say that getting power generation and the gas turbine generators to work are the most critical items and that will happen in the summer.

Looking at the remaining CapEx, there is no change to the overall budget for Tyra. So we're continuing to draw down on the budget with $190 million remaining to First Gas. And then we have another $90 million after First Gas, so ending up at $280 million remaining for the Tyra project. There is no change to the range to First Gas. And key risk factors that determine where we end up on this range is workforce availability, offshore productivity and less scope growth. That are the 3 risk areas, but also areas for opportunity.

Looking longer term on growth after Tyra is delivered, we will prioritize shareholder returns and we are also looking to reduce our level of debt. What is setting Noreco apart from our competitors is the richness of our portfolio where we have a significant potential for organic growth with a 2P reserves life of 20 years based on current production and 10 years when Tyra comes on stream. When selecting our projects, we will be looking at value creation and cash flow generation. We have a commitment to reducing emissions intensity and we will be taking an important step with the Halfdan reroute this year to end the routine flaring and we are also constantly looking at the opportunities to reduce fuel consumption.

On this slide, we have listed over 3 most important projects. We know that the volumes they are in the ground and we have done quite a bit of maturation work on this, developing the concepts and the field development plans. These are all low-cost projects. Valdemar Bo South and Adda will be tied back to Tyra, while Halfdan North will be tied back to Halfdan. The investment in processing infrastructure has already been done. So all you need to invest in our other wells and some basic wellhead platforms.

Valdemar Bo South is now being actively progressed by the operator. A project team has been established and they are working towards first oil and gas in the beginning of 2026 with FID expected during the next 12 months. We are looking at 5 wells. This is a low-cost development with depletion only, so we don't have to invest in any water injection. This is an oil-weighted development with 35% gas, so more gas than what we produce today.

Adda is the really exciting one and a pure gas development and is being phased in after Valdemar Bo South. We are exploring opportunities to accelerate Adda further by debottlenecking Tyra. And this is a slightly larger development with 7 wells and is located only 11 kilometers away from Tyra East. We then have Halfdan North, which is pure oil. We placed this last in the queue right now since we are prioritizing gas-weighted developments, but we do want to progress this one as well.

On this slide, I'm showing you our production outlook until 2030. What you should notice is obviously the relatively stable nature of our base production profile. You then have Tyra with production building up during '24 and a full year at full capacity in '25. The orange part is projects that are being actively worked by the operator. You can see a small sliver of orange in '23. That is the 2 Halfdan wells which are coming on stream towards the end of the year, but you see their contribution in 2024. And you then have 3 more infill wells coming late '24 and early '25. And in '26, you have Valdemar Bo South followed by Adda in '27 and Halfdan North in '29. What we have highlighted with the lighter color is our above plan acceleration opportunities and additional development. And we work to move these opportunities into a firm long-term plan.

So with this, I'll hand over to Cathrine, our EVP of Investor Relations and ESG.

[Cathrine Torgersen, executive]

Thank you, Marianne. And as I have done before, I will run through our sustainability commitments. They haven't changed. However, we did end the year with good progress and also some news, which I'm looking forward to share.

So first of all, Tyra II remains an important part of both our equity story and also our ambition to deliver reliable, affordable and politically stable gas to that market. It will be one of the largest gas producers within the EU and has modern high-tech facilities, which can produce for decades and also be backfilled with additional valuable volumes. Now that all the new installations are in place offshore, I also think it's important for us to look back at what used to be the old installations, which where we moved during 2020.

Dismantling and recycling with the highest standards as to safety and sustainability has been an integral part of the project since the very beginning. The recycling of old Tyra has been the largest project of its kind in Denmark's history. And after 2 years on the M.A.R.S. yard and Frederikshavn, the recycling was completed during December 2022 with an outstanding recycling rate of 98.5% achieved.

Emissions intensity reduction continues to be a high priority. And Tyra's modern facilities will definitely drive this in the right direction. In addition, we are focused on improved efficiency and monitoring of all of our producing assets. Improved efficiency has a tangible impact in itself, which is something we saw clearly during 2022 where the high efficiency achieved on producing assets delivered at 2 kilograms per unit lower emissions intensity than we actually had forecasted. A special focus has also been given to reduction of methane emissions where the operator has deployed drones to improve detection of any leakages.

Due to both the age and characteristics of some of our assets, routine flaring has been a challenge, we have been able to tackle. For the past years, permanent solution has been under development. And I'm very, very pleased to say that as of August this year, routine flaring will be eliminated completely. All of the activities mentioned are not just ambitions we strive to deliver, but they're also an integral part of the capital structure, we're reaching ESG-linked KPIs will lower our funding costs under the RBL.

And then lastly, Noreco CCS as an important part of the longer term future. Back in 2021, we entered into the CCS partnership, Bifrost. And today, we will announce a new and very exciting opportunity, which is outside of the DUC, which I will share with you shortly.

To begin with, I would like to point out that since regulatory frameworks remain uncertain, it is Noreco's intention to be involved in CCS projects where we both see a commercial potential, while at the same time, we're able to keep our optionality. As I'm sure many of you have noted, our operator was awarded 2 storage licenses earlier this month, and we are very pleased to see Bifrost included in the scope.

Now that we are halfway through the EUDP funding period of what might end up as quite a significant offshore storage project, it makes sense to also provide an update. So this first phase has demonstrated some important findings. First of all, storing CO2 permanently in the depleted sandstone is possible. And for chalk, which was a bit more uncertain, it also has indicated a potential for storage. In addition, concepts for transportation by pipelines and the offshore storage units are looking not only to be suitable, but more importantly, safe solutions. So reusing existing infrastructure, it makes sense from both an economic and also an environmental perspective. And what this first year of Bifrost has shown us is the advantages of doing just that.

And finally, I can announce CarbonCuts, I will go to the next slide. As we think about Noreco's longer term role in the energy transition, we are also very excited to say that we have broadened our CCS optionality with an investment in CarbonCuts. CarbonCuts is an early-stage company, progressing feasibility study of onshore CO2 storage in Denmark. CarbonCuts' focus is on building a CO2 facility at the coastline of Rodby in Lolland, which you can see on the map. This is located at the Southeast tip of Denmark, but it's also in very close proximity to both Germany and Central Europe. And as such, it has a strategic importance both domestically and internationally.

And while being onshore, you can actually still draw several sub-surface learnings, which is why we are not only supporting CarbonCuts financially and commercially, but also technically. We see this as a very promising and suitable opportunity, which can allow Noreco to support Denmark CCS ambitions. And while currently being a fit-for-size opportunity for Noreco, CarbonCuts has a significant long-term scale-up potential. It is still early days, but I very much look forward to updating the market on progress going forward.

And on that note, I will leave the word to Jacqueline, who will take you through the financial summary.

[Jacqueline Lindmark Boye, executive]

Well, it's a pleasure to be here to present the quarter and the full year results for Noreco.

2022 has been a strong year, driven by excellent financial -- operational performance, as highlighted earlier by Marianne. We've also been able to take advantage of the strong commodity price environment throughout 2022. Whilst prices have remained high in the quarter, they haven't remained at the exceptional levels that we saw in the third quarter. So we have seen a bit of a drop in this quarter compared to the previous.

What you can see then on the slide here is revenue of $230 million for the quarter and $967 million for the full year, which compares with $565 million in the prior year. EBITDA of $140 million compares with the -- or for the full year is $611 million. This compares with $250 million for the previous year. This has also culminated in a positive cash flow generation for this year overall. You can see in our operational cash flow, we have $84 million in this quarter, giving a total of $561 million, which compares with just $50 million in 2021.

Free cash flow in the quarter was a small negative or outflow of $5 million. However, the full year, we have a strong position with $246 million when you also include the first repayment under our RBL. This still remains significant. When looking at our cash flow just for this quarter, it's important to highlight just a number of factors that were influencing that result. Obviously, the operational cash flow is also affected by the lower commodity price environment for the quarter, which you can also see reflected in the revenue and the EBITDA results.

Secondly, as mentioned in our third quarter, there was a planned and well-executed shutdown of the NOGAT pipeline. This did effectively result -- and that was in September. This did effectively result in 21 days where there wasn't a gas production. And this results in about a one month lower gas receipts during the fourth quarter than you would normally expect. You can see this in the cash flow statement under the trade receivables movement.

The third point is the under-lift position where you can see that it was higher than we would perhaps normally see, but this is a timing difference and does unwind through 2023. Finally, there was also a scheduled tax payment for the fourth quarter, which regularly happens at that point. So overall, whilst there were a number of items affecting the cash flow, several of these are timing or non-recurring. So it still shows a very strong cash position overall with the free cash flow of $246 million for the full year.

Turning over to look at our commodity price environment as it relates to Noreco. The primary purpose of our hedging approach is to provide visibility over our future cash flows. And we'll continue to apply this approach of adding volumes when it makes sense to do so. Our oil hedging remains consistent in 2023 and we've added some volumes, you can see on the slide here, to the second half of 2024 and the first half of 2025. Importantly, we've added more to the gas hedging in 2023 and the first quarter of 2024. This makes sense given the current commodity price environment, in particular, to increase the gas hedging. We've added volumes at prices that are higher than the current market and spot prices. And they range between EUR 121 to EUR 146 per megawatt hour.

So you can see again on the chart here, the averages across the period we have hedged for gas. For Q1 '23, it's around EUR 162 per megawatt hour. The summer of '23, you can see around EUR 155 per megawatt hour. And winter '23-'24, EUR 170 per megawatt hour. This is aligned in terms of the overall portfolio of hedging with our approach during '22 as well where we expect to be hedged around 60% of our oil production and 30% for our gas production. This hedging approach has supported our balance sheet and capital structure through what you could call an uncertain price environment and it provides a level of certainty over our funding position.

So on that note, just turning to our -- the next page, you can see how this has helped to deliver on a strong capital structure and liquidity position. So our capital structure remains robust. It's fully funded to deliver Tyra redevelopment project. You can see we have a stable balance sheet with no principal maturities before Tyra first gas. The net debt at the end of the year on an accounting basis is $953 million. But when we do take account of the NOR13 conversion, which occurred in January of 2023, it's $939 million, as you can see in the chart that we're showing here.

In this respect, it's showing the position after the completion of the successful restructuring of the NOR13 convertible bond to the NOR15 convertible bond. At the end of the year, NOR15 was a value of $207.6 million and NOR13 comprised of $13.8 million. That was then a portion was converted to equity, which amounted to $13.6 million, leaving only $0.2 million outstanding, which then converted to the terms of NOR15. So it represents, as you can see on the chart, the $208 million in total.

Our liquidity position is strong and made up of a cash balance of $268 million and the undrawn RBL facility of $200 million, giving a total available liquidity of $468 million. This ensures we continue to be fully funded to deliver the Tyra redevelopment project. So I think the main point here just to highlight is that having a robust balance sheet. It allows us to have -- and our capital structure is set to enable delivery of both our operational and our financial goals.

And on that note, I will hand back to Euan for closing remarks.

[Euan Shirlaw, executive]

Thank you, Jacqueline. I hope that, that was a helpful overview of where we are today and where we're going to be going in the future. I also hope that it helps in some way to communicate why we are so excited about the outlook for Noreco.

Before handing over to Q&A, which I would encourage anybody else to submit if they have any, I wanted to leave with one key message. Noreco is performing strongly today and we'll continue to perform strongly in 2023 and beyond. That's supported not only by the quality of our asset portfolio, but also by the activities that we are carrying out on a day-to-day basis, which leaves us in a strong position as we leave 2022 into 2023. We've recognized the high levels of performance over the last 12 months, but also we have a laser focus on ensuring that those continue.

So with that, thank you for your time. And we'll take a short break to allow any other Q&A to be submitted and then we'll come back to answer those.

[Cathrine Torgersen, executive]

The first question is for you, Marianne. Generally, on industry cost inflation, where do you see the most significant changes versus a couple of years ago?

[Marianne Eide, executive]

So I think we're seeing increased costs for people, obviously wages, also chemical consumption and logistics cost as well for running our platforms.

[Cathrine Torgersen, executive]

The next question is for Euan. Any thoughts around dividends versus buybacks after Tyra first gas?

[Euan Shirlaw, executive]

The dividend policy that we'll implement will be something that we'll communicate more on through 2023. I think clearly, one of the key drivers there is whether it's a dividend or a buyback, but it's not something that we've concluded on or are ready to communicate yet. But the main message on the dividend is clearly the focus on a material return of capital to shareholders.

[Cathrine Torgersen, executive]

And again to Euan. How do you think around gas price hedging after Tyra first gas?

[Euan Shirlaw, executive]

So I think the first thing on the hedging point to note is that we won't hedge any of the Tyra volumes until Tyra is on stream. Once we have Tyra on stream, one of the key things that we achieved through 2022 was a revision to our RBL hedging policy. So what that's enabled us to do is rather than having to hedge 50%, 40%, 30% on an oil equivalent basis for years one, 2 and 3, we only are required by the RBL banks to hedge 20% of gas production in the first year.

Part of that is a reflection of the market and the challenges that you have hedging gas further out beyond that date. But part of it is also something that we pushed for to ensure that when we are in a position where we would like to hedge more because we think the market dynamics are supportive of doing so, we are able to. But equally, we're not forced to a position where we have to put hedging on at unattractive prices. So hedging will continue to be a key theme as we go forward, but it is one where we have significantly more flexibility now than we did in the past.

[Cathrine Torgersen, executive]

And then Jacqueline. Has the windfall tax been implemented in Denmark? And if so, what are the implications for Noreco?

[Jacqueline Lindmark Boye, executive]

The windfall tax is in process of being implemented. So while -- so obviously, with Denmark being a part of the EU, they are required to implement the solidarity contribution and that is on fossil fuel producers primarily. They are taking a pragmatic approach to it. We can see that this is a reflection of Denmark's approach to maximizing recovery before the end date of production in 2050. So there is also the fact that the DUC benefits from the compensation agreement, which was originally agreed between Maersk and the government in 2003, which does remain in place. And this effectively means that the state can't increase taxes without compensating the DUC partners.

So in the current landscape, this provides some stability. And it does mean that at the moment the proposal, which is before parliament at the moment and was presented about 2 weeks ago, is to utilize basically the existing Chapter 3 hydrocarbon tax regime, and we wouldn't expect our marginal tax rate to increase as a result. There is still ongoing dialogues as this is the hearing period and we need to understand the further detail of course once the law is actually passed.

[Euan Shirlaw, executive]

I think just to emphasize the one key point there from a solidarity contribution perspective, Denmark is being required to do it by the European Union. But I think it's fair to say that their approach to doing it is one that is supportive and pragmatic as we go forward. But the really key theme is that we don't expect it to lead to any change in our tax rate. I think that's just the key point to take away.

[Cathrine Torgersen, executive]

And Jacqueline again. What explains the increase in OpEx per barrel versus in Q3? It seems to be driven by tariff and transportation and production G&A. Can you please elaborate? And can you quantify how much of this will be recurring and if there were any one-offs?

[Jacqueline Lindmark Boye, executive]

Yes, absolutely. So I think the transportation cost was the major driver in there. And we do have a partly one-off and some which may be recurring. So first off, we do have a one-off termination fee, which we also mentioned in the report that was approximately $2 million of impact to do with a facility that wasn't being used, and that is a one-off. There's also some higher transportation costs, in particular, on the NOGAT line, and this is driven by also an increase in demand around the use of capacity as well as some seasonality. So we would expect that, that element will -- some of that will continue, some of that will drop off with the seasonality.

In terms of the production G&A, I would say that the Q3 number was slightly lower and this is more about phasing over the year. When you look across the full year, Q4 was more in line with the average spend in this area. But with the phasing and timing in particular on some of our study costs within the DUC partnership that was just timing of when that occurred.

[Euan Shirlaw, executive]

I think it's also worth just mentioning that in the OpEx line itself, the well reservoir optimization and maintenance activities feature. So there is some element of that cost that we've seen particularly over the last 2 quarters that is effectively activity that we see as being value additive. So while it leads to a higher short-term production cost level, it's also something that strongly supports our production profile going forward. And given where commodity prices are, that has typically been a positive dynamic.

[Cathrine Torgersen, executive]

And then Marianne. Turning to the long-term production profile on Slide 21, how many additional FIDs will be required to deliver the production projections represented in green plus orange? Which projects are specifically included in the so-called in-plan projects?

[Marianne Eide, executive]

So in-plan, we have the 7 infill wells and we also have the 3 major projects. So those are the FIDs required to deliver the in-plan profile. Then we have some less defined opportunities above plan. And those would maybe be more infill drilling on Tyra, et cetera, and timing is more uncertain there.

[Cathrine Torgersen, executive]

And the next question, how much will Noreco -- no, how much has Noreco invested so far in CarbonCuts?

I think I can answer this. So we haven't disclosed a specific number. However, typically in these type of early-stage projects, we are talking about lower investments. And I can say it's a low-single-digit number.

And then next question, we actually have covered already. And then again, to Marianne. I appreciate the slide on longer term production details. Apart from the CapEx indications on Tyra and the infill wells, could you please guide some on the CapEx required to achieve the longer term production levels indicated?

[Marianne Eide, executive]

So we are looking at a CapEx of around $15 per boe. That's our current estimates. We believe those are quite accurate for the short-term FIDs with the infill wells and the first project. And we will update the market as we define the projects that are further out in time.

[Cathrine Torgersen, executive]

And then the final question goes to Euan. Almost every oil company in the world is paying dividends to their shareholders. When will we receive first dividends from Noreco?

[Euan Shirlaw, executive]

It's a position that we are in today driven by the fact that we have the Tyra redevelopment ongoing. The restrictions within our capital structure are such that we are currently unable to pay a dividend pre-Tyra. What I think is supportive of where we are today is that our financial position has increased significantly. So it is clearly an area that we are thinking about. But nonetheless, I think the current expectation is, based on our current capital structure, dividends will commence post Tyra.

[Cathrine Torgersen, executive]

All right. I think that concludes the Q&A session. Thank you, everyone.