Against the backdrop of the most challenging year the world has faced in a generation, I am pleased to report on Spirit Energy’s performance in 2020.
On behalf of Spirit Energy’s Board of Directors, I can report that Spirit Energy was still able to make progress against its strategic targets, although our financial performance was severely impacted by the most exceptional of circumstances in the industry, Europe and globally.
It has redefined how we live, how we work and how we do business together, and on our offshore platforms, our operational sites and for those who ordinarily work from our offices it has meant fundamental changes. It has tested our ability to maintain our focus on high performance, but it has also underscored the importance of our industry in delivering secure energy supplies when the world needs them most. It is of huge credit to all of our teams that, at a time when our offshore assets were identified as critical infrastructure playing a vital role in keeping the lights on during a time of international crisis, our production efficiency remained high and we kept delivering for the countries in which we operate.
Alongside the challenges posed by the COVID-19 pandemic, the industry was also confronted with both low gas prices and low and volatile oil prices in 2020. These depressed prices supressed revenues which were £1,029 million (2019: £1,431 million) and despite strong cost discipline and the deferral of some non-critical spend, adjusted operating profit was £43 million (2019: £207 million). The pandemic and low gas prices further impacted financial performance resulting in exceptional charges of £620 million (2019: £516 million) and certain re-measurements of energy contracts charge of £254 million (2019: gain of £194 million). Exceptional charges included £125 million impairment of the 50% interest in the Greater Warwick Area West of Shetland. While we have progressed the project since our farm-in to the licences in 2018, significant uncertainty around future investment remains. Our focus is on working with our partner on progressing the options we have to further appraise the Lincoln and Warwick discoveries.
Gross loss was £30 million (2019: £581 million profit) while the statutory operating loss increased to £831 million (2019: £115 million). Yet despite the headwinds of 2020 Spirit Energy remained free cash flow positive at £159 million (2019: £117 million). Due to the uncertain economic conditions, no dividend was paid to shareholders in 2020 (2019: £400 million).
Our majority shareholder, Centrica plc, has reiterated its intention to divest its 69% interest in Spirit Energy. Spirit Energy continues to focus on what we can control, delivering value today through portfolio optimisation. Our commitment to exploration remains strong, with an approach that prioritises near-field opportunities which offer us medium-term developments to boost our production profile as mature assets decline.
The last 12 months have served as a reminder that secure sources of energy are critical, and while we will need gas and oil as part of our energy mix for many years to come, it is no longer enough for the industry to only supply reliable and affordable energy. Our expertise and knowledge must also turn to providing solutions to climate change – and while we have already made progress in this area, we must and will go further in our industry and in our business. As a sector, the new North Sea Transition Deal in the UK helps pave the way for our journey to Net Zero, and within Spirit Energy we are aligned with the targets in the countries where we operate and are targeting Net Zero by 2050. We have several projects now underway to either reduce our existing emissions or transform our assets so they continue to add value after their lives producing and processing hydrocarbons come to an end. I believe it is an exciting part of our future, and one I am looking forward to seeing progress in 2021.
While I am encouraged by Spirit Energy’s resilience in 2020, I take most pride in the determination and drive shown by our teams during tough times for them professionally and personally. In the most challenging circumstances we have seen in our working lives, our teams continue to deliver inspiring, safe performance, and I would like to thank them on behalf of the board for their hard work and commitment over the past 12 months.