Lundin Petroleum AB's (LNDNF) CEO Alex Schneiter on Q1 2020 Results - Earnings Call Transcript

Lundin Petroleum AB (publ) (OTCPK:LNDNF) Q1 2020 Earnings Conference Call April 30, 2020 3:00 AM ET

Company Participants

Ed Westropp – Vice President-Investor Relations

Alex Schneiter – President and Chief Executive Officer

Teitur Poulsen – Chief Financial Officer

Conference Call Participants

James Hosie – Barclays

Yoann Charenton – Societe Generale

Alwyn Thomas – Exane BNP

Anders Holte – Kepler Cheuvreux

Robin Haworth – Stifel

Karl Schjøtt-Pedersen – ABG Sundal Collier

David Round – BMO Capital Markets

Al Stanton – RBC

Mark Wilson – Jefferies

James Thompson – JPMorgan

Michael Alsford – Citi

Ed Westropp

Thanks very much, Sarah. Welcome, everyone, to the Q1 2020 Call from Lundin Energy. It’s been an eventful morning already. And I’ll hand over to Alex Schneiter who will take you through the highlights. And after that, Teitur will take you through the financials, and then we’ll do Q&A at the end. Thanks very much.

Alex Schneiter

Thanks, Ed, and good morning, everybody, and very happy to be here for this first quarter of 2020. But let me start right away with the highlights. And on the others, of course, I will add up Point number 7, which is the news we just all received with the Norwegian cuts.

But starting with the – from the start. The – first of all, on the coronavirus, it’s important to state that we had no disruption on production. I’m very pleased at how this is – how the industry has reacted. And today, we feel very comfortable with the procedures we have in place, and as I said, we had no disruptions in our production. Our production for the first quarter has been very strong. We are actually on the upper end of the guidance with over 152,000 barrels of oil equivalent per day. And you will see later on that as a consequence of this performance, we’ve upgraded our guidance for the year. Of course, just to be clear, this upgrade in the guidance is before any announcement of our national cuts in Norway.

In terms of OpEx, we continued to outperform. We’ve been producing numbers below the guidance at US$3.22 per BOE. And again, we actually now have a revised guidance below $3 for the year. So very, very pleased with this performance, and you also – this is not news, it was already announced previously. Johan Sverdrup not only has achieved Phase 1 plateau ahead of schedule. But also Phase 1 now has increased from what used to be 440,000 to 470,000 and fulfilled to 690,000. And in actual fact, we’ve reached and we’ve achieved in April the 470,000 barrels of oil per day. So really, really pleased with John Sverdrup and how this project continues to outperform.

On the numbers, we’ve generated a strong free cash flow of $400 million for the quarter. And for the first quarter, obviously, we had still a strong oil price, on average, about $50 oil price per barrel. And of course, as we enter into the second quarter, we are nowhere near the same oil price, and it will be, obviously, a more difficult quarter.

And finally, in terms of the resilience to the oil price, we’ve done several projects which has led to a liquidity improvement for the company of close to $800 million, and I will say a few more words on the next slide. So we were resilient in January to low oil price. And with the different actions we’ve taken, the company is more than ever resilient to low oil price. So very pleased with the position we’re in.

And as I said, the seventh bullet point, really, we should add on these highlights is the announcement that Norwegian have just made last night where there will be a national production cuts that will be spread evenly between the companies. What I would like to say at this point is that it’s difficult for us to tell a lot more. There’s going to be a consultation period over the next few weeks, where discussion will be taking place, depending also on certain fields and technicality. And of course, once we have a clearer vision in terms of the impact that it has in our fields, then we will come up to the market with a revised guidance. So that’s probably to be anticipated in several weeks from now.

Moving on in terms of specifically to the corona crisis. As I said, we’re continuously to successfully operating in our both onshore and offshore. The main focus, obviously, has been the safeguarding of the well-being of our people. And also, of course, minimizing the risk to operations. We’ve taken a lot of actions. And I have to say, in general, the way the industry has responded, both at the government level, unions and companies, has been really, really good. And we have now contingency plan in place. And we’ve also taken steps in our existing fields where we minimize the offshore activities, so we minimize the – any disruption to production. But this reduction in activities actually has an impact to the long-term production guidance either for this year or next year or in the longer term. So it’s more rephasing of some of the activities. So overall, really pleased in how our company has reacted and how the industry now has reacted to this crisis.

In terms of resilience to low oil prices, as I mentioned before, we maintain very high quality, low-cost assets. That’s certainly the fundamental part of Lundin Energy. Just the operating cost now, we have now a revised guidance of US$2.80 per barrel, which is down to the previous guide. That’s a number of $3.40. Those are really exceptional numbers. And it’s even more exceptional when you think about Johan Sverdrup who are actually having cost of below $2 per barrel. So it’s foreseeable in the future, as Johan Sverdrup grows, that we will be able not only to maintain but even go lower in terms of operating cost. And that’s – in this environment is even more important. So that’s also the results of our low cash flow breakevens. If you take the average of the next 7 years, it’s below $17 per BOE. In actual fact, if you take our cash flow breakeven post the onset of Phase 2, so from 2023, they are below $10. So an exceptional position to be in, and it’s a result over the last 15-year strategy of Lundin through organic growth and developing of new high-quality assets.

Furthermore, as I said, we’ve improved on liquidity. Specifically, we’ve now increased – we announced the market $170 million of savings or phasings, and we’ve increased now to over $300 million. Those are cost reductions and also deferrals to 2021, and includes CapEx, OpEx, and G&A and other costs. And so pleased with what the – our company and the team has done to achieve those numbers.

We’ve also entered into new corporate facilities of $340 million, which is now signed and completed. And as you know, we’ve reduced our dividend to the tune of 45%. So if you sum up all this, well, actually since the Capital Market Day improved liquidity position by close to $800 million. So as I said, we were already in a strong position, but today, we are in even stronger position.

And I think two things I would like to say. One is absolutely critical to be resilient to low oil price. And secondly, it’s also a time of opportunity. It’s possible that in the coming months, we will see opportunities, and we want to be in a position to be able to enter should we wish to do so to enter such opportunity. So to put – in essence, put the company in a position of strength.

Moving on to the next slide. This is a more detail in terms of our production. I think the highlight – I would say two highlights here. First of all, due to the result of the first quarter and the operations of both, in particular, Edvard Grieg and Johan Sverdrup, we increased our full year guidance now to 160,000 to 170,000, so a midpoint 165,000. Again, I would like to reemphasize, this is prenational cuts in Norway. And we will come back once we have clarity and when we’ve gone through the consultation period with a revised guidance. And secondly, this is now the ninth – 19th quarter in a row that we have been at or above guidance. So at this point, as I said, we will give you more clarity once we have gone through this consultation period into what the impact will be.

It’s perhaps – if you look at the press release of the Norwegian that was made last night, if you take the weighted average of the oil production cuts, it accounts for about 8%, excluding any delays in the field. But that doesn’t mean that you can apply 8% to our production. It’s something we have to be – will become clear once we have gone through the consultation period.

Moving on to the industry, on the operating performance.

I think the – one of the reason, of course, we’ve outperformed in terms of production and low operating costs has been a fantastic production efficiency. I mean 99% for Edvard Grieg, it’s an exceptional number; 98% in Alvheim; and also Johan Sverdrup, 89% for our field that just started. They are all very good numbers and very high-efficiency numbers. So a splendid job done by our teams, both in Edvard Grieg, and Alvheim from Aker BP and Johan Sverdrup from Equinor. And that is what’s leading to low operating costs. In addition, obviously, as I said, we’ve seen great performance in terms of the subsurface. We continued to see outperformance in Edvard Grieg and we see a significant performance on Johan Sverdrup.

On the efficiency, also, I think it’s important to highlight, and that goes also in terms of the overall carbon – decarbonization strategy or intensity. We guided for the full year less than 4 kilograms of CO2 per BOE produced. And at this stage, we are about 3 kilogram of CO2 produced per barrel. So quite significantly lower than what we guided and significantly lower than what the world average is, about 1/5 of the average. So also very pleased. And of course, no – without any health and safety high performance, there’s no business. And very pleased with how the performance on HSE have developed, particularly in this difficult times of the coronavirus.

Moving on to the assets in particular. Starting with the Johan Sverdrup. Of course, we talked about the Johan Sverdrup for Phase 1 and the ramp-up being ahead of schedule and Phase 1 now production being higher in plateau than what was guided previously. So in terms of Phase 1, overall, we’re really pleased where we are. I mentioned the OpEx below $2, exceptional OpEx per barrel and an exceptional low carbon footprint. Going forward, of course, the focus is on Phase 2. Phase 2 is actually now over 30% complete. It’s moving according to plan. I think it’s an important statement when you take into consideration the turmoil in the last few months. Despite the coronavirus and the slowdown in economies, we’ve been able to continue to progress according to plan on Phase 2 of Johan Sverdrup. So really pleased. And so the first half Q4 2022, as guided, remains fully on track.

In terms of the ramp-up, which is the next slide, I think a lot has been said already, ahead of schedule and higher. I think it’s important to realize that in – during the month of April, we’ve achieved 470,000. Not only we’ve exceeded the 440,000, which is the previous guidance, but we’ve achieved 470,000 barrels of oil per day. So an exceptional performance from Equinor, the operator, and the Johan Sverdrup field. This is based on 10 wells. And currently, we’re drilling well #11, which will be coming in production during the second quarter of this year. And also from the drilling side, very pleased with the performance. So overall, very happy on how Johan Sverdrup is performing and where we’re heading.

In terms of Edvard Grieg, the strategy remains the same, is to maintain the capacity of the field full for as long as possible. Number one, Edvard Grieg continues to outperform. And I think the best way to reflect this is in terms of the water cuts, for instance. We still see low water cuts in Edvard Grieg, which is good news. And we see still a very high uptime, as I mentioned before. So in terms of the Edvard Grieg itself, the field is doing really a fantastic job and the team is doing a fantastic job.

We’ve actually deferred a shut – deferred our planned shutdown in 2020, which is now moving to 2021, which is increasing, obviously, the Edvard Grieg production for the year. And we also defer the infill drilling which was due to start this year to next year. I think the important thing is to note is that the deferral of the infill drilling has no impact on our guidance and has no impact on the production of the field itself. And this is because we have ample capacity from the existing wells as we speak. So the fact that we have deferred the infill drilling actually doesn’t impact our production.

In terms of the full, we stated in December that we’re going to fully electrify Edvard Grieg. That’s ongoing as per plan. And of course, we have growth opportunities that we are currently working on, and I’m thinking about Solveig, Rolvsnes and also later on the Merckx exploration well. Solveig and Rolvsnes, both have been deferred from Q1 2021 for Solveig to Q3 ‘21, and Rolvsnes has been moved from 2021 second quarter to second quarter of 2022. Again, this deferral actually will not impact our long-term guidance in production. And that’s also very much again due to the fact that Edvard Grieg is continuously outperform. So overall, Edvard Grieg, it’s all going according to plan, and if anything, better than what we anticipated. So very pleased with the performance there.

Few words about Solveig. Solveig, if you remember, it’s a development of subsea tied back to the facility at Edvard Greig. We have a range between 40 million to 100 million barrels of oil equivalent, and we also have very low breakeven, below $30 per barrel. Rolvsnes, which is a basement play, stands between 15 million to 80 million barrels of oil equivalent in range. Again, the plan there is to bring one well into production to the platform and assess the potential of the basement play. So this now will be tied back into the platform and producing in 2022. And this is what you really see on the schedule with first oil Solveig on Q1 2021 and then followed later by Rolvsnes in 2022.

Moving on to Alvheim. I would say, Alvheim continues to outperform. Still, despite the fact that Alvheim is a very mature field, the operating cost stands at $8, which is a good number considering the age of the field. In Alvheim, same story as Edvard Grieg, that the shutdown has been deferred from 2020 to 2021, and we will see two further infill wells in 2020. And really, the game plan in Alvheim is just to reduce as much as possible the decline of the field by drilling new infill wells. And we also have the Frosk development which we anticipate, which is project sanction towards mid-2021. But overall, also very pleased with the performance on Alvheim and very pleased with the Aker BP as the operator.

In the organic growth, we’ve seen several movement. But before we talk about the plan, perhaps it’s worth highlighting that today, with the wells we drilled, we already had one success, Iving, which is likely going to be a commercial subsea tieback. And it’s likely going to be a project we’re going to do seismic and appraisal this year and the appraisal probably next year. So it’s something we’re going to move quite actively in the – certainly towards 2021 to try to mature this discovery into a commercial discovery.

We have four projects underway. We’ve discussed some of the main ones in the previous slides. And in terms of the remaining wells now, we will have three remaining wells. And so the program overall has reduced, and that’s because we phased out some of the drilling activities. So in total, the total activity in terms of exploration appraisal will be six wells. Three have been drilled, one discovery made and three remain to be drilled, which we’re going to see the results or the activity on the fourth quarter of this year. So we remain active. But of course, we’ve phased out some of the activities to 2021. But still very active in terms of also new areas and new opportunities that we will see developing over the years.

And then my last slide, before I hand over to Teitur. This is in terms of decarbonization strategy. I would say the key message is that nothing has changed despite this environment. The ambition is to become carbon-neutral – or the target, more than the ambition, is to be carbon-neutral by 2030 from our operations emissions. And as you’ve seen on the previous slides, the target we set ourselves, for instance, for 2020, 2022, less than 4 kilogram of CO2 a barrel produced is actually we’re achieving better than that, and we are on track to achieve all our ambition. And our strategies is firmly in place to achieve our carbon neutrality by 2030. We’ve completed also the farm-out of our wind project and we are on track with the hydropower project for first power in the second quarter of this year. So overall, also very pleased on that side.

So with that, I think it’s over to you, Teitur.

Teitur Poulsen

Thank you very much, Alex, and good morning, everybody. So starting off here with the financial highlights for the quarter. I think we can characterize this as yet another very strong financial performance for the quarter. Obviously, most of the Q1 was still shattered from the impact of the COVID-19, a scenario which will obviously change as we go into Q2. But sticking with the first quarter. Sales volumes of slightly higher than what we produced, overlifted. So 153,000 barrels oil equivalent per day was the sales volume lifted, and that was split into 17.6 oil cargoes and then some gas and condensate in addition to that.

Price realization has been good for the quarter, somewhat negatively impacted by timing of liftings, but nevertheless, realizing $48 a barrel on oil. And the blend of gas and condensate at just over $25 a barrel oil equivalent. Alex talked about the low costs we have in the portfolio, and that metric keeps improving. So as Alex already said, the Q1 $3.22 OpEx per barrel, and the oil and gas CapEx and E&A, below $200 million of spend, and renewable 26 – $27 million of spend. And this all translated into very strong cash flow from operation, actually, a record number for the company, just below $640 million. And the free cash flow was in excess of $400 million, which effectively was implicit guided upon given that we guided net debt.

So if we look in more detail on the next slide on the key financial metrics. For $581 million of EBITDA generation for the quarter, which is up 45% relative to same period last year. And as you can see in the table, at the top here, that’s driven by higher sales volumes, obviously, 92% up, and the lower oil price utilization of 26% lower than same period last year. On a per share basis, the improvement is even better, 74% up, given the 16% share cancellation we did in the summer last year.

As I said, cash flow from operations, 600 – just below $640 million. Obviously, underlying performance has been very good from the portfolio, but also somewhat helped by a working capital release of over $140 million in the quarter. We had quite a large working capital build at year-end last year with a very back-end loaded lifting program from Johan Sverdrup in particular, so we had significant accounts receivables.

So CFFO up 85% compared to the same period last year. And on a per share basis, we achieved $2.25 per share in CFFO, which is 120% improvement. And as I said, free cash flow before dividend payments, $407 million, which is up over 300% on the same period last year. So again, a record quarter of free cash flow generation pre-dividends.

The net results for the quarter were significantly impacted by mostly noncash FX losses of close to $360 million. So that gave us a net result after tax of negative $310 million. But when we net out mostly the FX loss, plus some other noncash accounting items, the operational net profit after tax was $66 million, which is up 12% on the same period last year. And the adjusted net profit on a per share basis is up 35% compared to the same period last year.

Then going to the next slide and looking at the price realization. You can see in the previous four quarters, our oil price realization has been very close to the Dated Brent. And I emphasize the Dated Brent as opposed to ICE Brent because we are pricing off Dated Brent, as everyone in the North Sea does. So you can see, as I said, that the oil price realization was just below $48 a barrel, per barrel of lifted crude oil for the quarter versus the Dated Brent average for the quarter was just over $50 a barrel. So this was partially negatively impacted by the timing of our lifting, around about to $1.50 per barrel negative impact on that. And then the delta has been in the pricing of the physical crude relative to Dated Brent.

And of course, what we have seen in early April where the Dated Brent differential traded at historical low levels. At one point, it was minus $10 differential to the ICE Brent, which is unheard of. But that has somewhat recovered, and I think, at the moment, is trading at around about $5 negative. So given that we are trading off Dated Brent, that clearly is going to have a negative impact on prices in Q2. And the Dated Brent is an indication of an oversupplied physical market, which is not a surprise to anyone. So that’s also going to filter into our physical marketing of oil in Q2, where we have a weak market situation at the moment.

But the good news is that our marketing team has been very proactive through this turbulent time. And at – where we sit today, we’ve actually sold all our barrels right out to the end of June. So those cargoes have all been placed with various customers, and most of those cargoes are going to China.

If we then go to the next slide and look at the operating costs in a bit more detail. I think the operational team in Norway is continuing to do a fantastic job in keeping costs under control. You can see the absolute costs, just over $50 million for the quarter. And if you look at the dark blue part of these bars, which is the base OpEx, you can see how that’s trending down, also helped by a weakening NOK, given that most of our operating costs are incurred in NOK. But also, helped by lower electricity prices and generally down manning the platforms to mitigate the COVID-19 issues. So certain nonessential maintenance has essentially been deferred. So all of these items are obviously helping to reduce our costs.

And as Alex said, our new full year guidance now stands at $2.80 per barrel oil equivalent. So that’s a 17% reduction on our previous guidance of $3.40. Also helped by an increased production guidance, and that’s pre the Norwegian national cuts, and also helped by a weaker NOK. We are now assuming NOK 10 to the dollar as the average FX rate for the full year 2020.

In terms of tax rate, we – on the face of the – or on the face of the income statement, we actually reported a pretax loss, and then we had close to $300 million of taxes on top of that. Most of it is current. We are out of tax loss positions in Norway now. So $260 million of current taxes and $38 million of deferred taxes. And this is roughly in line with what we have guided at the Capital Markets Day. So if you take the current tax charge as a percentage of EBITDA, it’s around about 44% current tax rate versus our guidance at Capital Markets Day at $50 for the full year at 42% at current tax of EBITDA. So this is trending very much in line with guidance.

If we then look on the right-hand side of this slide and reconcile back to our adjusted net profits, where we take out the noncash or the FX losses and some other noncash accounting items, you can see we had a pretax profit of just below $360 million, and the adjusted total tax charge then is $290 million, again, most of its current, and that yields an adjusted tax rate of around about [Audio Gap]. The tax rate in Norway in isolation was 73% for the quarter. And then we had certain financial interest rate swap losses, et cetera, through our Dutch holding structure, which therefore has pushed up the effective rate to 81%.

On cash flow generation and the liquidity position, the company is still in a very, very strong position. I mean we’ve talked about the cash flow generation. Just splitting it out into more detail on the left-hand side here. As I said, the organic cash flows from operation, just below $500 million for the quarter, and then we had a release of working capital of $140 million. So total cash flows from operations of $640 million. Our investment levels totaled $230 million for the quarter. Just below $200 million, as I said, on oil and gas activities. And then around about $30 million in renewable investments in terms of the wind farm in Finland.

The hydropower project in Norway has yet not completed. We expect that to complete in this quarter. So therefore, there has been so far no cash outgoings on the hydropower project so far, but as I said, we expect [Audio Gap] that in Q2. So that’s generated us $406 million of free cash flow. The last quarterly dividend payment was paid out in January of $105 million. This relates to the 2018 dividend. And in April this year, we paid out the first installment of the 2019 dividend of $71 million, which was after quarter end. So not reflected in these numbers. And then as we said, we reduced the debt numbers from $4 billion at the beginning of the period down to $3.7 billion at the end of Q1.

Our liquidity position at the end of the quarter remained very, very solid, indeed. You can see here over $5 billion of committed credit lines versus a net debt drawn of $3.7 billion. So in excess of $1.3 billion of liquidity headroom at the end of the quarter. But obviously, as we have previously guided, our RBL starts to amortize later this year, and by end of this year, is amortized down to $4 billion. And to mitigate that amortization schedule, as Alex mentioned, we have entered into a new corporate facility of $340 million, with five of the existing banks within the RBL facility. This is a relatively short-term facility. It runs out to mid-2021.

We have some extension options on that. But with that $340 million facility, in addition to the renewable facility of $160 million, it means that even taking account of the amortization of the RBL, we still have committed credit lines at the beginning of next year of $4.5 billion. And obviously, we are still looking at the refinancing exercise which we flagged at the Capital Markets Day and which we plan to carry out this year or next year. Clearly, with current market conditions, it’s not an ideal time to enter into any refinancing negotiations, but we will monitor that situation as we go through the second half, and then we will assess whether we refinance in the second half this year or whether we delay that until 2021.

Alex mentioned the measures we’ve put in place to improve near-term liquidity for the company, totaling over $780 million pretax. And you see the split here at $315 million of mostly phasing, also somewhat helped by the fact that we have assumed a weaker NOK of NOK 10 to the dollar for the rest of this year. And then we – I mentioned the credit facility. It is $340 million. But with the farm-out of the wind farm in Finland, one condition was that we had to cancel $100 million of availability in the renewable facility in the quarter as well. So the net additional credit commitments during the quarter were $240 million.

And then on the dividend reductions, as you know, earlier in the year, we were one of the first to take measures to reduce dividends, where we reduced our original proposed dividend of $1.80 per share down to $1 per share, which was then approved by the AGM at the end of March. So as I said, pretax, $780 million liquidity improvement. But even on a post-tax basis, this liquidity improvement would be in excess of $700 million, so a material improvement for the company.

Then just to recap on the guidance. We outlined all this in the report result as well. So production now, 160,000 to 170,000 barrels. This is again pre the Norwegian cuts. So a midpoint of 165,000 barrels oil equivalent full year, which is a 6.5% improvement on the previous midpoint guidance of 155,000 barrels oil equivalent production costs, production OpEx costs, we have mentioned already an 18% reduction. And then we look at the sum of the capital items here on CapEx and E&A decommissioning and renewable investment, that is a cut of $285 million, equating to a 22% expenditure cost compared to the original guidance given at the Capital Markets Day.

And the last slide I have here before handing over to Alex again for concluding remarks is just a recap on our new dividend schedule in terms of ex dividend dates and expected payments dates. And as I said, the first quarter installment has already been made in early April, with the second quarter coming up on the 8 of July in terms of payment and ex dividend 2 of July.

So with that, I will hand back to Alex for some concluding remarks.

Alex Schneiter

Yes. Thank you, Teitur. And only one slide, so we can move quickly on to the question and answers. But in summary, really, I’m very pleased with the quarter results. Strong production performance, with an increased guidance pre any Norwegian cuts so – and with a midpoint now, 165,000, with the revised guidance. Johan Sverdrup, plateau production rates increased and achieved, and during – in April, achieved 470,000 barrels of oil per day. And really very pleased in general with the operations in Johan Sverdrup. Operating costs, we continue to lead in terms of our low operating costs, with the revised guidance standing now at $2.80 per barrel. And taking into account on our major assets, the Johan Sverdrup has operating costs of below $2 per barrel.

We’ve taken a lot of action in the last three months and since we met at the Capital Market Day. A, in terms of the coronavirus and all the impact that coronavirus could have had, and we see no production disruptions. And the second thing since the Capital Market Day is that we’ve significantly improved what was already – we were already in a very good position and resilient to low oil price where we further improved that position with about $800 million of improved liquidity from what already Teitur described based on a new facility in place, reduction in costs, CapEx costs, and of course, also the combination with reduced dividend.

And access to our facility today, our debt is $3.7 billion, with the facilities or access to capital of over $5 billion, so ample liquidity. And our plan remains the same, is to retain a material dividend. Despite that we reduced the dividend, it’s still standing at about a yield of close to 5%, depending – market these days fluctuates quite a lot, but it’s about 5% yield, and our plan is to maintain a sustainable dividend. And should if the environment improved, it’s our intention to maintain or increase dividend over time. And of course, lastly, but very important, continue to have safe and responsible operations.

So I think from that, we’ll leave it to the operator to coordinate the question and answers.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from the line of James Hosie from Barclays. Please go ahead. Your line is now open.

James Hosie

I appreciate it’s too early to properly revise guidance for the production cuts being imposed. But given Lundin will be required to shut up some cash-generative barrels, can you give any comment on whether it’s right to prompt further CapEx cuts this year? And also, could it require you to revise your dividend again?

Alex Schneiter

I can take – in terms of CapEx, I mean this is the – we call it the Phase 2 of CapEx reduction of phasing, which we announced $170 million and now we say $300 million. Currently, there is no plan to further reduce or phasing out CapEx. Of course, internally, we’re looking at all the options we have should the market continues to stay low or even lower. But at this moment, even including a reduction on the – or the national announcement made by the Norwegian, there’s no plan to further reduce our CapEx.

The second one, your question on dividend, I think the straight answer is no. We’ve reduced our dividend from $1.80 to $1, and we feel very comfortable with that level. And we have no intention to further reduce the dividend this year. Of course, coming next year, when we have to restate another year of dividend, there will be further discussion with the Board. But for this year, certainly, we have no intention to further reduce the dividend.

James Hosie

Okay. Just on that last comment then. Are you slightly reading back from the commitment previously to have sort of a growing dividend in the future? Is it potentially that we should look at this dividend of $1 this year being – you’d hope to maintain that next year?

Alex Schneiter

The plan hasn’t changed. The plan is to have a sustainable dividend and grow dividend over time. Of course, we can’t completely ignore the macroeconomics. I always said should – as on comparing same macroeconomics, we will maintain that strategy. Now if I go to the extreme, if the oil price remains at $10, obviously, our view will be slightly different. But I’m certainly – I believe the market, it will improve, particularly as the lockdown is being progressively lifted. And then I think we will – the macro economy will be different, and that strategy will remain the same, which is maintaining current dividend or increasing.

James Hosie

Okay. Thank you.

Operator

Thank you. Our next question comes from the line of Yoann Charenton from Societe Generale. Please go ahead. Your line is now open.

Yoann Charenton

Good morning, gentlemen. I will have two question on the dividend and taxation. So the first one, on dividend. Following the prudent reduction you announced, is this DPS level of $1 per share set in stone? Will future decisions on the dividend be made quarterly rather than annually? And how to put this time line for dividend revision in perspective with the refinancing milestone?

Teitur Poulsen

Yoann, and did you have a question on tax?

Yoann Charenton

Yes. I can add one on taxation. I mean clearly, today, the Norwegian government has moved first with these production restrictions. And you clearly – you were very clear on the fact that you come back on to this later. But in view of possible temporary tax changes, at the same time, if all CapEx-induced tax deductions were to be front-loaded in year one, as it is being proposed and currently being negotiated at the industry level, what would be the rough impact on your CapEx plans? And what is your view on likely project that could be fast-tracked rather than deferred?

Teitur Poulsen

Yes. I mean I can take on the dividends, Yoann. I mean, as Alex said, the cut was announced and proposed at the AGM in March of – reduced from $1.80 to $1. The AGM has now approved that, and that is technically an annual approval, which we then pay out in quarterly installments. Of course, the dividend we are paying is always mandated by the shareholders. So if the shareholders give us a revised mandate at any point in time, we as a company obviously have to honor that and react accordingly. But as Alex says, the base plan for us is to grow dividend. If you recall, the original dividend policy was to sustain dividends even at the oil price is below $50 per barrel. But clearly, going from $50 down to $10 is a different scenario, as Alex says. So as market will normalize and recover again, then you should expect that our originally stated dividend policy will remain in place, and we will adjust dividends according to our financial performance as we move forward.

Alex, I don’t know if you want to ...

Alex Schneiter

On the CapEx.

Teitur Poulsen

On the CapEx.

Alex Schneiter

And on the taxes. Yes. I mean right now, we’ve – I would say, we’ve done the majority of our phasing on CapEx. And we have to see what the taxes recommendation are coming with. We obviously will evaluate. But I understand that taxes will impact the year 2020 and 2021, so in that basis, what we’ve done in our strategy will remain unchanged.

In terms of your specific question, in terms of accelerating existing discoveries to be able to submit. I suppose what you meant our plan of development to take advantage of any tax relief. Obviously, that’s very much dependent on what we also have in our hands. So it could have a change of strategy when it comes to new opportunities. And for the existing opportunity, really, the only one I can think of at this stage is Iving, which is the discovery we made this year, which we could appraise next year and could take advantage of our tax relief. And so that’s always something we’re going to monitor as we understand better what and if there is a tax relief coming.

Yoann Charenton

Very clear. Thank you.

Operator

Thank you. And our next question comes from the line of Alwyn Thomas from Exane BNP. Please go ahead. Your line is now open.

Alwyn Thomas

Good morning. If I could just ask a question, perhaps a broader question to begin with this, on the cash flow and guidance for the year. I appreciate there’s a huge number of moving parts at the moment. But I guess given your net debt at $3.7 billion at the moment and the amortization of the RBL towards the year-end, are you able to provide any rough guidance on where you would expect year-end net debt to be in a broad range in the sort of $30 to $40 environment? Just sort of looking, I think, to try and get some sort of free cash flow proxy for this year on the restated sort of Brent oil price levels. And secondly, just to follow-up. I wanted to ask, is there any risk to Sverdrup Phase 2 because of the COVID impacts that we’re seeing so far?

Teitur Poulsen

Okay. Alwyn, on your first question, what we estimate from this point going forward is that the company should be cash flow breakeven at around about $28 realized oil prices from April to year-end, which will make the sort of full year average breakeven at around about just over $30 a barrel, $33 a barrel. So in that scenario – and these are all numbers pre-dividend payments. In that scenario, we will therefore keep debt levels flat compared to the debt we had at the beginning of the year, which was $4 billion. So that gives you a rough estimate. And clearly, with potential production cuts from the Norwegian government, we may have to revise some of these numbers. But that’s a rough sort of guidance for you in terms of liquidity outlook for the company.

Alwyn Thomas

Yes. Sorry, if I could just ask on that. What sort of realized Brent price discount are you assuming – sorry, what realized discount to Brent would you be assuming do you think for that at very difficult at the moment?

Teitur Poulsen

Yes. That is the realized price we are assuming. So assuming we realize $28 a barrel from now to year-end, on average, that’s just remaining flat.

Alwyn Thomas

And that’s pre-dividend?

Teitur Poulsen

Yes.

Alex Schneiter

Yes. And I guess to your second question was in relation to Johan Sverdrup in Phase 2, maybe I’ll take that one and the COVID-19 impact. As I said, so far, we have about 30% complete on Phase 2. And in actual fact, we are right on track, and we were almost kind of surprised that things went perhaps even better than we anticipated. And the – there’s been little disruption. Some of the yards are in Thailand, some in Norway, some in other parts of the world. But in general, we haven’t seen any disruptions. And for the time being, certainly, we remain – we maintain a target of fourth quarter 2022 for first oil. But right now, we don’t see any delay on Phase 2 or any impact on the COVID-19 situation.

Alwyn Thomas

Okay. Thank you very much.

Operator

Thank you. Our next question comes from the line of Anders Holte from Kepler Cheuvreux. Please go ahead. Your line is now open.

Anders Holte

Yes. Good morning, guys. Thank you for taking my questions. I have two questions, if I may. First, I appreciate that these are, as you mentioned earlier, on several occasions, difficult times. So if you could just – could you give us any flavor on what kind of oil prices you are currently now realizing in the cargoes that you’re shifting off from Edvarg Grieg? That will be good. In terms of any color on the current discounts that you see towards the price we see on our screen. And then secondly, as the production cuts gets rolled out, will you take the opportunity to do some more maintenance work, especially on Grieg? And therefore, could you then expect a repeat performance to be sort better for next year given that you could front run some maintenance for that asset?

Teitur Poulsen

Yes, Anders. On the price realization, obviously, we realize it’s a hot topic these days. And I can reiterate what I said in the presentation. I mean the good news for us is that we have managed to actually place and sell all our cargoes to the end of June. So our marketing team has done a fantastic job, because with the oversupplied market at the moment, actually just selling the cargoes, in some cases, is an issue because you’re struggling to find the buyers. And the way we’ve done that, we’ve teamed up with some of the other sort of producers from our fields and done joint liftings, with VLCCs going to China for the most part. And the pricing, obviously, I can’t disclose that in detail here.

But what we clearly saw, as we placed the April barrels, and then the May and then the June, that we oversupplied, the nature of the market got increasingly worse as we went through those three months. So whilst we have historically have achieved a premium on Edvard Grieg, for the most part, I think what you should expect for Q2 is that, that premium will no longer be there. And in fact, we’re selling all our barrels at a discount to the Dated Brent. Obviously, the Dated Brent order sphere, we don’t know yet because it’s about to be pricing on a daily basis. But the physical discounts to Data Brent will be somewhat higher in Q2 than what we have seen historically. I don’t think I can disclose much more than that.

Anders Holte

Okay. So can I just – so in other words, you have actually managed to ship all your cargoes up until June?

Teitur Poulsen

Yes.

Alex Schneiter

Yes. And then your second question was, based on the production cuts that Norway has announced, will we change perhaps our strategy? But you mentioned maintenance. Now first of all, we still – there’s a consultation period, and we still need to understand ourselves what it means. We obviously have the main figures. And as I said, the weighted average for – in terms of reduction is about 8% for the – from early June to end of the year.

Now the two areas where we have moved maintenance actually from this year to next year is Alvheim. The operator, Aker BP, has moved the maintenance on the Alvheim field from this year to next year. And we made a decision to move our maintenance of Edvard Grieg from this year to next year. This will not change. Now once we have more clarity on the cuts and what they mean and how they impact both Edvard Grieg and also Johan Sverdrup, of course, any opportunity, we will have to optimize operations also in looking at next year. Of course, we’re going to look into it. But pure maintenance, those have been moved now certainly for Alvheim and Edvard Grieg, and I don’t foresee this to change.

Anders Holte

Okay. Thank you.

Operator

Thank you. Our next question comes from the line of Robin Haworth from Stifel. Please go ahead. Your line is now open.

Robin Haworth

On the fact that you forward sold your cargo…

Operator

Are you on mute?

Robin Haworth

Hello? Hello? Can you hear me okay?

Teitur Poulsen

Can you please start again?

Alex Schneiter

Yes. From the beginning. I think you have to start from the beginning. You were cut off – cut out.

Robin Haworth

Sorry about that. So just on the forward sales of oil, I was wondering if – with production cuts being mandated by Norway, you could find yourself in a position where you’ve sold barrels that you don’t have in June. And then second question, on the tax reform, I know I guess we obviously have to see what it says. But is there any scope for a tax change to involve depreciation of prior year’s CapEx? So you’re obviously sitting there with a large undepreciated asset with depreciation over four years. Is there any scope for that to be accelerated into 2020 or 2021?

Teitur Poulsen

Robin, yes. On your first question, I asked exactly that question of our marketing guys. What the scenario is if – because, as I said, the June cargoes have already been sold. And what is the scenario if we don’t have the barrels to sell at that point given the cutbacks? But my understanding is that we will still be awarded those barrels if we have entered into sales contracts and then that to be adjusted from July onwards to the various lifting schedules that we have out of the terminal. So I believe that will be managed through sort of just phasing out of June into July where we will have fewer barrels to sell in that case.

And on the tax breaks, our understanding, I mean we haven’t seen any of the details as no one has. But as Alex said, our understanding is that you will get 100% or potentially, once the proposal is – that you can get 100% on tax depreciation in 2020 and 2021, but we have yet to see the details. I have certainly not heard any talk of that being retroactively applied to prior years. But as I said, we have seen no details at the moment, so we’re all speculating at this point.

Alex Schneiter

Okay. That’s great. Thanks very much. That’s helpful.

Operator

Thank you. The next question comes from the line of Peter Nilsson [ph] from SEB Markets. Please go ahead. Your line is now open for your question.

Unidentified Analyst

Hello, good morning, and thanks for taking my questions. First, one way of quick questions on the changed OpEx per barrel guidance. How much is the impact of oil change FX rate? And second question, you already discussed that briefly a bit. But do you just have some very high-level thoughts around NPS production cuts? I mean which field could potentially maybe impacted? Or can you small fields fills with high OpEx or low OpEx? Any thoughts around that would be very useful.

Teitur Poulsen

Yes. Peter, on the OpEx, so what we said is the reduction per barrel is 17%, and roughly 12% of that relates to the change in FX assumptions. And the delta is then higher production and some actual OpEx, absolute numbers being phased into next year, lower maintenance and manning.

Alex Schneiter

Yes. Then I guess your second question was in relation to the cuts in Norway. And – which will affect low, high OpEx? At this stage, all I know is what I read in the press release that you’re also seeing. And my understanding is that, now we’re going through the consultation period, all the different fields will be treated equally. But of course, there will be some technicality. We also know the cross-border fields were not being included. And then maybe in fields the are – either not necessarily related to OpEx, but fields that they have some technical issues who could not be treated the same way than others. So it’s very early days. I also need myself to understand this. and I think this next few weeks of consultation will be exactly that to understand how we’re going to share the pie of the proposed reduction. So that’s – at this stage, I would say, it’s not very clear to me yet.

Unidentified Analyst

Okay. Just regarding production cuts, I just noticed that last time, Norway’s production in 2002, it was mainly the very big fields that were impacted. So do you see any obvious reason this time for that Sverdrup will be less impacted than other fields?

Alex Schneiter

Difficult to say. I think all I know today from my own knowledge is that the government in Norway wants to treat as best – as much as possible everybody equally. You’re right, in the past, I guess it was now many years ago, it was four or five fields who took the majority of the cuts. But you have to remember at that time, there were also fewer fields in Norway in large fields. And so this time, my understanding is that everybody will be treated equally. But of course, it will be dependent on the other technicalities. So it’s early days to make any other statements. So we will see in the next few weeks what the final results. And as we said, once we have a clear pictures, we will make that as soon as we know public. And we will come up with also a revised guidance and the impact that has in oil fields, primarily for us will be obviously Edvard Grieg and Johan Sverdrup.

Unidentified Analyst

Sure. Understood. Thank you.

Operator

[Operator Instructions] The next question comes from the line of Karl Schjøtt-Pedersen from ABG Sundal Collier. Please go ahead. Your line is now open.

Karl Schjøtt-Pedersen

Hi, guys. Two questions, if I may. The first is kind of a follow-up on Peter’s question regarding FX components, but in this regard to the CapEx guidance, meaning how much of the CapEx rate reduction is associated with FX? And the second question is, if we see a tax exemption or change to the tax system, as implied by the Norwegian Oil and Gas Association, that you get cash refunds for investments in 2020, 2021. What do you then anticipate – and since you also said that you have, I guess, only Iving to push forwards in terms of sanctioning new project, what will then do with the cash that is injected into the company? Is it debt reductions? Or is it any potential for further dividend?

Teitur Poulsen

Yes. I mean on the FX impact, on the CapEx phasing and saving of over $300 million, I think just less than 1/3 is FX related or thereabouts. Talking from memory here, but I think it’s roughly that sort of order of magnitude. And again, on the tax changes, we keep speculating. We haven’t seen any details. But clearly, any cash tax savings through this year and next year, we will have to assess in the totality of the business, how that excess cash is best allocated. So before we know the details of this, we’re not going to jump to any conclusions in terms of how that’s allocated.

Karl Schjøtt-Pedersen

Okay. Thank you.

Operator

Thank you. The next question comes from the line of David Round from BMO Capital Markets. Please go ahead. Your line is now open.

David Round

Good morning, guys. We’ve probably covered year-end liquidity expectations. But can I just ask what levels of liquidity you are comfortable with, particularly given the uncertainty of both Brent and the Norwegian cuts? And I suppose it’s really a question as what level are you comfortable with before you are forced to maybe refinance earlier than you would perhaps want? And is it possible to upsize the new corporate facility?

Teitur Poulsen

Yes. I mean, historically, we’ve been running with a liquidity headroom, I would say, of plus/minus $1 billion. And I think given that as a company, we are – as we look at the refinancing and how we look at this going forward, I think that will still be the planning assumptions, that we ideally would want to have around about $1 billion of liquidity headroom for any unforeseen events, or indeed, for M&A opportunities.

Now clearly, as we move towards the back end of this year, when the RBL does amortize, I mean what are the options? We could, as I said, refinance in the second half this year. That’s very much to be dependent upon market conditions because the driver for refinancing really is to get better commercial terms as our credit metrics continue to improve with Johan Sverdrup ramping up. But if that’s not achievable relative to what we already are paying on the RBL, then it defeats the purpose of refinancing this year. In which case, we will delay it until next year.

And then we would have to look at the liquidity position as we go into next year. And clearly, the lowest hanging fruit on that front will be to go back to the RBL syndicate to amend the amortization schedule as we go through 2021. And we – through the determination of the RBL, we’ve already had preliminary discussions with RBL banks in looking at that as an option, and that looks pretty doable to me. So we will see. And we just have to monitor, first of all, the market condition on the refinancing, and then, obviously, the market condition on the oil and gas prices as we move forward.

David Round

Okay. Understood. Thanks, Teitur.

Operator

Thank you. The next question comes from the line of Al Stanton from RBC. Please go ahead. Your line is now open.

Al Stanton

Yes. Most of my questions have actually been asked. So I just want to go in a slightly different direction if I can. In terms of exploration and new opportunities, I suppose most of the attention so far has been deferral of spending. But I was wondering whether there’s any wells that you particularly like more than others, and you’d rather have a bit more and reduce somebody else’s spending as a result. And maybe actually, if you’re set to benefit from potential tax changes, whether you should be restocking the cover. So I’m just wondering if whether any of management time is being reallocated to new opportunities rather than just fighting fires.

Alex Schneiter

Yes. It’s a good question, and the answer is definitely. I mean we’ve always been very active on that front. I mean there are several ways to tackle this. Number one is, obviously, the ongoing up around, and we’ve been always very active. In actual fact, our acreage position has increased over the years, and we continuously work on those and trying to find new opportunities. And that’s one.

Second one is, like last year, we’ve done quite a few deals where we enter into new areas by farm-ins, and this hasn’t changed. And as we speak, we have a dedicated team of people just looking at all opportunities, really either being people in distress or people who are not interested in exploration anymore, and that opens up opportunity. We’ve seen that back in 2015. We had the same dilemma where, of course, you focus on the strength of your balance sheet, but at the same time, we saw opportunities, and this is no different this year.

And so, no. Rather the opposite. We’re very active. The fact that we moved some of the timing with the rigs is – this is to strengthen our balance sheet, but by no means, it has reduced our appetite for new opportunities, and then also on the bigger scale, but we have a dedicated team who is on it day and night, and that hasn’t changed.

Al Stanton

Okay. Thank you.

Operator

Thank you. The next question comes from the line of Mark Wilson from Jefferies. Please go ahead. Your line is now open for your question.

Mark Wilson

Thank you very much. I appreciate your comments on the refinancing possibilities back half of the year or 2021. But can I just move back? Tie it to this year’s RBL redetermination and the time line on that. I understand it starts in May. You just said you had preliminary discussions with the syndicate regarding amortization amendment. What is the chance of any revision to that amortization schedule in this year’s RBL redetermination, given it’s the first one since Johan Sverdrup has come on stream?

Teitur Poulsen

Yes. So we have actually completed the redetermination of the RBL. It takes effect as of tomorrow. And the total committed credit lines post that redetermination will continue to be in excess of $5 billion for the remainder of this year. So this year is fully covered in terms of liquidity. As I said, the issue is when the RBL start to amortize more aggressively from 1st of January next year. And it’s in that light that we’ve had some preliminary discussions with the RBL banks on smoothening out effectively that amortization schedule next year too. The small amortization we see in the mid of this year is a non-issue really. That doesn’t really impact the liquidity really that much for this year. It’s more a 2021 issue. So that’s why I’m saying the two options are either to amend that amortization schedule within the RBL or to do a complete refinancing. So those two are the two options, the main options we would look at.

Mark Wilson

Okay. Got it. And just a – Teitur, is that – the fact that the RBL redetermination is complete as of yesterday, is that in the results? Did I just missed that?

Teitur Poulsen

No. But that’s after Q1. And the redetermination is more of our mechanics as we see it. I mean we redetermine the RBL. We normally did it every six months. We now do it every year. But this never and we have announced as a company. It’s more of a continuous process of redetermining as stipulated in the normal agreements, which is what we have done year in, year out over the last 15 years or so.

Mark Wilson

Okay. Thanks for the clarity.

Operator

Thank you. The next question comes from the line of James Thompson from JPMorgan. Please go ahead. Your line is now open.

James Thompson

Good morning, guys. Thanks for taking for my question. It’s a bit of a combination of ones we’ve had before really, but I guess just sort of think more strategically. As Al mentioned, exploration has been pushed out this year. One of the things we really focused on is the sort of limited contingent resources. And certainly, when I see the discussions in the press around sort of tax changes in Norway, other than some small opportunities, I don’t really see that you could potentially use to take advantage of any changes as they come. So I guess the question is, how are you thinking how you think about this, Alex, in terms of do you have the liquidity available? I mean with the amortization, it doesn’t feel like certainly in 2020 that you have the liquidity to chase any kind of inorganic opportunities at scale. And so are you thinking about upscaling your facilities sort of more materially to potentially take advantage of this position and your relative strength overall given your asset base versus the competition?

Alex Schneiter

Yes. As I said, I mean, first of all, just to be clear, our appetite for the organic growth hasn’t changed. Yes. You’re right. We’ve phased, moved from some of the wells from 2020 to 2021. But that’s activity in wells we’re drilling based on some of the work we’ve done in the last few years. And a lot of the activities, actually, that are on the fourth quarter will be up towards the Alta area where we’ll be drilling two follow-up wells, one Bask and Polmak.

Now behind the scene, we remain, as I said, very active both from the upper rounds but also in terms of looking at opportunities. And when you say our ability to be inorganic deals or the capacity to do deals is kind of limited, that I would say is not true, because today, if you look at our net debt is, as announced, is $3.7 billion, and we have facilities – total facilities, if you take them all, in excess of $5 billion. So – and particularly, if we believe in the medium term, the economies will improve and the oil price will somehow improve. We do have the capacity to actually do deals. And we’re looking at every option.

And we’re turning every stones in Norway to see what opportunities and what is strategically important and not important to us. And the ability – right now, we don’t think – with a constraint in our mind, we’re looking at our every possible angle. And then depending on the opportunity, we will see how we can finance this and how we can approach it. So I would say we remain very active, and we are very conscious about our contingent resources and we’re conscious that this is an area we also need to be active. So – and remaining – regarding the taxes, as I said, right now, the one I can think of that it’s not immaterial to us is Iving, where we own 40% a equity interest, and that could be developed relatively quickly. So that’s the type of prospects or areas which we could look at as being active.

Teitur Poulsen

And James, maybe if I could add on liquidity. I mean we entered into this corporate facility of $340 million. And the reason why it’s exactly that number is that, because within the clauses of the RBL, we are permitted to incur $0.5 billion of additional debt without getting approval from the RBL bank. So that was the part of least resistance for boosting the short-term liquidity position. But clearly, if there’s a change attack or if there’s an opportunity we want to go after quickly, then we can either do subordinated bonds, which we are permitted to do under the RBL, or we can go back to the RBL and get approval to enter into further pursue additional debt instruments if we wanted to. So it’s not because of a lack of debt – raising debt capacity. That’s not the issue. It’s more legalistic mechanics in and around the RBL agreement itself.

Alex Schneiter

Yes. And I guess to finish. Liquidity is definitely important in the end. The liquidity discipline or spending discipline is important in this environment. But what we do see in this environment has been also a time of opportunities, and so we’re really active on both fronts.

James Thompson

That’s great. And just separately, just in terms of Sverdrup performance since first oil, I just wonder if you can maybe just talk a little bit about how you’re thinking about the reserve space. I appreciate we’re pretty early in the productive life of the field, but just in terms of that – well performance has been pretty good. Maybe lay out a sort of plan for us about how you’re going to look at the reserves over the coming year.

Alex Schneiter

Yes. I think right now, it’s early days. It’s difficult to make any statements. I mean we stated publicly that we believe, for instance, as one example, that we will – and now Equinor made the same statement, that we have the ambition to exceed 70% recovery factor on the field, which obviously will have an impact on reserves. But beyond that, I think we need to see more production, and there’s quite a lot of work to do. So of course, we are eager to do all this work and see the results. But I think it will take at least another good year of production before we can actually come up with more substance in terms of additional reserves or narrowing the range that we currently have.

James Thompson

Okay, that’s great. Thanks so much.

Operator

Thank you. And our last question comes from the line of Michael Alsford from Citi. Please go ahead. Your line is now open.

Michael Alsford

And to wrap it all up, so just a couple left for me. Just on the comments you made around the production outlook medium term, the delays, the sort of Solveig and Rolvsnes EWT, you’re still sort of saying that you think that production is sort of unchanged. And so I clearly understand that Edvard Grieg is performing well. So does that mean that we should see or expect higher reserves to be booked following that kind of comment? So maybe you could talk a little bit about that, would be great. And then just a quick clarification on what Teitur said on net debt. So did you say that you were expecting net debt to be around $4 billion at the end of 2020?

Alex Schneiter

Okay. I’ll start with the first one and then I’ll leave Teitur with the second one. In terms of – yes, of course, the reason we’ve been able to maintain material production despite the fact that Solveig and Rolvsnes are phased out is obviously the outperformance of Edvard Grieg, but also Johan Sverdrup. I think I answered the question regarding Johan Sverdrup in reserves. And for Edvard Grieg, same. I mean, currently, obviously, we – it continues to see low water cut, which is positive. And the team is currently doing all the work in the dynamic model, the reservoir model. And I think towards the second half of the year-end, we will come up with an assessment of any potential revision on Edvard Grieg. So it’s too early right now to make any statement. But I anticipate towards the fourth quarter, we’ll be – we’ll have more clarity, or when we announce our reserves update, reserve certification updates in the early part of next year.

Teitur Poulsen

Okay, Michael. And then on your net debt question. What I said was that if we achieved a $28 realized oil price from April to end of December, pre dividends, then our net debt will remain unchanged compared to what we entered the year at, which is $4 billion.

Michael Alsford

Great. So that’s pre-dividend? So with dividends, it will be more like $4.3 billion then?

Teitur Poulsen

Just below, yes.

Michael Alsford

Okay. So closer to the $4.5 billion of debt capacity. Okay. That’s great. Thanks so much.

Operator

Thank you. And as we have no more questions registered, I’ll now hand back to our speakers for any closing comments.

Ed Westropp

Thanks very much, Sarah. And thanks very much, everyone, for joining. I think there might have been a bit of an issue on the webcast. So if anyone’s – It lost sound for a couple of minutes. So if anyone’s got any questions or want any more clarity, don’t hesitate to give me a call. With that, thanks very much, and have a good day.

Alex Schneiter

Yes. Thank you.