Our 12-month target price for Aker BP is NOK 205. We derive this from DCF, modelled in US$ and set using 10.29 spot NOK/US$. Our DCF is calculated using Citi Research's commodity view of Brent oil at $65.9/bbl in 2025E and long-term US$55/bbl (real 2021). We model our DCF using explicit forecasts to 2030 and then 0.0% terminal growth. We use a discount rate of 8.2%, calculated using CAPM.

There are a number of industry- and company-specific risks that could cause the share price to materially deviate from our target price:

1) Commodity Prices – Aker BP's earnings and valuation are sensitive to changes in oil and natural gas prices, both of which can fluctuate significantly as a function of economic and geopolitical forces. The share price could move significantly above/below our target price should expectations of oil prices deviate meaningfully from our long-term assumption of US$55/bbl (real, 2022 money).

2) Currency – We estimate that 70-80% of Aker BP's cost base is in NOK. However, we believe this will adjust relatively quickly on exchange rate movements given the global nature of the oil industry, which is based primarily in USD. There is a 1:1 translation effect on moves in NOK/US$ into local currency EPS and DPS.

3) Political – Changing political forces could impact on Aker's legal ownership, fiscal take, and pace of development activity in any country in which it operates. However, with its assets located in Norway, a stable fiscal and political environment, we believe the political risks inherent in Aker BP's portfolio are lower than at peers.

4) Integration Risk – Aker BP has grown rapidly through acquisitions and therefore the successful integration of these businesses and assets remains key to ensure the delivery of growth targets and reduce costs.

5) Industry Consolidation – With access to resources more challenging, we believe M&A will continue to be a potential risk to the mid-cap E&Ps with large resource positions. With respect to Aker BP, the combined business will see Aker ASA holding a 40% stake and BP holding a 30% stake, which lowers the risk of a hostile approach for the company, in our view.

6) Natural and Man-Made Disasters – Aker BP’s operating activities could be severely disrupted by the effects of natural disasters or industrial accidents. Accidents may bring the burden of additional costs from remediation, fines, and restrictions on future business activities.

If the impact on the company from any of these factors proves to be greater than we anticipate, the stock will likely have difficulty achieving our target price. Likewise, if any of these factors proves to have less of an effect than we anticipate, the stock could outperform our target.