Aker BP

A quick look at the second largest Norwegian oil & gas producer.  They operate purely on the Norwegian Continental Shelf (NCS).

Cashflows

They pay taxes every two months, so even quarters have higher taxes.  The current quarter has one tax payment, the next has two: however they made an additional $500m tax payment this quarter (p6) to smooth it out.

For each calendar year, their percent of FCF (CFO-CFI) paid out as dividends is:

The payout ratio increased after the Lundin acquisition.  Maybe they are transitioning from a growth company to a cash cow, or maybe its because of lower energy prices.  Their dividend policy is to payout 20-30% of CFO.  Negligible share buybacks.

Lundin Acquisition

They acquired Lundin Petroleum's NCS assets (excluding renewables), in a deal announced Dec 2021 and completed June 2022.

Debt increased 60%, shares outstanding 75%:

Production and reserves doubled:

Source: Acker BP 2022 Q4 presentation (p9)

With hindsight, the acquisition may have been timed wrong: 2Q22 was the peak of the energy market.  But there are a only a handful of listed players on the NCS so opportunities like this are infrequent.  They did not stretch themselves financially.

Balance sheet

Debt is a bit high, but all fixed and long drawn out.  I think we are at the peak of the interest rate cycle anyway.  93% of their debt is fixed-rate long term bonds:

                                                        Source: Company Website

The 6% bonds were issued June 2023, so their interest payments will have been included in the current quarter.  Total interest expense this quarter was 41m, easily covered by 300-500m quarterly profits.

Future growth

Production is expected to decline from 2023 to 2026, before picking up with new projects in 2027/28.

Source: Q3 2023 Presentation (p11)

"Between now and 2028, this will require the investments of approximately $20 billion pre-tax, corresponding to around $3 billion after-tax. This CapEx estimate has remained unchanged since we submitted the PDOs to the Norwegian authorities approximately a year ago" (p4)

ESG

Their climate transition plan is less ambitious (more realistic) than Equinor's:

By 2030:

• Reduce scope 1 (energy consumed on rigs and spills/flares) and scope 2 (energy purchased) emissions by 50%
• Net zero (scope 1 and scope 2) emissions.  Offset emissions by carbon capture.

By 2050:

• Reduce scope 1 and scope  2 emissions to zero.  By electrification: using renewable energy produced onshore to power rigs.

They are not making investments in "renewables" (outside of their own use).

Valuation

TTM EPS is USD 2.04 (which contains $1/share impairments in 4Q22).  At a price of NOK 300, the PE is 14.3 (counting impairments) or 9.5 (not counting impairments).

Misc

• They Hedge commodity and currency exposures.  They hedge energy by buying Brent puts.  They may hedge up to 100% of next 12 months anticipated oil production, up to 75% for the subsequent 6 months, and up to 50% for the subsequent 6 months.  I could not find the amount of oil hedged (Only the current P&L of the hedges).
• Presentations/reports are not as well-presented as Equinors.  But I thought relevant numbers were easier to find.

Conclusion

The numbers and business plans look good.  Similar to Equinor but without the ESG risk.  Short term I bearish energy, but I think it'll be worth buying sometime.