Lundin reduces costs to mitigate coronavirus and low oil price impact

Swedish oil and gas company Lundin Petroleum is taking measures to mitigate the impact of the coronavirus and low oil price on its operations, including cost cuts and dividend reduction.

The company said on Monday it remains resilient against low oil prices with average breakeven oil price to achieve free cash flow neutrality before debt repayment and dividends for the next seven years is c. $17 per barrel of oil equivalent (boe).

Lundin’s action taken to mitigate any potential impact from the Covid-19 pandemic to production operations include minimizing the risk of coronavirus infected personnel travelling offshore, and, in the case of a suspected infection offshore, to isolate and transport to shore as soon as possible. The Norwegian authorities have introduced certain exceptional measures to help deal with the situation.

Lundin is also looking to minimize risk to production operations and is down-manning offshore personnel in order to maintain a minimum level of activity allowing us to produce, maintain and plan the anticipated and most important activities on the platforms.

Edvard Grieg personnel will be kept at the minimum level required, whilst preserving the infill drilling program.

Installation of the Solveig/Rolvsnes subsea equipment has started and currently the first oil date in 2021 is being maintained.

“Should we see slippage in the Edvard Grieg Area projects it will not impact 2021 production guidance as we have excess well capacity on the Edvard Grieg field,” the company explained.

Similar actions are being taken at Alvheim and Johan Sverdrup, preserving key activities and reorganizing the phasing of the activities.

Cost reductions 

According to the company, clear opportunities have been identified to support near term cash flow and liquidity position. Cost reductions of approximately $170 million (including G&A) are already being implemented for 2020. Other measures to further strengthen liquidity position are being identified such as deferring further non-committed projects.

Low cash operating costs means the production generates free cash flow at low oil prices and together with the company’s existing $5 billion reserves based lending facility (RBL), it provides the company with good liquidity to fund its committed projects. The RBL is currently drawn at approximately $3.8 billion.

The board of directors announced on March 23, 2020, the decision to amend its dividend proposal from $1.80 to $1.0 per share, in order to maintain financial prudence and provide the company with further liquidity flexibility in this challenging market.

“This will further strengthen our balance sheet and give us more flexibility in how we deploy our capital,” Lundin said.

Alex Schneiter, President and Chief Executive Officer of Lundin Petroleum, said: “Whilst we remain vigilant and prepared for many different eventualities, today our strategy remains broadly unchanged and our firm intention is to deliver on our 2020 work program as presented at our Capital Market Day in January 2020 whilst deferring non-committed projects.

“We will, along the way, continue to apply a very strict capital discipline on the business, to preserve our liquidity position and further reduce and re-phase our capital spend without disrupting our business plans.

“Although the dividend proposal has been amended, our ability to distribute cash to our shareholders in a sustainable way will continue to be based upon our Free Cash Flow generation, debt gearing levels and the medium to long-term macroeconmic outlook.”

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