Dong Energy, Company Intelligence Report

Wednesday 11 July 2012, Amsterdam

Dong Energy, Company Intelligence Report
Restructuring of Wind Power Operations Leading to Higher Returns
Wind power (including hydro) is one of the major business activities for Dong, which involves the construction and development of wind farms. In 2011, the operating profit generated from this business activity was around DKK 856m ($160.0m), which was second highest after the E&P contribution. The total electricity generated from wind power in 2011 was around 4.4 TWh, thereby contributed nearly 22% to the company’s total electricity generation. In order to further improve the contribution of this business activity, Dong has started restructuring its operations. Dong has divested several non-core assets from its wind power business segment since 2010 in order to generate higher returns from the segment. The major divested assets of the company include the sale of 24.8% interest in the Walney offshore wind farm in 2010 and a 50% stake sale in the Anholt offshore wind farm in Denmark in 2011. The table below shows the divestments of the company in wind power during 2010 to date.

These divestments have been undertaken by the company primarily to focus on its core assets. The proceeds generated from these divestments are being used for investments in new wind farm projects. Dong has several wind farm projects in the construction phase which are expected to increase its wind capacity to 3,000 MW in 2020 from 1,025 MW in 2011. One of the major offshore wind farm projects under construction is the Anholt wind farm in Denmark which is expected to have a capacity of 400 MW. In addition to this, the company is constructing new farms in countries other than Denmark, thereby diversifying its risks through the restructuring process.

This restructuring process is helping Dong to focus on its core assets in the wind power business activity. This improved focus has increased the company’s revenue from the wind farm segment from around DKK 1.2 bn ($0.2 bn) in 2007 to nearly DKK 2.3 bn ($0.4 bn) in 2011, thereby showing a CAGR of 37.7% during the mentioned period. The company’s strategy of restructuring its wind power portfolio is thus helping it to generate higher revenue as well ensuring steady cash flows from new projects in the coming years.

Upcoming Upstream Projects to Support the Company’s Production Volumes
Dong consistently increased its total crude oil and natural gas production volumes during 2007–2011. The company’s total production in 2007 was 11.3 MMboe which increased to 26.4 MMboe in 2011, thereby showing a CAGR of 23.6% during the mentioned period. Dong plans to maintain this production growth through a stream of upcoming projects between 2012 and 2016. The company expects its production to double between 2011 and 2016 as it is planning to bring online at least one project a year. The major projects which are expected to come online by 2016 include Syd Arne Phase 3 and Hejre in Denmark and Laggan–Tormore in the UK. The Oselvar and the Marulk projects in Norway already came online in April 2012, thus adding to the company’s total production. The figure shows project status schedule of the company’s major upcoming projects between 2012 and 2016.

1.1.1 Hejre
One of the major upcoming projects of the company is the Hejre project in Denmark, which is expected to come online in 2015. The decision to develop this project was finalized in 2012. Dong has a 60% working interest in the project and is also the project operator. The total resource potential of the Hejre project is estimated to be around 170 MMboe, whereas the company’s investment in the project is projected to be around DKK 9.2 billion. According to the report estimates, the production from this project is expected to be around 3.1 MMboe and 10.3 MMboe in 2015 and 2016 respectively which will increase the company’s production to 49.7 MMboe in 2016. Thus, the development of projects such as Hejre during 2012–2016 will therefore support Dong’s production growth and provide stable cash flows during the same period.
Dong Energy, Company Intelligence Report

Dong Energy, Company Intelligence Report

Publish date : June 2012
Report code : ASDR-29037
Pages : 53

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