INTERIM REPORT. for the third quarter 2018

Transcription

1 INTERIM REPORT for the third quarter 2018

2 Quarterly highlights Increased investment in Reach Subsea. During July and August North Energy has acquired additional shares in Reach Subsea ASA (Reach) through the subsidiary North Energy Capital. The group s ownership in Reach is now at 29.5 percent. Reach Subsea Q3 report demonstrates continued improvements. The company reports an EBITDA of NOK 77.5 million and a pre-tax profit of NOK 8.0 million, well above the same period last year. Other financial investments. During the third quarter North Energy Capital made only minor adjustments to its portfolio. The group is actively managing the portfolio of other financial investments. Operational cost base reduced. North Energy s cost base is further reduced by 10% compared to last quarter. The company is running a fit-for-purpose and effective organisation to manage the operation of the company. Subsequent events Potential tax claim from the years North E&P has received a notice from the Petroleum Taxation Office of possible changes of the Company's tax returns from the years 2014 and For these two years North Energy's total expenses eligible for refund amounted to NOK 970 million. The Petroleum Taxation Office has in the notice challenged NOK 146 million of these expenses, with a corresponding exploration tax refund of around NOK 115 million. North Energy is very surprised and strongly disputes both the content and the conclusion of the notice. However, the liquidation Board of North E&P will take necessary measures to ensure sufficient financial cover of a potential future tax claim. The Company will prepare a response prior to the deadline of 31 December North E&P received 2017 tax settlement. The awaiting tax settlement for 2017 was finally received on the 8 th of November. The tax refund, including interests, is in line with expectations and amounts to NOK million. The refund will be paid cash to the company towards the end of November. Key figures NOK mln Q Q Year 2017 Operating profit Profit/loss after tax Investments Total assets Equity ratio (%) 92 % 79 % 91 % Debt Financial information The consolidated financial statements encompass North Energy ASA, North Energy Capital AS, North E&P AS, North Energy Norge AS, and Accello Partners I AS. North Energy recorded a comprehensive loss of NOK 12.4 million in the third quarter of 2018, compared with a comprehensive loss of NOK 2.0 million in the corresponding quarter of The loss reported this quarter is mainly driven by a net loss of NOK 7 million from the investment activities, in addition to the NOK 5 million operating expenses. Payroll and related expenses in the third quarter were NOK 1.5 million compared to NOK 1.3 million in the same quarter last year. The reported figure in 2017 includes release of provisions made in relation to the liquidation of North E&P. Underlying figures shows a decrease in payroll expenses due to a reduced number of employees. At the end of the third quarter 2018, there were 4 employees in the Group, down from a staff of 11 at the end of third quarter At the end of the quarter, total investments amounted to NOK million, compared to NOK million at the end of third quarter Compared to second quarter this year total booked investments have decreased with NOK 3.0 million. The investment in Reach is accounted for as an associated company. North Energy thereby consolidates its share of the net result from Reach. From the day of acquisition to the end of the third quarter this year, the net consolidated result amounts to a loss of NOK 8.5 million, while the contribution in the third quarter amounts to a profit of NOK 2.4 million.

3 North Energy s holding in Reach is through Accello Partners and North Energy Capital, which owns together at the end of the third quarter 29.5 per cent in Reach. The share price of Reach ended the quarter at NOK 2.62, which gives North Energy s share a market value of NOK million compared with our book value of NOK 93.3 million. The Board regards the Company s financial position as satisfactory. Net financial items in the third quarter were a loss of NOK 3.3 million. Due to the implementation of IFRS 9 Financial instruments, the changes related to fair value of financial investments are reported as an operating item as from 1 st of January Total assets at the end of the third quarter were NOK million, down from NOK million at the end of last quarter. Total equity at the end of the third quarter was NOK million, down from NOK million at the end of the second quarter The total comprehensive loss of NOK 12.4 million recorded in the third quarter in 2018 explains the decreased equity. The Company s equity ratio stood at 92 percent at the end of the quarter. Interest-bearing debt at the end of the third quarter was NOK 34.5 million. This consists of the exploration credit facility of NOK 15 million and the bank overdraft held by Accello of NOK 19.5 million. The exploration credit facility will be repaid during November. North Energy recorded NOK 51.1 million in cash and cash equivalents at the end of the third quarter. The decrease in cash from last quarter is mainly due to operating expenses as well as further investments in Reach of NOK 4.6 million. Adjusted for tax refund receivables of NOK 32.7 million, net negative working capital of NOK 1.2 million and debt of NOK 34.5 million, the Company reported a positive net cash position of NOK 48.1 million. On the 8 th of November the company received the final tax settlement for North E&P. The total amount, which consist of 2017 tax refund and the liquidation tax refund based on losses carried forward, was in line with the expected NOK million excluding interest. The amount will be transferred to the company on the 28 th of November. The liquidation Board of North E&P will take necessary measures to ensure sufficient financial cover of a potential future tax claim. Industrial holdings Reach Subsea ASA North Energy s main industrial investment is its shareholding in Reach, accounted at NOK 93.3 million, up from NOK 86.3 million last quarter. The increase is due to further investment in shares as well as the positive result reported from Reach in the third quarter. The consolidated net loss of NOK 8.5 million includes the period from acquisition up until the end of the third quarter this year. The market value of the investment in Reach was NOK million at the end of the quarter. Reach has been awarded several contracts lately. Their Houston office has been awarded contracts by oil majors in the region, comprising some 100 days of work going forward. Reach has further entered into an agreement with Topaz Energy and Marine ( Topaz ) for use of the new built subsea vessel Topaz Tiamat for 2.5 years. They have also entered into a three years frame agreement for Marine Subsea Services to Wintershall Norge AS, with an option to extend another 4 years. Reach reported an EBITDA of NOK 77.5 million and a pre-tax profit of NOK 8.0 million for the third quarter, well above the same quarter last year. The Board of Reach states in the report: The Board is pleased with the results achieved in a period of tough competition and pressured rate levels. It is encouraging to see that we are gaining traction with the major clients in our market, something which bodes well for the future. It is also encouraging to note how quickly our new Houston

4 office has gained business in the region. A strong balance sheet, coupled with a flexible business model, enables the company to exploit attractive growth opportunities we currently see in the market. Reach Subsea is a company providing certain ROV, engineering and consultancy services to the oil and gas industry. The investment in Reach is in line with North Energy s strategy to focus on strategic opportunities where substantial influence and control can be exercised. The company is listed on the Oslo Stock Exchange and as of the end of third quarter 2018, the company had a market capitalization of NOK 376 million. Financial investments Touchstone Exploration has so far completed ten wells of the company s expanded 2018 development drilling campaign of 14 wells. All drilled wells are currently in production. In addition, they have commenced pre-drilling operations on four wells. The average crude oil production in third quarter was 1,758 bbls/d, a 22% increase compared to same quarter last year. In October, the company reached its year-end production target of 2,000 bbl/d. North Energy Capital has through the quarter been actively managing the portfolio of financial investments. Apart from the above mentioned investments, NEC has also invested in other financial instruments. Outlook Going forward, we expect that the main investments will continue to be within energy and oil services, but a wider range of business segments will also be evaluated. New investments, with focus on strategic opportunities where substantial influence and control can be exercised, are expected to follow.

5 Financial statements third quarter 2018 CONSOLIDATED INCOME STATEMENT NOK Q Q YTD Q YTD Q Year 2017 Note (unaudited) (unaudited) (unaudited) (unaudited) (audited) Sales of services ( 0) Payroll and related expenses (1 489) (1 332) (4 716) (17 272) (18 201) Depreciation and amortisation ( 12) ( 158) (46) (1 204) (1 236) Exploration and licence expenses 0 (4 433) 0 (1 913) (1 095) Other operating expenses (3 652) (7 155) (12 964) (21 856) (25 100) Change in fair value of financial investments 3 (6 232) Net result from investment in an associate (650) (4 949) (7 882) Operating profit/(loss) (9 031) (15 649) (46 057) (51 418) Financial income Financial costs (3 527) (5 972) (5 362) (11 619) (12 778) Net financial items (3 288) (5 269) (3 950) Gain from bargain purchase Profit/(loss) before income tax (12 319) (2 105) (19 598) Income taxes 8 ( 60) Profit/(loss) for the period (12 379) (19 402) Attributable to: Owners of North Energy ASA (10 430) (16 228) Non-controlling interests (1 950) (3 175) (12 379) (19 402) Earnings per share (NOK per share) - Basic (0,09) 0,03 (0,14) 0,23 0,18 - Diluted (0,09) 0,03 (0,14) 0,23 0,18 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Profit/(loss) for the period (12 379) (19 402) Other comprehensive income, net of tax Items that will not be reclassified to profit or loss in subsequent periods: Items that will be reclassified to profit or loss in subsequent periods: Available for sale investments - change in fair value 0 (10 255) Available for sale investments - change in fair value (19 722) (18 884) - reclassified to profit or loss Total other comprehensive income, net of tax 0 (6 522) 0 (12 183) Total comprehensive income/(loss) for the period (12 379) (2 029) (19 402) Attributable to: Owners of North Energy ASA (10 430) (5 866) (16 228) Non-controlling interests (1 950) (3 175) (12 379) (2 029) (19 402)

6 CONSOLIDATED STATEMENT OF FINANCIAL POSITION NOK Note ASSETS Non-current assets (unaudited) (unaudited) (audited) Property, plant and equipment Tax receivable, refund tax value exploration expenses Other receivables Financial investments Investment in an associate Deferred tax asset Total non-current assets Current assets Prepayments and other receivables Tax receivable, refund tax value exploration expenses Tax receivable, refund tax value offshore tax losses Cash and cash equivalents Total current assets Total assets EQUITY AND LIABILITIES Equity Share capital Share premium Other paid-in capital Retained earnings ( ) ( ) ( ) Non-controlling interests Total equity Liabilities Non-current liabilities Non-current borrowings Deferred tax liability Total non-current liabilities Current liabilities Current borrowings, exploration loan Current borrowings, bank overdraft Trade creditors Tax payable Other current liabilities Total current liabilities Total liabilities Total equity and liabilities

7 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY NOK Share capital Share premium Other paid-in capital Retained earnings Noncontrolling interests Total equity Equity at 1 January ( ) ( 652) Total compehensive income for Dividends paid (29 762) (29 762) Equity at 30 September ( ) Total compehensive income for (2 426) Share issue in subsidiary (conversion of shareholder loan from minority shareholders) Equity at 31 December ( ) Total compehensive income for (16 228) (3 175) (19 402) Equity at 30 September ( )

8 CONSOLIDATED CASH FLOW STATEMENT NOK Q Q YTD Q YTD Q Year 2017 (unaudited) (unaudited) (unaudited) (unaudited) (audited) Cash flow from operating activities Profit/(loss) before income tax (12 319) (2 105) (19 598) Adjustments: Tax refunded/paid Depreciation Pensions 32 ( 148) 32 ( 643) 478 Transaction costs and interest on borrowings recognised in P&L Gain/loss from sales of available for sale (49 711) (48 319) investments Change in fair value of financial investments (2 727) 0 0 Gain from bargain purchase (15 128) (15 128) Net result from investment in an associate (2 354) (15 105) Changes in current payables, receivables and other accruals (1 456) (10 604) (22 575) Net cash flow from operating activities (4 313) (10 642) (21 944) (53 218) Cash flow from investing activities Purchase of property, plant and equipment ( 64) ( 24) ( 64) ( 24) 0 Proceeds from sales of property, plant and equipment Investment in an associate (4 605) ( 518) (4 605) (22 753) (22 753) Purchase of financial investments (2 014) (5 171) (23 332) (23 843) (48 101) Proceeds from sales of financial investments Proceeds/payments from other non-current receivables ( 0) 0 ( 0) (10 482) (10 482) Net cash flow from investing activities (4 168) (4 412) (12 322) Cash flow from financing activities Funds drawn borrowings Repayments of borrowings 0 0 (1 000) (7 685) (75 859) Transaction costs and interest on borrowings paid ( 101) ( 567) ( 301) (1 546) (1 860) Dividends paid (29 762) (29 762) Net proceeds from share issues Net cash flow from financing activities ( 101) (1 301) (50 481) Net change in cash and cash equivalents (8 581) (14 209) (39 623) (61 223) Cash and cash equivalents at beginning of the period Cash and cash equivalents at end of the period

9 Notes to the interim consolidated financial statements third quarter 2018 Note 1 - General and corporate information These financial statements are the unaudited interim condensed consolidated financial statements of North Energy ASA and its subsidiaries (hereafter "the Group") for the third quarter of North Energy ASA is a public limited company incorporated and domiciled in Norway, with its main office located in Oslo. North Energy ASA's shares were listed on Oslo Axess, an exchange regulated by the Oslo Stock Exchange, on 5 February The company's ticker is NORTH. Note 2 - Basis of preparation The interim accounts have been prepared in accordance with IAS 34 Interim Financial Reporting and the supplementary requirements in the Norwegian Securities Trading Act (Verdipapirhandelloven). The interim accounts do not include all the information required in the annual accounts and should therefore be read in conjunction with the annual accounts for The annual accounts for 2017 were prepared in accordance with the EU`s approved IFRS. Note 3 - Accounting policies The accounting policies adopted in the preparation of the interim accounts are consistent with those followed in the preparation of the annual accounts for In addition the Group has adopted the IFRS 9 Financial Instruments effective from 1 January The Group has from 1 January 2018 elected to recognize its financial investments in shares and bonds at Fair Value through Profit and Loss (FVPL). Changes in fair value are recognized in profit and loss as change in fair value of financial investments under operating items. In previous periods the Group's financial investments in shares and bonds were classified under the category available for sale investments, and they were recognized at Fair Value through Other Comprehensive Income (FVOCI). Prior periods have not been restated as this is not required under IFRS 9. There are no differences between previous carrying amounts and those determined under the FVPL method at the date of initial application. Note 4 - Critical accounting estimates and judgements The preparation of the interim accounts entails the use of judgements, estimates and assumptions that affect the application of accounting policies and the amounts recognised as assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and other factors that are considered to be reasonable under the circumstances. The actual results may deviate from these estimates. The material assessments underlying the application of the company's accounting policies and the main sources of uncertainty are the same for the interim accounts as for the annual accounts for Note 5 - Share capital Number of outstanding shares at 1 January New shares issued during the period 0 Number of outstanding shares at 30 September Nominal value NOK per share at 30 September Share capital NOK at 30 September Note 6 - Business segments The Group reports only one business segment which, after the discontinued exploration activities, only includes the investment activities.

10 Note 7 - Related parties The company's transactions with related parties: Purchase of services from Description of services YTD Q YTD Q Year 2017 North Advisors AS Consultancy services Note 8 - Income taxes Specification of income tax YTD Q YTD Q Year 2017 Calculated refund tax value of exploration costs this year Of this, refund not recognised in income statement (acquisition of licences recognised net of tax) Correction refund previous years Tax payable 0 (10 916) 0 Change deferred tax asset and tax receivable from refund tax value (10 012) offshore tax losses in balance sheet Of this, deferred tax asset not recognised in income statement (acquisition of licences recognised net of tax) Of this, deferred tax asset not recognised in income statement (sale of licences recognised net of tax) Of this, deferred tax asset related to items in comprehensive income recognised in comprehensive income Of this, deferred tax asset related to equity transactions recognised directly in equity Total income tax credit Specification of tax receivable, refund tax value exploration expenses Calculated refund tax value of exploration costs this year Calculated refund tax value of exploration costs previous year Correction refund previous years, not yet assessed Total tax receivable, refund tax value exploration expenses Of this: Classified as non-current Classified as current Oil exploration companies operating on the Norwegian continental shelf may claim a 78 per cent refund of their exploration costs limited to taxable losses for the year. The refund is paid in November the following year. See footnote ** below for further information about the tax receivable at 31 December 2017.

11 Specification of temporary differences, tax losses carried forward, deferred tax asset and tax receivable from refund tax value offshore tax losses Property, plant and equipment Capitalised exploration and licence costs Pensions Prepayments and other receivables (2 076) 0 ( 87) Current borrowings Other current liabilities Financial investments Tax losses carried forward, onshore (55 883) (81 169) (39 012) Tax losses carried forward, offshore only 24% basis ( ) ( ) ( ) Tax losses carried forward, offshore only 54% basis ( 960) ( 960) ( 960) Tax losses carried forward, offshore both 24% and 54% basis ( ) ( ) ( ) Total basis for deferred tax asset ( ) ( ) ( ) Deferred tax asset before valuation allowance Not capitalised deferred tax asset (valuation allowance) * (12 164) (8 224) (8 359) Deferred tax asset Of this: Classified as deferred tax asset/(liability) ( 0) ( 358) Classified as current tax receivable from refund tax value offshore tax losses ** * Uncapitalised deferred tax asset relates mainly to onshore tax losses carried forward in parent company North Energy ASA. Due to the transaction in 2016 whereby North Energy ASA transferred all of its petroleum related activities to North E&P AS, North Energy ASAs offshore activities subject to additional tax ceased with effect 1 January ** The Board of Directors of North Energy ASA has in a Board meeting 7 July 2017 decided to discontinue the petroleum activities in its subsidiary North E&P AS and to seek cash reimbursement of the tax value of the company's offshore tax losses. The tax value of the offshore tax losses is therefore classified as current tax receivable from refund tax value offshore tax losses. North E&P AS, which is under liquidation, has claimed cash reimbursement of both the tax value of offshore tax losses and the tax value of exploration costs in 2017 in connection with an advance tax return for the year 2017 submitted in October North E&P received the final tax settlement on 8th of November. The amount was in line with expectations. Reconciliation of effective tax rate YTD Q YTD Q Year 2017 Profit/(loss) before income tax (19 598) Expected income tax 23% (2017: 78%) (9 695) (4 253) Adjusted for tax effects (23% - 78%) of the following items: Permanent differences ( 345) 886 ( 617) Correction previous years ( 162) 0 0 Interest on tax losses carried forward offshore Finance items and different tax rates within the group Changed tax rates from 1 January 2018 and 1 January ( 361) Change in valuation allowance for deferred tax assets (3 805) Total income tax credit

12 Note 9 Financial investments Financial investments are investments in shares and bonds. The main investments at 30 September 2018 consist of shares in Touchstone Exploration and shares in Polarcus. Effective from 1 January 2018 the Group's investments in shares and bonds are recognized at Fair Value through Profit and Loss (FVPL). Changes in fair value are recognized in profit and loss as change in fair value of financial investments under operating items. In previous periods the Group's investments in shares and bonds were classified under the category available for sale investments, and they were recognized at Fair Value through Other Comprehensive Income (FVOCI). See note 3 for further information. Based on the change in business segment from exploration business to investment business as from 1 January 2018 the gain and loss arising from the financial investments are reclassified from being a financial item to an operating item in the Profit and Loss statement. Note 10 - Fair value of financial instruments The carrying amount of cash and cash equivalents and other current receivables is approximately equal to fair value, since these instruments have a short term to maturity. Similarly, the carrying amount of trade creditors, other current liabilities and current borrowings is approximately equal to fair value, since the effect of discounting is not significant, due to short term to maturity and no significant change in credit spread. Fair value of the stock exchange-listed shares is the stock market price at the balance sheet date (level 1 in the fair value hierarchy). Fair value of bonds is based on quoted market prices at the balance sheet date (level 2 in the fair value hierarchy). Fair value of other non-listed investments are valued using the best information available in the circumstances including the entities' own data (level 3 in the fair value hierarchy). Specification of financial instruments based on level in the fair value hierarchy Fair Value Level 1 Level 2 Level 3 Total Shares Bonds Total fair value There has been no transfers between the different levels during the quarter. Reconciliation of level 3 in the fair value hierarchy Level 3 Opening balance Movement during the quarter Closing balance 0

13 Note 11 - Investment in an associate Reconciliation and specification of carrying amount of investment in the associate Reach Subsea ASA: Opening balance carrying amount of investment in an associate Acquisition cost at 13 February Acquisition cost additional shares acquired (Impairment)/reversal of impairment of investment in Reach 891 (0) (891) Share of net result in Reach (1 541) (4 949) (6 991) Carrying amount of investment in an associate at balance date Specification of net result from investment in an associate recognised in the income statement: YTD Q YTD Q Year 2017 Impairment/reversal of impairment of investment in Reach 891 (0) (891) Share of net result in Reach (1 541) (4 949) (6 991) Net result from investment in an associate (650) (4 949) (7 882) Net result from investment in an associate is from 1 January 2018 classified under operating items and comparative figures from 2017 have been reclassified. Note 12 Events after the balance sheet date North Energy ASA has in October 2018 received a notice from the Petroleum Taxation Office of possible changes of the Company's tax returns from the years 2014 and For these two years North Energy's total expenses eligible for refund amounted to NOK 970 million. The Petroleum Taxation Office has in the notice challenged NOK 146 million of these expenses, with a corresponding exploration tax refund of around NOK 115 million. North Energy is very surprised and strongly disputes both the content and the conclusion of the notice. The Company will prepare a response prior to the deadline of 31 December 2018.

14 North Energy ASA Address: Tjuvholmen allé Oslo Telephone Website: Business register number: NO MVA Board of Directors Anders Onarheim (Chairman) Jogeir Romestrand Elin Karfjell Management Knut Sæberg, CEO Investor Relations Knut Sæberg, CEO , Rune Damm, Finance Manager , Annual and quarterly reports are available on our website: