The turnaround story of Norwegian Energy Company ASA (Noreco) in the flow article After the Perfect storm (January 2020) illustrated this remarkable independent exploration and production company’s agility in extracting hydrocarbons from areas of the North Sea that many oil majors had abandoned.

In July 2019, Noreco completed its acquisition of Shell Ollie-Og Gasundvinding Danmark B.V., which holds a 36.8% non-operated interest in the Danish Underground Consortium (DUC) – the largest oil and gas producer in Denmark – operated by oil major Total. Through this acquisition, Noreco became the second largest oil and gas producer in Denmark. The flow article Sunset to sunrise explains the background of reserve-based lending and how smaller energy companies bought North Sea assets from larger ones and made them profitable.

As the world sets about transitioning away from hydrocarbons to clean energy sources as part of agreed climate change mitigation measures, producers such as Noreco are using their skills and assets to participate in this transition while ensuring there is enough oil and gas to keep the lights on during the transition period – and that it has been extracted as responsibly as possible.

“With hydrocarbons expected to remain an important part of the energy mix for the foreseeable future, reducing emissions is the key component to ensure that Noreco’s activities can continue to contribute with the smallest environmental footprint possible,” states the company on its website.¹ As part of the DUC it has committed to reduce emissions from the DUC operations by 400–500 thousand tons of CO₂ by 2030, contributing to the overall Danish reduction of 70% by 2030.

In addition, with the Russia/Ukraine crisis highlighting energy security issues,² developing domestic gas supplies not only makes it possible to reduce import dependencies on unfriendly countries, but also reduces the greenhouse gas emissions of the volumes that are consumed. For example, an analysis from the UK Oil and Gas Authority (OGA) explains how 2019 data indicated that gas extracted from the UK Continental Shelf (UKCS) has an average emission intensity of 22kgCO₂ per barrel of oil equivalent (boe) while imported liquified natural gas (LNG) has an average intensity of 59kgCO₂ per boe.³ See Figure 1.

The OGA report explains, “The process of liquefaction, combined with the emissions produced by the transportation and regasification of the LNG once in the UK, are responsible for the considerably higher emissions intensity.” However, importing the gas by pipeline, particularly from Norway, produces an even lower average of 18 kgCO₂e/boe.

Noreco holds a portfolio of diversified mix of fields with three hubs currently in production and one, its Tyra field (central hub for gas exports), still under redevelopment. Noreco has a firm focus on delivery and implementing solutions that will improve the long-term position of oil and gas as a key part of the global energy mix, while simultaneously helping to reduce greenhouse gas emissions on the Danish Continental Shelf. On 25 March 2022, Noreco announced “proven plus probable net reserves (2P reserves) of 200 million barrels of oil equivalent (MMboe) as per 31 December 2021 compared to 201 MMboe at the end of 2020”.⁴ Redeveloping the Tyra field is, according to engineering reports, likely to increase Noriko’s net production by 90%, decrease field emissions by 30%, lower operating expenditure significantly and unlock gross reserves in excess of 200 million boe.

Noreco announced on 2 February 2021 that it had entered into a new agreement with five banks – BNP Paribas, Deutsche Bank, ING Bank, Lloyds Bank and Natixis – jointly underwriting the refinancing of its existing 31 July 2019 US$900m transaction and expanding it by US$200m to a US$1.1bn senior secured reserve-based lending facility.⁸

The margin payable under the facility remains in line with the borrowing cost of the existing reserve based lending (RBL) and the new facility also includes an accordion option of up to US$400m that may be used to support potential future commercial opportunities. By early 2021, Noreco had drawn down US$751m from the 2019 US$900m facility. Originally structured and designed for medium-sized oil and gas producers, RBL is a type of financing whereby a loan is secured by the borrower’s undeveloped oil and gas reserves. Noreco’s facility comes with a seven-year maturity, with amortisations scheduled to commence from the second half of 2024. The new facility has a cash drawing capacity of US$1bn based on an assessment of the current borrowing base.

Noreco has also established a link in the RBL to various ESG targets relating to emissions intensity reduction and power from renewables, set to support progression of the company’s ESG strategy. The selected ESG-linked KPIs incorporate margin adjustments linked to:

• Pre-agreed carbon emission reduction target; and
• Percentage of power sourced from renewable sources.

Details of the completed were released on the Noreco investor website on 5 May. “The successful completion of our previously announced RBL refinancing is an important milestone for Noreco, ensuring the company continues to have a strong capital structure and remains fully-funded to deliver the Tyra redevelopment project,” said Euan Shirlaw, Noreco’s Chief Financial Officer.

“The new, enlarged facility demonstrates the quality, longevity and value of our asset base, while also providing a mechanism to economically incentivise the meeting of our ESG objectives. The existing and new lenders in our RBL bank group have reiterated their long-term view of Noreco, and this confidence in our ability to deliver value for our stakeholders is highly appreciated.”

“Developing or redeveloping oil and gas assets leads to lower GHG emissions per barrel produced”
Yann Ropers, Managing Director, Natural Resources Finance, Deutsche Bank

The announcement was followed by a further update on 16 July, when the company had fixed potential floating interest rate exposure to “enhance pre-Tyra cashflow visibility and reduce uncertainty”. It achieved this with a US$1bn swap transaction with a group of banks from 1 November 2021 until 30 June 2024. “Together with the company’s material hedging arrangements and recent proposed amendments to NOR14, we are continuing to optimise our capital structure in the near-term to deliver Tyra,” added Shirlaw.⁹

Yann Ropers, Deutsche Bank’s Managing Director of Natural Resources Finance, explains, “This is an important milestone for Noreco, ensuring the company continues to have a strong capital structure and remains fully funded to deliver the Tyra redevelopment project. The execution of this lead RBL underwriting mandate reaffirms Deutsche Bank’s commitment to North Sea E&P independents that are supporting the energy transition.”

Ropers concludes, “Developing or redeveloping oil and gas assets leads to lower GHG emissions per barrel produced through embedding emission management at an early design stage. Without investment, supply depletes rapidly of course, and the GHG emission footprint cannot improve. The current energy crisis reminds us all that better barrels need to be produced and the more geographically close to the market the better. The financed Tyra redevelopment achieves exactly that for the European gas market.”

Sources

¹ See https://bit.ly/375NhZq at noreco.com
² See Ukraine on the brink at flow.db.com
³ See https://bit.ly/3v9cBFD at nstauthority.co.uk
⁴ See https://bit.ly/3rjoBmK at noreco.com
⁵ See https://bit.ly/3jvsFfu at offshore-mag.com
⁶ See https://bit.ly/37cXFhU at oedigital.com
⁷ See https://bit.ly/3rgMwDG at tyra2.dk
⁸ See https://cisn.co/3v8toJ7 at cision.com
⁹ See a reference to an outstanding bond issue at the time: https://bit.ly/3E7P0sV at euronext.com