Orrön Energy AB (publ) (ORRON) Earnings Call Transcript & Summary

As most of you know, we used to have these meetings in person in Stockholm to reach out to mainly our Swedish retail shareholders. But with the pandemic, we have had to adjust and we're now doing this for the second time in a virtual format, which I actually think works very well. My name is Robert Eriksson. I'm the Director, Media and Corporate Affairs for Lundin Energy, and I will assist in this presentation today by letting you all know that questions can be asked by using the Q&A function at the bottom of your screen in this Zoom presentation. So just type your questions in the Q&A function and we will be sure to bring them to the attention of the management at the end of this. And we'll be going through a corporate presentation that takes approximately 25 minutes and we'll then have plenty of time for questions at the end. So without any further ado, I would like to hand the floor over to Nick Walker, the CEO of Lundin Energy.

Well, thank you, Robert, and thanks for the introduction, and good evening, everyone. It's really great to have you all join us for this online shareholder town hall, and us have the opportunity to give you an update on Lundin Energy. And of course, as Robert says, we would rather do this in person. And hopefully, next time, we can do that. So what I'd like to do is run through an overview of where the business is at and give you a sense of the delivery and where we're heading. I think as those of you who know us, Lundin Energy's a leading European independent E&P company. We've focused our business purely on Norway, and you'll see today that we've got a strong share price and our market cap today is around $11 billion. And we've been following an organic growth strategy. We think that's the best way to create shareholder value, and we've been doing that for a long time, but it's more than that. It's complemented by quality, low cost, low breakeven price assets that deliver strong free cash flow generation, making us resilient to low prices and leverage on the upside. And importantly, supporting sustainable and growing dividends, which we'll talk about. And it's also through delivery of our decarbonization plan. Our aim is to be a leader in carbon emissions, making us relevant and investable in the long term. And I think this gives a powerful combination of resilience, sustainability and growth, and those are the core elements of our strategy in the long term. And I'm pleased to report that we're delivering on our strategy with record results so far in 2021, and I think the outturn for this year will be very positive. And this is, of course, underpinned by continued strong operating performance and, of course, the strong oil and gas prices that we're enjoying at the moment. And I'll touch up on our financial performance and operating performance as I talk through this evening. So this slide gives you a snapshot of the Lundin Energy business. Through the drill bit and through recently some acquisitions, we've built a business of over 1.2 billion BOEs of reserves and resources. And we've been progressively bringing these resources into production and were set as a business to go to over 200,000 barrels a day by 2023. And as you'll see in a moment, we're almost there. And these quality early life assets have industry-leading low operating costs. So you can see our operating costs for this year are $3 a barrel, which is -- compared to our peers is about 1/3 of the peers in Norway. And so with low operating costs and low future capital to produce out our reserves means we have a very low free cash flow breakeven for the business of around $10 a barrel, which means for any oil price above $10, we're starting to generate cash flow to pay down debt or to pay dividends. And so our business is robust to low prices, but also strongly leveraged on the upside, which is what we're seeing this year. And this means we're positioned to deliver strong shareholder returns, and we've got a track record of doing that. We've returned over $4 billion to shareholders over the last 10 years. At the same time, it's growing the share price by around 3x. And you'll have noticed that we recently announced that the Board will propose to the 2022 AGM a 25% increase to the dividend over this year of $2.25 per share, and that represents a yield of about 6%, which is above many of the majors. And I think this clearly demonstrates our commitment to grow shareholder returns and our aim is to continue to do that. And you can also see we're a leader in the energy transition through delivery of our decarbonization plan. We, as a business, will be carbon neutral by 2023 from our operations. And that's only just over a year away from now. So I'm absolutely confident we're going to deliver that. And this will be a first for the upstream industry. Of course, core of our strategy is organic growth through innovation. It's about deploying our expertise and the latest technology. We're a leader in seismic to unlock new plays and new reservoirs. And I see growth coming in multiple areas. It's around, firstly, maximizing recovery and step-outs around our world-class assets. And you'll see, as I talk through today, lots of upside and delivery in that area. It's about continuing to explore in the mature basins in Norway where we see a continued upside, and a component of our exploration focused on frontier areas where we see higher award opportunities but also higher risk. And then we complement that with opportunistic acquisitions where we can see value creation and a strategic fit to our business. And our Wisting acquisition, which I'll talk about later, is a really good example of a strategic fit to our business and doing a value accretive deal. And we have a track record of delivery. As I say, we've built a business of over 1.2 billion barrels, and we've done that at a very low finding cost of $0.80 per barrel. And this results also in a track record of delivering long-term production growth. It's driven by bringing our world-class assets of Edvard Grieg and Johan Sverdrup into production and then on to plateau, and this just gets better and better throughout performance, as you'll see. And you can see we have a track record of delivery. It's now 25 quarters in a row, we've met or exceeded our production guidance. In Q3 of this year, we delivered record quarterly production of 194,000 BOEs per day, which is towards the top of our guidance range. And I now expect the full year of this year to come in towards the upper end of our guidance range, which we increased earlier in the year to 180,000 to 195,000 BOEs per day. So very strong production performance this year. And we're also certain of growing over 200,000 barrels a day by 2023. And in fact, some days, we're already producing above that. And so we're almost there now, and I think we're going to need to reset that. And if you recall back to our Capital Markets Day, we see upsides, and I think the business has the potential to go up to 250,000 barrels a day when we get Johan Sverdrup Phase 2 online and we see some of the upsides in the business. So I think that's something for down the road, but very strong production performance. And looking long term, our aim is to sustain above 200,000 barrels a day with upsides in the pipeline of new projects, and I'll talk in a moment how we're going to do that. The second element of our strategy is financial resilience. Our world-class, low-cost assets deliver high-margin barrels, as you can see. We have industry-leading, low-operating costs of $3 to $4 long term. We have low free cash flow breakeven averaged over the next 6 years, [ pre-dividends ] of $10 a barrel, demonstrating resilience to downside prices and leverage to high prices. And this gives us flexibility to balance capital allocation between funding growth, managing a conservative debt position and providing a material sustainable growing dividend. You can see at current prices, we expect free cash flow this year to be around $1.6 billion. That's over 3x our annual dividends, so we'll significantly delever this year, and we expect year-end net debt to be below $3 billion. On the back of achieving 3 investment-grade credit ratings earlier this year, we completed a very successful $2 billion inaugural bond issuance, raising long-term money on very attractive rates. And I think when you put all of this together, it demonstrates the resilience and quality of our business and the ability to deliver returns to shareholders in the long term. And the third element is delivering on our decarbonization plan, and we're making great progress on this. We recently announced a further acceleration of our plans, and so we will now become carbon neutral from operations by 2023. And previously, you may recall, it was in 2025. And to recap, this plan is supported by real action around 3 key pillars. Firstly, reducing emissions with the electrification of our assets with power from shore, and which you can see on the chart, significantly reduces our carbon emissions. And secondly, replacing and offsetting our power usage with direct investments in renewables to ensure that we're powering our business with renewable energy. And then thirdly, what we can't reduce, a commitment to investment into high-quality natural carbon capture, reforestation projects to neutralize the balance. And already today, our business -- 60% of our business, our barrels are certified carbon neutrally produced under Intertek's CarbonZero standard, which we think will achieve premium valuations for our barrels. And I think this will -- we're on the cusp of starting to realize that value opportunity. And I think this is common sense, really. As a buyer of a barrel, would you prefer one that's been produced with 0 carbon emissions or would you rather buy one with high carbon emissions? And would you be prepared to pay more for 0 carbon emissions barrels? And I think the answer to that is yes, and I think you can see analogies elsewhere. There's a market today for low-carbon aluminum. I think there's a market developing in low-carbon LNG in Asia. And I know that Tesla is looking to source low-carbon nickel for their batteries. So I think this is the way of the future, I think this is where all products are going to go. And so I think it will be a key value differentiator for the company in the long term. And based on our strong ESG credentials that we've recently been included in the Dow Jones Sustainability Index for Europe, there are only 3 oil and gas companies in Europe in that, and we're the only upstream company in Europe in that. And I think this is a big deal. It's one of the highest accolades you can get in relation to ESG recognition. And I think it will result in us automatically being included in some ESG funds. And I think overall, it provides a good -- great support for how we run our business. As I said, a key aspect of our decarbonization plan is powering our business with renewables. We're on track with the power from shore projects at Johan Sverdrup Phase 2 and Edvard Grieg. And by the end of 2022, 95% of our production will be powered by energy supplied from shore. And our target then is to meet all of our own power usage with our own generated renewable energy. We've committed to 3 renewable projects in the Nordics. And the picture you see here is of our MLK wind farm in Finland. It's not taken today because it would have snow, but it gives you a sense of what we're doing and the scale of what we're doing. And these wind farms just started generating power and will be fully operational in the first quarter next year. And by the end of 2023, when we've built out all of our projects, our business will be fully powered by our own generated renewable energy. So we see our decarbonization plan as good business in many dimensions. Our power from shore projects and renewable projects make good returns for us. We believe that it attracts and retains investors, and we think it delivers a premiumization in our share price. And on the bank funding side, we also see that this attracts funding, retains funding and lowers our funding costs. And as I say, I think, in time, we will see that our customers of our barrels will see value also. So for us, this is not just the right thing to do. I think it's good business all around, and I believe is a key value differentiator for the business. So I now have a short movie which helps provide some context of our decarbonization plans, so I hope you'll enjoy. [Presentation]

So I hope that gave you a further understanding of how we see our role in the energy transition. And what I'm now going to do is focus on our key assets that underpin our business performance. And really, Lundin is a really simple business. We have 3 world-class low-cost producing assets, and with a recent acquisition, we now have a new production area heading towards development. So we -- when that's online, we will have 4 key world-class producing assets. First of all, the giant Johan Sverdrup field has been developed in 2 phases. Phase 1 came online in 2019 and Phase 2 will come online at the end of next year. We have a 20% interest here, and it represents 60% of our current production. And already, we've seen significant reserves growth and capacity growth, which we'll talk about, and I anticipate that we're going to see lots more of that to come. The second key assets, of course, is our flagship operated at the Greater Edvard Grieg Area, where we have a 65% working interest. We've developed a number of tieback projects, and I think we're going to have a series more to come. And this accounts for around 35% of current production. And as you'll see, we've already significantly increased reserves in this area and extended plateau. But again, I believe there's a lot more to come. Alvheim has been an asset with us for a long term. It's been a great asset. We have a smaller working interest of 15% to 35%. We've seen significant reserve growth over time. And I think we still got a pipeline of new projects coming there, so it continues to be a strong asset for us. And then, of course, it's the Wisting project, which will become a new production area for us. Our recent acquisition takes our working interest there to 35%. And this facility will add around 50,000 barrels a day net to us when it comes online in 2028 and will help sustain the business in the long term. So this gives you a sense of the assets. It's a very simple business to understand, and I'm now going to step through some of the key assets that support our performance. Of course, starting with the giant Johan Sverdrup field. This is a world-class field. When its full field plateaus reached at the end of next year, it will represent around 25% of Norway's production. As I say, Phase 1 came on stream in Q4 2019. And the field, I think it's fair to say, has been performing above expectations on all fronts. We have excellent reservoir performance, better than expectations, and you can see some of that reflected. We've got massive well capacity, it's 50,000 barrels per day per well, and I think demonstrates the quality of the reservoir and is the reason why we -- one of the reasons why we believe, in time, we'll see upsides here. The facility's capacity has been increased 3x since startup, so it's now currently producing at 535,000 barrels of oil per day, so that's 100,000 barrels a day increase since -- from design, and that's come at almost 0 cost, so it's very valuable additional capacity. And I think or anticipate further upsides with performance read-throughs from Phase 1 into Phase 2 when that comes online at the end of next year. And Phase 2 of the project is under development, it adds additional processing capacity and quite a number of subsea wells to fully develop the aerial extent to the field. It's a big area of a field to develop. This project is over 65% complete, with some key installations having been completed during the summer. And the project remains firmly on track for first oil in Q4 of next year and with costs unchanged since the PDO. And when the full field capacity guidance is -- you'll see the full field capacity guidance has also been increased to 755,000 barrels of oil per day, and I think there's potential for further upside when Phase 2 comes online and we can really test the capacity of the facility. You will also see this is a giant field, reserves range of 2.2 billion to 3.2 billion barrels. And as I say, we see excellent reservoir performance. And based on our company's latest technical assessment, there's potential for significantly increased resources and also plateau extension through infill drilling, and we're working to complete this work as part of our reserves process. So I think you'll hear more on that in the next few months. And you can see also here stellar operating metrics, operating costs have went under $2 a barrel. And since the field's powered from shore with electricity, we see exceptionally low carbon emissions, around 100x less than the world average. And maybe we don't get to this level at Edvard Grieg when it's electrified, but towards this level. And of course, these metrics make for extremely strong economics that's reflected in full field breakeven oil price of less than $15 per BOE, and that includes all of the exploration costs as well as an 8% rate of return, so extremely high-margin barrels being produced out of this field. So when we say it's world class, it truly is a world-class field, and I think that we're going to see significant further upsides from this field as we move ahead in the coming years. So now focusing on the Greater Edvard Grieg Area. This just gets bigger and better, supporting the adage that the big fields get bigger, and we see lots of further upside and prospectivity in the area. You can see the reserves increase has been significant since the PDO, so over 2x since the PDO and at end of last year stood at 410 million BOEs gross. And with upsides and prospectivity in the area, there's potential to double that again to around 800 million barrels. And this outperformance has continued through this year. And as we announced at our Q3 results, we will see further reserve increases in this area at year-end. And we continue to unlock the potential in the area. We've now bought -- successfully brought on 3 projects completed this year, and we have 3 further projects being progressed towards sanction. And as I mentioned, this area is also a key element of our decarbonization plan. It will be electrified together with electrification of Johan Sverdrup Phase 2. So by the end of next year, this -- the field will be electrified, and that will take our carbon emissions here to well below 1 kilogram of CO2 per BOE, and perhaps getting to the levels that Johan Sverdrup has been achieving. So it's a key element of how we are able to achieve carbon neutrality by 2023. The Greater Edvard Grieg Area is prolific. It's allowed us to extend the plateau. At PDO time, we had a 2-year plateau, that's now extended by 5 years to the end of 2023, and I believe that's going to go further. We've also seen capacity upsides. As Eva Olson, which shares capacity with Edvard Grieg, declines, that additional capacity becomes available to Edvard Grieg, and we've been able to use it. So we had an initial contractual capacity of 95,000 BOEs per day here. We're producing around 115,000 today, and there's potential to go up to 130,000 as Eva Olson declines further, and I think that's material for us. And importantly, we have the well capacity to utilize this opportunity. And as I mentioned, we're delivering on our projects in the area. We've had excellent results from infill drilling program at Edvard Grieg, having completed 3 wells, and those wells are now in production. And those results are in line or better than expected and contribute to why we're saying we're going to see a reserve increase at Edvard Grieg this year. We have rolled this extended well test project, this is really interesting. It's developing a basement play. We're going to do an extended well test first. And then if that works out, we'll go into full field development. I'm excited by this. There's lots of opportunity here in the whole area to develop basement along the whole Edvard Grieg area, and so it's going to be exciting to see that develop. It's now on production, and so far, we're seeing production in line with expectations. So, so far, so good. And then Solvieg Phase 1 project was also completed on schedule and below budget, and is now online in the production phase. So these are some of the best barrels you can develop. They come with very low cost because the facilities are in place. It's really just wells and subsea equipment, and it carries minimal additional operating costs. So we get very strong economics with breakevens on all of these projects below $20 a barrel, so very value accretive to us. And on top of that, we're working hard to bring forward a number of new opportunities. We -- derisking the Solvieg Phase 2 development and the Rolvsnes full field development that I talked about, and that will lead production history there. But with success, we aim to move those forward to sanction. And we also drilled an appraisal well and an exploration component to it on Lille Prinsen earlier this year with good results. And we're also -- that's looking positive for development, and we're moving that forward. So our aim is to sanction these 3 projects by the end of next year and help contribute to pushing the plateau out further. So I'm really excited by the area and the upside. I think there's lots more opportunity to come beyond what we've talked about. I think we're going to be drilling exploration wells, appraisal wells and developing here for many years to come to keep the facilities full. And I think much of this is not reflected in the value of the company. So this continues to be a great area for us, and I think will be into the future. And moving on to the Wisting area. We recently announced the acquisition of a further interest in the high-quality 500 million-barrel Wisting project, taking our interest here to 35% and making a new core production area for the company when this comes online. I think this is a strategic deal. We did it at $2.50 per barrel for a fully appraised field, which is very value accretive. And this deal alone delivers total resource replacement ratio for our company this year of around 190%. So we will more -- just on this deal alone, we will more than replace our resources this year. So it's a great deal. And I think with other reserve increases, we should do even better. The project is now moving ahead. The concept has been finalized. Feed engineering, so this is a detailed engineering to allow us to sanction the projects progressing, and the projects aimed to be sanctioned at the end of 2022, and we'll have strong economics. As I say, it adds 50,000 barrels a day net to Lundin from 2028 when it comes online, so helping sustain our business in the long term. And on top of that, we see significant exploration and upside close to Wisting with the surrounding acreage estimated to have around 500 million barrels of gross unrisked prospective resources. So we're excited to be exploring around here. We've got a good acreage position around it, and in the coming years, that will be moved forward through the drilling phase. And on top of that, this project is electrified with power from shore. So it's aligned with our decarbonization plan, which is also key to how we look at things in the future. So this deal really is a perfect example of how we look to supplement our organic growth strategy with opportunistic acquisitions supporting our business -- our ambition to sustain our business in the longer term. And so we're delivering on our growth strategy. We continue to build a position in Norway to be one of the leading explorers. We have 6 core areas with prospective resources of around 3 billion BOEs net on our acreage, and we have activity across all areas of the portfolio, balancing risk and reward. Our world-class assets, which I talked about, underpin our growth. We see facilities and reservoir outperformance, and as I've talked about, I expect more to come. And we have 3 projects underway to support the growth trajectory. And we'll sustain our production. We have a pipeline of 5 potential projects, all of which I hope to -- that we can sanction by the end of next year. And importantly, that will allow us to take advantage of some tax incentives that improve the economics if we could achieve that time frame. And we aim to deliver on future value with a material exploration program in 2022. And we continue to look at acquisitions on an opportunistic basis to augment our growth ambitions. And when you put this together, it creates a pipeline of opportunities to provide that platform for future growth. And I think if you look back, we have got a strong track record of delivery. Average over the last 5 years, we've had 150% resource replacement ratio, so growing the business whilst also growing production by 9x. And as I say, again, this year, we'll have a strong resource additions, again, growing the business in the long term. So I remain really excited by the opportunities and prospects that we have in our business, and I'm confident that we can continue to keep growing and building our business into the future. And this is my final slide. The summary is in the key message that I wish to leave you with. We're delivering strong growth. Our production is set to go over 200,000 barrels a day by 2023, and I think it could step up significantly above that to maybe as high as 250,000 BOEs per day, and we'll sustain at that level with upsides and new projects and a pipeline of new opportunities. And our business is resilient, with industry-leading low-operating costs and strong free cash flow generation, allowing us to provide a material, sustainable and growing dividend as well as fund growth and deleverage the business. And we're sustainable. We're decarbonizing our operations. We'll be carbon neutral by 2023, which is just over a year from now, and that will be a first for the upstream industry. And when you put that together, it delivers resilient, sustainable growth, and those are the key aspects of our strategy that we aim to deliver. And I think this shows that we can deliver both economic growth as well as environmental benefits, and importantly, I think, makes us relevant and investable into the future. So those are the key messages I want to leave you with. Thank you for taking time to join us for this update on Lundin Energy, and thank you for your ongoing support. And I think we'll now hand over to Robert to manage questions. We have also Teitur Poulsen, our CFO, on the line who will help answer some of the financial questions. So Robert, over to you.

Thank you, Nick, and thank you for a very interesting presentation. And I'm happy to say that we do have a few questions, but don't be shy, ask more questions. Now is the opportunity to do so. And we have the Q&A function at the bottom of the screen, so just type your questions, and we'll bring them to the attention of the Nick and Teitur. So let's start with the first question here. It's about Wisting, and how does Wisting compare to Lundin's other assets in terms of emissions intensity?

Yes, that's a good question. And so we will have Edvard Grieg electrified, we will have Johan Sverdrup electrified. And so as I say, by the end of next year, 95% of our, I think, current production is electrified. And the good thing and one of the reasons we were keen to do the Wisting project, this is also going to be electrified. So when it comes online, it will again have a cable from shore to power it, and we should get similar emissions levels that we're achieving at Edvard Grieg and at Johan Sverdrup. And we haven't announced what the intensity level is, but I think if you look at what we're saying for Edvard Grieg and Johan Sverdrup, it should be in that order. So it fits perfectly with our plan to decarbonize our business. And I might say that when we look at new opportunities, we look at it with that also in mind. I mean it's -- we've stated our aim to be carbon neutral from 2023, and it's no good if we then go and buy assets that don't support that. So any assets that we explore for or purchase or acquire, we will look at that aspect also, and it will be an important element of making a decision to do something.

Thank you, Nick. And we do have a lot of questions about Wisting, so let's continue with a few of those. Do you see any risk that the Norwegian Parliament might not approve this development due to concerns about the climate change? I think we've partly answered that, but over to you.

I don't have any concerns. I think there's broad -- from the key parties in Norway, there's strong support for this project. I think there's strong support from their partners in it. I mean, obviously, ourselves, Equinor is the operator, Petoro, the state company. And I know Idemitsu as supportive. So the partners are completely supportive of moving the project forward. And this project was put forward as one of the projects that would make happen with the tax incentives. So I think the government are strongly supportive of it. So we just -- we've got a lot of process to go through and -- but I do believe that this is going to get sanctioned at the end of next year, and it's a good, strong project. It will bring jobs into Norway, and it brings revenue into the government as well as to the company. So it's good all around.

Thank you, Nick. And we have another question, on the renewable projects. Are you planning to do more of these projects in the future?

No, that's a good question. It's something we thought about. So far, we've invested in renewables to match our electricity usage, and I think that fits with our decarbonization plan. And that's as far as we've chosen to go. I think it's quite a tough step to go the next -- go further and -- and whilst we could obviously do it. But if you think about it as an investor in us, I mean, our skill set is oil and gas. If you wish to invest into a renewable company, there are many choices of people who've got a mature business, and so why would you invest into us. So it's quite a difficult step to go there. We thought about it but haven't chosen to do it. So as it is, we've done 3 projects, and that meets all of our electricity requirements long term. So actually, we don't need to do any further projects certainly with the asset base that we see that we have at the moment.

We have a question on exploration from one of the attendees here, and it's a two-fold question. So if you could reflect a little bit on this year's exploration efforts and also look into 2022 and talk a little bit about what opportunities you see there?

Yes. No, it's a good question. And I think as I talked, organic growth comes in, I say, in 3 areas. And it's around growth of our world-class fields and step-outs around it. It's around exploring the mature basins in Norway where we do believe there's still lots of opportunities. And then we've also participated in more frontier areas where they have higher award, but got higher risk. And I think if we look at the last bucket, the more frontier opportunities, we have not had a lot of success in recent years. It's fair to say. But as a company, we've had a lot of success at continuing to grow and expand the resource base around our big fields, and so I think success comes in those different areas. And when you put it together, overall, we've been having a lot of success. It's just that the big exploration hasn't delivered for us, and that's something to reflect on. We haven't yet announced what our exploration program will be for next year, but we will have an attractive exploration program. I think it will be a little bit smaller than this year's program, but we'll have a number of wells in that program, and we will announce that in our Capital Markets Day in early February.

Thank you. And we do get a lot of questions about the recent media rumors that were mentioned by Bloomberg and others last week about Lundin Energy being up for sale. So what are your comments?

Yes. No, we saw that article, like everyone, and our share price responded by 10% up. And of course, we did issue a press release to clarify that, as we are legally required to. As a public listed company, we continuously engage in opportunities that are potentially value accretive to our shareholders, which could be any number of strategic alternatives. And so we look at and continually look at different things. And so in that context, we do hold discussions with various parties. And of course, most discussions don't go anywhere. But as of now, there are no conclusive decisions that have been made in relation to any such discussions, and so we continue to look at various alternatives, as you would expect. I think the key point here is our business is in great shape. We've had a record year, and I think we're looking forward to another great year in 2022. So we have a strong program ahead of us. So hopefully, that provides some context.

Thank you, Nick. And we do have a question about the significant amount of free cash flow to be generated in the coming years, and it's well in excess of what's needed to pay dividends. And how should we then, as shareholders, be thinking about buybacks?

I think I'll let Teitur answer that one. I'm interested to hear what he's got to say.

Thank you. Thank you, Nick, and good evening, everybody. It's true. I mean, not only operationally, but also financially, this has been a record year for the company. And as Nick said, $1.6 billion of free cash flow generation is the likely outcome for 2021. So clearly, that leaves plenty of capacity to pay down debt, as we've been doing, and also to increase dividend. As Nick has said, we've proposed to increase 25% dividend going into next year. And then obviously, it gives us more firepower for any potential M&A. And on the share buybacks, the policy of the company to return value to shareholders is through dividends, so we don't really have a share buyback program in play. But we are obviously going to be opportunistic around that. The issue with strong cash flow generation is that it normally comes with high oil price. And when you have a high oil price, you normally also have a high share price. So it may not be the opportune time to do a share buyback just when otherwise all the metrics seem to indicate that you should do it. So I think we will monitor that going forward. And as I said, we will be opportunistic around any potential share buyback similar to what we did in 2019, we actually bought back 16% of our shares from Equinor and cancelled those shares. So I think the short answer is we will continue to monitor that and be opportunity around any potential share buybacks.

Thank you. And we also have a question on setting the price for the oil that we sell. Can you elaborate a bit on how you set prices? What percentage of the sales volume is set a quarter before hand, for example?

Teitur, I think that's for you.

Yes. No, we -- all our cargoes are priced on spot prices and the normal pricing formula we have, not always, but the normal one is that after we do lifting. So we lift from 2 terminals in Norway, Sture and Mongstad. And there's normally 5 -- you have a pricing window which is 5 days after you have lifted or transported that cargo away from the terminal. So that is the normal pricing form that we use. And the reason we use that is because in Norway, that's how you are being taxed on that basis. But there are instances where we, for example, agree with the customer and that's when we have the month average price, that's the exception to the rule. So we don't have any hedging in place on any of our prices, always price on spot prices.

Thank you. And we do have a question here from one of the attendees that wants to know what you, Nick, think about the concern on the wind farms, that they are detrimental to the environment because they destroy the landscape. What's your view on wind farms?

Yes. I mean, of course, that is their perspective. And I can, to some extent, agree with that. I think the location -- for each of our wind farms, they've -- there's been an extensive environmental impact assessment done associated with those and looks at people's concerns. And they wouldn't have gone ahead if there was concerns -- general concerns around them, and there's a very strict process to do that. And what I would say is, I mean, I spent time in -- for example, in Finland. Where it is, it's a very vastly populated area. It's actually a commercial forest and so I think it fits quite naturally. But I think it clearly depends where you're at or where you're located, and it's not available everywhere. And I think this -- it's a good question because it actually displays part of the problem. If we -- if the world wants to have an energy transition and everyone talks about moving to renewables, but that also brings problems with it in terms of the space required to put solar plants or the wind parks. It's quite a difficult issue. But what I would say is about ours, we examine the projects very carefully to make sure they were acceptable and -- before we entered them.

Thank you, Nick, and very glad to see so many questions coming in. So let's crack on with the questions. And back to Wisting again, does Lundin intend to become the operator for the Wisting field when that's in operation?

So Wisting is currently operated by Equinor in the development phase. And with OMV there, the deal was that OMV would take up operatorship in the operations phase. We're currently in discussions with the -- within the partnership and within the government about what that's going to look like, and I think we'll share shortly what's going to happen.

Thank you, Nick. And we do have a question, and that's a good one, I think, about the potential impact of the spread of the new COVID variant, the Omicron. What kind of effect do you think that could have on energy markets and oil demand and also the price of oil? How concerned are you at Lundin Energy for oil prices crashing again?

Of course, it's created more uncertainty into the market, and we've seen the oil price come off from about $85 down to currently $75, and it could continue to do that. I can't guess on what the trajectory. I think more capable people than me that might be able to comment on what the trajectory of the virus is. But the reality is our business is extremely robust to low prices. I mean, we saw that last year where we saw very low prices. You can see with the free cash flow breakeven average over the next 6 years of $10 a barrel. Our business is extremely robust. And so yes, of course, we don't want the oil price to crash and we'd obviously like COVID to be behind us, but we are resilient and supported by world-class assets. So our business will continue to perform very well regardless of what the environment is out there.

And the next question is on natural gas. Are you planning on increasing your investments into natural gas and liquefied natural gas?

No, this is probably one for me also. I think as a company, we have focused on oil traditionally. And I think there's a number of reasons for that. That's where our exploration has been focused. And of course, we might not find or we might find gas. And so we would have developed it, but that's not what we have. We have a business that's sort of 95% oil, and so that's what we have and that's what we're focused on. I think gas is -- gas prices in Europe have actually been quite low for a very long period of time. And actually, it's quite a tough business to make money on. And I think if you want to make money in that business, you need to not just be in the upstream part of it, you need to be in the midstream and downstream. And for a company of our scale, that's quite difficult if you really want to make money out of it. So that's why we focused on what we've done. Of course, today, if you have big gas production, the prices are very attractive. And we're getting some benefit from that, of course, because we have 5% of our revenue is gaseous, so we're taking advantage of that in the current environment.

And the last question is on Johan Sverdrup. When will negotiations for reappraising percentage ownership in Johan Sverdrup start? And what can we expect from such negotiations?

Yes. So there's an equity split between all the different blocks, which were set at the time the project was sanctioned, and which I guess was in 2015 or '16. And then like in many fields that have these -- that go over multiple blocks, there's a deal done to relook at that shares in the future. And the next time that's due is in 2024. So that will then take account all of the data on the subsurface that's available at that time, and the calculations will be done to look at the different shares in the different areas. And I think we have to wait until that process is done to see what the outcome is going to be.

Thank you very much, Nick. And with that, we don't have any further questions, so I would certainly like to thank everyone attending today, this presentation, and think this is a very good format. We really like to engage with you and answer all the questions you have. So we will certainly be looking at coming back with this type of presentation regularly. And over to you, Nick.

Well, thanks, everyone, again for joining. It's really great to connect. We would like to do it in person. So as soon as we can, we will. And if you have further questions or want to contact us, I think Ed Westropp is the contact point, so -- or either -- any of us, actually. Or Robert would be more than happy to talk to any of you. And with that, just thank you for your ongoing support and wish you all a good evening. Thank you.