Norway's Aker BP slashes spending, says 2020 output unchanged

London — Norwegian oil and gas producer Aker BP announced a 20% cut in capital spending this year and further reductions in future years, potentially impacting longer term production, but with no impact on 2020 output or phase 2 of the giant Johan Sverdrup development.

The company, in which BP and engineering company Aker are the main shareholders, is one of Norway's largest upstream producers, operating the Alvheim and Ivar Aasen oil fields, and holding an 11.57% stake in Johan Sverdrup.

Ivar Aasen contributes to the Grane crude blend, a heavier grade that has been favoured by Asian refiners.

In a statement addressing the coronavirus crisis, Aker BP said it was deferring non-essential maintenance, new developments awaiting approval, and some exploration, but that its financial position remained strong. It cut its capital spending target for this year to $1.2 billion, and said this would fall to below $1 billion in 2021-2022.

It added its operating costs would fall from $10/boe of production to $7-8/boe due to maintenance deferrals and the recent fall in the value of the Norwegian krone.

The company reiterated that it expects its oil and gas output this year, mostly in the form of oil, to be unchanged from previous plans, in a range of 205,000 and 220,000 b/d of oil equivalent, and said the krone's collapse provided some insulation when it came to meeting payment obligations.

Sverdrup expansion

Importantly for the wider industry, Aker BP said there would be no change to Phase 2 of the giant Johan Sverdrup development, which first started producing under its initial phase in October, or to other projects it is developing.

Johan Sverdrup is operated by state-controlled Equinor, which announced a suspension of share buy-backs on Monday, saying it expected to announce details of spending cuts by the end of the month.

Phase 2 of Johan Sverdrup is due on stream in late-2022, and should lift "plateau" production levels to 660,000 b/d. The first phase is due to reach 440,000 b/d this summer, and is thought to be close to that level already.

One project not yet approved for development by Aker BP and thus on hold is the Hod project in the Valhall area, which in turn feeds into the Ekofisk crude production stream.

Aker BP said its financial position was strong, with no major debt due to mature this year or next year, and available cash and undrawn credit of $3.9 billion.

"Aker BP is fully financed for its current investment plans," while "the planned measures are not expected to have a material impact on the company's production capacity in 2020," it said.

CEO Karl Johnny Hersvik said the industry was facing an "extremely challenging situation." However, "in Aker BP, we have been working systematically over many years to improve efficiency and reduce costs, to build a significant portfolio of profitable investment opportunities, and to strengthen our financial capacity. With the measures we are now undertaking, Aker BP is well prepared to face the challenging market situation, and we have the financial resources to pursue value accretive growth opportunities ahead," he said.