First quarter 2021: Positioned for bilateral value creation
At a time when oil prices are rebounding, energy demand increasing, and sustainable energy simultaneously experiencing explosive growth, Aker is finding itself positioned for bilateral value creation. Aker Horizons and Aker BP are driving Aker’s growth during the first quarter. While addressing different energy segments, they have a shared competitive advantage: creating value in the most cost-efficient, sustainable manner, driven by industrial software and access to excellent industrial capabilities. For Aker, the result is a period with a value growth of nearly 17 percent.
In the first quarter of the new year, Aker’s Net Asset Value (NAV) increased by NOK 8.9 billion to NOK 62.2 billion. The positive contribution was mainly driven by value increases in Aker Horizons, which contributed NOK 5.9 billion to our NAV, and Aker BP, which contributed NOK 4.2 billion. Our two energy companies – one in oil and gas, one with a portfolio in renewables – are thus the current drivers of growth during the period. The growth is both the result of global energy demand continuing to increase and oil prices recovering following a tumultuous 2020, as well an accelerated shift to new energy segments, like hydrogen, offshore wind and solar. Aker is well-positioned to leverage both these energy trends and both Aker BP and Aker Horizons are important to our continued growth and position in energy production.
Furthermore, the two companies have overlapping needs that present an excellent growth opportunity for Aker’s other industrial holdings. This includes demand for strong engineering and project execution capabilities found in Aker Solutions, as well as digital software solutions in Cognite and Aize that will bring the companies to the forefront of cost efficiency, environmental compliance, and data-driven decision-making. Along with relentless focus on organizational strength and strong management teams, Aker companies have an edge in their optimal management of natural resources to create value in a cost-efficient, sustainable manner.
For Aker BP, the overall picture is that the company continues to develop according to plan. This includes efficient operations that result in reduced costs, increased production, and better safety. The company is also working actively to deploy digital tools throughout its business and is sharing data with the rest of the industry to drive positive change. In the first quarter, the company saw record high revenues and operating profits and is well-positioned to deliver on its plan for profitable growth. For Aker, this means that Aker BP remains an important value and liquid investment, providing valuable upstream cash as we stake out our path in the energy transition.
One of the more important projects on deck for Aker BP is the development of Krafla, Fulla and North of Alvheim (NOAKA), which is progressing well and ahead of schedule. Aker BP and Equinor, the joint operators of the project, have started preparations to submit plans for development and operation (PDOs) in 2022. The total recoverable resources of the project are estimated at more than 500 million barrels of oil equivalents and will nearly double Aker BP’s production over the next five years.
NOAKA is also important for Aker as a whole. It is expected to give Aker Solutions significant work within engineering, project management and technology, including subsea, and will facilitate important software collaboration between the operators, Aker Solutions, Cognite and Aize. For Aker, NOAKA is an opportunity to demonstrate the importance of industry alliances – as well as Aker’s own alliance model – leveraging proven capabilities to digitalize, keep cost down and ensure operational excellence and efficiency. Moreover, the field will have low emissions through power from shore and the partners will make extensive use of digital solutions both for the development and operational phases – a landmark project for the use of industrial software for the rest of the industry.
In true Aker spirit, we continue to apply learnings and mirror successes to drive growth in other parts of our portfolio. Aker Horizons has from day one taken advantage of superior project execution capabilities across the Aker ecosystem and is applying software to digitalize green value chains. In a highly capital-intensive sector, the company also benefits from Aker’s deep experience in financial engineering. Along with helping to form and strengthen the organizations under the Aker Horizons umbrella, ensuring that the company combines growth opportunities with cash generating operations that can help finance activities is currently at the top of our ownership agenda.
Aker Horizons saw remarkable progress during the quarter and is actively working to sustain both organic and inorganic growth. The company announced acquisitions of both Mainstream Renewable Power and Rainpower and listed Aker Clean Hydrogen. At the same time, Aker Offshore Wind and Aker Carbon Capture made further progress on their respective business plans. The Aker Horizons companies are leveraging a 180-year old track record of industrial pioneering and the competence and experience across the Aker-sphere. One example is Aker Clean Hydrogen entering a historic agreement with industry heavy-hitters Yara and Statkraft to establish Europe’s first large-scale green ammonia project in Norway. The project, which has the potential to be one of the largest climate initiatives in Norwegian industrial history, is also important for Norway to claim a leading position globally in the industrialization of large-scale hydrogen production. Not unlike the impact Ekofisk and other fields had on the development of the Norwegian oil and gas industry in the 1970s and 80s, this and other renewable projects can have major ripple effects for the development of entire green value chains and the supplier industry in Norway. Not least having a major comparative advantage through the deployment of industrial software.
More generally, Aker Horizons’ growth platform provides a solid foundation for long-term, sustainable value creation. Renewables are projected to account for half of power generation in 2035 and reaching the goals of the Paris Agreement requires stronger ambitions and accelerated implementation of renewables at a global scale. Aker Horizons has a 2025 ambition to invest NOK 100 billion in green technology, reach 10 GW renewable power capacity, and enable removal or avoidance of 25 mega tons CO2e. Well-supported by global investment trends, increased momentum toward decarbonization, and further declines in cost of renewables, Aker anticipates Aker Horizons to be one of the key value drivers in the medium- to long-term.
Aker BP and Aker Horizons are thus driving our growth, not at odds but with a shared ambition of making a significant contribution to a more sustainable future through their respective activities. Aker BP is taking a leading role in transforming the oil and gas industry to become safer, more efficient and with lower emissions. Aker Horizons has ambitious targets for renewable power capacity and global emissions reductions. Both with distinct growth potential, both benefiting from the Aker ecosystem, and both being examples of how to deploy digital solutions for more cost-efficient, sustainable growth.
The current reality is that despite fundamental shifts in the underlying drivers in the world’s energy systems, the energy investment mix remains remarkably balanced. Most offshore-producing regions will be under pressure to accelerate the energy transition, yet the sector will require significant production to meet continued demand. According to McKinsey, oil and gas will represent 50 percent of energy investments by 2035, and with oil and gas prices rebounding, we already see an uptick in investment activity. Global oil and gas production supports growth in other parts of our portfolio, which can then sustain activity and simultaneously navigate the transition to a more renewable global energy landscape and long-term future. There has surely been no shortage of activities across the portfolio so far in 2021 and our core strategy remains firm: pursue value accretive opportunities for long-term value creation and be an active owner to drive growth.
Øyvind Eriksen, President and CEO