Var Energi ASA

OSE:VAR

Earnings Call Analysis

Var Energi's Strategic Growth and Dividends

Var Energi, now the third largest operator on the Norwegian Continental Shelf (NCS), reports a robust fourth quarter with an average production of approximately 225,000 barrels per day, exiting the year at 233,000 barrels per day, and targeting around 400,000 barrels by end of 2025. With the Neptune Energy Norge acquisition, current production is around 300,000 barrels per day. Financially, fourth-quarter operating cash flow after-tax reached $857 million, contributing to a yearly cash flow of $3.4 billion. Capital expenditure for the quarter was $661 million, within the full-year guidance between $2.4 to $2.7 billion. Var Energi maintains a strong balance sheet with a leverage ratio of 0.5 and $3.7 billion in liquidity. For 2024, the company expects to produce between 280,000 to 300,000 barrels daily, with production costs estimated at $13.5 to $14.5 per barrel and CapEx guidance of $2.7 to $2.9 billion. Exploration and abandonment costs are anticipated at $400 million, reflecting increased exploratory activities. The company confirms dividends of $0.11 per share for Q4 and guides Q1 2024 dividends at $270 million, expecting to pay approximately 30% of Cash Flow From Operations (CFFO) after tax in total dividends for the year.

Stellar Results and Strategic Expansion Set Var Energi on a Robust Growth Path

Var Energi reported a robust financial performance in the fourth quarter with significant strides in their operations. The company has set its sights on integrating the recently acquired Neptune Energy Norge, making it the third-largest operator on the Norwegian Continental Shelf (NCS). They reported a solid production average of 225,000 barrels per day in Q4, closing out December at a slightly higher 233,000 barrels per day. The acquisition adds 65 to 70,000 barrels daily to Var Energi's production. This positions the company firmly towards achieving its production goal of approximately 400,000 barrels per day by the end of 2025.

Financial Fortitude with a Hefty Dividend Payout

The company's commendable operational performance has translated into strong financials, with cash flow from operations post-tax reported at $857 million for the quarter. Additionally, Var Energi maintains a solid investment-grade balance sheet and has confirmed shareholder dividends of USD 0.11 per share for Q4, culminating in a total payout of approximately $1.1 billion for 2023. Stepping into 2024, they provide Q1 dividend guidance of $270 million, maintaining the payout levels and projecting a full year dividend comprising around 30% of cash flow from operations (CFFO) after tax.

Promising Production Outlook Despite Volatility

Looking ahead, Var Energi offers a production guidance range of 280 to 300,000 barrels of oil equivalent (boe) per day for 2024, with 35% constituting gas production. The integration of Neptune assets is anticipated from this year, with planned turnarounds expected to have an impact in Q3, particularly with the addition of the Balder X and Johan Castberg assets in Q4. These new assets underpin the company's continued efforts in creating a diversified and resilient portfolio.

Lean and Efficient Operations Underpin Future Growth

Var Energi's full year production cost of $14.1 per barrel outdid earlier guidance, and for 2024, the company looks to even further streamline its production costs to a range of $13.5 to $14.5 per barrel. The company's fiscal health is underlined by its strong balance sheet and disciplined capital expenditure (CapEx), which stood at $2.6 billion for the year—well within the guided range. Additionally, Var Energi’s cash position stood strong at $735 million at the end of the year, with $3.7 billion in available liquidity.

Focused On Leading ESG Practices and Exploration Growth

Coupled with its operational and financial achievements, Var Energi has also garnered attention for its environmental, social, and governance (ESG) initiatives. The company continues to build its stature as a responsible energy provider. On the exploration front, Var Energi reported an impressive success rate of over 70% from its wells, adding 150 million barrels of 2C contingent resources at an attractive cost and targeting net risk resources of around 150 million barrels for 2024. The proposed exploration spend of $300 million underscores the company's commitment to sustainable growth and value creation through a strengthened exploration portfolio.

Resilience in a Volatile Environment with Bold Dividend Strategy

Var Energi has showcased a commendable resilience, underlined by a solid cash flow generation amidst commodity price volatility. The company's dividend policy remains steady, with a commitment to distribute 20% to 30% of its cash flow from operations after tax, aiming towards the higher end of approximately 30% for 2024. This resilient financial performance reaffirms Var Energi's dedication to delivering attractive and predictable dividends to its shareholders, securing $270 million for the fourth quarter dividend, which is indicative of its strong commitment to shareholder returns.

Earnings Call Transcript 2023-Q4

[Operator]

Hi, everyone, and welcome to the Var Energi's Q4 presentation of 2023. Today's call is being recorded. [Operator Instructions] I would like to introduce Head of Investor Relations, Ida Marie Fjellheim. Ida, please begin.

[Ida Fjellheim, executive]

Thank you, and good morning, everyone. A warm welcome to Var Energi's Fourth Quarter and Full Year 2023 Results. The presentation today will be given by our CEO, Nick Walker, and our CFO, Stefano Pujatti. Nick and Stefano will present the results, and afterwards we'll open up for Q&A. I will now give the word to Nick.

[Nicholas Walker, executive]

Good morning, and thank you, Ida. Good morning to you all and welcome to our fourth quarter and full year 2023 results presentation. We'll also be providing guidance for 2024, and of course, as usual, as Ida says, we'll open up for your questions at the end.We were very pleased to report closing of the Neptune Energy Norge acquisition in January. And we're excited to welcome 300 new colleagues from Neptune to our team. The task now is to integrate the 2 organizations as quickly as possible, to work as one team pulling together to deliver on our strategy and goals. And I'll come back to this later.The closing of this transaction makes Var Energi the third largest operator on the NCS and the second largest exporter of gas from Norway. So we're a major energy supplier to Europe and lots of people rely on us to deliver every day. We'll hold our Capital Markets Update in Oslo on the 13th of March where we'll update on the delivery of our strategy for growth and value creation and the outlook for the combined business. And I do hope that you'll be able to join us then.I'm pleased to report a quarter with strong financial performance, supported by high realized prices and good operational performance. We continue to provide material dividend distribution, and we're on track to deliver high growth and value creation.Now let us look at the highlights for the quarter. Var Energi is one of the fastest growing E&Ps in the world, and we're making good progress towards our target of producing around 400,000 barrels a day by end 2025. As previously announced, the Breidablikk and Tommeliten Alpha projects came on stream during the quarter and are producing strongly. We produced in line with guidance with Q4 averaging 225,000 barrels a day, and we exited the year at 233,000 barrels a day. And with the closing of the Neptune Energy Norge acquisition, this adds 65 to 70,000 barrels a day through to the end of the decade. So today we're producing around 300,000 barrels a day. On the back of good operational performance, we continued to deliver strong financial results.Our sales strategy continues to realize above-market prices with a gas price of $90 per BOE, which was $13 above spot production. Production cost beat guidance with $13.90 per barrel in the quarter. And we delivered strong cash flow from operations post-tax for the quarter of $857 million. And we maintain a strong investment-grade balance sheet. And lastly, we continue to deliver attractive and predictable shareholder distributions. We confirm a Q4 dividend of USD 0.11 per share in line with guidance to be distributed in February. And this means total 2023 dividend payout is approximately $1.1 billion. And we're providing Q1 2024 dividend guidance of $270 million, in line with 2023 payout levels and a guiding full year dividend totaling approximately 30% of CFFO after tax.This table shows our actual outcome for 2023 compared to the latest guidance we had given. You can see we've done well against all the targets. As I've already stated, production was in line with guidance and we exited the year in a strong position. Production cost beat guidance due to a combination of strong operational delivery and currency effects. And as most of our costs are in Norwegian kroner, we are helped by the strong U.S. dollar. CapEx came within guidance despite increased costs announced for our 2 big projects. Again, this was helped by currency effects. So overall good performance against our key targets, which underpins our strong financial results.And we were excited to close the Neptune acquisition in January. This a value-accretive deal that adds scale, diversification and longevity to our portfolio, and as we say, is the perfect fit. And you can see some metrics here for the combined company. We have over 200 licenses on the NCS, of which around 1/3 are operated. We have shares in 47 producing fields. And our combined reserves plus discovered resources total around 2 billion barrels. And the deal cements our position as a leading independent E&P. And we are the third largest operator on the NCS.We expect to yield significant synergies from the transaction in excess of $300 million post tax over time. This comes from a robust development and exploration portfolio, improved asset utilization and commercial optimization of our gas sales. The Neptune assets are cost efficient with low emissions and with limited near term CapEx, making the deal highly cash-accretive and strengthening future dividend capacity.Our 300 new colleagues from Neptune add significant capability to our team. And now comes the task of integrating both companies so that as quickly as possible we have one team pulling together to deliver on our strategy and goals and we're well advanced on the planning to make this happen. Neptune Energy Norge has been renamed as Var Energi Norge and is operating as a fully owned subsidiary of Var Energi. From the 1st of May this year, we'll fully integrate both organizations as one team. And the companies will, as normal practice on the NCS, consolidate both businesses in the second half of 2024.Turning now to our production outlook for this year, we're guiding for the full year a range of production between 280 to 300,000 boes per day, of which 35% is gas. The Neptune assets are included from 2024, and you can see from the chart Q3 is significantly impacted by planned turnarounds. We're including Balder X and Johan Castberg assets from fourth quarter. And naturally there's a range around startup timing and the rate of ramp up for both of these projects and this leads to the production growth towards the end of the year.Underlying the profile, we have natural declines of around 10%, which is partially offset by continuous program of infill drilling. And we've previously announced that we will dispose of a package of non-core assets during the year. Our guidance range for 2024 does not include the impact of this. And when we conclude the transaction, we'll update our guidance accordingly. Today we're producing around 300,000 barrels a day, so we've got off to a good start to the year.Looking now at longer term growth outlook. From 2023, average production of 213,000 barrels a day, we're set to almost double production to around 400,000 barrels a day by the end of 2025. And we're already around halfway there with a ramp up of new production towards the end of last year and the addition of the Neptune assets. Our portfolio of 9 projects in development with the main ones being Balder X and Johan Castberg, we'll add significant new volumes.And as I said, we'll dispose of some noncore assets to high grade. The portfolio, for example, the Barge disposal we closed at the end of last year. When you put this together, it means we'll grow to around 400,000 barrels a day by the end of 2025. And beyond 2025 we'll sustain value creation through 4 elements, firstly infill drilling and improved recovery at our core assets. And I think there's a lot more to go. Secondly, maturing a high value project portfolio to move our significant discovered resource base into production. And I'll come back to this later. And thirdly, drilling out our exciting exploration portfolio. On top of this we'll also consider opportunistic M&A. So in track to deliver significant production growth and create value.It is our belief that it's important to position the company for the energy transition to maintain relevance and investability long term. And we're doing just that and are being recognized for it. Safety performance is top priority for us and we have a good trend on improving our performance with zero actual serious incidents in the quarter. Overall, last year we showed about 50% improvement across a range of safety metrics, but we need to go further and this requires focus from everyone every day. We're making good progress on emissions reduction with carbon intensity in the top quartile of industry and expect methane emissions in 2024 to be classed as near 0. We have a clear path to 50% operational emissions reduction from our portfolio by 2030. This is driven by a focus on investments in reducing emissions and electrification of our assets. And it is my hope that we can find ways to accelerate the path to net 0 operations.We're also getting recognition for our ESG leadership with being a top ranked company by Sustainalytics. This is leveraging to how the company is viewed.Looking now at production. We had strong operational performance in Q4 with production of 225,000 barrels a day, an increase from Q3. This is mainly due to completion of the turnaround season, good production efficiency across the portfolio and startups of Breidablikk and Tommeliten Alpha in October, which have shown strong performance since they came online. As a consequence, we exited the year strongly with production in December at 233,000 barrels a day, which is as per guidance. And now looking at production costs, we beat guidance last year with a full year at $14.1 per barrel compared to the guidance range of $14.5 to $15.5 per barrel. For 2024, we're guiding production costs of $13.5 to $14.5 per barrel, reflecting the increased production, relatively lower OpEx for the Neptune assets that come in, but partially offset by inflationary pressures. But we have a good trajectory longer term and we'll see OpEx reduce materially with the main drivers of this being threefold. Firstly, there are new projects coming on stream, which have relatively lower unit operating costs, our active improvement program and rationalization of our portfolio.So now looking at our quality project portfolio that is key to delivering our growth strategy. And this unlocks more than 500 million barrels of reserves. After the recent startups of Tommeliten and Breidablikk, we have 9 of 18 projects remaining in execution, and with 6 of those more than 50% complete. And let me remind you that most of these projects are subsea tiebacks. This means more standardized concepts and execution and thereby less complexity and more predictable delivery. This portfolio drives our growth trajectory and creates significant value, which you can see with breakevens of around $35 per barrel for the remaining projects to be delivered.Turning now to our 2 large projects. First of all Balder. The Jotun FPSO is a key enabler to continue to deliver material future value in the Balder area. This key project unlocks production of 78,000 barrels a day, and with low operating costs of around $5 per barrel. The potential is for up to 500 million barrels of additional resource remaining to be produced from the Balder area, which is as much a gain as being produced to date. And we continue to derisk and appraise this material upside, and we expect there will be multiple future phases of development and we're already working on some.The status of the project is that Balder Jotun FPSO completion is now over 90% complete. The other elements of the project drilling and subsea facilities are progressing to plan. We've achieved solid progress in increasing the pace of the remaining work on the FPSO with overall progress only slightly behind plan and completion of the project is in sight. Our certain critical path activities have not been completed according to schedule to allow commissioning to commence in time to achieve first oil in Q3 2024. And the targeted first oil is moved to Q4 2024. This requires that the FPSO sails away from inshore in August. Activities are progressing well on all fronts and Var Energi maintains its target startup in Q4 2024 if weather conditions allow us to perform offshore installation activities in the autumn of this year. P90 startup is by end Q2 2025.If first oil moves to 2025 it will have limited impact on 2024 production guidance. Company's target to double production to around 400,000 barrels a day by end 2025 is not influenced and remains unchanged. As the project is reaching completion, it is principally a schedule issue and does not have a material impact on guided costs. It's important, I think, to stress that Var Energi has a high quality portfolio, strong liquidity increasing cash flows and is placed to pay predictable and sustainable dividends according to the stated policy. Balder has been a difficult project, however over 90% done and with completion in sight. And we're focused hard on meeting the target of first oil in Q4 this year.And turning now to our other major project, Johan Castberg. I had a visit to the FPSO storage yard in December. I was very impressed by the quality of build and the status of completion. The drilling and subsea aspects of this projects are progressing to schedule. And we see that the FPSO is firmly on track to install in summer and achieve first oil in the fourth quarter this year.Johan Castberg is a key catalyst for Var Energi's growth profile, with plateau production from the field of around 190,000 barrels a day gross with Var Energi's net share being around 55,000 barrels a day. And these are high-value barrels with OpEx of around $4 a barrel, and breakeven economics of $35. And we see further value upside from extending the plateau through the area tieback opportunities where further phases of development are being progressed and we're drilling an exploration well in the second half of this year.Now focusing on our exciting exploration program. We've had another successful year. We made 5 discoveries from 7 exploration wells drilled for an overall success rates of over 70%. This builds on our track record over the last 5 years which has seen the company add with the drill bit over 150 million barrels of 2C contingent resources at an attractive finding cost of less than $1 per barrel post tax and with a success rate of over 50%. I'm really excited by the company's exploration portfolio which has over 1 billion barrels of net resources. And most of these opportunities are close to existing infrastructure. So with success will be tieback developments with short cycle times, low costs and strong economics.And you can see in 2024 we're doubling our exploration drilling and we'll participate in 16 exploration wells, 7 of them operated which are targeting net risk resources of around 150 million barrels. Our exploration spend guidance is $300 million for the year. These wells, as you can see, are spread through our 4 hub areas and all but 3 wells are step out opportunities from existing infrastructure. And I think it's going to be really exciting to see the results from this program come in through the year.And as a company, I think we have an amazing portfolio with lots of optionality and growth opportunities. And we're working to move this forward at pace. Combined, Var Energi plus Neptune 2P reserves at end 2023 stand at 1.24 billion barrels. This underpins our growth profile and what people see in terms of value. For the first time we've also announced our 2C contingent resources which stand at around 750 million barrels. These are discovered resources but where there are no defined development plan. With activity during this year to derisk, we'll move forward around 2/3 of these resources and are actively working on development options for around 300 million barrels of the total. And then if you add our exploration portfolio of over 1 billion barrels of net risk resources, we have around 3 billion barrels of potential in the portfolio. So once we reach 400,000 barrels a day at the end of 2025, this resource opportunity will allow us to organically sustain our production going forward. And we will talk more about this at our CMU in March.Now that rounds off my operational updates and I'll now hand over to Stefano to review the financials. Thank you.

[Stefano Pujatti, executive]

Thank you, Nick, and good morning, everybody. Now let's deep dive into the key financials for the fourth quarter and see why Var Energi is a unique combination of value creation, extraordinary growth, distribution capacity underpinned by an investment-grade balance sheet. We generated solid revenues and operating cash flow after tax of close to $857 million in Q4 on the back of continued high oil and gas price realizations. Full year we were at $3.4 billion. Our financial positions stay strong with the leverage ratio at 0.5 net debt to EBITDAX and $3.7 billion in cash and undrawn facilities. We confirm the fourth quarter dividend of $270 million and plan to pay another $270 million for the first quarter of 2024.I will now go into more details of our fourth quarter financial performance. We generated more than $1.6 billion of revenues, up $63 million to previous quarter mainly due to higher volumes. The realized price for oil in the quarter was $85 per barrel in line with Brent. We continue our strong gas price realization of around $90 per barrel. Year-to-date, the average realized gas price is $115 per barrel, which represents a premium of $38 per barrel compared to spot. This amounts to more than $950 million in extra sales revenues in 2023.Taking a closer look at the gas sales in Q4, around 48% of the sales were on day-ahead basis at $74 per barrel, around 27% was sold on a month ahead basis at $82 per barrel. Both month ahead and day ahead were weighted toward the French and German market. Remaining 25% were delivered under contracts with fixed pricing realizing an average of $130 per barrel.Now going forward, what can be expected. We continue to have a robust sale portfolio with access to several markets, and we will have flexibility in the contracts to decide the split between month ahead, day ahead and fixed contracts. When taking into account also the new volumes from the Neptune portfolio, we will continue to have fixed price sales representing around 15% to 18% of the gas sales. The prices for these sales are around $130 per barrel in the next 3 quarters, so until end of Q3 2024. I would also like to mention that our oil production is fully hedged on a post-tax basis for 2024, including the Neptune volumes with monthly put options at a strike price of $50 per barrel -- of $50. And we plan to continue the program going forward also in 2025.Cash flow generation from operations in the quarter was $857 million, lower by $118 million than the third quarter due to higher tax payments, partly offset by reduced working capital and higher revenues. For the first 12 months, we have generated $3.4 billion in cash flow from operations after tax. Our CapEx for the quarter was $661 million, where Balder X and Johan Castberg remain the largest contributor of the total spend. The strong operating cash flow covered the company CapEx with good margin, CFFO to CapEx coverage was 1.3 in the quarter. CapEx for the full year was $2.6 billion, within the guidance we provided for the year of $2.4 billion, $2.7 billion.Tax payments for the fourth quarter, including the revision up NOK 1 billion due to stronger commodity prices ended at $568 million. For the first semester of 2024, including Neptune Norway, we plan to pay NOK 15 billion, approximately $1.5 billion, and these are related to the remaining 50% taxes of 2023 results. At midyear, we will update the tax estimates for 2024. And in the second half of this year, we will be paying approximately 50% of the 2024 estimated profits. We have included a tax sensitivity for the second half of 2024 at different price scenarios, which we hope can provide some guidance on tax going forward. Important to state that also these sensitivities include tax effect from the Neptune acquisition.Our resiliency and strong cash flow generation continued despite persistent volatility in the commodities into Q4. On the left we see the development in our cash position from Q3 to the end of the year 2023. We generated $1.3 billion in CFFO before taxes and working capital, in line with previous quarter, and $857 million after tax and working capital movements. We further had cash outflow related to investments in our high-value growth project, and we had net cash inflow of roughly $200 million from financing activities. We also distributed, as planned, $270 million in dividends to our shareholders. In summary, the cash position at the end of the year stood at $735 million, and our available liquidity was $3.7 billion at the end of Q4, including new long-dated funding raised in November compared to $3.1 billion in the previous quarter, meaning we have increased further our already strong liquidity position at year-end.We are committed to maintain our investment-grade rating. The leverage ratio, net interest-bearing debt on EBITDAX ended at 0.5 at the end of the quarter, unchanged from the previous quarter, and this is well below our over-the-cycle target of 1.3. Var Energi has in fourth quarter issued a successful in our euro hybrid transactions, securing $700 million of new funding. Having previously established our presence in the global debt capital market with senior dollar and euro note issuances in '22 and '23, we are now broadening our range of funding sources. And we are diversifying our investor base and reinforcing our balance sheet with a new layer of capital. The weighted average time to maturity of our debt portfolio is approximately 4.5 years and when excluding the 60-year hybrid, and this is supporting the execution of our growth strategy towards end of 2025 and beyond. The strong financial position lays a foundation for continued material shareholder distribution and growth.Strong resilient financial performance support attractive and predictable dividends. We confirm $270 million in dividend for the fourth quarter, which is equal to $0.11 per share to be paid on the 27th of February of this month. The dividend guidance for the first quarter is $270 million despite the continued volatile commodity price environment, showing the commitment and resilience of the company to attractive shareholder distribution. We maintain our dividend policy of a range of 20% to 30% of the cash flow from operation after tax going forward, but with 2024 being in the higher range of approximately 30% of the CFFO post tax.Now a recap of our 2024 guidance which includes Neptune Norway. We will elaborate more at our Capital Market Update on March 13, but I can summarize them as follows. Production guidance estimated in a range between 280, 300,000 barrels a day. Production cost expected in a range between $13.5 to $14.5. CapEx guidance between $2.7 billion, $2.9 billion for development projects. And exploration and abandonment costs are expected to come in at around $400 million in total due to the higher exploration activities expected in 2024, as Nick was mentioning.Cash tax payments, approximately $1.5 billion in the first half of this year and the dividend guidance of $270 million for Q1 of 2024 and a total dividend for the year at approximately 30% of the CFFO after tax. So in the higher part of the 20% to 30% range of the dividend policy, which remains unchanged.That concludes the financial section. I give the word back to Nick for some concluding remarks. Thank you.

[Nicholas Walker, executive]

Thank you, Stefano. I have just one final slide to summarize. We're one of the fastest-growing E&P companies in the world, and we're delivering on our strategy for growth and value creation. And I want to leave you with the following key points that support this. We're progressing towards our target of around 400,000 barrels a day by the end of 2025. We closed the Neptune transaction, and that takes our production to around 300,000 barrels a day, and our project portfolio that is well advanced will get us to the target. You can see that we delivered strong financial results last year, underpinned by good operational performance and strong price realizations. And then lastly, we continue to provide attractive and predictable shareholder distributions.So those are our fourth quarter 2023 results. Thank you for your time. And we'd now like to open up the call for your questions. So over to the operator, please.

[Operator]

[Operator Instructions] The first question will be from the line of Matthew Smith from Bank of America.

[Matthew Smith, analyst]

Just wanted to sort of start on the key growth projects in Balder X and now Johan Castberg. So I just wanted to ask around specifically, you noted risks on weather windows in relation to Balder X. So I just wanted to double check whether the same risks apply to the Johan Castberg project or whether there was anything different worth highlighting there? And then perhaps my second question would be around the exploration spend, which you've noted it sort of steps up in 2024. I just wanted to ask whether that sort of signals any change in strategy for Var or whether this sort of level of spend is a sustainable one going forward?

[Nicholas Walker, executive]

Yes. Good morning, Matt. And thanks, good questions. I think as far as Johan Castberg, it's a little bit ahead of us. So I think it's going to go out in sort of early part of -- it depends what you class as summer, but sometime in Q2 it will start to sort of been going -- leaving the yard. And so I think this is firmly on track to get installed in the summer. And so, as I said, it's a bit ahead of us in terms of completion level. So I think we feel good about -- really good about this project coming on in Q4. And then I think your second question is around exploration. And I think I tried to get this across in the last quarter. Coming to the company, I'm super excited by the quality and the scale of our exploration portfolio. As I mentioned, what I presented, we have over 1 billion barrels of net resources. And our portfolio has been augmented by the assets that we got from Neptune as well. And of course, we also recently got the results in the recent [indiscernible] which added to our portfolio. So we have over 200 licenses spread all the way through Norway. And what we have is some really exciting opportunities. So a lot of these of course step out to existing infrastructure, but some larger prospects too. And we are stepping up spend this year. So we'll drill 16 wells this year. But when I look forward, I think -- and we'll talk more about this at our Capital Markets Update. I think you can expect that sort of level going forward for the next number of years given the scale and quality of the portfolio we have. So I have to say it's really exciting, and it's going to be great to see some of the results come in. Hopefully that answers your question.

[Operator]

The next question will be from the line of Vidar Lyngvaer from Danske Bank.

[Vidar Lyngvær, analyst]

Congrats on another quarter again. First on production guidance, 280 million to 300 million, just looking for some clarification there, the low one versus the high end. Is there barrels related to Balder in the low end of that guidance? What is the main difference between the high and low cost back? What I'm looking for is a confirmation that if Balder X slides into 2025, it won't have a meaningful impact on '24 volumes. Second question on Jotun sail away in August. First of all, delayed into the fourth quarter. Do you expect a further ramp up following the first oil compared to what you had previously envisioned with the sale away in May or thereabout? Does this make any changes to the time line for first oil to full production?

[Nicholas Walker, executive]

Yes. Thanks, and good questions. On the production guidance, I think it's important to reflect that we have 47 producing fields in our portfolio. And each one of those has a range of outcomes around them. And when we think about our guidance range, we think about it in the upsides and downsides of all of these things and including the impact of shutdowns, which you see in there and new wells coming in. So there's a lot of moving parts when you try to put the portfolio together and understand the profile. But the reality is with the Balder and Johan Castberg coming in, in Q4 and the ramp-up happening in Q4, they carry very relatively small volumes, whichever outcome you have, whether it's a fast ramp-up or a slightly earlier start of impact on the year. So in the overall context, the impact and -- of those 2 is relatively small. But you can see, I think when you look at the chart, the broadening of the range in Q4 reflects the different outcomes that we assume, depending on when the startup happens. And then your second question around Jotun in terms of rate of ramp-up. I don't think we would see that the step-up in ramp-up will happen any quicker if it is -- from moving from Q3 to Q4. The reality is all the wells will be drilled anyway. And then it's about how quickly do we get stability into the process facility. And so that won't change if we go from Q3 to Q4. Hopefully, that answers your questions.

[Operator]

The next question will be from the line of Lydia Rainforth from Barclays.

[Lydia Rainforth, analyst]

Two questions, please. First on the cost side, just to kind of sort of come back to the idea that the 2025 target was to reduce unit OpEx towards $8 a barrel. And given that you are bringing Neptune in, I am a little surprised as to kind of the production guidance basically being broadly unchanged for 2024. Is that just a reflection of Balder X and Castberg coming in at the end of the year and now coming down? And then secondly, I mean, just to come back to the dividend side. You're talking sort of the [indiscernible] approximately 30% of CFFO after tax for this year. And I know it's slightly convoluted, Nick, I know, but given the level of dividend that you're paying out and given where the share price is, do you think that what isn't getting fully appreciated is, from the market side, is the idea of the resource base you have? And that's what the focus is in terms of the March presentation?

[Nicholas Walker, executive]

Good, Lydia. And good morning and good questions. In terms of production cost, obviously Castberg and Balder are very much lower operating costs than we have. And so once -- and of course there's some start-up costs when you ramp them up. So we don't really get any impact. In fact, it's actually increased cost for the year as a result of those coming on at the end of the year. You'll only see once we get to a plateau or to full rates on those when you'll start to see the impact. And that's for 2025, I think. And so we've also got costs associated with bringing Neptune in and all. And so there's a bit of uncertainty around this. But the good thing is production costs are coming down this year. But as I said when I presented, they're going to come down strongly beyond this year as we bring in Balder and Castberg. We'll continue to drive costs out of our business, and there's lots of opportunities through synergies that come from the 2 companies together. And we also have a disposal package ongoing. And the part of the reason for disposing of assets is to dispose of some late life assets that perhaps don't have much upside, but also have high cost and high carbon. So all of those things will contribute to driving down the production costs over time. Maybe I'll just start off with the dividend one and then Stefano can step in as well. My perspective is that we're trading at a 15% dividend yield and our competitors are trading somewhat higher than that. So which tells me that if we can get belief in the sustainability of our profile, then we can get a revaluation of the shares. And what I don't think people fully appreciate, and that's perhaps because we haven't told people, is what the opportunity is in our portfolio. Neptune obviously brings more things to it. But the slide I showed is that we have 1.24 billion barrels of 2P reserves, and I think that's what people value the company on. But we have around 750 million barrels of discovered resource where we haven't defined projects for. And we're now going to move that forward at pace. As I said, we have around 300 million barrels of that 750 with projects already being defined, and we are spending money to derisk and move forward other elements of that. And one of our big focuses is to drive that forward quickly and bring it into production and create value out of it. And I think it's that plus our continued exciting exploration program that can provide the volumes to sustain the business longer term. And I think we'll come back to this at our Capital Markets Update and give more understanding of how we're going to sustain the production longer term. And I think the portfolio is really exciting. It's got lots of optionality, and I think we'll be able to give that confidence when we present. So that's how I see it. But Stefano might want to add to this.

[Stefano Pujatti, executive]

Yes, yes. Thanks, Nick. I think on the dividend, you said it all. Maybe just worth specifying on the OpEx, the guidance we are providing. It's assuming a dollar-NOK rate, there is an assumption of NOK 9.5, which is a bit conservative. So that is probably also explaining a bit of the -- of why it is probably a bit higher. If you should, let's say, use the 2023 dollar-NOK exchange rate, probably you would see almost $1, $1.5 lower level. So probably that brings it a bit more into perspective of the trend you were expecting. But we, in the Capital Market Update, we will also elaborate a little bit more into the details of the assumption. So that probably will be, yeah, a good occasion to do so.

[Operator]

The next question will be from the line of Teodor Nilsen from SB1 Markets.

[Teodor Nilsen, analyst]

First, following up on your discussion on 2C resources and 2P reserves. I just wonder for the next couple of years, how much of your 2C resources could we expect to be moved into reserves? Can you maybe talk a little bit about which hubs you expect to do to make the largest changes on when it comes to transfer resources to reserves? That's the first question. Second question is on the Balden. You're currently guiding for sail away in August. I just wonder, when is the latest stage we can see sail away and there still won't be any challenges with the weather window.

[Nicholas Walker, executive]

Thanks, Teodor, and thanks for the good questions. In terms of 2C resource, as I said, we have 2C resources of 750 million barrels. We have activity this year to progress around 2/3 of that towards realizing value out of it. So moving it forward, are there appraisal activity or subsea development studies with the aim that we can move those things forward. And we have actually around over 20 projects that we're starting to move forward, which account for around 300 million barrels of net resources. We will come and provide some more color around this at our Capital Markets Day, but we are working hard to accelerate this activity. And we're in a good place as a company because we're most of the way through all of our major projects, our capital comes off. Our production rises to 400,000 barrels a day at the end of 2025 and can stay there for a little while, and we need to bring new projects in, in '27-ish. So we have a little bit of time, but not much time. And so we're working hard to bring those forward. And I think we'll give you some sense. It's spread actually pretty well all the way through of our assets, actually. That's the beauty of our portfolio. We've got some big hub areas, and we've got opportunities around all of it. And these type of projects, they're all subsea tieback. They're all quick cycle times, strong economics. And so our aim is to do these as a low cost and consistent delivery. And we're trying to string a number of them together. And they're not all operated. They're quite a number, but also quite a lot with Equinor, and they've been talking also about moving these things forward. So we will provide a bit more detail around this at our Capital Markets update. And then moving on to Balder. To achieve a Q4 startup, we need to install in August. And then after August, the weather starts to get worse, and it gets more difficult to install. So it's not to say that we can't install after August, but it becomes more difficult. And we need a sort of period of calm weather before we can install. So if we're not ready to install in August, there's some risk that this moves into spring next year startup and -- or installation. And then we would be into -- we're saying our P90 startup is, it would be end of Q2 next year. But we are really focused on getting this done this year. As I say, we're over 90% complete on the FPSO. We can see the end in sight. Things haven't been -- we haven't been getting things into commissioning as quickly as we wanted. So we're firmly targeting getting this done ahead of the weather window in August. So that's where we stand. So hopefully that answered it.

[Operator]

The next question will be from the line of Mark Wilson from Jefferies.

[Mark Wilson, analyst]

My first question, Nick, is that if the -- the last couple of years, there has been various changes to guidance through the year, both underlying production and various start-up date. Could you speak about what you feel you brought to change the method of guidance since you started as CEO to give us just confidence on both the production guidance and then the start-up timing. Even though granted you've talked about the variables at Balder X, but if you could talk overall to those 2 forecast ranges. And then just a second point, Breidablikk has -- came on early, got 14 more wells to come. Could you just tell us what plateau that is expected to reach and if that happens in '24.

[Nicholas Walker, executive]

Good Mark, and good day and good questions. Guidance. And you've also know me from my past. And for me, what is important is delivering what we say we're going to do. And I've spent a lot of time within the organization, making sure that we can stand under the forecast that we give. And so we've been spent a lot of time thinking about the risks and the ranges of outcomes, and we want to be open about it as well. And so I'm determined that we do everything we can to deliver. Now there are no guarantees here, but we've put a lot of effort into making sure that we balance the risks here and that we give ourselves a good chance of delivering all of the targets that we've set externally. And that is my aim, and that's the drive, and that's what the leadership team is focused hard on doing. But of course there are risks and there's uncertainty, but we've tried to balance those. So hopefully, we can get there. And that is my determination to do. On Breidablikk, actually that ramped up very quickly. And yes, we have some more wells to drill, and that's what's required to get the full reserves. But actually, we're producing at the plateau rate already, I think. And so -- and it's producing very strongly with good uptime. So it's all going well, actually. And so the additional wells will just develop the full reserves as the wells start to water out. It's quite a lowly release structure. So it cons water. And so we have to get the recovery factors. We have these extra wells. But as I say, it's already producing very well. Hopefully, Mark, that helps answer that.

[Operator]

The next question will be from the line of [ John Olson ] from ABG.

[Unknown Analyst]

I got 2 questions. The first one is regarding Balder X. In the case of the project being pushed into 2025, what would be the extra CapEx roughly? That would be my question number one. The second question is regarding the Neptune acquisition. The acquisition price of USD 2.3 billion should be adjusted for 2024 free cash flow. So I just wonder what did the actual payable price end up being. Because I presumed you paid the Neptune acquisition now in January February. Those are the 2 questions, please.

[Nicholas Walker, executive]

Good, John. And good day. I'll take the first, and then there's a question for Stefano finally, so he can take the next one. In terms of Balder, I mean, what I said when I -- this -- where this project is reaching completion. So things like the drilling and the subsea are all on schedule and almost done, and so there's no growth there. And we built some contingency into the revised cost estimates we updated in September last year. And this project is reaching completion. We're over 90% done on the FPSO, all the equipment is there, all the materials are there. It's about just finishing it off. And so this is not about -- this is a schedule issue. It's not really -- have any material impact on costs. We've built some flexibility into the offshore installation spend that we have. So we can manage that whether it -- slip into next year without too much cost impact. So for me, this doesn't have an impact on cost. It really doesn't have an impact materially on value because it's just shifting a short period of time. And it doesn't impact on how we see our guidance on production this year or our longer-term guidance and our ability to pay dividends. So hopefully that gives you some color around that. And then maybe Stefano will talk about the purchase price for Neptune.

[Stefano Pujatti, executive]

Sure. So the net cash consideration less the cash available that we paid now at the end of January was $1.2 billion. And how this goes, what are the pieces that, the component of this. You are correctly -- you are correct when you say that the enterprise value was $2.3 billion, but then you need to deduct roughly $0.2 billion in dividend and interest gains. And then also to deduct $900 million in cash that was available at the 31st of January when we went to completion. So if from the $2.3 billion, you deduct these 2 elements, then you go to the $1.2 billion net cash consideration we paid at the end of January. Let me also add a piece on this. We, as you are aware, 2023 cash flow were ours. So this means that also the taxes related to 2023 will be as well. And we will pay -- so in the first half of this year, we will have to pay for the 2023 cash taxes of Neptune, and that is estimated to be around $700 million. So I hope this provides you a good picture of the components.

[Unknown Analyst]

Yes, sorry. So it's just for the dividend, $900 million in cash and at starting point, and then you paid $700 million. Did you say Q1, sorry, what…

[Stefano Pujatti, executive]

No, no, sorry, first half, first half. The $700 million would be paid in…

[Unknown Analyst]

First half, yes, yes.

[Stefano Pujatti, executive]

Yes, yes.

[Unknown Analyst]

Yes. That's included in the chart where you show the estimated cash payments in the first half, isn't it?

[Stefano Pujatti, executive]

That's correct. Yes. That's correct.

[Unknown Analyst]

Yes. But anyway, and the question regarding the free cash flow because the free cash flow generated in 2023 is yours, isn't it?

[Stefano Pujatti, executive]

That is right, yes.

[Unknown Analyst]

Which is quite much because I -- I presume that is a significant amount.

[Stefano Pujatti, executive]

That is a good amount. I think if you add these elements together, you can work it. But you are right, because effectively the deal was effective from 1st January 2023. So that was the cash flow was ours, but also the taxes that we will be paying in this first half.

[Unknown Analyst]

Yes. But how could I calculate the fee from what you said now, what's the implied or how could I get a better insight to the free cash flow estimate for '23 for instance?

[Stefano Pujatti, executive]

Yes, if you take the net cash consideration of $1.2 billion, you add the taxes, which are related to the 2023 profits, you go to the $1.9 billion. And then the enterprise value at that time was $2.3 billion. So you might estimate the difference should be more or less the cash flow generated in 2023. Yes.

[Unknown Analyst]

Okay. Sorry. So what you actually paid in cash now in January and February was $1.2 billion?

[Stefano Pujatti, executive]

Yes, that's correct.

[Unknown Analyst]

All right. Sorry, [indiscernible] together. And then very quickly, Nick, a follow-up on the potential delay in Balder X. You seem to take it very easy on it saying it has limited value impact. But I guess, instead of starting in late Q3, if [indiscernible] it's almost 1 year of production delay, isn't it? So it must be a huge, relatively big NPV impact or don't you agree?

[Nicholas Walker, executive]

Well, the NPV impact is relatively small. You just move cash flow from one year to the next. And I think it's a really discounting effect, is quite relatively small.

[Unknown Analyst]

Relatively small, but it's 1 year of NPV effect…

[Nicholas Walker, executive]

Well, it's not 1 year, it's from Q4 to middle of the year. So it's 6 months.

[Unknown Analyst]

Yes, but I was talking relative to -- last time you spoke, you said starting production in Q3 2023, 2024, yes. And now if it's been delayed in terms of Q2 next year, which is almost a year, don't you agree or 3 quarters?

[Nicholas Walker, executive]

It's almost I said…

[Unknown Analyst]

[Indiscernible] 3 quarters, yes, so it's 3 quarters of NPV effect, isn't it? That must be a big amount…

[Nicholas Walker, executive]

It isn't cash flow -- the NPV effect is relatively small. It's a discount rate for that period of time. So that's the way it works.

[Unknown Analyst]

3 quarters of NPV effect discount.

[Operator]

The next question will be from the line of Sasikanth Chilukuru from Morgan Stanley.

[Sasikanth Chilukuru, analyst]

I had 2 left, please. The first was related to the production guidance of 280 to 300. Still a relatively large range. And you have highlighted limited contribution from Balder X and Johan Castberg in this figure. So it appears to me that the major uncertainties moves towards the turnaround activity. I was just wondering if you could contextualize whether the turnaround activity in 2024, relative to 2023 levels, is it higher or lower in that way? And also maybe slightly related to this, you highlighted current production of around 300. Can you isolate now what the contribution of the assets acquired from Neptune is within this figure? Then the second question was on dividends. You maintained 1Q dividend flat and -- but have highlighted 2024 dividends at 30% of CFFO, which implies higher dividend payments in 2024 related to 2023 based on current macro. Just wondering if we should expect a ramp-up in these dividends from 2Q 2024 onwards.

[Nicholas Walker, executive]

Yes. So I'll get the first question and then Stefano can take the dividend question, good question. So the range of 280 to 300, it's actually not such a big range given the scale of the business. And it reflects, as I said earlier, the fact that we've got 47 producing fields and those all have some uncertainties associated with them. We do have a bit more turnaround activity this year compared with last year. And you can see that it's concentrated in Q3, which you see on the schedule. There's a little bit in Q2 too. And but you can see it on the chart that we showed in our presentation that we have a sort of dip in Q3. And so that's built into our forecast. And as I say, also there's a range around start-up and ramp-up of the 2 big projects in Q4, all contributing to how we look at the guidance range. And as I say, 20,000 barrel a day range in a 300,000 barrel a day company is not a very large range, and I think it's sort of similar to the type of ranges that other companies use. So Stefano, maybe you can talk to the dividend question.

[Stefano Pujatti, executive]

Yes. And you're right, the dividend, let's say, has been reiterated of -- on a stable dividend on to $70 million. Let me say, this is a range we feel comfortable with the current market conditions. And despite the fact that the gas prices are lower than last year. So yes, you're right, is, let's say is something in addition that we are compared to last year in terms of dividend effort from the company side. But let me say why can we afford to do that? And I think that is the important part. First of all, you've seen that there is a material production increase in 2024. We have closed the deal of Neptune, which is highly cash flow accretive. We have good instruments in place for gas. We have a fixed pricing until -- covering until Q3 of 2024 where roughly if you include the Neptune production, it's roughly 15% to 18% with a fixed price of $130 per barrel. And this will provide definitely, if gas prices remain as we see today, will provide a push in terms of gas price realization as it has done in the past. And we still are on a strong liquidity position. We are in a low leverage position, well below the target. Even if you zoom out a bit from 2024 and we see a little bit the bigger picture, you can see that the company in 2025 will be producing 400,000 barrels a day. So that will be a very strong position to be in with a lot of cash flow generation. That is why we think the dividend, and that is why we went with the dividend that we, yes, we disclosed today.

[Sasikanth Chilukuru, analyst]

And the contribution of Neptune in 300,000 current production.

[Nicholas Walker, executive]

Neptune produced last year 66,000 barrels a day. And so there are no major changes in that portfolio in the short term. So it comes in us around that level to this year.

[Operator]

Unfortunately, as we are running out of time, they will have to follow up in writing. And I will hand it to the speakers for any closing remarks.

[Nicholas Walker, executive]

Thank you, Patrick. Maybe I can just say one -- just a few points. We're one of the fastest-growing E&P companies in the world, and our strategy for value creation and growth is delivering. And we're on track to deliver our 400,000 barrels a day by the end of 2025. And as I said, we're almost halfway there with 300,000 barrels a day now. We had strong financials driven by good operational performance and good price realizations. And lastly, we provide attractive predictable shareholder distributions. So I think a good quarter of results. I also just remind everyone our CMU is going to be on the 13th of March here in Oslo, and we look forward to as many of you joining there as possible. So thank you very much.

[Ida Fjellheim, executive]

Thank you. And we will make sure to follow up on the written questions after this call. Thank you very much, and wish you a good day.