DONG Energy Confirms Oil & Gas Divestment Amidst Improved Third Quarter

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In the company’s second quarter as a publicly listed company, Danish energy giant DONG Energy confirmed its long-rumored intentions to divest itself of its Oil & Gas division, amidst third quarter earnings which saw earnings increase by 7%.

DONG Energy published its third quarter earnings report this week, its second after a highly successful IPO earlier this year. However, the company’s second quarter earnings had yielded disappointing results, so investors were anticipating better news. The wind energy giant reported EBITDA of DKK 4.8 billion, up 7% over the same time a year earlier. This raised year-to-date earnings to DKK 17,166 billion, up 16% from a year earlier.

”The Group continues to develop positively and according to our strategic and financial plans,” said Henrik Poulsen, DONG Energy CEO and President. “We maintain our outlook for 2016 of DKK 20-23 billion in EBITDA and gross investments of DKK 18-21 billion.”

Increases in DONG Energy’s EBITDA is due in part to higher offshore construction activity, increased generation from new offshore wind farms and a large lump sum payment. Company profit reached DKK 3.3 billion, DKK 2.9 billion higher than the third quarter of 2015. The company remains on track for its 2016 outlook, keeping its guidance in line with that previously given earlier in the year.

While it was good news on the financial front for the company, the big news out of the company’s earnings was confirmation that DONG Energy is in fact intending to divest itself of its Oil & Gas business. We covered the most recent rumors concerning this deal back at the end of October, but it’s a rumor that has been percolating ever since the company began investigating the possibility of becoming a publicly listed company. Now, it’s an official part of the company’s future plans.

“We have decided to initiate a process with the aim of ultimately exiting from our oil and gas business,” explained Poulsen.

“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.

“[Oil & Gas (O&G)] continues the substantial restructuring of the business and delivered a strong operational performance in the first nine months. 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.”

It is rumored the company’s Oil & Gas division could be valued at more than $1.9 billion, but despite continued benefits, the company is looking to focus entirely on renewable energy technologies such as offshore wind and biomass.

“We currently have seven large offshore wind farms under construction,” Poulsen continued.

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

“In October, we inaugurated the biomass-converted Studstrup plant, which can now supply CO2-free heat to 225,000 residents in Aarhus. The biomass conversion at Avedøre is progressing according to plan and is expected to be finalised in Q4, while the opening of the bio-converted Skærbæk plant will take place in 2017. The construction of the REnescience plant in the UK is on schedule, and we expect to inaugurate the plant in 2017.”

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Joshua S Hill

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