Var Energi ASA

OSE:VAR

Earnings Call Transcript 2022-Q1

[Operator]

Hello, everybody, and a warm welcome to the Var Energi First Quarter 2022 Presentation. My name is Melissa, and I'll be your operator. [Operator Instructions] I now have the pleasure of handing over to our host, Ida Fjellheim, to begin. Ida, please go ahead.

[Ida Marie Fjellheim, executive]

Thank you, and a warm welcome to Var Energi's First Quarter 2022 Results Webcast and Conference Call. Joining us today will be our CEO, Torger Rod; and our CFO, Stefano Pujatti. Torger and Stefano will present the first quarter results. And afterwards, we will open up to questions.

I will now turn the call over to Torger.

[Torger Rod, executive]

Thank you, Ida. Good morning to all of you. This morning, I am welcoming you from Var Energi's office in Hammerfest, where we have operational office of Goliat. And as for the rest of the Var Energi, Goliat is concluding one of its best quarters ever. I am very happy to be here today and present Var Energi's first quarter on 2022 results. We presented the Q4 results March 1 this year. And due to the Russian invasion of Ukraine, just a week earlier, we all felt a significant uncertainty. Standing here today, it is fair to say that this uncertainty has not been reduced. Our heartfelt thoughts and support are with the Ukrainian people and all the innocent involved. This really put things in perspective.

We are proud of our company being a leading pure play independent on a Norwegian continental shelf. This is based on key assets, our people and our diversified and robust portfolio with a substantial gas position. Based on our core hubs, the Barents Sea area, Asgard area, Tampen and the Balder/Grane, we have 4 solid legs to stand on for high value creation and continued growth. We delivered exceptional cash flow generation for the first quarter of the year, reflecting good execution of our long-term strategy and a strong commodity price environment. However, this partly reflects the significant uncertainties created by Russia's invasion of Ukraine in February, which comes on top of already tight energy markets as global demand recovers from the COVID-19 pandemic.

Combined with increased inflation and disturbance in global supply chains, this adds uncertainty with regards to the future global economic development. Against this backdrop, Var Energi maintained solid operational performance with material gas volumes delivered to customers in Europe. We have a tangible growth ahead, which makes us stand out to deliver a production of more than 350,000 barrels by end 2025, representing 10% of average annual growth in coming years. And this is based on development of sanctioned project portfolio with a breakeven price less than $30 per barrel, with a CapEx profile that allows for continued attractive and resilient shareholder distribution as well as an investment-grade balance sheet. This growth is achieved by 5 key growth levers: material long-lived resources, 1.7 billion barrels in 2P and 2C reserves, improved recovery, project development, exploration and selective and value-driven M&A.

We have clearly stated our intention to provide attractive returns to shareholders. And today, we are raising our 2022 dividend guidance to USD 1 billion from USD 800 million communicated previously. We also set the expectation of paying USD 260 million for the second quarter. This demonstrates our flexible dividend policy as previously communicated and reflects our expectations to generate a material free cash flow from our business at oil prices above $30 per barrel, as shown to the left of this slide. Also, as previously communicated, we will pay a dividend of USD 225 million for Q1, and this will be paid on May 12. From 2023 and onwards, our dividend policy is to return between 20% to 30% of operational cash flow after tax to shareholders.

Diving into the highlights of the quarter. We had record earnings on the back of high oil and gas prices and a robust operational performance. We had our best operational performance with a production with 242,000 barrels, down from Q4, mainly due to adjustments of gas conversion factor as well as other operational impacts and natural decline. As earlier communicated, we had a leak in a flow line of the Balder field in January, which has now been repaired and production was fully restored in April. The incident was classified as an actual serious incident in accordance to our classification criteria being related to the leak rate. However, important to stress, no personal injuries and with minor environmental impact.

We had exceptional cash flow generation in the quarter. We delivered record high cash flow from operations of USD 2.2 billion after tax, realizing high oil and gas prices with average weighted hydrocarbon price of almost USD 120 per barrel for the quarter. Natural gas representing 35% of the volume and 47% of revenue in the quarter. And as I mentioned earlier, this is reflected in our raised 2022 dividend guidance of USD 1 billion. We are in a strong financial position, $3.8 billion in available liquidity, cash and undrawn facilities. And the leverage ratio further reduced to 0.6x net interest-bearing debt on EBITDAX at the end of the quarter from 1.1x at end 2021 on strong cash flow from operation, increased cash and low debt.

All of this, of course, supports our investment-grade rating. We are on track to deliver on our high-value production target of about 350,000 barrels by end 2025. However, we are mindful that increased macro and supply chain uncertainties is affecting inflation for our industry and society in general, which represents uncertainties we are monitoring and managing.

And here, you see the key performance indicator defining our strong quarter 1. We have strong focus on safety being up requisite in all we do. Focus is always safe, and our ambition is to be the safest operator. Again, we are very pleased that no one got serious injured when working for Var Energi in Q1. Our clear target is 0 serious incidents and injuries. As mentioned, we had 1 serious incident in the quarter as reflected in the active serious incident frequency. Being the leader on ESG brings continuous focus on emission reductions. The CO2 total emission intensity for operated fields in the first quarter is estimated to 7.6 kilo per barrel, a slight improvement from 8.1 kilo in the previous quarter.

Q1 production of 242,000 barrels is well within our guidance for the year and reflects overall robust operations across our portfolio. The change in use of gas conversion factor has an impact of 5,000 barrels a day, meaning our Q4 production rebased equal to 253,000 barrels. When it comes to production cost per barrel, this is down from last quarter due to seasonally low maintenance, but as well brought some higher due to the Balder leakage repair. To summarize, our production cost guidance for 2022 is maintained. We have generated exceptional cash flow from operations, which I'm proud of, and we are delivering on our dividend commitments.

Then turning to operations. Var Energi's highest priority is to carry out our activities without causing harm to people and the environment. We had high activity through 2021, which continues into 2022, driven by product activities, turnarounds and drilling operations. The company's key performance indicators, serious incident frequency SIF, and total recordable injuries frequency TRIF developed positively in 2021. For Q1, falling object is still a concern, representing 4 potential SIF incident. This is an industry challenge and a lot of effort is put in place to improve this. The actual SIF was 0 throughout 2021 and are now at 0.1 due to the Balder leak.

We want to ensure always safe and 0 incidents and to further strengthen the culture and focus on safety, Var Energi will relentlessly drive for implementation of key initiatives such as the industry-wide Always Safe annual wheel, the Life Saving Rules, and the company's internal peer tool, take time, involve report. The CO2 emissions intensity for operated assets is slightly improving from last quarter at 7.6 kilo per barrel. Var Energi has set an ambitious target to become a net 0 producer on emission from our scope 1 and 2 by 2030. And we believe that the carbonization of oil and gas production is a prerequisite to ensure our resilient business model and long-term value equation.

This quarter, we made progress in the Barents Blue joint partnership with Equinor and Horisont Energi as the partnership was awarded the Polaris CO2 storage license located in the Barents Sea. The Barents Blue project partnership plans to utilize the Polaris reservoir to permanently store CO2 capture from the Barents Blue facility in Hammerfest. It will enable the production of carbon neutral ammonia, reforming natural gas from the Barents Sea to clean blue ammonia using carbon capture and storage. The first stage of the development will include capture, transport and storage of more than 2 million tonnes of CO2 per year. We are still in an early phase of the partnership. However, this is clearly a step in the right direction.

We saw robust operational performance in the quarter with production of 242,000 barrels, which is in line with the 2022 production guidance of 230,000 to 245,000 barrels. The production is some down from Q4, and this is mainly related to the adjustment of gas conversion factor, which has an impact of approximately 5,000 barrels. This is not related to operational performance but our technical adjustments to the conversion factor method. Other operational impacts include unplanned losses at Balder, a compressor failure at Sleipner, which is expected to last until September and some downtime at Asgard and Mikkel. In addition, we have natural decline in the portfolio.

On the opposite end, we have experienced very strong performance on Goliat. Our 4 strategic hubs provided 74% of the total production in the quarter. As you can see from the right chart of this -- right part of this chart, gas makes up a large share of our production with 35% of produced volumes in the quarter, meaning that we have a significant exposure to gas. We are reliable and a secure supplier of gas to Europe and U.K. and have full exposure to the current strong price environment. We have flexible gas sales agreements. And in the current market, we have up to 85% of our gas production exposed to the short-term market, being spot and month ahead.

I also want to give an operational update on our operated assets, starting with Balder and Ringhorne. As mentioned, the quarter was impacted by the incident in January resulting in an oil leak and shut-in of some of the production templates. The production from these templates has been reestablished in April following a successful repair job. Corrective measures are being implemented and will be follow up closely and learnings will be shared. We are happy to see that the Ringhorne infill drilling program is progressing accordance to plans. Turnaround activity is scheduled in Q3. Impact is approximately 4,000 barrels per day for the quarter.

Then Goliat. Goliat has been a strong performer in the quarter with operational efficiency increasing from 94% in Q4 to 96% in Q1 due to high regularity. This exceeds our 2023 targets of 95% uptime being part of the Goliat improvement program, targeting efficiency and OpEx improvements. We are happy to see this program progressing somewhat ahead of plan. Production from Goliat was marginally down from the last quarter due to natural well decline. Currently, we are preparing for planned turnaround during the second quarter. This will commence late May and have an impact of approximately 7,000 barrels in the quarter.

Since 2018, our unit OpEx has reduced from $14 per barrel to $12 per barrel in 2021. In the quarter, we are reporting a production cost per barrel of USD 12.1, mainly due to seasonal lower maintenance activities in Q1. Var Energi maintains its full year 2022 guidance for production cost per barrel at USD 12.5 to USD 13.5. We are seeing good progress on an unit cost improvement programs, which will take us in the direction of our medium-term production cost ambition of $8 per barrel.

There are several levers to take us towards the $8 per barrel. Ongoing projects with strong economy and very competitive production costs with our production cost around $3 per barrel. Uptime improvement initiative, as mentioned for Goliat, cost sharing and strategic partnership with suppliers, portfolio optimization and cost reduction programs and active portfolio management.

We are on track to deliver on the year-end 2025 production target driven by the 14 projects in execution overall, progressing well. These projects underpin our production target of more than 350,000 barrels by end 2025. This growth is slowly based on already sanctioned projects, many of which are well into execution. The 3 main projects are Balder X, Johan Castberg and Breidablikk. An update will be given for this in the coming slides. That said, we are very mindful of the challenges facing the world and our industry at present. The current high oil and gas prices partly reflect increased macro and supply chain uncertainties due to the war in Ukraine and continued COVID-19 shutdowns in China.

Supply chain disruptions and tight commodity markets are key factors driving inflation in all markets. And while we in Norway now seem to have put COVID-19 behind us, it is still a factor impacting people and operations well into 2022. We all experienced the impact in December '21 to March '22, including high level of sick leave. Against this backdrop, we work every day to mitigate risk to ensure good project progress to keep the schedule. While all these items add pressure on cost, we seek efficiency to mitigate the impact. To summarize, we are maintaining our overall plan for our production growth, and we are maintaining our CapEx guidance of USD 2.3 billion to USD 2.6 billion for 2022.

The Balder X project is an important element of our growth plan. It is highly profitable project, leveraging existing hub infrastructure to deliver significant high-value production. And as a hub in the area, it position us for a significant upside potential from infill drilling and future tie-ins even beyond 2045. We are progressing on schedule for planned first oil in Q4 2023. Results from the inspection program on Jotun FPSO completed in Q4 2021 is incorporated into integrated execution schedule without affecting planned first oil. Both the drilling program and the 2022 subsea installation campaign are ongoing.

When it comes to important milestones for the year, final equipment orders to be concluded in the second quarter of this year. Further, [ Pemgate5 ], which means engineering documents issued for construction to be done by end Q3 and auto dry dock and completion of the subsea work to be done by end Q4. Hence, we have an important and exciting period ahead of us. We have continuous focus on mitigating COVID risk and maintaining schedule. Challenging weather in Q1 has impacted drilling operation. Drilling is now progressing with 1 out of 15 planned wells completed. The incorporation of the Jotun inspection program has led to increased procurement scope, and we have seen additional engineering hours to compensate for continued COVID-19 effects.

Another exciting project is Johan Castberg, which has now arrived in Norway. This is set to become the second oil producer in the Barents Sea besides Goliat. It will strengthen the very prosperous Barents Sea hub and opening for high-value infill drilling and likely tie-ins. We see significant value upside in this important region and are actively working with our partner, Equinor, to maximize value and ensure efficient operation. We are on track for planned first oil in fourth quarter 2024.

And to mention some key activities, FPSO left Singapore in mid-February and arrived at Stord in April. Phase 1 drilling campaign are completed ahead of time and below budget. And the next important milestone for this portfolio is the campaign, including turret and topside installation, which is planned for second and third quarter this year. A total of 22,000 tonnes of modules will be lifted on board.

Then we are on Breidablikk, 18. Breidablikk is another major NCS development project progressing accordance to plan. It is a highly attractive and cost-effective development being developed with 23 horizontal oil producers drilled from 4 subsea templates tied back to the Grane platform. All 4 subsea templates successfully installed during first quarter 2022 and the drilling program will commence in May 2022. First oil planned in Q1 2024. Our 2022 exploration campaign continues to target high-value barrels and to replicate the 2021 success. We planned for a similar level of pretax exploration investment in 2022 as in the 2021 campaign with 9 wells to be spudded during the year.

During Q1, we participated in the dry Statfjord Kile well. The Ormen Lange Deep and Snorre Lomvi Upflank wells are currently being drilled with the outcome of both exploration wells expected to be announced in the second quarter. All planned wells are located close to our key hubs with potential for high-margin barrels, which in case of discovery will be considered for early development.

I will then conclude the operational update. I hope this provide a thorough view of our activities, and I'm very happy to hand over the word to Stefano, who will elaborate on our strong financial results. Thank you.

[Stefano Pujatti, executive]

Thanks, Torger, and good morning, everybody. I'm very pleased to present another record quarter for us, driven by special times, as you previously mentioned. Some highlights on key financials. We have seen increased commodity prices. We achieved record revenues and cash flow generation. We have reduced the leverage ratio quite substantially, record available liquidity, and we confirm the dividend for the quarter to $225 million to be paid in May. This slide shows some of our key financials for the quarter compared to Q4 and Q1 2021, but I will now move on to explain in more depth the company first quarter financial performance.

As mentioned, this has been a record quarter with strong operational performance and favorable market conditions. Petroleum revenues from sale of liquids in the quarter was $1.3 billion, roughly 53%, whereas revenue from sale of gas was roughly 47% at $1.2 billion. Total petroleum revenues was $2.5 billion, an increase of 9% compared to the previous quarter. $200 million was the increase in petroleum revenues, and that was mainly driven by a combination of higher oil prices, roughly $340 million, offset by $140 million due to lower production.

During the quarter, we continued to divert gas from injection to sales to capture high gas prices and generate additional revenue. We also reduced methanol production and added the ethane to the gas export from Karsto to generate additional revenues. Average oil price realized in the first quarter was $100 per barrel, up from $80 per barrel in the fourth quarter. The average realized gas price in the quarter was $163 per barrel, up from $148 per barrel in the previous quarter. This is roughly equivalent to $27.5 MBtu or EUR 83.6 megawatt hour.

The weighted average price per boe amounted to $120 per barrel in the first quarter. And sold volumes in the quarter were 20.7 million barrels, down from 22.1 million barrels in the previous quarter. Total production cost on sold volumes after adjustments like over/underlift that was the most relevant one in the first quarter amounted to $341 million, so pretty stable quarter-on-quarter. The decrease was mainly due to the lower cost of operations as they're normally are low maintenance and overall activities in the winter season on the NCS. In addition, Q4 included one-off restructuring costs, a restructuring cost billed also from Partners, that together with revised bonus provisions further decreased the cost of operations in Q1 versus Q4. Transportation costs, environmental taxes and insurance costs combined were stable quarter-on-quarter.

We had record net cash flow from operating activities, CFFO in the quarter, amounting to $2.2 billion, so an increase of 137% compared to $900 million in the fourth quarter of 2021. That was mainly driven by higher product prices, as mentioned earlier. Tax payments in the quarter amounted to $183 million, down from $572 million in the previous quarter. Tax payments in the second quarter are estimated to be $348 million. Note that taxes payable is seasonal. So only 1 of 6 annual tax payments are due in the first quarter. CapEx in the quarter was marginally lower when compared to the previous quarter. We have $621 million versus $710 million.

CapEx on Balder, Johan Castberg, Fenja, Grane, Snorre and Statfjord amounted to 85% of the total CapEx. The strong operating cash flow covered by the company CapEx with good margin. The CFFO to CapEx coverage was 3.5% in the quarter, up from 1.3% in the fourth quarter. 2022 guidance of $2.6 billion in development CapEx and $200 million in exploration and abandonment CapEx is maintained. As mentioned before, we had record CFFO in the first quarter amounting to $2.1 billion before changes in working capital and taxes, driven mainly by higher product prices.

As part of the group's working capital and finance cost optimization, Var Energi has entered into a credit discount agreement with several banks. Under the arrangement, the ownership, including credit risk of invoices for oil cargoes sold are transferred to the respective banks and the receivables to which the payments relate are recognized from Var Energi balance sheet. Payments to the banks are made when Var Energi receives payments to the customers. This has significantly contributed to the positive movement in the working capital that you see in Q1.

CFFO was $2.2 billion in the quarter after investment activities and debt repayments. The cash position at the end of the quarter was $539 million. Combined with undrawn credit facilities, the available liquidity amounted to $3.8 billion, so quite a strong position to be in. The strong cash flow generated in the quarter, combined with debt reduction led to a leverage ratio of 0.6% at the end of the quarter, down from 1.1% at the end of the year. We keep being committed to maintaining an investment-grade rating and the strengthening of our balance sheet. We continue to support material shareholder distribution also going forward.

We generated exceptional cash flow driven by very strong commodity prices. Therefore, we raised the dividend guidance for 2022 to USD 1 billion. The guidance for Q2 is $260 million, and we confirm $225 million as a first quarter 2022 dividend equal to $0.09 per share to be paid in May. Dividend policy from 2023 onwards is to distribute a range between 20% to 30% of the CFFO after tax.

Finally, I would like to sum up this section with our forward-looking guidance elements. These are unchanged since the IPO process with the exceptions of the dividend. I just want to highlight the following. We expect production in 2022 of -- in a range between 230,000 to 245,000 barrels a day, increasing gradually towards 350,000 barrels a day in the medium term based on the current strategic plan. We are targeting an OpEx per BOE between $12.5 to $13.5 in 2022, which is targeted to decline toward $8 as new projects come onstream, and we progress our cost-saving program.

Our CapEx is targeted in a range between $2.3 billion - $2.6 billion next year, excluding exploration and abandonment, which will add approximately $200 million. We confirm the leverage through the cycle target of 1.3x of net debt on EBITDAX. And as addressed earlier, we raised the dividend guidance for the full year.

With that, I leave the floor back to Torger for some concluding remarks. Thank you.

[Torger Rod, executive]

Thank you, Stefano. Var Energi is delivering another record quarter. It really proves the unique combination of value creation, growth and our significant distribution to our shareholders. And I want to leave you with the main takeaways. We have a robust operational performance, exceptional cash flow generation, strong financial position, being on track to deliver on year-end 2025 production targets, and we are raising the dividend guidance for 2022 to USD 1 billion.

So by that, thanks a lot for the attention.

[Operator]

[Operator Instructions] Our first question today comes from Teodor Sveen-Nilsen of Sparebank 1 Markets.

[Teodor Nilsen, analyst]

Also congrats on a strong first quarter. Three questions for me, if I may. First, Torger, you mentioned cost inflation. I just wonder, could you briefly discuss which of the projects that are maybe most exposed to any potential cost inflation and what kind of measures you have taken to avoid any cost increases? Second question is on financial leverage. You currently have 0.6x net debt to EBITDAX. And obviously, that's well below your long-term guidance. I just wonder how you think around that? Or what should we expect? Could we expect even more dividends? Could we expect more CapEx or lower EBITDAX going forward? And final question is on share buyback versus dividend. So just curious on your conceptional view on share buybacks versus dividends. That's all for me.

[Torger Rod, executive]

Okay, and thanks a lot for your question, Teodor. And to start on the inflation side here. As stated in my presentation here, we see this as a growing concern. I think I would like to say that in general, we see it generally. We have, at the moment, 14 projects in execution as well as a set of early phase projects, as well as, of course, we have operational activities that also could be exposed for this. And as I think rest of us, we are monitoring this. We are getting the reports both when it comes to inflation, it comes to increased interest rate. We see impact on the supply chain or the disruption in the supply chain. And of course, this is things that we are monitoring and managing as good as we can.

When it comes to -- so I don't have any specific projects that I will say that I think it's a bigger concern than others. But if I continue on that path is, of course, that I think what is good for us that when it comes to those projects that the 14 projects that gives us this significant growth, they are all sanctioned and they are well into execution. That means that we have placed the contracts. We have predominantly bought the equipment and the steel, which should reduce the -- I would say the impact of inflation. Of course, when it comes to supply chain disruption, that could still be there. So that -- what then is alluding to is what -- and it's yet to confirm is, of course, to assess what could happen on more the early phase projects.

As also we have stated before, we are -- our projects and FIDs, we have taken them ahead of this big wave that is now coming on the NCS, the last half of this year, which might lead to a lot of activity and then potentially also constraints on [indiscernible] [ know ] and performance. Also, on the mitigating side, we are -- it's good to state that we have, for instance, rigs on long-term contracts. That means that, of course, the drilling activities for the project, for our exploration, we have them tied in. So that is part of the set of mitigations that we have. We are also looking into some specifics and to avoid some specific materials and alloys where we see a higher price increase than other areas.

So we are, I would say, in a general perspective and also into a detailed perspective on this matter. But is that really assessing this on a macro picture and reading all the reports and all the, I would say, the feedback we get from the market there. So that was the inflation part. Then I think on the leverage, maybe I pass the ball to you, Stefano, and for you to start on how we are -- our philosophy and how we are thinking around the leverage. And I think that also ties into the last question when it comes to the share buyback. So you to start, Stefano.

[Stefano Pujatti, executive]

Sure. Thanks, Torger. And yes, we -- as far as leverage is concerned, we have a target of 1.3x net debt on EBITDAX as we show. However, the number will fluctuate. In some periods will be higher and in others, would be lower like we are seeing today. The target of 1.3x is actually a target that we have over a market cycle. And for, we have the flexibility to go higher in case of good investment, accretive investments or M&A. But let me say that our -- really, our main focus is to execute the ongoing development projects, which will fuel our growth. And actually be an investment-grade balance sheet and at the same time, address dividend increase like we are seeing today.

As far as the share back versus dividend, definitely share buyback is an option that the company has as a listed company now. We believe that currently, dividend, let's say, serve better the remuneration of the shareholders. And you see that we have been quite proactive now in capturing the upside and being proactive in sharing this upside with the shareholders by increasing the dividend from $800 million to $1 billion. But of course, the share buyback can be an instrument or an option that the company has in the toolbox and that can be used when we think it will fit the best.

[Torger Rod, executive]

Yes. And then maybe one -- to add one word on the inflation side because also we are factoring in some of this and what we expect here, for instance, into the operation. I didn't mention that. So that is part of also the mitigation and taking some, let's say, room for it.

[Operator]

We take our next question from Sasikanth Chilukuru of Morgan Stanley.

[Sasikanth Chilukuru, analyst]

I had 2, please. The first was I was just wondering if it was possible to provide more color to the 10% quarter-on-quarter increase in gas price realizations. Perhaps any commentary regarding the exposure to spot or day ahead contract prices in the first quarter? And also partly related to this, is it possible to get the profile of the 9.2% of estimated 2022 gas production that has been forward sold. Is this primarily in the second and third quarter of 2022? Now the second question was most related to the 2023 to 2025 dividends. I was just wondering, do you expect the 2022 dividend of $1 billion to be sustainable till 2025? Will you be looking to lower the dividends in line with your 20% to 30% cash flow from operations guidance, if there was a reduction in CFFO generation? And slightly related to this, can you please confirm that the dividends paid in 2022 will be lower than the $1 billion confirmed for 2022 and also the $950 million paid in 2021 as it seems like the 4Q 2022 or 4Q dividend payments will likely fall into the first quarter of 2023?

[Torger Rod, executive]

Thanks a lot for your question. And gas is a hot topic. And Stefano, I know you have been looking into that particularly. So maybe you can start this.

[Stefano Pujatti, executive]

Yes. Let me try to clarify a bit the question. The gas sale strategy really that we have is to have 70% of the gas sold into long-term agreements and 30% to be sold in the short-term market. Within the long-term agreement, we can influence what indexes the gas will be priced at. So just to be specific, for Q1, we sold 50% of gas linked to a day ahead with roughly $190 per barrel and 35% was linked to month ahead at a price of $183 per barrel. And then we have roughly 15% that is linked to other like 2 months ahead, quarter ahead and year ahead. And that is, let's say, forming the $163 that you see as realized price, which is in euro megawatt hour is -- we achieved a gas price of EUR 83.6 megawatt hour.

Now related to the in general for the remainder of the year, we have sold 12% roughly of our volumes on fixed contracts, and that is with an average price of $157 per barrel. And in addition, roughly 9% of the volumes are sold on year ahead prices, which was actually nominated in 2020. So they are not reflecting the most recent spike in natural gas prices. And that actually will continue until the end of September. Then for Q4, we have sold roughly 18% of the gas on a gas year-ahead basis, and that is expected to be priced around $133 per barrel. All the remaining volumes are exposed to the short-term prices. So it means day ahead or month ahead.

So as far as the dividend is concerned, let me say the -- of course, the $1 billion of this year is linked to this moment to this context, to the very strong supportive macro that we are seeing. So on this, we have visibility for -- that is the commitment that the company is taking. For 2023 onward, we state the policy that will be a dividend between 20% to 30% of the CFFO. The payments of the dividend will actually -- you're right. Actually, we will be -- we are paying actually every quarter, then we will announce the dividend and that will be paid in the following months. So overall, you will have 3 installments paid this year. So you will have Q1, Q2 and Q3, which will be paid in '22. And Q4 will then, let's say, shift to February 2023.

[Operator]

We'll be taking our next question from Mark Wilson of Jefferies.

[Mark Wilson, analyst]

All right. And yes, excellent sort of first numbers, well done on that. I'd like to dig in a bit further to your main operated growth project, Balder X, because I think the presentation, it said that Balder X is going to produce over 70,000 barrels of oil a day once it's fully on stream. I think that is an increase from what you've showed before. I think closer to 63. So just comment on that. And then secondly, with relation to the supply chain inflation costs, clearly, Jotun FPSO coming out of dry dock for the Balder X is a very important time line and cost. And you did mention how final equipment orders are to be placed now, and there's been some increase in procurement after inspection. So could you speak to that? And possibly is there an overall CapEx number you could give for the Balder X and Jotun, particularly with those procurement points?

[Torger Rod, executive]

Thanks a lot for your question, Mark. And to talk a bit about the project portfolio. And as I said, we have a significant amount of projects in our portfolio. And the 14 is the number in development. And as we also stated in our presentation here that in overall, this is -- these projects are progressing well. This is progress that's really -- projects that really brings high value to Var Energi high production, high value. And of course, they have a very robust economy and high internal rate of returns. So -- and so we are confirming the schedule on these projects to take us to about 350 by end 2025. Also, what we confirmed in our presentation and our annual report is that we are maintaining our CapEx guidance for 2022 of USD 2.3 billion to USD 2.6 billion. So that is really framing the status on our project portfolio.

Then when it comes to Balder and the Balder future project, that is really building on this. As you know, Balder is an area we have been for a long time. It is really our core hub. And it represents a significant value equation so far, and it will do that until 2045 and beyond. When it comes to the production numbers here, I think the 70,000 is versus the 63. I think that is 100% production and Var Energi production because we have a 90% equity here. So that is the difference in those numbers. We are not increasing -- we haven't increased the number of production of the Balder future. With that said, of course, we -- as you know, we had this very interesting discovery in the King and Prince in the Balder area. So of course, there will be tiebacks coming when this is out and being the hub.

When it comes then to the specifics on Jotun there, and as -- you are right, we have some very important milestones ahead of us. And of course, we have a very important milestone completed in December with the inspection. And now we are facing several important. And one of them is to play -- as you also alluded to, placing the last. I think that is to be precise, the last purchase orders for our equipment. So a significant -- the majority is placed and it is even arrived to Stavanger where the yard is. And that's a good thing, so to speak. So the greater magnitude is already done and in place. But of course, we have to monitor based on also the question from Sparebank 1 Markets the inflation and the supply chains challenges on what's left to be done. When it comes to the overall cost picture on Balder, we are maintaining that the cost we have presented earlier. And we don't -- I think it's -- we don't have any -- there's not a time to justify any changes to that at this moment in time.

[Mark Wilson, analyst]

Got it. Okay. No, very clear. Most of those procurements already placed, very good. I also note, you're drilling the Ormen Lange Deep well is 10% working interest, but is the largest target you're involved in. Just give us some background on that. Is that a gas target underlying the Ormen field?

[Torger Rod, executive]

Correct. Ormen Lange, this -- the Ormen Lange Deep is a gas play as Ormen Lange. And it is what we call a high risk, high reward. That means that the probability is not necessarily the highest, but if there is a success, then it might represent significant resources. So exciting. And of course, that will then go into the Ormen Lange and to the Nyhamna facility. So exciting well that is ongoing as we speak.

[Operator]

We'll now move over to John Olaisen of ABG Sundal Collier.

[John Olaisen, analyst]

Yes. In [indiscernible] today, they wrote that Equinor is considering building a gas pipeline from the Wisting field via the Castberg field and via Goliat to the LNG plant at Hammerfest. I just wonder if this is something that you confirm or have any comments to. And maybe on that, if you could remind us, what are the volumes of gas at Castberg and Goliat? And what are your alternatives for that gas, please?

[Torger Rod, executive]

Thanks a lot, John. For me, I think I would rather prefer to comment than confirm because I think that's operators task to confirm. As you know, the Barents Sea is important for Var Energi. And it is one of our strategic hubs. And of course, that is based on all, I would say, all our insight, all our competence in that area, of course, with Goliat. You also know that we drilled several wells last year with success both in the Goliat area with [indiscernible] and in the Johan Castberg area. And also, that is what we're going to do this year with 4 wells in total, 2 in Goliat area and 2 in Castberg area. So that is -- and one of the things that, as you know, have been discussed for a long time is what kind of alternatives or what kind of additional gas evacuation should we establish in the Barents Sea.

And I think in general, and I emphasize on general, we are positive to the fact that infrastructure is being established when -- if or when confirmed from the operator here. And of course, you know that we are a license holder in Johan Castberg. I already mentioned those other center areas that could be of interest. So I think it's very important that we look on an area solution for Barents Sea. And I feel that there is a close collaboration and a strong partnership in the Barents to do that. And of course, also you know that we also are assessing the blue ammonia and the [ polar versus ] as some of the alternative. That was early, it's exciting together with Equinor and Horisont.

So -- and then, of course, we have the [ snow ] with us, we also mentioned, John. So I think that is alternatives. Now we are assessing several to really find the best solution to have both a good capacity, a good area solution to create further value in the Barents Sea.

[John Olaisen, analyst]

And how much gas is at Castberg potentially could be produced?

[Torger Rod, executive]

Yes. This again, of course, the more accurate answer, I'm sure you can ask Equinor about -- it's at tomorrow or the day after. But Castberg is not gas heavy. It's -- so first, at Castberg, it will be oil producing, and then they will, if I recall this right, it is in the 2040, they need some gas solution. So it's not -- it is predominantly oil in Johan Castberg.

[John Olaisen, analyst]

And then my second question, if that's right, related to the previous questions about the cost inflation. How much of the rig capacity has been secured for 2022 and also for '23, maybe? And may I ask, what kind of cost inflation you have assumed in your medium-term production cost target of $8, please?

[Torger Rod, executive]

Yes. Starting on the rig side, John, there we have more or less to my knowledge, -- I know at least for the major campaigns, we have secured everything for 2022. It was ongoing in one of the exploration and, of course, the production drilling and also infill drilling. And when it also comes to the majority for next year and then I'm specifically thinking on the production drilling, we have also secured that. So there is a significant thought already secured. Then when it comes to what you have included in the production cost, we have been factoring in some inflation as we have seen across multiple industries. And that is related to raw materials, energy prices and so on into our production cost plans for the years ahead. So that is what we have been incorporating there. I don't know, Stefano, if you would like to add something on that topic as well.

[Stefano Pujatti, executive]

Yes. Just let me maybe add the fact that on the main contracts with suppliers, we adjust within the range of the consumer price index on a yearly basis. So as you mentioned, we haven't seen extraordinary inflation effects on our contracts of projects for this year. However, of course, due to the increase in raw material prices, especially steel and chemicals commodities, the outlook might require additional attention.

[Operator]

We have 2 further questions registered. [Operator Instructions] We take our next question from James Thompson of JPMorgan.

[James Thompson, analyst]

Great. Appreciate you taking [ stuff ahead ]. So just wanted to ask you, Torger, in terms of just some sort of background on the kind of M&A environment at the moment. It's a part of your overall growth strategy. You've got plenty of liquidity at this point in time. But oil and gas prices are clearly very strong. So I was wondering if you could maybe give us an update on that general environment in terms of potential M&A and bringing other projects into the portfolio at this point?

[Torger Rod, executive]

Thanks a lot, James, and thanks a lot for your question. And talking to M&A and as you're saying, it is -- it has always been one of the levers in Var Energi. It wouldn't be Var Energi without M&A, so to speak. And also, as we have been stating before, we are assessing accretive M&A. And I think that is -- and of course, we are in it for the value, creating value. And also, as we are saying, we have a fantastic robust portfolio. We have a significant organic growth ahead of us, and we like to focus on that. But of course, if we see value close to our strategic hubs and we might act on it. So that is a starting point.

Then also, as you also alluded to, of course, it's high prices now and high commodity things. So really, as I said, I think we are -- number one, we are focusing now on creating value through our portfolio. Also, as you mentioned, because there's 2 dimensions in your question about the project because we have a lot of excitement also in our early phase projects already and to focus on that. So we keep it as a tool in our toolbox. We are going to look for value and create value and bring it into our hubs. But specifically, I don't have any comments. But I think again [indiscernible], there's no doubt that the value creation on NCS is significant. And it's a good place to be for our pure play oil and gas company as ours as such, and I'm sure others are seeing the same.

[James Thompson, analyst]

Okay. Torger, I am going to take a cheapy second, if you don't mind. I just wondered if you could just want to give us a little bit of color in terms of expectations for cash tax in the second half of 2022 and whether we have any point of second quarter, third quarter production for the company in terms of -- you flagged a couple of shutdowns. Should we expect 2Q to be a little below 1Q there?

[Stefano Pujatti, executive]

Yes. In terms of cash tax, let me say that we envisage to pay roughly $530 million in first half. And that is assuming U.S. dollar NOK of 8.5. And this will be paid in Q1, as we showed in the presentation. So roughly out of this NOK 4.5 billion, NOK 1.5 billion would be -- has been paid in Q1 and NOK 3 billion, so roughly $350 million will be paid in Q2. There is, in addition, a remaining tax payment in Q4 related to 2021, which we estimate to be in the range of NOK 2.1 billion. Yes. So -- and then, of course, as you know, in second half, we will also have 50% of taxes related to 2022 results, but that will be estimated in the coming weeks.

[Torger Rod, executive]

Yes. And if I might then, Stefano, when it comes to the turnaround activities, we have turnaround activities planned for Q2 and Q3. And we are expecting an impact -- I think, it's in Q2 around 13,000 barrels in average and then it's around 5,000 in Q3. So just to give a kind of info on that side.

[Operator]

We'll be taking our final question today from Matt Smith of Bank of America Securities.

[Matthew Smith, analyst]

Just squeezing one last question in then. And that was please, if there's any update on progress or your expectations on the bridge to bond facility, please?

[Torger Rod, executive]

That question, Stefano, that's yours, please.

[Stefano Pujatti, executive]

Yes. So as you know, Var Energi is fully financed through the existing bank facilities that are -- have been provided by the group of 12 banks, international banks. So we have in place a bridge to bond of $3 billion. The maturity of this is in 2023. So we -- let me say that we remain confident that we'll be able to access the bond market at competitive terms during this time frame. And so we are actually prepared to access the debt capital market when the timing is right.

[Matthew Smith, analyst]

Congratulations again on the quarter.

[Operator]

As that was our final question, I would like to thank everybody for attending today. And I wish you all a great rest of your day. Thank you. You may now disconnect.