Letter to shareholders
“ Our industry leading cost efficient growth and strong financial outlook enables us to distribute material and sustainable dividends, while continuing to deliver on our successful organic growth strategy. ”
President and Chief Executive Officer
30 January 2019
2018 proved to be a standout year across all areas of our business, with excellent performance from our producing assets, strong financial results and success with the drill bit. For the fifth consecutive year, we have ended the period having more than replaced our produced barrels with reserves.
Buoyed by stronger commodity prices, operating cost below guidance and very strong production efficiency, we have delivered EBITDA in excess of USD 1.9 billion and also record high free cash flow of USD 663 million for the year. I am also very pleased to announce that in the light of this and our strong financial outlook over the next decade, the Board of Directors has adopted an updated dividend policy which will be sustainable and will deliver an annual cash dividend of USD 500 million, which we aim to grow further as the business continues to grow.
The key producing assets Edvard Grieg and Alvheim have continued to perform above expectations. Production efficiency at Edvard Grieg was 98 percent for the year and reservoir performance continues to exceed expectations with a significantly slower build-up of water production than anticipated, leading to a six month extension of plateau production to mid-2020. This has been achieved while maintaining an industry leading, low carbon intensity per produced barrel, at about one quarter of the industry world average. Edvard Grieg really is a world-class asset, which epitomises what can be achieved when excellent reservoir management is coupled with new, modern facilities, which are able to utilise innovative, practical technologies and practices.
The giant Johan Sverdrup field is now less than a year away from start-up and 2018 was a critical year of project delivery. Phase 1 is now approximately 85 percent complete and all four steel jackets have been successfully installed offshore, as well as the topsides for the drilling platform and the riser platform. I am also pleased that during the year the key metrics for the project were upgraded, lowering the total capital expenditure guidance, increasing reserves, confirming expected Phase 1 first oil to be in November 2019 and submitting the Phase 2 PDO.
The 2018 exploration and appraisal campaign was one of our busiest and we enjoyed significant success with new discoveries made near our core areas on the Utsira High and the Alvheim area. We matured our appraisal opportunities further towards development and now have seven potential new projects in the pipeline. At Rolvsnes and Alta, we were able to de-risk the commercial potential of these unique discoveries through test production. Complementing our successful organic growth strategy, we were able to execute important additions to our Utsira High position. At Luno II we increased our working interest to 65 percent to bring commercial and operational alignment with the Edvard Grieg partnership and we recently announced the strategic acquisition of Lime Petroleum’s interests in the licences containing the Rolvsnes oil discovery and Goddo prospect, increasing our working interest in this area that has potential of over 250 MMboe gross resources.
Looking forward, 2019 will be one of the most significant years in Lundin Petroleum’s history, which started with a record award in the 2018 APA licensing round, growing our acreage position by about 70 percent since year-end 2017. The giant Johan Sverdrup field is set to start production in November and we will deliver our busiest exploration and appraisal programme to date, targeting over 750 MMboe of additional net resources. I would like to thank all of our stakeholders for their support in 2018 and very much look forward to another period of continued delivery and growth.