Board of directors’ report

Dear shareholders

2016 marked another transformational year for the company. Aker BP ASA (“Aker BP” or “the company”) emerged as a result of an announced merger between Det norske oljeselskap ASA and BP Norge AS. The merger created a company with a diversified production base, strong balance sheet and cash flow outlook, coupled with organic and inorganic growth ambitions.

Aker BP carries out significant operations related to exploration and production of oil and gas on the Norwegian Continental Shelf (“NCS”). In addition, the company’s development projects involve workers in different countries on different continents. HSE and CSR are of paramount importance to the Board of Directors of Aker BP. Accordingly, the Board recognizes its responsibility to the safety of people and the environment, and is devoted to spending time and resources to meet all regulations and the highest HSE standards in the oil industry.

To meet the challenges of an uncertain macro environment and to strengthen its long-term competitiveness, Aker BP has established a strong platform for further value creation. The company leverages an effective business model built on lean principles, strong technological competence and industrial cooperation to ensure safe and efficient operations.

Aker BP has four main focus areas for its improvement agenda. The aim is to reduce cost and improve efficiency across all disciplines to enable sanctioning of new stand-alone projects at break-even prices below 35 USD/boe. These focus areas include 1) reorganization of the value chain with strategic partnerships and alliances to remove waste and increase productivity, 2) digitalization of the Exploration & Production (E&P) business model, 3) changing the management systems and culture to build on “Lean” by prioritizing flow efficiency over resource efficiency and 4) to bring these together inside one organisation and one business model that balances volatility and flexibility to sustain growth.

During 2016, Aker BP discovered 83 million barrels of oil equivalent (mmboe), through its exploration efforts in the North of Alvheim and the Askja/Krafla areas, both located in the North Sea. Volume additions net to Aker BP accounted for approximately one quarter of the volumes discovered on the Norwegian Continental Shelf in 2016. The company achieved an after-tax finding cost of 0.7 USD/boe in 2016 and discovered volumes that equate to about 1.9 times its 2016 production.

The Ivar Aasen development was successfully delivered in December, on time, within the total budget and without serious incidents. The Viper-Kobra development commenced production in November and has contributed to arrest the decline from the Alvheim area. The Johan Sverdrup project is moving forward according to plan and cost estimates have continued to come down as the project progresses.

Aker BP’s net production was 118 thousand barrels of oil equivalents (“mboepd”) in 2016 from five operated production hubs; the Alvheim area, Ivar Aasen, the Valhall area, Skarv and the Ula area.

Looking forward, the company has a visible organic growth path to a production in excess of 270 mboepd after 2023 (from both sanctioned and non-sanctioned projects), representing a compound annual growth rate of approximately 12 percent from 2016.

P50 net reserves at year-end 2016 were estimated to be 711 mmboe, an increase of about 43 percent from the previous year. The main cause of the increase is related to the merger with BP Norge. Mean P50 contingent resources grew to 600 mmboe, or up 84 percent compared to the previous year through a combination of organic and inorganic growth.

The company has a robust and diversified capital structure with USD 2.5 billion in available liquidity. In December 2016, the company paid its first dividend and has an ambition to sustain a dividend of minimum USD 250 million per year in the medium term and to increase the dividend level once Johan Sverdrup is in production.

Aker BP is well positioned to participate in future growth on the NCS. The Board is conscious of the risks associated with project execution and the changing market conditions in which the company operates. The Board is prioritizing capital discipline and mitigation of risk wherever possible throughout the organization.

Share price performance and ownership structure

In 2016, the share price for Aker BP ended at NOK 154.50 per share, compared to NOK 55.25 per share at the end of 2015. At the end of the year, 337.7 million shares were outstanding, compared to 202.6 million shares at the end of 2015. Aker ASA remains the largest owner with 40.00 per cent, while BP plc control 30.00 percent of the shares. The remaining 30.00 percent of the shares were split among more than 7,000 shareholders. Aker BP is listed on the Oslo Stock Exchange under the ticker symbol “AKERBP”.