In recent years, DONG has built up a portfolio of production and exploration licenses in Norway, which accounts for 40 per cent of current production. The Ormen Lange acquisition demonstrates our commitment to the Norwegian Continental shelf, and will form the basis for continued strong growth in Norway. DONG is committed to supporting the Ormen Lange project and is looking forward to working with the partners to ensure a successful development.
The acquisition supports DONG's strategy of value creation through a presence in the entire value chain and offers significant synergies with the existing activities. Today the company is active both midstream and downstream in the Danish, Swedish, North German and Dutch markets. DONG's customers in these markets are today predominantly supplied with Danish gas which DONG has purchased under long-term contracts. As the Danish gas production is expected to decline after 2010, the Danish contracts will be replaced by a combination of new long-term contracts and equity gas production. Through this acquisition, we have secured an equity production equivalent to approx. 30 per cent of our present gas sales, fulfilling our medium-term target for equity gas production.
Anders Eldrup, CEO:
"DONG is delighted with the Ormen Lange acquisition, which adds a high-quality asset to our portfolio and significantly expands DONG's business in Norway, strengthening one of our core areas and our position in the North European market. It secures future growth and supports DONG's strategy to develop into an integrated energy company."
Ormen Lange was discovered in 1997 and is the second-largest gas field in Norway. The development plan for the field was approved in spring 2004. The development project is progressing well and production start-up is scheduled for late 2007, with production lasting at least until 2040. The development and production phases will be operated by Norsk Hydro and Norske Shell, respectively. The gas will be exported through a new 1,200 km pipeline, Langeled, to the UK or via the Norwegian Sleipner field to the Continent through existing pipelines. Overall reserves are approx. 380 billion Nm3 gas and 180 million bbl of condensate based on the development plan submitted to the Ministry of Petroleum and Energy. DONG's share in the gas reserves is equivalent to approx. 40 billion Nm3.
The Langeled pipeline will be integrated into the Norwegian gas export infrastructure Gassled, resulting in DONG becoming a partner in Gassled. The Gassled system offers an attractive stable long-term return and flexibility with respect to the destination of the gas, which, in combination with our other gas supplies, pipelines and storage facilities, offers the potential for value creation through utilisation of flexibility and swaps.
The acquisition price of USD 1.2 billion is based on the value of the recoverable reserves and infrastructure coupled with the expected value creation through wholesale and trading activities, and the substantial synergies with the existing gas business. The price is inclusive of an associated tax position, which will be acquired from BP. DONG's net income and cash flows from operations are expected to be slightly negatively impacted for the period 2005-2007. Thereafter, a substantial improvement in net income and cash flows from operations is expected.
DONG's financing plan has been developed to meet the current projected requirements of this transaction, while ensuring that we have sufficient resources to fund our other ongoing investments.
Søren Gath Hansen, Executive Vice President, DONG E&P:
"With the Ormen Lange gas, DONG's reserves are increased significantly, and the E&P portfolio becomes gas-dominated, thus securing a high degree of integration of the E&P activities into the overall company. Ormen Lange is a long-term asset with highly competent Development and Production Operators. The expected production from Ormen Lange complements the other gas assets that we have discovered and acquired during the last few years in Mid-Norway and West of Shetland. The acquisition will have a significant favorable impact on DONG's key E&P metrics, including costs/boe and reserves to production ratio."
The transaction will be effective from January 1, 2005, subject to approval by the Norwegian authorities. Furthermore, the Norwegian State, through Petoro, has a 40-day option to pre-empt the transaction.
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