Vår Energi ASA (VAR) Earnings Call Transcript & Summary

Good morning, everyone. It's a real pleasure to welcome you all to Vår Energi's Third Quarter 2025 Presentation Results. The presentation today will be given by our CEO, Nick Walker; and our CFO, Carlo Santopadre. I will hand the word over to Nick before we open up for questions.

Well, thank you, Ida, and good morning to all, and thank you for joining us today for our third quarter '25 results presentation. I'm pleased to report strong results for the quarter. We've delivered transformational growth ahead of schedule and a pipeline of new projects is being progressed for long-term value creation. With our major projects complete, the company has derisked and has a strong resilience to a lower price environment. We also have significant flexibility with the majority of our capital spend uncommitted to 2030, and we'll use this flexibility to optimize our investment program through this lower price period. Vår Energi has never been in a stronger position to continue to deliver high value and attractive shareholder returns. So now let us look at the highlights for the quarter. Our production milestones have been met ahead of schedule. We delivered production of 370,000 barrels of oil equivalent per day in the third quarter. And the Jotun FPSO at the Balder field reached peak production ahead of expectations in September. We're adding around 180,000 barrels per day at peak from new projects in 2025 with 7 out of 9 projects on stream. We expect to average around 430,000 barrels per day in the fourth quarter. And the outlook for the company is derisked with our key projects delivered. And we delivered solid financial performance with CFFO post tax in the quarter of $1.2 billion. We have a strong financial position with reduced net debt and $3.6 billion of available liquidity. We maintain our strong cost focus with reduced operating costs on track to be around $10 per barrel in the fourth quarter. And our gas sales strategy continues to create value with 18% of our volumes sold in the third quarter at $90 per BOE. And with our portfolio of high-value early phase projects, we're unlocking long-term future value creation. We will sustain production at 350,000 to 400,000 barrels per day towards 2030 and beyond, which will be achieved by delivering our portfolio of 30 early phase projects with 10 of these projects set to be sanctioned by year-end. And we increased our ownership in the Ekofisk Previously Produced Fields project, adding high-value barrels at an attractive price. And lastly, we continue to provide predictable and attractive dividends. We confirm a dividend distribution for the third quarter of $300 million, which means we've paid stable or growing dividends for the last 15 quarters. And we reconfirm our dividend guidance of $1.2 billion for the full year 2025 and also the same level for 2026. And given our resilient financial outlook and strong level of liquidity, we're able to maintain this dividend guidance under any realistic price scenario. So now let us look at some of the details. For Energy, the third largest oil and gas producer in Norway as a high-quality diversified asset base in all areas of the NCS with interest in around 50% of all producing assets and a large exploration footprint. We've also balanced commodity mix with gas making up around 30% of our production volumes, making us one of the largest exporters of gas from Norway. This tremendous portfolio, which provides lots of optionality is driving our long-term sustained production and value creation. And as you will see, we're continuing to step up the pace to realize the value from our portfolio. And now with our major projects complete and now ramped up to full production, we have delivered transformational growth ahead of schedule. We're set to produce around 430,000 barrels of oil equivalent per day in the fourth quarter this year, which you can see is double 2023 levels. We're also guiding approximately 400,000 barrels per day in 2026. And with our high-quality portfolio with significant upside, we can organically sustain production at 350,000 to 400,000 barrels per day towards 2030 and beyond. Now looking at 2025 production, where we're on track to meet around the midpoint of our full year guidance range of 330,000 to 360,000 barrels of oil equivalent per day. Third quarter production, as you can see, came in at 370,000 per day, which was at the top end of our expectations due to the faster ramp-up to peak production from the Jotun FPSO. We continue with excellent performance at our operators' assets with strong production efficiency at 92% for the first 9 months of the year, which is inclusive of planned turnarounds. The third quarter was impacted by around 15,000 barrels per day of reductions due to planned turnarounds. And entering the fourth quarter, all of our turnarounds are behind us for the year. Our current production potential is over 440,000 barrels per day, and this will grow towards the end of the year as new wells are brought on stream at Balder, Ringhorne, Grane, Njord, Halten East and Sleipner. And so we expect to produce approximately 430,000 barrels per day in the fourth quarter, which means we're on track to meet around the midpoint of the production guidance range for the year. And as I said, we've derisked the production outlook for the company. Our transformational growth this year is driven by 9 project start-ups, adding around 180,000 barrels per day of new volumes at peak. 7 of the 9 projects are on stream and are performing as to expectations. The remaining 2 projects, Balder Phase V and the Asgard Low Pressure Production facilities are both expected to come on stream towards the end of the year. This has been a pivotal year for the company for new project start-ups. And overall, we've delivered what we said we would do. Hence, the outlook for the company is derisked, and we've never been in a stronger position. Turning now to our 2 major projects that are the main catalyst for delivering our transformational growth. Production through the Jotun FPSO, which started up in June, achieved peak production of 80,000 barrels per day gross ahead of plan in September. The wells are performing on average as expected, and we've already achieved high production efficiency from the FPSO with low operating costs of around $5 per barrel. This project, together with Phases V and VI is developing gross reserves of 200 million barrels. Two Phase V wells have been completed with results better than expectations, and a third well is currently drilling. All 3 wells will come on stream towards the end of the year. Phase VI, a fast-track development is progressing and is on target to start up in the fourth quarter next year. And additionally, there are material further resource development opportunities in the Balder area, and we are progressing what we're calling our Balder Next project towards sanction. The Balder Next project consists of 4 elements: firstly, decommissioning the Balder FPU. It's about transferring selected FPU wells to the Jotun FPSO, accelerating production through debottlenecking the FPSO and then drilling new production wells. And this rationalization of the facilities in the Balder area will drive significant OpEx and carbon emissions reductions. We will sanction the debottlenecking element of this project at the end of this year, which involves increasing the capacity of the FPSO gas compression and water handling systems, and this will be implemented in 2026. And this is a key enabler to decommission the Balder FPU. And we're progressing a plan to have a continuous infill well program starting from 2027, following completion of the Phases V and Phase VI drilling programs. We've already committed to the subsea production equipment and we will shortly commit to the flow lines required to make this happen. The initial commitment will be for 6 multilateral wells with the design to allow expansion up to a total of 15 wells. And so with the Jotun FPSO serving as a new area host, production from the Balder area is expected to remain at 70,000 to 80,000 barrels a day gross towards 2030. And if we now look at Johan Castberg, we see very strong performance with the field producing at plateau levels of 220,000 barrels of oil per day gross, with Vår Energi's net share being around 66,000 barrels per day. Production efficiency is already stable at 95% and production costs in the third quarter were less than $3 per barrel. The reserves and resource potential of the area is around 1 billion barrels and the full development of this, we anticipate will keep the facilities full towards 2030. Drilling of the planned development wells will be complete at the end of 2026. And immediately following this, an infill well program is being planned, which is targeted to sanction at the end of this year. And this program will include the development of the recent Drivis Tubåen discovery. Additionally, the Isflak tieback development is expected to also sanction at the end of 2025. So we see Johan Castberg as a key driver to sustain our production long term. And now looking at operational performance. You can see that we're incrementally improving how we run our business. Overall, we have a good safety record with 0 actual serious incidents so far in 2025. However, we have recently had too many near miss incidents where we have a strong improvement focus. On carbon emissions intensity, we're top quartile in the industry globally, and our methane emissions continue at the near-zero level. So we're already doing very well, but we want to decarbonize our operations further from 3 main levers: firstly, electrification with power from shore; secondly, portfolio optimization; and lastly, through energy management. From further assessment of the Halten and Snorre power from shore projects, these will be discontinued due to challenging economics. This will reduce our capital spend guidance by $500 million over the period to 2030. This shows our strong cost discipline. However, we will continue to mature the Grane Energy project prior to possible project concept select in the early part of next year, where our focus is on creating a project with sound economics. And in addition to emissions reductions, Vår Energi aims to become carbon neutral in our net equity operational emissions by 2030 through removals in the voluntary carbon market. And we continue to be recognized for our ESG leadership with Sustainalytics ranking us as a top-rated company. This puts us in the top 15% of the global oil and gas industry. For production efficiency, our operated assets, as you can see, have a strong improving trend, which was 92% in the first 9 months of the year and ahead of our target. On production costs, we achieved $10.6 per barrel in the third quarter. And for the full year, we expect to be at the lower end of the guidance range of $11 to $12 per barrel. This performance is driven by reduced costs. And looking forward, we're on track to reduce production costs to around $10 per barrel in the fourth quarter this year, and we will target to sustain at this level long term. And I think these elements go hand-in-hand. Strong safety and environmental focus drives good operational discipline, creating significant value. And you've seen this chart before, Vår Energi has an amazing portfolio with lots of optionality and growth opportunities. And our 2P reserves, you can see stand at 1.2 billion barrels. This is either in production or under development. But we are much more than that. We have 2C contingent resources of around 900 million barrels. And we're moving forward around 30 early phase projects accounting for 650 million barrels of this. And we also have an exciting exploration portfolio of around 1 billion barrels of net risk resources, where we expect to drill out about 50% over the next 4 years. And so putting this together, we have around 3 billion barrels of resource potential, but with 60% yet to be developed. I'll repeat that 60% is yet to be developed, and that is how we will organically sustain production long term. And we're working at pace to create value from this opportunity. So looking now at how we will do that. We have a flexible and resilient portfolio of around 30 early phase projects that we are progressing towards development. Delivering on this program will achieve our production target of 350,000 to 400,000 barrels per day towards 2030. And these are mostly subsea tiebacks to existing infrastructure with low cost, short time to market and strong economics. And you can see average breakevens of around $35 per barrel. And we've built significant momentum with 4 projects sanctioned so far this year, and we expect to sanction in total 10 projects by year-end. As we announced a few weeks ago, we've increased our ownership in the Ekofisk Previously Produced Fields project, adding high-value barrels from 2028 at an attractive purchase price of below $4 per barrel. This transaction does not close until the project is sanctioned, which is expected at the end of the year. And with around 65% of our capital spend to 2030 uncommitted, we have significant flexibility to optimize our investment program through the current lower price period. And now turning to our exploration program where we have a leading track record. Since 2019, we've added around 300 million barrels of contingent resources with a success rate of 50% and a finding cost of less than $1 per barrel post tax. Over 70% of these volumes are already in production or in the development process, demonstrating we are turning discoveries into value. This success has continued with 5 commercial discoveries so far this year, adding 40 million to 70 million barrels of net resources. And as we announced earlier in the year, we continue to build on the Goliat Ridge success in the Barents Sea, where we're the operator with a material 65% interest. With estimated gross discovered plus prospective resources above 200 million barrels, the Goliat Ridge is potentially as big as the original Goliat development. And to assess this exciting opportunity, we're currently drilling a 2-well appraisal program where we'll see results before the end of the year. We're then able to think about how we go forward with a tieback development to the Goliat FPSO, where there's plenty of available capacity. And the Vidsyn ridge discovery is also significant with potential to hold gross recoverable resources of up to 100 million barrels of oil equivalent and where Vår Energi is again the operator with a material 75% interest. We're progressing plans to appraise Vidsyn in 2026. And we've drilled 3 successful infrastructure-led exploration wells this year in the Johan Castberg, Fram and Asgard areas. These have short time to development, and the Asgard area well is already in production, contributing over 6,000 barrels per day net. This is good value creation. So we're making significant progress maturing our upside resource potential into value through committing to new projects and making new commercial discoveries. So that rounds off my operational update, and I'll now hand over to Carlo to review the financials. Thank you.

Thank you, Nick, and good morning to all. I would like to start by summarizing the key financial highlights of the third quarter. We have achieved robust realized price compared to spot with a weighted average price of $68 per BOE in the quarter. We generated strong revenues on the back of transformational production in the quarter and strong operating cash flow after tax of $1.2 billion. We maintain a strong and resilient balance sheet, reducing net debt and increasing available liquidity at $3.6 billion. The leverage ratio at 0.9x net debt to EBITDAX is flat from previous quarter, remaining well below our target. We confirm the third quarter dividend of $300 million, and we are showing confidence in our business by planning to pay the same level for the remaining of 2025 and 2026. In summary, we have a strong and resilient financial position, and we're successfully progressing in what is a transformational year for Vår Energi. I'll now go into more details of our third quarter financial performance. We obtained robust pricing for our products in the quarter, both relative to spot and to our peers. In the quarter, we generated more than $2.1 billion of revenues, up compared to the previous quarter, driven by production increase. The realized oil price in the quarter was $69 per BOE. The realized gas price was $70 per BOE, $6 above spot pricing as a result of fixed price contracts and flexible gas sales agreement, allowing for optimization of index. Starting 1st of October, we have locked in around 15% of volumes with a pricing at around $78 per BOE until third quarter 2026. We continue to have a robust sales portfolio with access to several markets, and we will have flexibility in the contracts to decide the split between month ahead, day ahead and fixed contracts. I would like also to mention that our oil production is fully hedged on a post-tax basis for the remaining of 2025 with a monthly put options at a strike price of $50 per BOE. Vår Energi generated solid cash flow in the quarter. Cash flow from operation after tax in the quarter was $1.2 billion, an increase from the previous quarter, mainly due to higher production and lower OpEx. Our CapEx for the quarter, including exploration, was $726 million, while Balder Next and Johan Castberg continues to be the largest contributor of the total spend. The 2025 development CapEx is expected to be in the upper end of the USD 2.3 billion to USD 2.5 billion guidance. Our resilient and strong liquidity position continued to improve in the quarter. Here, we see the development of our cash position from Q2 2025 to the end of Q3 2025. We generated approximately $1.8 billion in CFFO before tax and working capital movements. We paid taxes in the quarter amounting to around $530 million. We had a cash outflow of $740 million in investment in our high-value growth projects. We distributed as planned $300 million in dividends related to the second quarter 2025. In summary, we have a solid liquidity position and a diversified long-term capital structure aligned with our business needs. At the end of the quarter, we have a cash balance of $840 million and an overall liquidity of around $3.6 billion. Earlier in 2025, we strengthened our financial position through the successful refinancing of credit facilities and issuance of senior notes. By doing that, we reduced the cost of debt, increased our available liquidity, extended the maturity profile and strengthen our core bank group. Our leverage ratio, net interest-bearing debt on EBITDAX ended at 0.9x, which is flat from the previous quarter, but continues to be well below our over-the-cycle target of below 1.3x, and we expect to reduce this further. Our debt portfolio is well diversified with a weighted average time to maturity of 5 years when excluding the 60 years hybrid. This is supporting the execution of our growth strategy towards 2030 and beyond. We have a Baa3 rating from Moody's and a BBB rating for Standard & Poor's, both with a stable outlook, and we are committed to maintain our investment-grade rating. Our strong financial position and our resilient flexible project portfolio lay a solid foundation for continued and material shareholder distribution and growth and is a unique investment proposition that Vår Energi offers. Now let's look at the tax guidance for 2025 estimated profits, where half is paid this year and half will be paid the next year. Note that from third quarter this year, we went from paying 6 installments per year to 10 installments per year. In the third quarter, we paid NOK 5.4 billion in cash taxes. For the fourth quarter of 2025, we expect to pay around NOK 8 billion. We have included a tax sensitivity for the first half of 2026, which is giving the cash tax estimates a different price scenario, but the middle case is giving around $1.6 billion, while the sensitivity is between $1 billion and $2.1 billion according to the indicated price ranges. Vår Energi has a strong track record of delivering value to our shareholders. Since the IPO, we have paid more than $4.1 billion in dividend, maintaining stable payments over the last 15 quarters. With transformative growth delivered in the third quarter of 2025, strong financials, a solid operational outlook with a resilient and flexible project portfolio, we can continue to support attractive and predictable dividends going forward. On the back of this, I'm pleased to confirm a dividend of $300 million for the third quarter and a total dividend distribution of $1.2 billion for the full year 2025 and $1.2 billion for the full year 2026. Finally, I will summarize our full year 2025 long-term guidance. For 2025, our production guidance is 330,000 to 360,000 barrels per day, reaching around 430,000 barrels per day by Q4 2025. We expect to reach around the midpoint of the guidance for the full year. We will maintain approximately 400,000 barrels per day in 2026. and further, we will sustain 350,000 to 400,000 barrels per day until 2030. 2025 production cost is expected to come at $11 to $12 barrels, down to around $10 per barrel by Q4 as we ramp up production. CapEx is estimated to be in the upper range of our $2.3 billion to $2.5 billion guidance in 2025. Going forward, we are expecting to be in the range of $2 billion to $2.5 billion thereafter. Exploration expenses and OpEx will be in the range of $200 million to $300 million and $150 million, respectively, in the medium to long term. For this year, we plan to invest around $400 million in exploration activities and expect abandonment expenditures to be around $100 million. We are guiding $300 million in dividend for Q4 2025, resulting in a full year dividend of $1.2 billion. Demonstrating strength, we're also guiding dividend for 2026 at $1.2 billion to be paid quarterly. With that, I hand it back to Nick for concluding remarks. Thank you.

Well, thank you, Carlo. And I have just one final slide to summarize. Our production milestones have been met ahead of schedule. And with our major projects now complete, we've derisked the company. In the quarter, we delivered solid financial results, and the company is resilient with significant flexibility to navigate through this lower price period. We're making good progress on our pipeline of new projects that will provide long-term value creation. And on back of this strong performance, we continue to provide predictable and attractive dividends. So we're delivering on our strategy for growth and value creation, and Vår Energi has never been in such a strong position. These are our third quarter 2025 results and other reasons to be invested in Vår Energi. I'd like to thank you for your time. We would now like to open up for your questions. Thank you.

We'll hand it over to the operator. Thank you.

[Operator Instructions] Our first question today comes from the line of Teodor Sveen-Nilsen from SB1M.

Congrats on a strong report. A few questions from me. First, on the lifting sales for Q3. As far as I understand, you delivered on Snøhvit [ cargo ] more than what you said in your operational update. I just wondering, is that something that we should expect to be reversed in Q4, meaning that we should model underlift for Q4? So that's the first question. Second question is on production cost. You reported very low production cost for third quarter and it was down around $100 million quarter-on-quarter. I just want to understand what drives that reduction? And third and final question, that is on production. You guided for 430,000 barrels per day in Q4. I just wonder what has the production been this far in the quarter?

Good. I think maybe Carlo will take the first question, Teodor, and then I'll cover off the latter 2.

Teodor, when it comes to the question you raised, yes, we have done a small change compared to the trading update, and you don't have to expect this cargo to be reversed in Q4, simply through the closing process, the bill of lading that was actually realized on the very last day of September was considered, and it was updated as soon as we completed our closing process, as simple as that.

Good. And I think the number is very small anyway. And so on production costs, I mean, we've set out for some time that our production costs are going to come down, and there's 2 components to this. One is that we're bringing some new volumes in, which have relatively speaking, low cost. I mean, I quoted 2 of those, which is Balder and Johan Castberg, Johan Castberg below 3 and Balder around 5. So obviously, that makes the unit production cost much better. And then we said we are focusing on costs as a company. And where we are today, we're going to come in at the bottom end of the range of $11 to $12 for the full year, and all of that is driven by cost reductions across our portfolio. And I think -- so $10.6 in Q3, and we expect to be around $10 in Q4. And we believe we can sustain this longer term. We're also working on things to be able to perhaps do a bit better than that, too. So there's a big focus on achieving this and sustaining this. And I think I'm very pleased that we've got to where we are. The $100 million that you talked to, this is about moving from a period where we have turnarounds, planned turnarounds in the summer period to a period where we have fewer of them. And so that's a sort of natural seasonal change, I think, that you would expect. So hopefully, that gives you enough color, Teodor, to understand that. And then on the production outlook, we announced in September that we had achieved 400,000 barrel a day milestone. We've been saying for some time that we can average around 430,000 in Q4. Where we sit today, our production potential is around 440,000 barrels a day, and we've been up towards those levels. That's with everything running. And we're going to bring on, and I listed quite a number of them in -- when I spoke as quite a few new wells between now and the end of the year, and there's a decent amount of volume to come with that. So we will see production grow -- potential grow from these levels through the quarter. And so we're confident of being able to deliver around on average, about 430,000 and probably exit the quarter above that level when we end the year. So that's sort of how we look at the production volumes, too. Hopefully, that answers the questions.

The second question today comes from the line of Tianhong Bi from Citi.

I've got quite a few questions, please. The first one...

We seem to have lost connection of Tianhong Bi. So the next question today comes from the line of Mark Wilson from Jefferies.

Really good delivery and congratulations on getting these projects to this point. My question, Nick and Carlo, is on those realistic price -- oil prices for 2026 and the $1.2 billion dividend. It's really good to see that confidence in returns for the coming year, considering there are fears over the commodity price. Your production mix is or has more oil now with Balder and Castberg on stream. So could you speak to, let's say, the lower range of oil prices for the coming year that would maintain that dividend?

Mark, we're not going to provide guidance on pricing, but the way we look at this, if you think about it, I mean, we've had transformational production growth this year. We've set out to bring on 9 new projects, major undertaking. 7 of those are online, and the last 2 will come online at the end of the year. So we see a significant growth in production, and we exit this year very strong, and we've guided around 400,000 barrels per day next year, and I'm very confident we're going to be able to deliver that. So that's a significant step-up in production. And at the same time, our capital spend is dropping off. And we have a lot of flexibility in the business as we look forward. So we've set out that between now and 2030, 65% of our capital future expected capital spend is uncommitted. And we have many choices to slow it down, speed it up to work to make the projects better, and we will use that flexibility. As a company, we're also free cash flow breakeven on average between now and 2030 at around $40 a barrel. And I think that shows the resilience of our company. New projects, they need to meet $35 breakeven and infill wells $30 breakeven, and we're able to maintain those metrics. And so we have a very resilient, robust, flexible business. We also have significant liquidity at $3.6 billion of available liquidity. And so when you look at it, we have got flexibility and resilience as a company. And then if you look at the oil price range, yes, OPEC+ has announced it's going to produce more volumes. What we also see is that maybe OPEC+, not all the members can produce all the volumes that they perhaps say they've got. And secondly, I think when you look forward, the world needs a lot of oil, and it needs to develop a lot of oil. It needs to spend a lot of capital to maintain the volumes. So yes, we have a shorter-term period maybe of weaker prices. But I am very positive about the longer -- medium- to longer-term outlook for oil prices because I think a lot of investment is required. And if you just look at the U.S. business, 50% of U.S. production today came from wells drilled in the last 2 years. And that declines extremely quickly. And at these prices, the U.S. is -- unconventional business is largely uneconomic. So I think we'll see a slowdown in investment and some of that adjustment will happen very quickly. And so our view is that there is long term, the prices -- we have a shorter-term lower price. But longer term, we see a good outlook for oil prices. And as a company, we're resilient to work through this.

If I may ask a follow-up on that, and I love the point about the U.S. new wells, by the way. Could I just ask the -- on the leverage within all that discussion, the leverage target of 1.3x or to be below that, should we use that if we're predicting forward as being a potential point that you might maintain dividends to?

Yes. Actually, when it comes to leverage, it's probably what I was about to add. Our starting point is 0.9x is well within our 1.3x. And we are committed to maintain an investment-grade balance sheet as we have been said a lot of time. So the whole point is that 1.3x is our target. We don't want to go above that. But given our starting point, which is 0.9x and if you model it, you will see that it's very, very resilient to lower price scenario. So our starting point to give us the confidence that we will not be in the condition to push the leverage close or higher than our target, while still being able to sustain 2026.

Let us go back to Tianhong Bi from Citi.

Can you hear me okay?

Please go ahead.

I've got a couple, please. The first one, you're still guiding for 10 project FIDs in 2025, but that's down from the 13 you flagged at 2Q with now 3 being pushed to 2026. Can you just clarify whether that's purely sequencing or if that reflects a more cautious spending stance given the lower price environment? And how should we think about the potential for further slippage? The second one relates to Goliat Gas. So the contract selection for gas export solution was cleared in 2023 with the original FID targeted in second half 2024, but that's now been pushed again. Can you just clarify what the current timing assumptions are and what are the key remaining gating items are? So just yes, what is holding up the FID at this stage? The third one relates to your 2025 exploration program, which has delivered 40 million to 60 million barrels net so far this year with another 7 wells to drill. Does this exploration success year-to-date get you where you need to be in terms of your resource replacement target? Yes, that's my question.

Good. I think good questions. In terms of the project sanctions, we guided at our CMU that we would sanction around 8 projects this year. And we've been working on a number of these projects, and we're now confident that we're going to sanction 10 of them by the end of this year. We have a number that might sanction in the early part of next year, and we're not guided what those are going to be yet. So I think we've more than met what we set out to do as a company in terms of the projects that we've got -- that we're moving forward. In terms of Goliat Gas, it's a good question. I mean we have a commitment to develop the gas in the field. And I think there's about 100 million BOEs of resource there. And the way to do this is to produce it through the Snøhvit facilities. And -- but of course, they're full until 2045. But there may be periods of time where they're not full. And so we're working up a commercial arrangement where we can put it through Snøhvit. Also developing the gas releases more oil production. So that's part of the story here about making this project economic. And if we progress with the Goliat Ridge development, we will need to do something with the gas. And it's cheaper to export it than to reinject it. So there's a number of motivations for this. We're in the middle of commercial negotiations with the Snøhvit license at the moment. And our target is to sanction this project in the early part of next year. It's quite simple really. It's basically a short pipeline to the pipeline for the Snøhvit facilities. And a riser at Goliat and it creates and unlocks a lot of opportunity. So I'm hopeful that we can move that forward. And in terms of our exploration success, we'd always like more. But I think so far, it's a good outturn this year. And we've got some exciting wells to come, particularly the wells we're drilling in the Goliat Ridge and I think some other things that we have. So we've got a high-impact well [ Veacon Ship ] in the Barents. And I'm actually quite like the Prince Updip in Ringhorne because that could unlock quite a few things and it can be put straight on to production because it's through the platform. And so we've got a number of wells, and let's see where we are at the end of the year. But overall, on a resource replacement ratio this year, I think we're in a good place on a 2P basis to be above 100% reserve replacement ratio this year. It's a bit early to give you some numbers, but we're going to be somewhat above that, I think, when we get to report the numbers in the early part of next year. So hopefully, that answers your questions.

Very clear. Is it possible to just add one more question in?

Go ahead.

Yes. So perhaps this question is more for [ E&I ], but also interested in your view as well because last week, they talked about boosting liquidity in Ithaca its other E&P satellites by selling down more shares. So I was just wondering if -- is there any similar discussions or consideration for Vår as well?

I think this is a question you need to direct to our major shareholder. It's theirs, but I think they made it clear that they're a long-term industrial holder of the company. They've made it clear on a number of times. And so -- but this is a question you have to direct to them.

[Operator Instructions] The next question comes from the line of Victoria McCulloch from RBC.

A couple more from me. So just firstly, on Balder, you highlighted the Phase V start-up in Q4. Can you just remind us the phasing and the number of wells with Phase V? And then subsequently, what's the timing expected for adding Phase VI in? And then second question, just following up on the highlight of the project portfolio. Is there any risk of these slipping into next year?

Okay. Victoria, good questions. And Balder Phase V, so that's 6 wells is in the plan there, and that uses all the remaining subsea well slots in the facilities that we've developed with the Balder-Jotun FPSO development. And so we will have 3 wells online by the end of the year. 2 wells will then be drilled in the first half of next year and come online sometime in the middle of the year because we have to put the subsea equipment of trees and flow lines in place once they're drilled. And then phase -- so that's 5 wells on Phase V will be done by then. And then we'll see Phase VI being drilled and installed in the -- and start up towards the end of next year. And that's a trilateral well in the field. And that needs a new flow line and subsea equipment to do that, but we've got that all in place to happen. And I think the final Phase V well will come in the early part of 2027 is what we've currently set out. So you'll see a continuous program of wells being added. I might say that these are all much longer and they're multilateral wells than the wells we've drilled in the past. So we get, I mean a dual-lateral delivers twice as much resource and production than a single well, and they're much longer as well. And so these are very economic and productive activity. And as I said, we then plan to continue. So we plan to install new subsea facilities, and we're designing for up to 15 new wells to follow on from this. And what we want to do is create a continuous drilling program here to allow us to sustain production long term through Balder. And then on the project portfolio, as I say, we've sanctioned 4 developments so far this year, and we have line of sight to sanction 6 more, so 10 for the year. And where we sit today, I think they will all get sanctioned this year. These things don't happen overnight. They take a long time to build up to it. And so we've got quite a number of approvals coming in the latter part of the year to move this forward. So I think we're in a good shape to move those forward. Hopefully, that answers your question, Victoria.

That's helpful. Can I just have one follow-up on Balder. I noted you talked about the -- in your comments about the retirement of the FPU on Balder and that only certain wells will then be transferred over to the Jotun FPSO. What -- I guess, is anything like being less stranded, what sort of production do you think then you're looking at that in a potentially 2028, 2029 time line? Is that sort of a production then that's going to drop off, so to speak?

No. I mean this is what we've considered into the whole thing. And of course, we don't want to leave reserves in the ground. So some of the wells are of a scale and still productivity that you would want to transfer them across. And some are quite high water cut and nearing end of sort of economic usefulness. So in some of those, we're going to redrill them because they've been lower in the structure. So we have the opportunity to redrill and move the well up dip and recover more oil. And so it's a bit of both. So we will not be losing reserves through this whole process. We'll be actually adding quite a lot of resource.

The next question comes from the line of Nash Cui from Barclays.

I have 2 on cost, if that's okay. So the first one is on unit production cost. I think Vår did $10.6 this quarter, which is really good. And with your production volume growing significantly into Q4, do you feel that your $10 per barrel guidance is quite conservative? Then my second question is, I wonder if you can give us an update on the $500 million cost saving plan, especially given that you increased your exploration CapEx a little bit. Does that mean you need to find extra savings from somewhere else?

Good. And thanks for joining and the good questions. On unit production costs, yes, $10.6 in Q3, which is very good. And as I said, we guided $11 to $12 for the year, and we expect to be around $11 at the end of the year, which -- and production being flat, this is all about cost reductions. And there's 2 aspects, as I pointed out earlier, this is about the lower unit cost production from the new barrels that we're bringing in, but it's also about cost reductions. And I have to say, yes, we've guided approximately $10, but I think there is a case that we could become a bit lower than that. So something to look out for when we get to our Q4 results. And then on the $500 million, look, we set out that we were going to use some of our flexibility. If you look forward between now and 2030, we have around 65% of our future capital uncommitted. And depending on how this price environment continues, we will use some of that flexibility. But we have a big opportunity to optimize our portfolio to maintain the production outlook to reduce the cost base and to manage through this cycle. And I think we're not stuck with some massive projects that you have to invest into. We have lots of choices and flexibility, and we will use that. And we guided that we would take $500 million out of '25 and '26, and we will update you on what our 2026 capital program and spend program is going to be at our Capital Markets update in February. Another good example of this is in my speaking notes, I talked about the fact that we are discontinuing the electrification projects at Snøhvit and Halten. That will take out $500 million out of our future capital program between now and 2030. So that's a component. So there's lots of aspects to this, and I can't guide on a specific item because there's many, many things that make this up. But we're focused on cost discipline, delivering what we say we're going to do, delivering our production, driving down operating cost and using the flexibility in the company to make sure that we're robust and can meet all of the objectives that we've set out.

I just wanted to add that when it comes to the $500 million cost saving program, if you remember, this is mostly on 2026. So 2025 was actually marginally impacted by it, mostly in 2026. So the slight overspend, for example, you referred to the exploration is not really impacting that opportunity for containing cost because it's mostly on 2026.

The next question comes from the line of John Olaisen from ABG.

Two questions, if I may. Firstly, if Balder -- if the Jotun FPSO is at peak production capacity now, I just wonder how is this going to be -- is there going to be space for the new wells from Balder V? Is depletion like so strong in a month or 2? Or is it going to be produced at one of the other 2 facilities? And maybe if you could add on that, what is the underlying depletion at Balder? And my second question is regarding the free cash flow breakeven. Is it possible to say what is the free cash flow breakeven for Vår in 2026 before and after dividends, please?

So in terms of -- I'll take the first question, and Carlo can deal with the second one. John, Balder, first of all, these wells are quite peaky. So we -- they have a long life, but they decline from peak rate quite quickly because we're quite thin oil column and we get water quite quickly. So today, we're producing 80,000 barrels a day gross, and our share is 90%. And if we are going to sustain production through Jotun FPSO, we have to continually add wells over time to be able to sustain that. And so that's what -- and as we bring new wells on, we can optimize the production through the facility. We're also working to see whether we can get more through it. That's something to think about also in time both on oil production and also when we debottleneck to improve the gas handling capacity and the water handling capacity. So it's about sustaining production here long term, it's about continuing to drill and there's loads of subsurface opportunity. And that's what we're going to do. Phase V is the first step, Phase VI is the next piece. And then Balder Next will bring -- we're going to create the opportunity for up to 15 wells. And then there's many other opportunities in the area as well. So I think that's the way to look at this. And then Carlo, do you want to address the other question?

It comes to the breakeven for 2026. You know that we guided our breakeven at $40 for the cycle, so 2026, 2030. If you look at 2026 only, you will see that and we already guided 2026 will be approximately 400,000 barrels per day in production and the CapEx guidance we gave for the entire period is between $2 billion to $2.5 billion. So the breakeven you can expect in 2026 is actually in this range of $40 because it's actually the year where production will be at 400,000, not just the rest, 350,000 to 400,000.

Okay. So $40 before dividends, and after dividends in '26?

We've not guided that.

And sorry, Nick, the underlying depletion rate at Balder, is it possible to give like a range or some numbers on that?

I'm guessing it's about 10% to 15%, but it depends a little bit. I mean we've got a lot of new wells at the moment, so you don't see it quite that way. We've got -- we are limited actually on the -- we've got more well capacity than we have production facilities capacity. So it's not quite at that point yet.

All right. But you can confirm that the 3 new production wells for the ones going to be set in production from Balder V is going to be hooked up and produced from the Jotun FPSO?

Yes, they will. I mean we're not drilling any more wells to hook up to the Balder FPU. All future wells will be drilled in connected to the Balder FPSO. And the point about our Balder Next project is actually to decommission the Balder FPU, which reduces our operating cost by around $130 million per annum gross and significant reduction in annual CO2 amount. So we're going to replumb some of the good wells from Balder FPU into the FPSO.

We currently have no questions coming through in the queue. [Operator Instructions] The next question comes from the line of Alejandra Magana from JPMorgan.

You've sanctioned 4 of the 30 early phase projects in the pipeline and expect around 10 by year-end. You've given some detail on Fram Sør and Balder Phase VI with Fram Sør more of a '29 story and Balder Phase VI, starting out by the end of '26. Could you just add a bit more color on how the remaining 2025 sanctions are expected to line up in terms of timing and sequencing? And then my second question, can you just expand a bit on Goliat Ridge? You've called it a fast-track project. How quickly do you think you can move to FID once the appraisal wells are in? And what needs to line up first?

Okay. I can go through a few of the dates. I don't have them all in my head. But as I say, 4 projects sanctioned this year. We are expecting to sanction 6 by the end of the year, and I'll give you a few examples -- and I did in my speaking notes a little bit. So up in the Johan Castberg area, we're going to sanction an infill drilling program that will start drilling wells immediately following the ongoing development program being complete at the end of next year. So it will start from 2027. That will include drilling and exploration discovery that was made in the area this year. And we're also going to sanction the Isflak tieback development at the end of this year. I think that probably comes in line on 2028, but I couldn't -- we'd have to check that. And then the Ekofisk Previously Produced Fields project, which is quite a big one. That will -- now that we have increased our working interest in that, that's going to sanction at the end of this year, and we'll start giving production volumes in 2028. Balder Next, there's 4 components to this, as I set out. The first component we will sanction at the end of this year, which is debottlenecking the FPSO. This is to give more capacity of gas handling, water handling capacity through the facility to allow us to get more volumes through it. And this will be implemented during the summer next year. So there's some shorter-term things and there's some longer-term things in the mix. And the whole aim is -- what we're trying to do with the 30 projects is optimize the delivery of them, to maximize the production outlook for the company and sustain 350,000 to 400,000 barrels a day. And so just delivering on these 30 projects will deliver 350,000 barrels a day towards 2030. Then Goliat Ridge, where we're at on this is we've made 3 discoveries there already. We set out -- and this is quite a big opportunity. It's potentially over 200 million barrels. It's just a few kilometers away from the Goliat FPSO. And so it would be developed as a tieback into Goliat FPSO. It's the same fluids and everything. So it's very simple in that respect. What we're doing at the moment is we set out that we're going to drill 2 appraisal wells. We started the first one, and we will drill those 2 between now and the end of the year. And so we will have quite a lot more subsurface data. The other aspect here is one of the reasons this hasn't been drilled is you can't see it on the existing seismic. So in the summer, we shot a new 3D seismic survey over this. This is -- the previous version was 25 years old. So hopefully, new technology will mean that we can look and see the reservoir much better, and I'm confident that, that will do. And so we will have a lot of subsurface information in our hands at the end of this year. And then we can start to think about how we move forward a development program here. But we can fast track this if it's the right thing to do. We can move it forward very quickly just as we're doing projects in the Balder area and in the Gjøa area. And so let's see where we are at the end of the year, and then we can start to think about the timing for developing this. Hopefully, that answers your questions.

There are no further questions from the phone line. So handing back over to the speaker room to answer 2 questions in writing.

Thank you. I've got a question here from Matt Smith of Bank of America. Last quarter, you discussed CapEx flexibility and the opportunity to rework and improve projects. Two questions. Are you considering further leveraging this CapEx flexibility in 2026? And secondly, are you seeing supply chain pricing as conducive to improving project economics?

Yes, it's a good question, Matt. So I think, yes, we are using the flexibility. We're using the flexibility in a number of ways. First of all, we're very disciplined about making sure we do projects that create value. And the metrics we set out below $35 breakeven and rates of return above 25%, and we're going to be really disciplined about making sure we do that because if we do projects that look like that, we're going to make money in the long term. And so sometimes, the projects need to be reworked. And it's not just about the cost base, it's also about the scope of the project. So we're doing both of these things. And sometimes, we move a project forward quickly and we say, well, we need to reset a bit and go around it again, both on the cost base and on the scope of work. And we're having quite a lot of success at doing that. And our drive here really is to pick up the pace, which I think we've developed some momentum here and be willing to move things forward quickly, but recognize where we need to rework something and recycle it a bit. And there's a few projects we've done already that's created such success. We slowed down our Gjøa area projects a bit, and we've been able to improve those significantly, both from reducing costs and improving the project. So that's how we will address this. And for sure, we're going to use the market if it offers opportunities for us. So hopefully, that answers your question, Matt. And the second one, Ida?

We have another question here in terms of hedging policy. You've hedged 100% of your crude oil production after tax for Q4 with productions at $50. Will you continue to hedge against lower crude prices in 2026 as well?

Yes. As we said, we are not continuing for 2026. As we speak, we don't have this program in place. We are monitoring the market, of course, to see whether there is an opportunity. But what we've done is basically a risk-benefit balance analysis, and we saw that the company the way it is now is very different from what it was a few years ago. Production has increased a lot and the company is fully derisked. So as we speak, we don't have any program in place for 2026.

And one last question on operating costs. What are the key factors that give you confidence in maintaining this $10 per BOE cost level on a sustainable basis going forward beyond Q4 this year?

And it's a good question. So it's about 2 things. It's about sustaining production. So if we sustain high production through our facilities, then we can sustain these lower costs. And secondly, it's about being disciplined about the cost base. And I still think as a company, we've got quite a lot of opportunities to reduce operating costs. And I'll give you one example. In the Balder area, we're going to decommission the Balder FPU in 2028. That represents $130 million gross per annum operating cost, which we will take out of -- and we have 90% of it. So that is a good example where we can take cost out of our cost base and still maintain production at the same levels. And we will continue to work both sides of that equation. And the way we project it, so we can see ourselves around $10 long term.

Great. Thank you. That concludes the presentation and Q&A. Thank you all for dialing in. Wish you a good rest of the day.