This morning, Norway’s largest oil producer, Lundin Petroleum (LUP:TSX, LUPE:ST) announced its capital allocation for 2014 and its a staggering $2.1 billion. Projected expenditures on development projects in 2014 are expected to grow by 25% over the 2013 to $1.4 billion. The company expects to spend roughly the same this year as they did last year on exploration which is roughly $380 million. The appraisal budget is earmarked for $300 million.
Lundin Petroleum is spending the bulk of the $1.4 billion development budget in Norway ($1.1 billion). There they are developing the Edvard Grieg field which sits on the PL338 license (50% operator, OMV 20%, Wintershall 15%, Statoil ASA 15%) which is expected to produce first oil in the fourth quarter of 2015 and at peak production should produce over 50,000boe/d (net) which is 40% more oil than they produce company-wide, today. Management is budgeting $700 million for this field which includes construction of the topside, construction of oil and gas pipelines and predrilling for development wells.
Lundin is also allocating $265 million to the Brynhild field (90% operator, Talisman 10%) which is expected to come online in the second quarter of 2014 and produce up to 10,800boe/d (net) at plateau production rates. The development of this field has been slower than expected due to harsh weather conditions in the North Sea. This has also resulted in increased project costs.
Malaysia will also be a focus for Lundin and they expect to spend $325 million on their Bertram oil field (75% operator, 25% PETRONAS) this year. They will be developing a wellhead platform, drilling development wells and completing modification work on the Ikdam FPSO vessel which will receive oil from Bertram. The field is expected to produce 11,000boe/d (net) in 2015.
Management expects to spend a total of $380 million in exploration activities, with 75% of this in Norway. They are targeting net unrisked prospective resources of 620 million barrels of oil equivalent. The company intends to achieve this by drilling 19 exploration wells in Norway (390 million barrels), Malaysia (100 million barrels), Indonesia (115 million barrels), France and the Netherlands.
Of the $300 million appraisal budget, 90% is focused on their gigantic offshore oil discovery, Johan Sverdrup, which they expect could hold 1.7-3.3 billion boe of gross recoverable resources. Four appraisal wells are planned on the Utsira High area with two being planned on the Johan Sverdrup field. One well is also planned for each of the following discoveries: Edvard Grieg, Luno II and Gohta. Johan Sverdrup is expected to produce 150,000boe/d once it hits plateau production (start-up in 2018).
Ashley Heppenstall, President and CEO of Lundin Petroleum, commented: “Lundin Petroleum remains a very active exploration company, and I am pleased to announce our 19-well exploration campaign during 2014, which exposes the company to over 600 million barrels of oil equivalent of unrisked prospective resources. Our 2014 appraisal campaign can also make a material impact on our reserves base with a successful outcome from the six appraisal wells having the potential to double the company’s current 2P reserve base. We remain on track to more than double our 2013 production in less than two years from now, with new production from Brynhild, Boyla, Bertam and Edvard Grieg. The 2014 budget will be funded from operating cash flow and bank-borrowing facilities.”
As of September 30, 2013, the company was sitting on net debt of $808 million ($905 debt and $97 million cash). They also have $2.5 billion available to them in a new reserve based lending facility. Lundin Petroleum hosts 201.5MMboe and 923MMboe of 2P reserves and 2C resources, respectively (this should be updated shortly). Over the last decade they have consistently grown 2P reserves to the tune of 15% annually.
Lundin Petroleum was started with a $50 million equity raise in 2001, since then, no equity has been issued and the company has a market capitalization today of $6.5 billion. This rivals any company return over the same period, including Apple.
Here’s their long-term chart:
*Note: all figures in USD