Lundin Energy is accelerating its decarbonisation strategy as the Swedish independent takes aim at hitting carbon neutrality from operational emissions from 2025 — an achievement it claims would be "a first for the upstream industry".

The target is five years ahead of the company’s previous stated goal of reaching carbon-neutral operational emissions by 2030, with the company on Thursday claiming the new ambitious target will make it the first upstream player to achieve the feat.

“Work continues on the electrification of our key producing assets alongside our investments in renewable energy to offset and replace the electricity we consume,” Lundin chief executive Nick Walker said.

“When combined with our natural carbon capture projects, we can now achieve carbon neutrality from 2025; a first for the upstream industry, and showing we can deliver both profitable growth and environmental benefits.”

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Making progress

The company only launched its decarbonisation strategy a year ago but said on Thursday that progress has been made across the business, with the net carbon intensity for all assets of 2.6 kilograms of carbon dioxide per barrel of oil equivalent.

That figure is roughly 50% lower than the 2019 average and well below the company’s target of 4kg CO2 per boe.

Lundin attributed the reduction largely to the giant Johan Sverdrup oilfield development offshore Norway coming on stream, which had a carbon intensity during the reporting period of less than 0.2kg of CO2 per boe.

It added that its carbon emissions performance is expected to improve further with the Edvard Grieg platform off Norway set to be fully electrified late next year, at which point Lundin forecasts the average net carbon intensity for all its producing assets to be below 2kg of CO2 per boe — or about one-tenth of the industry average.

Powering up power from shore

By late 2022, Lundin expects more than 95% of its production will be powered from shore, consuming about 500 gigawatt hours per annum.

To partially offset the electricity usage, Lundin has made investments in the Leikanger hydropower project in Norway and the Metsalamminkanga wind farm project in Finland, with both projects set to generate about 300 GWh per annum, net to Lundin, when operational.

The company anticipates fully replacing all net electricity usage for power from shore by 2023 with further direct investments in renewable energy electricity generation.

In addition to progress on the electrification and renewables projects, Lundin also attributed its partnership with Land Life to invest $35 million to plant about 8 million trees between 2021 and 2025 as another key factor behind the acceleration of its decarbonisation strategy.

The partnership is expected to capture roughly 2.6 million tonnes of CO2.

Despite the acceleration in its decarbonisation strategy, Lundin forecasts it will spend $70 million this year in renewables and reforestation investments, down on the $96 million spent in 2020.

Analysts at RBC Europe said in a note on Thursday that Lundin's ambition of being carbon neutral by 2025 "has raised the bar for the sector".

Financial results

The news of the new decarbonisation target came as Lundin also revealed Thursday that net profits slumped to $342.8 million last year, from $824.9 million in 2019.

The result were impacted by a $756.7 million after tax accounting gain on the sale of a 2.6% stake in Johan Sverdrup during the comparative period, offsetting a $171 million a foreign currency exchange gain it benefited from in 2020.

Taking into account one-off costs, Lundin’s underlying results actually improved, with the company posting an adjusted net profit of $280 million, up from the prior year’s $252.7 million adjusted net profit.

This came as total production in 2020 averaged 164,500 barrels of oil equivalent per day, up from 93,300 boepd in 2019, while the company also booked record quarterly production in the final three months of 2020, with output averaging 185,000 boepd.

Despite the strong output increase, however, Lundin’s revenues only totalled $2.56 billion in 2020, down from $2.95 billion in 2019, as it only achieved an average price of $38.35 per boe, compared to $61 per boe a year earlier.

Helping ease the impact of lower revenue on the bottom line were operating costs coming in at $2.69 per boe, below previous guidance of $2.80 per boe.

Also helping the 2020 result were total expenditure reductions and deferrals of more than $360 million from original guidance, including capital expenditures, operating costs and general and administrative expenses.

Outlook

For the year ahead, Lundin expects operating costs to increase to $3 per boe, while it will also increase development expenditure to $850 million, up from $640 million last year, while exploration and appraisal expenditure will also increase to $260 million, up from $153 million in 2020.

Output this year is also anticipated to average between 170 million and 190 million boepd, while the company’s long-term forecast is for output to hit more than 200 million boepd by 2023.