DONG to exit oil and gas

Denmark’s DONG Energy has decided to exit the oil and gas business, to focus its efforts on renewables.

Image from DONG Energy.

“We have decided to initiate a process with the aim of ultimately exiting from our oil and gas business. This should be seen in the context of DONG Energy’s strategic transformation towards becoming a global leader in renewables and a wish to ensure the best possible long-term development opportunities for our oil and gas business. There can be no assurance as to the outcome or the timing of the completion of the process,” Henrik Poulsen, DONG president and CEO said.

DONG reported a strong oil and gas operational performance in the first nine months of 2016.

“Cost performance continues to improve, driven by continued renegotiation of supplier contracts, reduced exploration spending and improved operational efficiency, with total cash spend decreasing by 36% compared with the same period last year. We now expect O&G to be cash flow positive in 2016, a year earlier than previously communicated,” Poulsen said the company’s nine month report.

During the Q3 2016 period, DONG’s operating profit (EBITDA) increased by 7% to about US$713 million (DKK 4.8 billion), driven by a 19% increase in wind power and a positive effect from a lump sum payment received in connection with the completed renegotiation of a gas purchase contract. In addition, the increase was partially offset by lower oil and gas prices and reduced volumes from the Ormen Lange field.

The company posted a profit of some $490 million (DKK 3.3 billion) in Q3 2016, $431 million (DKK 2.9 billion) higher when compared to Q3 2015. DONG attributed the increase to a higher EBITDA, lower depreciation and a $193 million (DKK 1.3 billion) gain from the divestment of the gas distribution grid to Energinet.dk.

In the renewables sector, DONG currently has seven large offshore wind farms under construction.

“The construction program totaling 4.4 GW is well on track,” Poulsen said. “In parallel, we continue to shape our pipeline of offshore wind project opportunities for the period beyond 2020.”

On 16 August, the UK government granted DONG permission to build the Hornsea Project Two offshore wind farm, located 89km off the Yorkshire coast. The project will have a capacity of up to 1.8 GW and consist of up to 300 turbines. It will be able to meet the electricity needs of approximately 1.6 million UK homes.

DONG said it maintains its outlook for 2016 of $3-$3.4 billion (DKK 20-23 billion) in EBITDA and gross investments of $2.7-$3 billion (DKK 18-21 billion).