The annual accounts

(All figures in brackets refer to 2015 and are not directly comparable as they represent Aker BP prior to the acquisition of BP Norge AS. The merger with BP Norge closed on September 30, 2016. For accounting purposes, the first nine months income statement does not include operations in BP Norge).

The group prepares its financial statements in accordance with the International Financial Reporting Standards (IFRS) adopted by EU and the Norwegian Accounting Act.

Changes in accounting standards

The applied accounting principles are in all material respect the same as for the previous financial year. There were no new standards effective as of 1 January 2016, and none of the amended standards and interpretations effective as of 1 January 2016 had significant impact for the group. Some accounting standards have been issued but not entered into as of 31 December 2016 (IFRS 9, IFRS 15 and IFRS 16) and the potential impact on the accounts are described in note 1.

There are no material changes in the presentation in the income statement for 2016 compared to 2015. With regard to the statement of financial position, pension is no longer presented separately, due to the change from defined benefit to defined contribution pension scheme.

Statement of income

The company’s total income amounted to USD 1,364 (1,222) million. Petroleum from the producing fields amounted to 28.3 (21.9) mmboe. The production in 2016 mainly came from Alvheim (incl. Boa), Volund, Vilje, Bøyla as well as the BP Norge fields Valhall, Hod, Skarv, Ula and Tambar fields, included from September 30, 2016. The production in 2015 mainly came from Alvheim (incl. Boa), Volund, Vilje, Bøyla. The average realized oil price was 47 USD/boe, which is down 13 per cent compared with an average price of 54 USD/boe in 2015.

Exploration expenses amounted to USD 147 (76) million and are mainly related to dry and non-commercial wells, seismic data and general exploration activities.

Depreciation amounted to USD 509 (481) million, which corresponds to a depreciation per barrel at 17.9 USD.

The net impairment of USD 71 (430) million is primarily related to impairment of goodwill. One main reason for the impairment charge in 2016 is the lower long term oil price assumption as detailed in note 15. The technical goodwill in the BP Norge and Marathon transactions has limited lifetime as they are tested for impairment at the cash generating unit (“CGU”) level, and not at the corporate level (including assets such as Johan Sverdrup). In practice, this means that the technical goodwill from the acquisitions will be impaired over the lifetime of the fields. A breakdown of the impairment charges is included in Note 15 to the financial statements.

Other operating expenses amounted to USD 22 (52) million for the company. The majority of other operating expenses are relating to preparation for operation, non-license related costs, IT costs and consultants.

The company reported an operating profit of USD 387 (41) million.

The pre-tax profit amounted to USD 290 (-114) million, and the tax expense on the ordinary profit amounted to USD 255 (199) million. The tax rules and tax calculations are described in Notes 1 and 12 to the financial statements. The effective tax rate was significantly impacted by foreign exchange differences as a result of the fact that the company’s functional currency is USD while the tax calculation according to statutory requirements must be performed in NOK.

The after-tax profit was USD 35 (-313) million.

Statement of financial position

Total assets at year-end amounted to USD 9,255 (5,189) million.

Equity increased by USD 2,110 million to USD 2,449 million comprising new share capital issued in the acquisition of BP Norge AS and the net profit for the period. At year-end, equity amounted to approximately 26.5 (6.5) percent of total assets.

At 31 December, total interest-bearing debt amounted to USD 2,541 (2,622) million, consisting of the DETNOR02 bond of USD 215 million, DETNOR03 bond of USD 296 million and the drawn amount on the RBL of USD 2,030 million (net of amortization). The available borrowing base on the RBL has increased with 1.0 billion to USD 3.9 billion in connection with the BP Norge AS acquisition. In addition, the company has an undrawn credit facility at USD 550 million. For information about terms on the credit facilities, see Note 24.

Cash and cash equivalents totalled USD 115 (91) million at the end of the year.

Cash flow and liquidity

Net cash flow from operating activities amounted to USD 896 (686) million. This included tax refunds excluding interest of USD 213 (88) million.

Net cash flow from investment activities amounted to USD -705 (-1,168) million. This mainly relates to investments in fixed assets of USD -936 (-917) million and the acquisition of BP Norge AS of USD 424 million (net of cash consideration paid and cash from BP Norge AS).  In 2015, the overall driver was the acquisition of Svenska Petroleum Exploration AS and Premier Oil Norge AS of USD -203 million (net of cash). The net cash flow from financing activities amounted to USD -163 (285) million, mainly relating to net proceeds on the company’s RBL facility.

In total, the group had a cash position USD 115 (91) million at the end of the year.

At the end of 2016, financial covenants for the company’s debt instruments were comfortably within its applicable thresholds. The company has a robust balance sheet with USD 2.5 billion in available liquidity, providing the company with ample financial flexibility. Going forward, the company will work to improve the efficiency and effectiveness of its capital and debt structure.

Hedging

The company seeks to reduce the risk related to foreign exchange rates, interest rates and commodity prices through hedging instruments.

For 2016, the company had oil put options in place for about 20 per cent of the 2016 oil production for Det norske oljeselskap, excluding production from BP Norge fields. Further, the company has purchased oil put options with a strike price of 50 USD/boe for around 15 per cent of Aker BP’s expected oil production in 2017.

The going concern assumption

Pursuant to the Norwegian Accounting Act section 3-3a, the Board of directors confirms that the requirements of the going concern assumption are met and that the annual accounts have been prepared on that basis. The financial position and the liquidity of the company are considered to be good. The company is continuously considering various sources of funding to facilitate the expected growth of the company.  Cash flow from operations, combined with available liquidity of USD 2.5 billion is expected to be more than sufficient to finance the company’s commitments in 2017.

In the Board of Directors’ view, the annual accounts give a true and fair view of the company’s assets and liabilities, financial position and results. The Board of Directors is not aware of any factors that materially affect the assessment of the company’s position as of 31 December 2016, or the result for 2016, other than those presented in the Board of Directors’ Report or that otherwise follow from the financial statements.

Resource accounts

Aker BP complies with guidelines from Oslo Børs and the Society of Petroleum Engineers’ (SPE) classification system for quantification of petroleum reserves and contingent resources. Total net P90/1P reserves are estimated at 534 (374) mmboe at year-end, while net P50/2P reserves amounted to 711 (498) mmboe at year-end. See Note 32 for a more detailed review of the resource accounts. Reserves for ex- Det norske fields have been certified by an independent third party, while the ex-BP Norge fields were evaluated by a third party in the merger process in June 2016.

Profit for the year

The Board of directors proposes the profit for the year is transferred to other equity.