Var Energi ASA

OSE:VAR

Earnings Call Transcript 2021-Q4

[Operator]

Hello, everybody, and a warm welcome to the Var Energi Fourth Quarter 2021 Results. My name is Melissa, and I will be your operator. [Operator Instructions]

I now have the pleasure of handing over to our host today, Ida, Head of Investor Relations. Please go ahead, Ida.

[Ida Marie Fjellheim, executive]

Great. Thank you, and a warm welcome to Var Energi's Fourth Quarter 2021 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 fourth quarter and full year results. And afterwards, we will open up for questions.

I will now turn the call over to get Torger.

[Torger Rod, executive]

Thank you, Ida. On behalf of Var Energi, the entire organization, Stefano and I welcome to our first quarterly presentation as a listed company. And Stefano, I have to say, it is both a proud and exciting moment for us. And with us today, we bring strong performance and good numbers. However, let me start by saying that we, like everyone else, are deeply concerned with the recent development in Ukraine. And we'd like to give our heartfelt support to the Ukrainian people and all of those affected by the crisis. This is really putting things into perspective.

I am sure you appreciated our short film expressing our proven history, key milestones and strategy. It has happened a lot in Var Energi in the last years, and this will continue, bringing value to our shareholders. It is exciting times ahead for all of us in Var Energi. The recent Oslo Stock Exchange listing, being the largest upstream oil and gas IPO in Europe the last 15 years, is a natural next step in realizing our full potential as a leading upstream oil and gas company on the Norwegian Continental Shelf. And today, we take the opportunity to say that we are happy and honored to welcome more than 19,000 new shareholders to our company, including the significant support from our employees, where more than 80% now owns in the company. Welcome to all of you.

We are committed to deliver our better future and long-term value equation. We bring large and a diversified resource base. Our hub strategy maximized value creation by enabling CapEx-efficient investments, low OpEx and declining emissions, combined with rural class capabilities and our tangible high-value growth. With strong cash flow and investment-grade balance sheet, we are committed to deliver attractive and resilient shareholder returns. And we are committed to be an industry leader on emissions and safety. And by this, becoming always leading energy company measured by safety, sustainability, value creation and employee satisfaction.

We are proud of our company being a leading pure-play independent on NCS. And this is based on key aspects of our people and our diversified and robust portfolio with a substantial gas position. Based on our core hubs at Barents Sea area, Åsgard area, Tampen, and Balder/Grane, we have 4 solid legs to stand on for high-value creation and continued growth. We have scaled with full year 2021 production of 246,000 barrels. With 35% gas for the full year, we are the second biggest gas seller on the NCS. This means that we are well positioned to capture value in the current commodity price environment and for the future as the role of gas and energy transition fuel will continue to grow.

In the last 12 months alone, Var Energi has generated $4.4 billion in cash flow from operations after tax, and $1.9 billion in free cash flow, as well as to pay a material dividend. This is all time best for Var Energi and represents strong performance, stable production and high commodity prices.

And let's go to the highlights, which shows the strong performance of Var Energi for the quarter. And here we are talking about record earnings. We had a strong operational performance. We had no actual serious incidents in 2021, which is very important for us being our #1 priority. Production increased from the third quarter on improved production efficiency of 92%, and we delivered a very strong quarter with 259,000 barrels in production. We experienced record cash flow generation and a material distribution. We had all time high cash flow from operations, $4.4 billion for the full year, and $1.9 billion before tax and working capital in the fourth quarter. We are capturing higher oil and gas prices, average weighted hydrocarbon price above $103 for the quarter.

Natural gas representing 37% of the production and 52% of the revenue in the quarter, with our gas revenue of $1.2 billion alone. We maintain the 2022 dividend guidance to pay a minimum $800 million in dividends. And we have a solid financial position.

In Q4, we obtained our strong investment-grade credit rating and refinanced our reserve-based lending facility with $6 billion unsecured loan. And our leverage ratio reduced to 1.1x at year-end from 3.2x at end of 2020. This on lower net debt and stronger cash flow. And in the end, we are en route to delivering on our high-value production targets of about 350,000 barrels by end 2025.

2021 represents also all-time high activity level for Var Energi. And we have a strong focus on safety being a prerequisite in all we do. Focus is Always Safe, and we are very pleased and glad that no one got seriously injured working for Var Energi in 2021. People is our focus, and our clear target is zero serious incidents and injuries.

We have a continued focus on emissions reductions. The CO2 total emissions intensity for operated fields in the fourth quarter is estimated to 7.1 kilo per barrel, down from 11.7 in the previous quarter. This is mainly driven by higher production in the fourth quarter. For the year 2021, the CO2 emissions intensity was 8.8 kilo per barrel, relatively unchanged compared to the 8.5 kilo in 2020.

Improved production efficiency underpins strong operations performance and led to high production in the quarter of 259,000 barrels. When it comes to the production and transportation costs, this is somewhat higher than we like in the quarter. But we are on track to deliver on production cost guidance for 2022 and Stefano will cover this in more detail later in the presentation.

We had a very strong cash flow generation, but tax payment and increased receivables from higher gas sales impacted the cash flow for the fourth quarter of $923 million. we are committed to continue attractive shareholder returns. We paid $262 million for the quarter, reflecting the strong performance and high commodity prices, and in total $950 million for the full year 2021. And this really shows our commitment and mindset for strong shareholder returns. And we confirm over $225 million dividend communicated for Q1 2022, and we've been growing with high value.

We have a tangible growth, which makes us stand out to deliver a production of more than 350,000 barrels by end 2025, representing 10% of average annual growth the coming year. And this is based on development of our sanctioned project portfolio with a breakeven price less than $30 in average with a CapEx profile that allows for continued attractive and resilient shareholder distribution. This growth is achieved by 5 key growth levers. We have a significant resource base, 1.7 billion of long-lived resources. You see that our major fields have a long tradition of increasing in size, both due to increased recovery, but also due to infrastructure-led exploration. Most of our major fields have a long tradition of growing in size. And here some example can be given like the Balder, the Snorre, Tor II, and Åsgard, and this will really give life to new projects, utilizing existing infrastructure.

We also see improved recovery by employing leading technology, for instance, the 4D Seismic. This gives us a new view on the Norwegian Continental Shelf.

We have a significant pipeline of sanctioned and unsanctioned projects. This is expected to come on stream in the coming years. We have best-in-class exploration capabilities with a distinguished track record, which I will come back to you later in the presentation. And in the end, we have selective and value-driven M&A in NCS, which aims to drive value, utilize synergies and enhance recovery.

We bring material cash flow generation and dividend. Over the next 5 years, we expect to generate a material cash flow from our business at oil price above $30 per barrel, as you can see from the illustration to the left on this slide. And important to note, in these calculations, we have assumed a gas price at 65% of the oil price equivalent. As you all know, the current gas prices are significantly above that level and as such represents an upside. This assumes as well that the proposed tax regime is being implemented.

From the right chart, you can see that our strong cash flow enabled us to pay attractive dividends. For 2022, we intend to pay a dividend of minimum $800 million, of which $225 million are expected for the first quarter in 2022 and this will be paid in May this year. From 2023 onwards, our dividend will be linked to the cash flow the business generates and our dividend policy is to return between 20% to 30% of operational cash flow after tax to our shareholders.

So let's turn our view to operations. Well, under this, highest priority is to carry out our activities without causing harm to people and environment. We had a significant increase in activity in 2021 due to product activities, large turnarounds, and drilling operations. The company's key performance indicators related to safety being serious incident frequency (SIF) and total recordable injury frequency (TRIF) developed positively in 2021 compared to 2020. And very important, in 2021, there are no incidents with actual serious consequence. Hence, no serious personal injuries, meaning that the actual SIF of 0 throughout 2021.

We want to ensure Always Safe and fewer incidents. And to further strengthen the culture and focus on safety and to improve further, Var Energi will continuously drive for implementation of key initiatives such as the Always Safe annual wheel, the Life Saving Rules, and the company's internal peer tool, take time, involve, and report.

We achieved high production in Q4, driven by production efficiency across all our assets with an increase to 92% in the fourth quarter. We produced 259,000 barrels in the quarter compared to 247,000 barrels in the third quarter. And we have obtained strong realized prices for our product, with an average realized price of above $103 per barrel. Our 4 strategic hubs provided 74% of the total production in the quarter.

Full year production in 2021 was 246,000 barrels compared to 265,000 barrels in 2020. The decrease reflects partly the impact of turnarounds originally planned for in 2020, which we postponed to 2021 due to the COVID pandemic.

As you can see from the right top of this chart, gas makes up a significant share of our production with 37% of the produced volumes in the quarter and 35% for the full year. Meaning that we have a significant exposure to gas. We are a reliable and secure supplier of gas to Europe and U.K. and have true exposure to the current strong price environment. We have flexible gas sales agreements in the current market. We have up to 85% of our gas production exposed to short-term market position.

Since 2018, our unit production cost has reduced from $14 per barrel to $12 per barrel. And in this regard, Var Energi maintains its full year 2022 guidance for production cost per barrel at $12.5 to $13.5 per barrel. Looking further ahead, our medium-term production cost ambition is $8 per barrel, and we will achieve this through ongoing projects with strong economy and very competitive production cost per barrel coming onstream, uptime improvement, cost sharing and strategic partnership with our suppliers, ensuring economy on scale, cost-efficient operations, portfolio optimization and cost reduction programs and active portfolio management.

To become a leader in ESG is at the core of our strategy. In January 2022, we received an indicative environmental, social and governance ESG assessment from Sustainalytics. The indicative score is very good and places Var Energi at #14 out of 155 or in the 9th percentile among E&P companies assessed by Sustainalytics. This is a clear confirmation that Var Energi has established a concrete and solid plan for our ESG work. It serves as a motivation to improve even further, and we are on the right track to reach our ambition.

We believe decarbonization of oil and gas production is a prerequisite to ensure our excellent business model and long-term value creation. We have established operational actions to actively reduce and minimize our environmental impact with a target of becoming a net zero producer for our Scope 1 and 2 by 2030. The strategy for emission reduction is based on electrification from renewable energy, portfolio optimization and energy management as well as measures related to carbon offsetting and R&D activity.

We have a very attractive and resilient portfolio of growth projects as presented here. This is underpinning our production target of more than 350,000 barrels by end 2025. This high-value growth is based on already sanctioned projects, which is well into execution. The major sanctioned projects are Balder, Breidablikk, and Johan Castberg, but there are also quite a few others starting up within the next few years as you can see on this slide. The main development project saw a good progress in the fourth quarter and are moving ahead according to established plan and in line with the latest communicator estimates, which were updated as part of the Norwegian national budget in October.

We are an industry leader in exploration with a success rate of 75% last year. That means that 2021 was a fantastic exploration year for Var Energi, which we are all very proud of. Six discoveries, all in our defined hub areas, generated 135 million barrels in net new resources, split by 75% oil and 25% gas. And we are part of the biggest discoveries, King & Prince and Blasto. And in accordance to Industri Energi, no one discovered more resources in 2021 on the NCS than Var Energi. And King & Prince were obviously 2 outstanding discoveries in a mature Balder area. In total, the new resources exceed our production for 2021 by a factor of 1.5.

2021 was also an active year with regards to licensing activity. A total of 16 new exploration licenses were acquired, 10 in the APA license round, 5 operated and 6 from business development activity and portfolio optimization. At year-end, the Var Energi robust portfolio came to 148 licenses, of which 37 are operated. This represents an increase in operatorship by around 50% in the last 3 years.

EBITDA for 2022, we replicate the success recipe from 2021, targeting more high-value barrels. We plan for a similar level of investment pretax as for the 2021 campaign, with 9 wells to be spudded during 2022. 4 of these wells in the balance sheet. We're also having 1 well that we define as a high-risk, high-reward, being Ormen Lange Deep.

With all this expressed excitement, I end my presentation, and I am very, very happy to hand over the word to Stefano and for Stefano to elaborate on our strong financial results. Please, Stefano.

[Stefano Pujatti, executive]

Thank you, Torger, and good morning, everyone. We have had a good year and a strong fourth quarter, delivering record earnings for both periods driven by solid operational performance, a significant gas share and increased realized commodity prices.

Let me say that I'm truly happy in our first results presentation to show what I consider a fantastic quarter and a fantastic year. This slide shows some of our key financials. I will now move on to explain in more depth the company's fourth quarter and full year performance. But let me say before that, that as a general comment, we had a very strong quarter performance in terms of revenues, EBIT and cash flow from operations that, coupled with strong production performance in the quarter, was able to deliver record high profit and cash flow in the last quarter of 2021.

In October, also, we were able to fully refinance the $6 billion RBL with an unsecured structure that leveraging on our investment-grade balance sheet has also seen a strong improvement in the leverage metrics going from 3.2x net debt to EBITDAX at the end of 2020 to 1.1x at the end of 2021. Let me add that I'm glad to say that Var in Q4 and overall in 2021 was in a unique position to be able to fund our development, which are the fuel for our growth, deleverage substantially, pay an attractive dividend to shareholders, while at the same time achieving an improved, more flexible and competitive capital structure, which will serve well the company's future needs.

2021 has been a record year with strong operational performance and very favorable market conditions. Petroleum revenues from sale of liquids $1.1 billion, and that was roughly 48% of the total petroleum revenues, whereas the revenues from the sale of gas were $1.2 billion, which is around 52% of the total revenues. And that was in line with what we previously guided.

During 2021, the company also diverted gas from injections to sales and that was to capture high gas pricing and generate additional revenue. The average oil price realized in the fourth quarter was $80.4 per barrel, up from $71.8 per barrel in the third quarter. As far as gas is concerned, the average realized gas price in the quarter was $148.3 per barrel, which is roughly EUR 79 megawatts, up from $76.3 per barrel in the previous quarter. Important to state also that the weighted average price per barrel exceeded $100 per barrel in the fourth quarter.

As a result of these strong realized oil and gas prices, the full year 2021 petroleum revenues amounted to $6 billion, up from $2.7 billion in 2020. So 100% higher than 2020. Sold volumes in 2021 were 85 million barrels, down from 92 million barrels in 2020, and that was driven by a combination of natural decline from producing fields and maintenance activities that were postponed from 2020 to 2021 due to the COVID-19 pandemic.

Total production cost on sold volumes in the quarter decreased 14% from the third quarter, mainly due to an overlift position in the third quarter versus an underlift position in the fourth quarter. In the fourth quarter, when compared to the third quarter, we see higher cost of operations and that is due to one-off restructuring costs and also restructuring costs bid from partners, revised bonus provision estimate, cost estimate revisions related to gas-led removal provisions, and also higher environmental taxes.

Now looking at the full year total 2021 production cost, it rose 25% year-over-year. And the increase is mainly due to the foreign exchange rate effect. There was an appreciation -- sensible appreciation of the NOK versus dollar in '21 versus 2020, higher electricity prices, higher environmental taxes, and also the shift of turnaround and maintenance activities from 2020 to 2021. Transportation and processing costs and insurance costs were lower year-over-year.

In addition to the factors I just mentioned, the increase reflected also a higher overlift position and increased cost related to crude option premiums. The full year guidance for 2022 is between $12.5, $13.5 per barrel, so it's maintained, with a target to $8 by 2025. We had a record net cash flow from operating activities in 2021 amounting to $4.4 billion. So it's an increase of 154% compared to $1.7 billion in 2020, which was driven mainly by higher product prices. The cash flow from operating activities was $900 million in the fourth quarter, a reduction from the third quarter due to higher taxes that we paid; in the last quarter, we paid $572 million, versus a tax cash income in Q4 of 2020 and in the first 9 months of 2021.

In addition to this, the working capital increased in the fourth quarter due to an increase in trade receivables from higher oil and gas sales at year-end and lower funding of the trade receivables through the credit discount facilities at year-end. CapEx was marginally lower when compared to the third quarter and year-on-year CapEx increased from $1.8 billion to $2.5 billion. The strong operating cash flow, both in the fourth quarter and for the year, more than covered the company investment, which, as you can see, are quite relevant in both Q3, Q4 and in the full year.

The CFFO to CapEx coverage was 1.7 for the full year 2021. Full year project investments are nearly $2.6 billion, with main development projects progressing as per plan. This is really fueling our high-value production growth. CapEx in the fourth quarter amounted to $700 million and the split between the largest development projects are shown in the table, and you can see that Balder X, Johan Castberg, and Breidablikk are accounting for 53% of the total investment in the year. 2022 guidance is between $2.3 billion, $2.6 billion in development CapEx and roughly $200 million in exploration and abandonment CapEx. So the guidance is the same we provided earlier.

We had record cash flow from operating activities in the fourth quarter amounting to $1.9 billion before changes in working capital and taxes, driven mainly by higher product prices. The cash flow from operating activities after tax was $900 million in the fourth quarter, a reduction versus the third quarter, but it was due to the working capital changes and the taxes we paid that I mentioned earlier. Cash flow to investments amounted to $700 million in the quarter, and the company distributed $262 million to each shareholder during the fourth quarter of 2021. Total dividend in 2021 amounted to $950 million and was paid in quarterly installments. Total cash at year-end was $224 million.

The combined undrawn credit facilities amounted to $2.3 billion of available liquidity. End of October, we also obtained a strong investment-grade credit rating from S&P and Moody's with stable outlook, which we are proud of and confirm the strong financial basis of Var Energi. In late 2021, we refinanced our capital structure by replacing the Brazil based lending facility with a $6 billion senior unsecured multicurrency facility. We had strong interest in the banking market with a syndicate comprising 12 major international banks. The combination of the strong cash flow, refinancing and reduced net debt led to a leverage ratio of 1.1x at the end of 2021 compared to 3.2x a year earlier, and the strengthening of our balance sheet will continue to support material shareholder distribution also going forward.

Dividend guidance for Q1 of 2022 is confirmed at $225 million, and the dividend for Q1 is expected to be paid in May 2022. Total dividend for the year currently is estimated to $800 million, but could increase if market continues to be favorable throughout 2022. The dividend policy from 2023 is to distribute a range between 20% to 30% of the cash flow from operations after tax.

Finally, I would like to sum up in this section with our forward-looking guidance element. These are unchanged since the IPO process. I just want to highlight the following: production is expected in a range between 230,000, 245,000 barrels a day, increasing gradually towards 350,000 in the medium term. We are targeting OpEx for 2022 in a range between $12.5, $13.5 per barrel with a target to decline to $8 as new projects come on stream. CapEx is targeted in a range between $2.3 billion, $2.6 billion, and that is excluding exploration and abandonment, which will add roughly $200 million. At the end of 2021, we will have returned $3 billion in dividends to our shareholders and we intend to pay a dividend of minimum $800 million in quarterly installments for 2022 and Q1 dividend of $225 million.

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

[Torger Rod, executive]

Yes. And that is time for some concluding remarks. And thank you, Stefano. And it's good to see you both smiling and proud of this strong result.

To summarize, 2021, and in particular Q4, has given us all time high results. We have delivered record results driven by solid operational performance, a significant gas share and increased realized commodity prices. All time high cash flow from operations $4.4 billion for the full year. and $1.9 billion before tax in the fourth quarter. We see a continued supportive commodity price environment, which, together with our strong balance sheet, scale of production and cash flow generation underpin our commitment to deliver on our full year 2022 shareholder distribution of a minimum $800 million. The development projects, which support our midterm production target progressed as planned, and we maintain focus on safe operations with 0 serious accidents recorded.

By that, I conclude the first quarterly presentation as a listed company and open up for questions. Thank you so much.

[Operator]

[Operator Instructions] We will take our first question today from James Hosie of Barclays.

[James Hosie, analyst]

A couple of questions. I guess, firstly, are you able to talk a little about your track record, adding reserves, improving production, reducing costs at the hubs since you acquired the asset? I guess, in particular, I'm thinking about the Balder area asset you have been operational for 4 years. And then just in your midterm OpEx target of $8 a barrel, should we be expecting gradual progress from $13 to $8 between now and, say, 2025? Or is the current OpEx rate persists until that material uptick in production in 2025?

[Torger Rod, executive]

Thanks. A lot for questions here. And I'll start with the track record when it comes to adding reserves. As you could see from our presentation, we had a really good year last year when it comes to adding reserves through exploration. And we had a discovery rate of 75%. Also, for the 3 years of existence in Var Energi, we have a good track record and our discovery rate is around 50% for those 3 years. So that is, let's say, adding a significant volumes in that regard.

Then you also talked specifically about Balder. And you're right, Balder, we have our proven history when it comes to adding reserves. Balder started up in, I think it was 1997, then it was planned in the PDO to produce around 170 million barrels. Today, that number is around 500 million. And also, as you know, we are extending the lifetime of Balder to 2045 and beyond, and then we won't be surprised if we are passing 1 billion barrels of production from the Balder area. So Balder area really serves as a very good example how we are adding reserves. And as you also know, the big discovery King & Prince, were done in the Balder area. So that is part of the next step from the 500 million barrels to the 1 billion I talked to.

Then OpEx or production costs. We are working this in 2 dimensions. Of course, the continuous improvement that we are doing every day, that goes to production efficiency, it goes to economy of scale, working closely with our partners and our suppliers. So that is 1 part. We're relentlessly working on that.

And then the second part here is the production cost improvement that will follow additional barrels coming. And really what will bring this down is the 3 big developments, Balder future, Breidablikk, and Johan Castberg, which will come onstream from Q4 2023 until Q4 2024, and all of these developments have a very competitive production cost per barrel, in and around $3 per barrel. So that will be the big part of it and around 70% of that improvement towards $8 per barrel by end 2025.

[Operator]

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

[Mark Wilson, analyst]

It's along a similar theme, actually. I'd like to ask about appraisal wells in 2022, particularly King & Prince, whether there is any further appraisal we think is required there? Or is it simply a case of development concept. Could you talk about the appraisal program both of those specific discoveries and any other discoveries that will be appraised in the coming year?

[Torger Rod, executive]

Thank you. And the customers reacted to the King & Prince discovery and our plants there. How we are working the King & Prince is that we are looking on our pace development. And we are currently working King & Prince Phase 1, as we call it, that is really covering the area that we explored last year. It is really a horseshoe area, where we have a pretty good confidence in the volumes and the reservoir. So that is really the main focus now to take it as a Phase 1, which we are working with as we speak.

Then I think there will be an appraisal for the other area coming, not this year, but next year, that means 2023. But we are well on track on the development of the King & Prince discovery. Actually, that was 1 of the things that we started work before we really knew it was a discovery. So that was how we started working with the King & Prince.

Then more on the general when it comes to exploration. And as I also stated in the presentation, we are very much focused in this to our hubs area, where we have existing infrastructure, where we have a deep insight in the reservoir and the geology. And as we did in 2021, the wells for 2022 will be in the same areas that we have in Johan Castberg. That means that we will continue drilling our own Goliat, Johan Castberg where we did very well last year, and also in the Norwegian Sea and 2 wells in the North Sea. So really building on those hub areas. So that is really the short-term plan there. And it will really be exciting to see if we can replicate the successes from last year.

[Mark Wilson, analyst]

Okay. Very good. Very clear. So may I ask would that King & Prince Phase 1 conceivably be submitted to PDO before the end of '22, and therefore, get the benefit of the current Norwegian temporary tax regime?

[Stefano Pujatti, executive]

You know, these are things that we are working as we speak. So it's difficult to be too concrete on the plans. I think for us, what is really important is we drive for value. And we would like to ensure that we have a mature project, well developed, and that is really the focus on, get the basics right, as we say in Var Energi. And then we will also make the time line accordingly. So these are things that we will work on later when we have more and better insight exactly in the timing.

[Operator]

[Operator Instructions] We'll be taking our next question from James Thompson of JPMorgan.

[James Thompson, analyst]

Just a couple of questions for me. Firstly, just in terms of the 2022 production guidance, obviously, 4Q pretty strong there at nearly 260,000 barrels a day. I just wondered if you could kind of walk us through how you expect production to evolve this year? Is it a case of just gradual sort of natural declines given there's no project start-ups? Or are there any kind of significant turnaround that we should look for in any of the quarters in terms of thinking about our models?

And then secondly, in terms of the growth projects, I mean, clearly, Balder X and Castberg, delivery is fundamental here. So just if you could give us maybe some data points that we can look for in 2022 in terms of delivery of those projects and effectively keeping an eye that those are on schedule, that would be very helpful.

[Torger Rod, executive]

So yes, thanks a lot for the question. And also, yes, it is exciting to be here for the first quarter as such. When it comes to the production, and you are right, 259,000 barrels in Q4 was a very strong performance, and we are very pleased with that. And of course, that is something that we are working hard every day to achieve, and we will do the same for 2022. When it comes to the guidance, that is, as you are saying, it is really reflecting the natural decline as you also have been talking to previously. So that is the reason why we are then guiding to our 230,000 and 245,000 production.

When it comes to the main turnarounds that could be good for you to be aware of is that we are planning for turnarounds on Balder/Ringhorne, that will be happening in Q3, and then the Goliat in Q2. When it comes to the growth in production, also there you're right, the projects in our portfolio with sanctioned projects that I also showed on the presentation today is going to start to come onstream in 2023. So that is really when the production will start picking up.

When it comes to the data points for Johan Castberg and Balder future or Balder X, as we call it, I think there is some key and important milestones that we have achieved now lately. We concluded the inspection program on the Balder, the YouTube, FPSO, that was posted that happened in accordance to plan before Christmas. So that gives us a higher degree of certainty in the scope of work and so on. So that is good and it's also helping us to confirm the schedule going forward. Then when it comes to Johan Castberg, also there it was an important milestone that you just recently saw, and it was well presented on YouTube by the operator, Equinor, and the FPSO was sailing from Singapore in accordance to the revised schedule, and that will be coming to the Aker Stord in the next 60 days. Therefore, both Balder future and for the customer development, the Subsea part is going well and substantially complete. It is also important. So those are the things that is also confirming what we said in the presentation there.

[James Thompson, analyst]

Okay. And then just separately, if I may, just very quickly. In terms of the dividend, is the plan to set the dividend level with the quarterly numbers going forward? Just so we understand, I guess, the flow of news flow around reporting how much you're going to pay on a quarterly basis? Or do you intend to sort of set it for the rest of the year?

[Stefano Pujatti, executive]

Thanks for your question. So the dividend for 2022 is set to a minimum of $800 million. And let me say that the prices that we are currently seeing, there is room, all other things being equal in terms of CapEx and production performance, to raise it further. To some extent, you can already see this in the Q1 dividend, which is $225 million. And if you run the run rate, you see that this gives already $900 million for the year, indicating, let's say, somewhat higher level than the $800 million. What will be done is that on a quarterly basis, we will assess the dividend and assess, let's say, the conditions and then guide on the dividend. One thing we would like to do is, also in the first quarter of 2022 presentation, also guide on the next quarter dividend.

Let me also add the fact that this has been very much in line with what has been done in 2021. In 2021, as you know, we paid a dividend of $950 million. Let me say that the ambition at that time was lower. And then as we saw that macro scenario were improving and performance was good, then in Q2 and Q4 of 2021, we increased the dividend. And that is a bit the methodology and the way we also want to go by in '22.

[Torger Rod, executive]

Maybe one sentence in addition here is that we mentioned it in the presentation that the dividends for Q1 will be in May, and I think it's May 12, so you can lock the date that is not that far late.

[Operator]

As that was our final question registered by the telephone line, I'd like to hand back to Ida. Over to you.

[Ida Marie Fjellheim, executive]

Thank you, Melissa. We've got 2 questions from the chat. One for you, Stefano, one for you Torger. And to Torger first, could you please give a split between the gas and oil on your production target towards 2024 and '25?

And to you Stefano, on your dividend policy, you're saying that it's based on stable prices. Can you give an indication of what they are?

[Torger Rod, executive]

Thanks a lot. And it was about the split between oil and gas for our production going forward. And as we have been stating here, the production will be growing going forward. So of course, this is really a relative split between oil and gas. And for the next couple of years, that means 2022 and 2023, I think the split will be pretty similar to what we saw in Q4 for the full year. That means around 30% to 37%. So that is for '22 and '23.

Then the big projects that we talked about is coming onstream, being Balder future, Breidablikk, and Johan Castberg, as you know, then the production will increase significantly. That means that the relative portion of gas will go somewhat down. But of course, in absolute number, the gas production will still be very high from Var Energi and of course, contribute significantly when it comes to the value creation. But Balder, Breidablikk, and Castberg is predominantly bringing oil production to our portfolio.

[Stefano Pujatti, executive]

Yes. On the stable commodity price, let's say that, that is a level that -- I mean, in general terms, we don't have an exact, let's say, threshold because we believe the company is quite resilient and able to cope with this level of dividends that we have been communicating, also at much lower prices than we are seeing today. But just to give a reference, let's say, that we feel confident that we can maintain the level of guidance at oil prices, let's say, of, for example, $70 per barrel, that would be a level which will still be quite okay to go ahead with what we are saying. Yes. But as I said, we have quite a big financial capability and financial resilience. So we feel the dividend can be maintained at lower prices than this.

[Ida Marie Fjellheim, executive]

And then a question on hedging. Do you plan to hedge gas prices going forward?

[Torger Rod, executive]

Stefano is an expert on hedging. But when it comes to gas, we don't really plan to hedge the prices. And the reason for that is that we have very, let's say, flexible mechanisms in our gas sales contracts, and that means that our gas sales strategy is really that we are using that we have. And the flexibility is related to, we can sell it a day ahead, month ahead, quarter ahead and a year ahead. And that means really that we can also have, let's say, proof of sale when we see good opportunities and then we see spikes in the market.

And as we also spoke about, when we had the investment presentations as part of IPO, and also as I mentioned today, that is something that we really have been taking advantage of. And we did that in Q4 and you see that on our numbers, and we have continued doing that there. And really our methodology when it comes to commodity is that we protect our downside and we take full advantage of the upside. And that is really how we are working this both on oil and on gas. So we are continuing utilizing our flexibility in the gas contracts to take full advantage of the volatility in the market. Anything to add Stefano from your side?

[Stefano Pujatti, executive]

No, absolutely correct. And we're really using the flexibility embedded already in the current contracts for gas to play and really take the advantage from the market conditions, which is what really we did in the last quarter and we are continuing to do right now.

[Ida Marie Fjellheim, executive]

And we have time for the final question today and it's rounded up quite well. Anything in the quarter that went better than expected in Q4 and the full year 2021? Any comments there Torger?

[Torger Rod, executive]

Yes. Thanks a lot for the question. And I think Q4 was a really good quarter and 2021 was a really good year. And what I really would like to highlight in that regard is, number one, starting with safety. That is all correct because it's everything we do. And it is really good to know for us that we have no serious incidents for the quarter and in 2021. So that was one. Number two, I think also what was better than expected, we had a very high production in Q4, 259,000 barrels, driven by a solid operational performance and high production efficiencies, that is very positive.

Also, we were able to really have a high realization of commodity prices. We had a weighted average of $103.4, I think it was dollar per barrel. And I think that is really standing out. And of course, in combination of the high production that brings these good numbers. And then, of course, also the gas and the gas position, having 37% in the quarter is really bringing this all together as we talked about. So that's what I would like to highlight. Something from you, Stefano?

[Stefano Pujatti, executive]

Maybe I would just add the refinancing, which is really putting the company in a very strong position. And this is really adding flexibility and optionalities to the company in terms of going forward. So I guess that was also quite an important milestone.

[Torger Rod, executive]

Very good investment-grade rating as well.

[Ida Marie Fjellheim, executive]

Great. Thank you. That concludes our call today. In case you were not able to ask your questions, you can always contact us at [e-mail]. Thank you very much.