Tyra Hub Ramp Up Will Drive Long Life North Sea Cash Returns

Catalysts

About BlueNord

BlueNord is an oil and gas company focused on maximizing long life, low decline North Sea production and returning substantial cash to shareholders.

What are the underlying business or industry changes driving this perspective?

• Continued ramp up and sustained high production at the Tyra hub, underpinned by improving uptime, water treatment debottlenecking and compressor optimization, is described as a key factor that could lift volumes and drive higher revenue and EBITDA over the rest of the decade.
• Large discovered resource inventory around Tyra and across the DUC, including low cost tiebacks such as Tyra North and Halfdan North and high return infill wells, provides visible, long duration production that may support resilient cash flow and earnings over an extended period.
• Stable and supportive Danish and EU policy that positions domestic natural gas as a potential transition fuel, combined with Denmark’s net exporter status, may support regional demand and pricing, which could be positive for long term revenue and margin stability.
• Modern, efficient Tyra facilities and a shift to higher throughput on existing infrastructure are contributing to structurally lower lifting costs per BOE, which can improve net margins and accelerate the conversion of EBITDA into free cash flow that may be available for distributions.
• Reduced capital intensity following completion of the Tyra redevelopment, together with disciplined, high return project selection and a material tax loss position, is seen as a potential driver for enhanced free cash flow generation and may support distributions and earnings per share through and beyond 2026.

Assumptions

This narrative explores a more optimistic perspective on BlueNord compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming BlueNord's revenue will grow by 13.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -3.9% today to 17.8% in 3 years time.
• The bullish analysts expect earnings to reach $224.5 million (and earnings per share of $11.06) by about December 2028, up from $-33.7 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $102.0 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 8.6x on those 2028 earnings, up from -31.3x today. This future PE is lower than the current PE for the GB Oil and Gas industry at 10.4x.
• The bullish analysts expect the number of shares outstanding to decline by 4.62% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.15%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Tyra and the wider DUC portfolio are highly concentrated, so any persistent operational constraints such as ongoing water treatment bottlenecks, compressor limitations or renewed unplanned shutdowns could cap plateau volumes below expectations and reduce the long term production profile, negatively impacting revenue and EBITDA growth.
• The EU policy framework explicitly targets fossil fuel phase down, with Danish production already given an end date in 2050 and the DUC license expiring in 2042. Any acceleration of decarbonization policies, carbon pricing or restrictions on gas as a transition fuel could shorten the economic life of the fields and lower long run realized prices, pressuring revenue and net margins.
• The narrative assumes that low decline rates and infill projects will sustain output above 50,000 barrels per day into the 2030s and maintain a positive reserves replacement ratio. If reservoir performance weakens, infill and tieback returns disappoint or 2C resources fail to be sanctioned, depletion could outpace additions and drive steeper declines, reducing future revenue and earnings.
• BlueNord’s strategy and investor appeal are built around distributing 50 percent to 70 percent of operating cash flow and running with net leverage around 1.5 times through the cycle. A prolonged downturn in gas and oil prices once current hedges roll off, or higher than expected OpEx and abandonment provisioning, could force lower payout ratios and slower deleveraging, weakening earnings and equity value.
• The long term production plan and potential license extension depend on continued regulatory support in Denmark and strong alignment with the operator TotalEnergies. Shifts in political sentiment, ESG driven capital allocation by partners or tighter offshore safety and environmental regulations could limit future investment in projects like Tyra North, Halfdan North and further Harald or Tyra area developments, reducing future volumes, free cash flow and earnings power.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for BlueNord is NOK726.0, which represents up to two standard deviations above the consensus price target of NOK566.2. This valuation is based on what can be assumed as the expectations of BlueNord's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NOK726.0, and the most bearish reporting a price target of just NOK470.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be $1.3 billion, earnings will come to $224.5 million, and it would be trading on a PE ratio of 8.6x, assuming you use a discount rate of 7.1%.
  
• Given the current share price of NOK423.0, the analyst price target of NOK726.0 is 41.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.