Aker ASA (AKER) Earnings Call Transcript

Good morning, and welcome to this presentation. My name is Kristian Rokke, CEO of Aker Horizons. Today, Aker Horizons is launching Aker Clean Hydrogen, a company with the potential to remove more than 9 million tons of CO2 per year by 2030. The company will be a pure-play clean hydrogen producer with the capabilities to contribute substantially to unlocking the hydrogen economy. You'll hear more about this in detail from the company's Chairman, Karl Hersvik, and the company's CEO, Knut Nyborg. But first, I'd like to provide some context from Aker Horizons. From the outset, Aker Horizons has worked to build a portfolio of companies that meets 3 objectives. Starting with being planet positive, as we call it, having a net positive impact on the environment with our initial focus being on reducing greenhouse emissions and a plan to expand positive environmental initiatives over time. At the launch of Aker Horizons, we set a target of 25 million tons of CO2 removed per year by 2025, equivalent to half of Norway's total emissions. We have a lot of work in front of us to achieve this goal, but with today's announcement, we have taken an important step and gained additional line of sight to making the whole a reality. Secondly, we are seeking to build companies that have an attractive financial potential on a stand-alone basis. Pure-play companies that can be leaders in their respective domains, that can scale rapidly and companies that have the potential to be independently publicly listed. Aker Horizons has 4 platforms: Aker Carbon Capture, Aker Offshore Wind, Mainstream Renewable Power and now Aker Clean Hydrogen, which all fit this bill. And thirdly, we're seeking to build a self-reinforcing ecosystem within Aker Horizons. Each of our portfolio companies operates on a stand-alone basis with ambitions to be leaders in their areas, but they also have adjacencies to other Aker Horizons companies. Hence, we will actively pursue joint opportunities where it makes sense. We believe this will more rapidly develop green value chains and ultimately accelerate the broader energy transition. And on this last point, this is where Aker Horizons and the broader Aker group together can play a unique role, utilizing the expertise in the group built over 180 years, particularly the engineering capabilities of Aker Solutions, and the industrial software capabilities of Cognite and Aize to tackle what are complex and interrelated issues in developing green value chains. We will have a lot more to share on the digital front in the months ahead, including how digital tools developed by Cognite and Aize can contribute to dramatically reducing cost and speed of execution across the Horizons' portfolio. A good example of the interplay across the portfolio is agreement announced today between Mainstream Renewable Power and Aker Clean Hydrogen to develop low-cost green hydrogen and ammonia in Chile. Chile has access to some of the lowest cost renewable energy resources in the world and have set ambitious hydrogen targets, which is a great starting point. The plan is to utilize Mainstream's long-standing presence and portfolio of wind and solar park projects in-country and combine this with Aker Clean Hydrogen's capabilities in designing, building, owning and operating hydrogen facilities to produce low-cost hydrogen and green ammonia for use in hard-to-abate sectors and for export. This is one example of a synergy in the portfolio. I expect there to be more, including between Aker Carbon Capture and Aker Clean Hydrogen in the production of blue hydrogen, for instance. So with that backdrop regarding Aker Horizons, we'll now discuss clean hydrogen, the company, the market opportunity, the critical role hydrogen needs to play in decarbonization and the important topic of making clean hydrogen cost effective. So with that, I hand the word over to Chairman, Karl Hersvik, who, by the way, we are very fortunate to have as Chairman with his deep knowledge of energy markets, technical insight and experience with large-scale cost reduction through digital tools. Karl?

Thank you, Kristian. And I must say I'm thrilled to be a part of the Aker Clean Hydrogen story, and I really look forward to being a part of building a company that has the potential to become a major industrial player in the energy transition. Before we dive into why Aker Clean Hydrogen is uniquely positioned to take lead in the clean hydrogen production game, let us look at why hydrogen is such an important piece of the climate puzzle. First of all, hydrogen will play a vital role to accelerate decarbonization and remove large amounts of CO2. Hydrogen and ammonia are combustible energy carriers and serve a different purpose than other energy carriers. The application of hydrogen can contribute to more than half of the emission costs required by Europe to meet the Paris agreement targets. And to put that in perspective, that is more than 10x Norway's annual emissions. Second, clean hydrogen is an essential part of production of many essential goods, such as fertilizer and therefore, addressing several UN goals. In sum, hydrogen and ammonia has the potential to be a significant part of the solution of the problem of simultaneous economic and welfare growth and CO2 reduction. Furthermore, the market for industrial scale hydrogen is big and growing. Offtakers for the end product are already here, which is a big advantage and the key reason we are targeting industrial uses and conversion projects. But we need to go from grey to green. The key issue to solve is, therefore, not the market creation, but the move from grey to clean while reducing price of hydrogen. So let us talk about the key issue here, cost and price. First of all, I believe that there's an almost universal agreement to the fact that the cost of carbon will and need to increase. Hence, cost of producing grey hydrogen will increase over the next few years. On the clean side, the same mechanisms that is behind the significant reduction in costs in industries such as solar and wind and battery production will also work in hydrogen. Standardization, learning curves, industrial scale, implementation of software are all a part of this, and we'll come back to that. On the input side, renewable energy prices and development in technologies such as electrolysis, will support further reduction in clean or green energy production. CCS will, in addition, support blue hydrogen in the future. And we see prices approaching USD 1.50 per kilogram in the next decade. So to sum it up, this is a pretty unique perspective. While the prices of clean hydrogen is coming down, the prices for grey hydrogen is increasing. And it's easy to make far more aggressive assumptions than the slide we have indicated, both in terms of price increase for grey hydrogen and price reduction for clean. However, it's not just CO2 prices and reduction in prices for input factors that will drive the prices down for clean hydrogen. The industrialization of clean hydrogen production is starting right here, right now. And after a decade or more of pilots and pre-commercial projects, the market is finally right to take off. The market isn't waiting for a technology breakthrough. That has already been proven. It is waiting for somebody to put the pieces together and scale it up. And that is exactly where Aker Clean Hydrogen excels and where we are uniquely positioned. Aker Clean Hydrogen has all the capabilities in-house to drive industrialization of clean hydrogen production. Knut will, of course, cover this in a lot more detail but I don't think he will mind me stating that a key component in this price adoption is modernization and hence, a rapid reduction in price as the effect of the learning curve is similar to experiences in solar, wind and batteries, where we know the facet at this point in time. Second, extensive use of 2 digital tools and software will remove waste, increase uptime and reduce time from idea to production and hence, both increase yield but also increase rate of return. Third, use an alliance approach to improve learning curves, reduce time spent on procurement and interaction cost in the project is already proven in other industries and will be directly implemented. And finally, an integrated business model covering all aspects of the value chain. The integrated business model covered a full asset life cycle, and Aker Clean Hydrogen will develop, build, own and operate hydrogen facilities all over the world. We know from other industries that this is the model that has the highest potential for high rate of return in this kind of growing market. And Aker group excel at integrating components along the value chain. And finally, I have personally been skeptical about how the oil and gas model can be transferred to other industries. However, in the integrated Aker Clean Hydrogen approach, I see a lot of learnings that are directly transferable from Aker BP, a company I know rather well. And while the growth story in Aker BP is unparalleled in the oil and gas business in Norway, I am confident that Aker Clean Hydrogen, based on the learnings from other industrial ventures, will make Aker BP's growth rate look rather depressing in the future. And the starting point is fantastic. This is not a start-up. We are not starting from scratch. There's an established portfolio already identified of 1.3 gigawatt of project today. 4.7 gigawatts just around a corner, more than enough to hit the ground running. So this is not a normal start-up by any means. And just one more point before I hand you over to Knut. These 2 flagship projects proved a point. As you learned yesterday, we will electrify Yara's existing ammonia facility in Porsgrunn, together with Statkraft, in a project that could be one of the largest climate initiatives in Norwegian industrial history. In this case, there is no risk for product offtake as all product will be used by Yara in the fertilizer plan. The Greenland project is thus the ideal proof of ground for the Aker Clean Hydrogen business model. In Northern Norway, we are working to realize the facility in Finnmark that could decarbonize shipping, north of the Atlantic circle. And together, this project will remove 1 million tons of CO2. And to put that in perspective, that is more than twice the amount of the total emissions by Aker BP on the NCS last year alone. It is nearly impossible to get more excited than I am today. Aker Clean Hydrogen has the potential to become one of the fastest-growing industrial companies in Norway and represent, in my mind, an opportunity of the same size and quality as that identified by [indiscernible] a long time ago. And now I'll hand you over to Knut Nyborg, who will take you through the operational model and share some of the secret sauce in Aker Clean Hydrogen.

Thank you, Karl. I'm also very excited to be part of this journey. And after almost 30 years in the Aker system, I must say that this is a fantastic opportunity and a fantastic story we are embarking on now. So 180 years of industry excellence and industrial software leadership gives us an unfair advantage to create the most efficient pure-play operator within industrial scale clean hydrogen. So let's start with the developed phase. We will get access to the most cost-efficient feedstock for hydrogen production through opportunities arising from the Aker ecosystem and our strong industrial network globally. Examples are Mainstream in Chile and Aker BioMarine in Antarctica. Safe and cost-effective concepts, together with strong execution capabilities, will also make Aker Clean Hydrogen an attractive development partner and a reliable hydrogen supplier. Moving to the building stage. We are best positioned to shape global learning curves. We have developed a modular and configurable hydrogen system that can be tailored to specific projects. Reuse of standard building blocks will dramatically reduce cost, delivery time and improve quality and safety. Long-term offtake agreements will form the basis for stable cash flows and financial optimization of our operations. Safety is paramount in hydrogen production and we know how to achieve a truly safe and reliable process facility. We get all the benefits from having delivered process facilities to the global oil and gas industry for decades. In addition, we will use the Aker family leadership in industrial software development from Aize and Cognite to improve all parts of the entire capital value process from origination to operations. Let this video take you through our execution model from origination to operation. Identifying and selecting the best development project is paramount. Our modular concept is configurable to any project need. A digital configurator will significantly reduce the time to select the best concept and create a digital twin. Our modularized solution will be delivered through the well-proven alliance model from Aker BP. Our digital solution will improve the collaboration with our key execution partners, Aker Solutions and the other technology OEMs in the alliances. Standard modules are fabricated and tested under controlled environment. And it's ideal for safe and efficient transport and logistics and insulation at site. It is also easy to expand and plug-and-play to increase capacity when needed. So finally, we zoom in on our central operations room, where industrial software from Aize and Cognite will support safe and efficient operation and learning across the projects. As a leading industrial clean hydrogen producer, we really need to stay ahead of the competition when it comes to driving down the cost of hydrogen -- the levelized cost of hydrogen. Our ambition, as Karl mentioned, is to reach USD 1.50 per kilo for project sanction in 2030. Currently, this is around USD 4 per kilo. In order to reach that ambition, we need to attack all parts of the value chain from the operation -- origination to the operation, as mentioned. And the video we just showed you illustrates part of our recipe. But I can just repeat some of it. So the modular system enables reuse and low cost and high quality, also reducing delivery times and increasing safety. The digital tool will support us in all parts of the value chain from the very early selection of sites to the safe and efficient operation. And the alliances is also important, as Karl mentioned, both for scalability to be able to do things in parallel as well as the interaction costs, reducing time between the different phases. We have a unique position. This is not a normal setup. We have all the building blocks -- sorry. Let me zoom in on our rich and diverse project pipeline. We have already a portfolio of 9 hydrogen projects and prospects with a total net capacity of 1.3 gigawatt under development. We have line of sight and strategy to reach a net installed capacity of 5 gigawatts by 2030. We have also a fantastic diversity in our product portfolio that represent stepping stones into several segments and regions. Let me just highlight a few of them. The large brownfield project on Herøya, that was mentioned by Karl, will position us well for industry feedstock conversion projects. And there are quite a few of them in the next decade. Small to large greenfield projects in Norway will make us able to refine our solutions, delivery models on the first smaller project like the Glomfjord and the Meråker that you see on the screen, before scaling up to -- of the large projects like Rjukan, Berlevåg and Herøya. Large-scale projects in Chile and Uruguay, together with the Mainstream and also with Aker BioMarine, will put us in the sweet spot of one of the most favorable green gigawatt regions with very favorable renewable power costs. And not least, we are involved in industry, in shipping, in agriculture, and these are exactly the segments that we have put up as our target segments going forward. Karl mentioned the Herøya project, which is definitely a flagship project for us, Statkraft and Yara. Another exciting project is the green ammonia facility in Berlevåg for decarbonizing arctic shipping and off-grid power production, where conversion of the coal-fired power plant in Longyearbyen could be one of the first targets by 2025. The green ammonia production is part of a wider value chain involving our seeds partner, Greig, Wartsila, Store Norske, Statkraft, Statnett and Yara. For the 1.3 gigawatt, I just mentioned, we have signed development agreements and site control achieved. In addition to this 1.3, we have another 0.9 gigawatt where we are in active dialogue with offtakers as well as 3.8 gigawatt where we are in early phase dialogues. Considering the fact that we are now officially starting up the company, this is a fantastic place to be in. We foresee to significantly grow the entire funnel in the period to come. In order to underline the relevance of Aker Clean Hydrogen entering the market now, I would like to draw your attention to the graph indicating the addressable market for us as an industrial hydrogen producer which will grow, and it's a phenomenal growth already in the near-term and towards 2030. During the '20s, it is important to build competitiveness and diversity in the portfolio in order to be positioned for the fantastic growth that will take place from 2030 and onwards. So to sum up, the market for the industrial scale clean hydrogen production will be massive. Our unique asset integration capabilities and proven execution model is the foundation to become the most efficient hydrogen value chain integrator. 1.3-gigawatt portfolio of high-quality industrial hydrogen projects and prospects will -- with strong partners, and we have a clear ambition to reach 5 gigawatt net installed capacity in 2030 based on a well-defined strategy. Thank you. And then...

Thank you, Knut. Thank you, Karl. I hope you all have found this as exciting opportunity as we find it to be. Aker Clean Hydrogen is off to a flying start, particularly with the partnership announced yesterday with Yara and Statkraft and the first project regarding the electrification of Yara's existing ammonia facility in Porsgrunn, Norway. We could not be more happy about partnering with Yara and Statkraft. We have a tremendous respect for their organization and capabilities and have high expectations as to what this partnership will bring for all parties over the coming years. In closing, the company is now off and running with the necessary organization, partnerships and specific projects to drive forward its industrial scale ambitions. Aker Clean Hydrogen has a clear goal of removing more than 9 million tons of CO2 per year by 2030 and sees attractive investment opportunities ahead. To help fund this investment program, we will invite external investors to participate in this journey. Advisers have been appointed and preparations made for a private placement and subsequent listing on Euronext Growth. We are moving quickly in developing the company, and we'll revert with an update as we progress over the coming months. Finally, a personal observation. These topics we are dealing within Aker Horizons and energy transition broadly are obviously large and complex. They will take time and things won't move in a perfect straight line, but the past year has shown us that the world and its many stakeholders, governments, corporations, financing sources, local communities, to name a few, are ready to take necessary steps to achieve net-zero emissions. We find this very encouraging and are appreciative of the strong support Aker Horizons has received as we attempt to take some bold steps in this energy transition. Thank you for your attention. Have a great day, and we look forward to speaking again soon.