Equinor ASA Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
October 27, 2023

There are 13 speakers on the call.

Operator

Thank you for standing by, and welcome to the Equinor Q3 2023 Analyst Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. And finally, I would like to advise all participants that this call is being recorded. Thank you.

Operator

I'd now like to welcome Bord Glad Pittissen, Senior Vice President of Investor Relations to begin the conference. Bord, over to you.

Speaker 1

Thank you, operator, and good morning to everybody on this call. As the operator said, my name is Borr Galpelsch, Now I'm heading up Investor Relations in Equinor. I'm here together with our CFO, Torgrim Reitan. He will take us through the results Before we start the Q and A session, and we will try to keep this within 1 hour in total. So with that, I give the word to you, Torgrim.

Speaker 2

So thank you, Board, and good morning, everyone, and thank you for joining us. Today, we delivered strong results in a quarter with lower prices than the extraordinary levels we saw last year. We have strong adjusted earnings of $8,000,000,000 and $2,700,000,000 after tax. Our net operating income came in at $7,500,000,000 and net income was 2,500,000,000 Year to date, we have a strong cash flow from operations after tax of $17,000,000,000 This corresponds well to what we said at our Capital Markets Day in February, when we expected to deliver on average $20,000,000,000 annually all the way to 2,030. We are on track with our delivery this year.

Speaker 2

European gas prices are significantly lower than last year. Storages are now for all practical purposes full And this is as expected. However, the gas market is tight and it is still very sensitive. We have seen price spikes related to possible strikes in Australia, the terrorist attack on Israel and the situation with the Baltic pipeline. This winter, prices will again depend on weather, gas demand recovery in Europe, Competition for LNG from Asia and any supply disruptions.

Speaker 2

We believe volatility will continue into the winter and for the coming years. During the quarter, we have seen strengthening liquids prices and we captured these higher prices through increased liquids production across our portfolio. Our NCS gas production, however, is down due to planned maintenance, but also due to unplanned extended turnarounds. And I will come back to production later in my presentation. We had strong liquid sales and trading that drove our MMP results above the increased guidance for the quarter.

Speaker 2

This fall, we have passed significant milestones, and I'm proud of the hard work and collaboration of our colleagues who make this happen. In early October, we saw first power at the Dogger Bank, the world's largest offshore wind farm. When fully complete, its 3.6 gigawatt capacity with 277 turbines We'll produce enough energy to power the equivalent of 6,000,000 British Homes. This is a large and profitable project with inflation adjusted offtake contracts that support value creation. So we see progress, but the offshore wind industry is also experiencing challenges with inflation, higher interest rates and supply chain bottlenecks.

Speaker 2

Our petition to New York for price adjustment of projects on the U. S. East Coast was denied, together with similar petitions from many other developers. Contrary to in the U. K.

Speaker 2

And Poland, offtake contracts here or in the U. S. Are not inflation adjusted. So based on this, we have taken an impairment on the U. S.

Speaker 2

East Coast projects. We are now assessing the impact of New York's decision, and we are working closely with the state As they further develop their 10 Point Action Plan to expand and support the renewable industry. Last night, New York advanced an expedited renewable energy procurement process, as they call it, as part of the 10 point plan. We welcome this. But it is important for me to say That our projects, they must be financially robust to proceed.

Speaker 2

More broadly, we remain confident that offshore wind Will be important for the energy transition and that we can be a leader in this industry. Our strategy to profitably grow in Renewables remains firm. We have a strong portfolio within offshore wind, But also within onshore renewables, where we have accessed attractive opportunities when prices for offshore wind have been too high. For example, our bolt on acquisitions of B. Green in Denmark, BENTO in Poland and Rio Energy in Brazil.

Speaker 2

Energy security remains very important. We have mature projects with high value and low emissions. And just last week, we brought BredaBlik on stream, on costs and 4 months ahead of schedule. At plateau, Breda Blik is expected to send 55,000 to 60,000 barrels per day to the market. This is a subsea tieback to the Grane platform in the North Sea and it is a good example of our use of existing infrastructure generating production with low cost and low emissions.

Speaker 2

The field is expected to be paid off in less than 2 years. We also received PDO approval For our Sverdrup future projects, which will electrify our Hummerfest LNG plant and significantly reduce emissions by 850,000 tonnes per year. And last but not least, In the quarter, we reached a final investment decision and got approval for Rosebank in the U. K, A significant project for our international portfolio. We continue with strong capital distribution, in line with what we communicated at our Capital Markets update.

Speaker 2

For the quarter, The Board approved an ordinary cash dividend of $0.30 per share as well as continuing the extraordinary dividend of $0.60 per share For a total of €0.90 in cash dividend. We continue our share buyback program. The 4th and final tranche Will be $1,670,000,000 in line with our program for 2023 of total $6,000,000,000 For this year, we are delivering a total capital distribution of around $17,000,000,000 Then turning to safety. In August, There was a fatality of a crew member who fell overboard on an LNG tanker in Malaysia. The vessel was in operation for Equinor and the tragic incident is affecting everyone involved.

Speaker 2

So this is a strong reminder that even with a positive safety trend, we must keep focusing on safety in all our activities. Safety will remain our top priority. In the quarter, We produced 2,007,000 barrels of oil and gas per day. And as you see on the slide, this is Essentially more oil, but less gas than in the Q3 last year. Our liquids production increased 12% compared to this quarter last year, driven by Johan Sverdrup in Norway with the increased production capacity, Peregrino in Brazil, the partner operated Vito Field in the U.

Speaker 2

S. Gulf of Mexico And the addition of Buzzard in the U. Percent this quarter, driven by planned maintenance, but also unplanned extended turnarounds on Troll A And the Yamana Gas Processing Plant. They are all back in normal production now, but the impact the quarter was around 60,000 barrels per day and we had a similar impact last quarter of around 70,000 barrels per day. Therefore, we have adjusted our guidance for production growth from around 3% to around 1.5% in 2023.

Speaker 2

Power production for the quarter ended at 8 83 gigawatt hours. SEK373,000,000 of this is from our renewable assets, slightly higher than last year, driven by onshore renewables in Poland And Hywind Tompen being fully operational. Gas to power production was 5 10 gigawatt hours from a Triton power plant, which is lower than in second quarter. So let's now turn to our financial results. The prices for both oil and gas are lower than last year.

Speaker 2

Our realized gas price is down around 75% and even more in the U. S. Actually. Adjusted earnings in E&P Norway totaled $6,100,000,000 before tax, driven primarily by strong Liquids production. Our E&P International delivered NOK809 1,000,000 And our U.

Speaker 2

S. Business posted adjusted earnings of $343,000,000 both segments driven by higher liquid production and high realized liquids prices. Adjusted earnings after tax from our combined international segments was more than $900,000,000 In the Marketing and Midstream segment, our adjusted earnings came in above our increased guidance with $876,000,000 This was driven by strong liquid sales and trading due to our ability to capture opportunities In inefficient markets and our strong performance from our LNG and shipping activities. Our Renewables business post negative results as we continue to invest in new projects and business developments. We see operating costs coming down with 2% from 2nd quarter from last quarter.

Speaker 2

But costs have increased over several quarters, so we will continue with strong cost management and capital discipline. We have net impairments in the quarter of $971,000,000 This includes impairments For a field in the North Sea and the Monsta refinery and the reversal for a field in the Gulf of Mexico. The impairment of our U. S. East Coast Offshore Wind Project is $300,000,000 Here, we now have a remaining book value totaling around $300,000,000 €100,000,000 in the projects and around €200,000,000 related to real estate in New York and cables.

Speaker 2

Our total exposure also includes additional commitments related to infrastructure and contracts with suppliers. But you should also remember, we entered These U. S. East Coast projects early, and we paid less than $200,000,000 on a 100% basis. We later divested 50%, and we booked a gain of $1,000,000,000 In the quarter, cash flow from operations was $11,300,000,000 $7,600,000,000 after tax.

Speaker 2

We have paid one tax installment of around $3,700,000,000 and capital distribution of $3,100,000,000 Next quarter, we are paying 2 NCS tax installments of around $3,750,000,000 each And one additional tax payment of $1,000,000,000 due to increased commodity prices. After tax, capital distribution and capital expenditures, our net cash flow Was positive $1,500,000,000 For the full year, we expect to have negative net cash flow as discussed At CMU and with higher tax payments next quarter, we expect negative net cash flow in the 4th quarter. So far, we have negative SEK 5,000,000,000 for the year and this is in line with our expectation. We have a robust financial position with cash, cash equivalents and financial investments of $40,200,000,000 and a net debt to capital employed ratio of negative 22.9%. This includes tax normalization to even out taxes across the 3rd Q4.

Speaker 2

And without that, the net debt ratio would have been around negative 30%. So let us conclude with our guiding. As stated last quarter, we saw a higher downside risk to our production guidance. Due to the unplanned production losses in the 3rd quarter, we adjust our guidance To around 1.5 percent production growth in 2023. Organic CapEx is so far this year $7,200,000,000 We maintain Our guiding of $10,000,000,000 to $11,000,000,000 for the year and we expect to be in the lower end of this range.

Speaker 2

We will, as usual, revert to longer term CapEx guidance at our Capital Markets update in February. So with that, I will hand it over back to you, Borr, and I do look forward to your questions. So thank you very much.

Speaker 1

Thank you, Torgrim. And we are then ready to start Q and A session. So operator, if you can remind all the instructions for that.

Operator

Thank you both. Comes from the line of Biraj Borkhatari from Royal Bank of Canada. Your line is open.

Speaker 3

Hi, Borje, Torgrim. Thanks for taking my questions. I wanted to circle back on the U. S. Wind position.

Speaker 3

So you've taken the impairment today. Last night, there was some news from the New York State around a request for consultations. It seems like they're making an effort to Expedite some of these things and push these things forward. Where does this leave Equinor and Empire Wind? You obviously took the decision to impair because you couldn't negotiate the PPA, but I'm just wondering what the next steps are from here.

Speaker 3

And then the second one is on Norwegian output. Arguably, you've had more than your fair share of unplanned outages this year. When you do your sort of audits and analysis, is there a common theme here in terms of the issues or all of these project specific? And how can Investors get some comfort around your ability to produce reliably going forward given the issues this year? Thank you.

Speaker 2

Okay. Thank you very much, Biraj. So on your first question on the U. S. Win, yes.

Speaker 2

So I mean, the Our petition towards the state, it was rejected. And that was the basis for the impairments that we have done. And right after we received that rejection, the state came out with a 10 point action plan for Opportunities to rebid on our contracts. So And then as you said last night, they came out with sort of how they want to run this process, where they would like feedback from us next week on our process and then we'll see where that leads us. So first of all, clearly, we welcome that they push forward the action plan quickly and what they are doing now.

Speaker 2

I do find that as a signal of commitment and a willingness to fast forward our process. For us, it's too early to conclude. But what I want to say is that for us to move forward With these projects, we need to see profitability that is sort of reflecting the risk at hand. So we will continue to work closely with the state as sort of the process unfold and we will be more than happy to share more details when we No more, naturally. On your second questions, on the Norwegian output, so let me first go through the different sort of incidents or things that happened.

Speaker 2

We had Melkoye During the summer, with a gas leakage, an incident that sort of Halted production from Sverdrup during summer and also into the Q3. We had Niehamna, which is a processing plant operated by Shell, where the turnaround was prolonged. And that sort of Led to that we need to hold back production from Osterholmstern, which we operate, but also Omer and Langley operated by Shell needed to hold back Production due to the prolonged turnaround in the Humana. And the third one is on Troll A, This was due to a turnaround. But as we were starting that up, We discovered some welding issues on some of the work.

Speaker 2

So we needed to revisit that and that sort delayed the start up of Troll with 13 days as such. My point is that these three events Are not interconnected in any way. They are separate incidents. And all of these are plans are now of High integrity and high quality. And it's not going to I mean, we are confident that this will Have no long term impact as such.

Speaker 2

In general terms, I would say that the standard and quality of our facilities It's very high and demonstrated by high production efficiency. I think on when we talk about Production output next year and following year. Let me give you a couple of data points. You have seen BredaBI coming on stream recently. So that is sort of adding production next year.

Speaker 2

Also V2 in the Gulf of Mexico. Then Johan Castberg is sort of the big new start up next year. That is planned to come Towards the end of 2024, so it will have a limited impact on the full year. But in the last quarter, we expect To have a good impact. We are also a start up of Kristin South Phase 1 with some volumes as such.

Speaker 2

But please remember, there is an underlying decline in the portfolio that we need to be aware of as well. And then in 2025, We have Bakkalau Phase 1 as a significant start up. And also there's a lineup of NCS Assets that are coming with a good production output as such. So I mean, it's a solid portfolio with profitable assets coming on board. And what we have seen this year, we don't see that having a long term impact on the ability to produce.

Speaker 2

So thanks, Biraj.

Speaker 3

Thank you very much.

Speaker 1

Thank you, Torgrim, and thank you, Biraj, for your question. The next question will be Giacomo Romeo from Jefferies. Please, Giacomo.

Speaker 4

Yes. Thank you. First question I have is on Deutsche Bank A. You announced 1st Power in October. However, we noticed that only 4 turbines have been sold out of the 94 Since the end of August.

Speaker 4

Just wondering what when do you expect to reach full power capacity? Got some clarity there, if possible. Thank you. Just second question is, you had a good contribution in MMP from Crude Products And liquids in the game this quarter. Obviously, we normally talk about your Gas and Power Trading business, but crude has and products have That's done very well and pretty consistently.

Speaker 4

Is anything has changed here in the way you sort of look at the optimization and trade around liquids?

Speaker 2

Okay. Thank you very much, Hakonnen. So first on Deutsche Bank. Yes, first power, very glad to see that. So this is sort of being installed.

Speaker 2

There are many turbines, and we expect sort of full power Next year, in Q3, as such for Deutsche Bank A, Really looking forward to that. And as you know, Dogger Bank projects are looking good From a profitability perspective, in the U. K, the contract for differences Are adjusted for inflation and with sort of the inflation seen in the U. K. Over the last years, That has contributed well to a very attractive assets.

Speaker 2

On your second question on MMP, yes. So I mean, MMP continues to deliver strongly and this quarter above the Increased guidance that we gave at the Capital Markets Day. And I also think it's worth noting that Natural gas, which was sort of the big contributor last year, is still contributing solidly, but They are not the one doing sort of the heavy lifting in this result. That is the liquids trading as such. So this comes out of arbitrage opportunities resulting from That global trading flows are changing due to Russian oil being delivered into Asia.

Speaker 2

So we see that creates opportunities When you have a good and large shipping fleet, combined with the qualities that we produce Around the globe. So I'm very glad to see that we have been able to really take out the value opportunities that arise in a changing Oil market search. So going forward, you should it's very hard to predict naturally who is going To be the biggest contributor from quarter to quarter, but as long as there are arbitrage opportunities within the oil market, we'll take them. And the gas results, they will typically be driven by volatility in the market And arbitrage opportunities between the various geographical markets as well. Those have been fairly muted in the Q3, but they have been very, very large early on.

Speaker 2

So when that changes, we are ready to take And then create more value from that part.

Speaker 1

Thank you. And thank you, Giacomo, for your question. The next This one is Oswald Clint from Bernstein. Oswald, please go ahead.

Speaker 5

Yes. Thank you. Good morning. Yes, I wanted to also about MMP and the $400,000,000 to $800,000,000 a quarter guidance that was increased at the start of the year. Obviously, beating it this quarter, it's Normally less exciting for natural gas.

Speaker 5

You just discussed the liquids side. But I remember the chart back in February had Quite a lot more upside from optionality and optimization. That fuzzy blue bar was significantly higher. So I mean the question is, as we roll into next year, Is there any confidence building, I guess, internally that you can probably do more than this guidance or at least more than the lower end of that guidance range. That's the first one.

Speaker 5

And then secondly, yes, I had a follow-up. I wanted to know if you could tell us more about the Linorm field in offshore NCS seems like it's a sizable one and it may be moving forward. So just your Latest discussions in the consortium around the concept and whether we could see this moving forward, please. Thank you.

Speaker 2

Thanks, Oswald. Yes. So MMP continues to deliver strongly. And think it's

Speaker 6

fair to

Speaker 2

say that, I mean, we have confidence in that we will be able to continue to deliver Strong results from that segment. Going into next year, clearly, volatility will be important To monitor. And we have seen in particular with a lot of volatility in the market, We can make our balance sheet available to take risk and make significant profit. And we saw that in 2022 And from Danske Commodities and from the gas trading As well. So yes, we are confident that we will be able to deliver good value.

Speaker 2

So on Lindor, It is not operated by ourselves. This is operated by Shell. So it will be natural to confer with them On the specifics, but clearly, this is it is a gas and condensate field. And it is an asset that we like and support and we stand fully behind Shell in sort of The way forward on that asset.

Speaker 5

Okay. Okay, very good. Thank you.

Speaker 1

Thank you. And next question is Teodor Svein Nielsen from Sberbanken Markets. Teodor?

Speaker 7

Hello there. Thanks for taking my questions and congrats on strong results. Two questions. The first on Sverdrup. The field is currently producing very well.

Speaker 7

I just always should expect the current level also next year. Also noticed also added that the lift Things are loading. It has declined substantially over the past few weeks. Should we read anything out of that when it comes to Q4 production from Zwydrup? Second question is on NCS in the asset.

Speaker 7

Of course, there has been a lot of maintenance there in the past few months, which has reduced production. Could you discuss whether we should relate this to the very high production last year that some of the maintenance So it was skipped and that is the reason why we see low production this year or is that totally unrelated from last year's strong gas production? Thanks.

Speaker 2

Okay. Thanks, Teodor. So on Johan Sverdrup, Very glad to see how Johan Sverdrup is performing with high production efficiency. And we will continue to produce at high levels. But of course, with the increased capacity, We will also sort of come off plateau at some point in time.

Speaker 2

It is expected to be or coming off plateau In 2024 2025 as such. But as you know, we are actively working with the reservoir and getting to understand it better and optimizing Yes, on a daily basis. We are also working on Johan Sverdrup Phase 3, Which will be a subsea development with 2 templates typically and 8 wells That we will try to tie in or we will tie into the platform. And the purpose of that development is, of course, to maintain A high level of production on Johan Sverdrup continuously. On sort of lifting, not you shouldn't put much To that, I mean, production is stable last week on Johan Sverdrup.

Speaker 2

On your Theodor. On the gas production and whether the production issues we have seen This year is related to last year's high production and the answer to that is that is unrelated. So there's no sort of

Speaker 1

Thank you. The next The question is Alastair Syme from Citi.

Speaker 8

Yes. Thanks, Torquem, can you talk about just back on the renewables about your supply chain commitments? I mean, I think I remember you saying that on Empire Wind 1, there was already quite a lot of contracting in place around turbine suppliers and maybe a boat, But there doesn't seem to be much remaining book value. So I was just wondering how we square that out or are we seeing break clauses or something in there? And then just secondly, I'm interested to hear what you're seeing in the recent gas demand data in recent weeks.

Speaker 8

We can all see the aggregate data, but I'm sure you've got a lot more color on what different customer groups are doing, so I'd be really interested to hear that. Thank you.

Speaker 2

Okay. Thanks, Alistair. So on Renewables and Supply Chain Commitment. So let me talk to the situation in the U. S.

Speaker 2

So the impairment that we have done is $300,000,000 as I said. We have Now still $100,000,000 in book value in sort of the two assets. And in addition to that, we have $200,000,000 Books related to real estate in New York and some equipment, which is in reality cables. Beyond that, we have Commitments, that is not sort of booked, but we still have them. They are mainly related to a lease arrangement to a property in Brockland As such, which is a lease and a property that can be used for other purposes, and we have also contracts related to ships and turbines, Which are typically can be used other places in the portfolio as well.

Speaker 2

But I mean, it's It's too early to give specific numbers on those, but that is sort of the exposure as such. We have yes. So in addition to that, we have a termination fee To the current offtake contracts, which is at $16,000,000 as such. So I think that gives sort of the totality of the exposure at hand. And again, sort of we are welcoming the process that the New York State now is starting.

Speaker 2

And we will work closely with them to see what sort of opportunities that can arise out of that. So thanks, Alistair. On gas demand, yeah, I mean, Storages are for practical purposes full for the time being. But clearly, we see very tight markets and a rather nervous market We're sort of small, not small, but where happenings have typically a significant impact on prices. We have seen it On the terrorist attack on Israel, we have seen it on the pipeline, the Baltic pipeline.

Speaker 2

And we see quite a bit of volatility in the prompt Particularly. So I think we just need to be prepared for Rather volatile and tight situation through this winter. Weather will, of course, always be a significant thing and as well demand from Asia. Demand is sort of I mean, demand from industrial customers Are not really coming back to pre war levels, but it is Still sort of a healthy demand also from the industrial segments as I see it.

Speaker 9

Okay. Thanks for

Speaker 8

the color, Togren.

Speaker 1

Thank you. Next one is Henrik Patrico from UBS. So Henrik, please.

Speaker 9

Yes, Saba. Thank you. And I'll try again. Thank you for the presentation. Two questions, please.

Speaker 9

Just first one, I wanted to ask about M and A. We've Seems like quite a bit of consolidation in U. S. Upstream lately and we think challenges in renewables. I was wondering whether these recent developments are Changing in a way your potential appetite for M and A and then your focus in terms of where you like to make acquisitions in the future in terms of regions also between upstream and renewables.

Speaker 9

And then secondly, I wanted to ask about the CapEx. So you mentioned that You see CapEx for this year more in the lower end of the guidance range. Can you expand on what's driving CapEx Toward the lower end for this year and whether you see risk a bit to the downside as well for the next few years or if There is just inflationary pressure and risk may be more to the upside. Thank you.

Speaker 2

Thanks, Hendry. So First on M and A, yes. So I mean, the 2 large acquisitions in the U. S. Clearly Send some signals to the market.

Speaker 2

One that is that sort of oil and gas is To be attractive for a long period as such. And also, I think there is an element of energy Purity importance as well that is sort of driving that. So I don't think it's unlikely that we will see more transactions of also bigger size going forward. But This time, it is a little bit different than last time around. Last time around, it was driven by a low price environment And cost synergies and efficiency.

Speaker 2

This is not a driver this time around, but different drivers. So I think what this will lead to It's more uncertain this time around. So we will have to follow that closely. But We have when you talk our portfolio as such, I mean, it is a strong portfolio within oil and gas already. I mean, we are growing towards 2026.

Speaker 2

And we will keep the same level all the way to 2,030. And we have an average breakeven of $35 per barrel And the internal rate of return on 30% of these projects. So there's a good investment program going forward. When that is said, I mean, we are using M and A actively as a tool. And you have seen it Last year, we have made an acquisition into oil and gas, the Suncor portfolio in the U.

Speaker 2

K. And you have seen Several acquisitions within the renewable space as well Rio Energy, B. Green in Denmark. So we will continue to use M and A actively to focus and deepen our oil and gas activities And to support the energy transition and building a new portfolio. So I mean, We will do that.

Speaker 2

And then it is very important for me to say that capital discipline is front and center when doing M and A. Timing is of essence and quality is of essence. Your second question on CapEx. So the reason for that we will come towards the lower end of the guiding this year is phasing of projects. So these are spending that typically will move on to later years.

Speaker 2

When it comes to from 20 24 and onwards, we are in the midst of our planning season. We are prioritizing among A set of very attractive investment opportunities. There is competition for funds. So we are in the midst of doing that. I think it's fair to say That we will continue to demonstrate capital discipline.

Speaker 2

And then of course, we note that there is inflationary pressure in the portfolio, This is particularly linked to the non sanctioned part of the portfolio. But we are managing this well and we will come back To this on the Capital Markets Day in February. Thank you.

Speaker 1

Next question is Kim Fustier from HSBC. Kim, please go ahead.

Speaker 10

Hi. Thanks for taking my questions. My first question is on low carbon solutions. I think you recently bought a 25% stake in Chevron's Bayou Bend CCS project in the U. S.

Speaker 10

Gulf Coast. Could you just talk about the development timeline and about what Equinor is bringing to the consortium? And secondly, It seems that there's some controversy from environmental groups in Norway with respect to new NCS developments, including Bredeblijk and Uggdrasil. Could you comment on the operating environment in Norway? Could things maybe become more difficult going forward if these environmental groups gain more traction?

Speaker 10

Thank you.

Speaker 2

Okay. Thank you, Kim. So you're right. We made an acquisition into That's carbon CCS project and storage. Chevron is operator and we now sit on 25% on that lease.

Speaker 2

So this is a reservoir of very high quality And with potentially significant capacity to store CO2. I mean benefiting from the IRA Regulation, so we are enthusiastic about that opportunity. We Typically bring quite a bit of experience when it comes to reservoir management and understanding of capacities and how to do this. And we have a long experience working together with Chevron In the Gulf of Mexico, we're also particularly working on the reservoir topics together with them. So we see that As a clear and then we shouldn't forget that we have more than 30 years of experience On CCS from the Norwegian continental shelf through our experience on Schleicher and also on some other fields as well.

Speaker 2

On the your second question on the sentiment in Norway for future developments. Yes. It is clearly, there is opposition in Norway as well As in other places, I would say there is a politically a very Strong and good consent and collaboration across political landscape to support The development of the Norwegian continental shelf. So I feel confident that this is an area where investing into oil and gas is giving a predictable And a stable environment as such. And then there will always be Institutions and voices that are against what we do, and we need to treat that with respect and openness.

Speaker 2

And clearly, we are in dialogue with everyone as such. So I don't find it to be any particular concerns in Norway compared to other places.

Speaker 10

Thank you.

Speaker 1

Thank you. Next question is Peter Low from Redburn. Peter, please go ahead.

Speaker 6

Thanks. It's a question on the balance sheet. It remains firmly net cash. You've talked in the past about wanting to return to That 15% to 30% leverage ratio, perhaps distributions being something that will kind of get you there. As we begin to about 2024 shareholder distributions.

Speaker 6

Can you give us any insights on how quickly you'd like to get back to that leverage range? And then the second one was just very quickly. You mentioned the impairment you've taken on the NCS due to, I think, an asset having kind of a low reserve estimate than previously and then also reverse development impairment in the U. S. Are you able to name those assets and say what led to that change in assessment.

Speaker 6

Thanks.

Speaker 2

Okay. Thanks, Peter. So on your first question on the balance sheet and capital distribution going forward, Yes. We are in a situation where we have a negative net debt of minus 22.9 percent And we have a sort of a long term guiding, which is sort of 15% to 30% net debt, Which is sort of mathematically what is solidly supporting a strong single A category credit rating on a stand alone basis. We have a higher rating than that currently.

Speaker 2

So that's you should read that as a sort of a range that we will sort of find as a more Timbal capital structure of the company. And from time to time, we are above and then also below as such. So that is sort of a long term aspiration. We are And I have said earlier that capital distribution is Something that we are using currently to distribute cash that we have on the balance sheet To drive a more efficient capital structure of the company. And I've also said that we will continue to use That is one of our tools to achieve that going forward.

Speaker 2

It is, of course, nothing that I can go into Any details on in this call, but clearly, we will come back to that in our Q4 call and Capital Markets update. On your next or your second question, Peter, NCS impairment, yes. That is Martin Linge. It is an asset that we took over From Total many years ago and we have had issues with that asset Repeatedly as well. So this time around, it is related to the reservoir Where we see that production is postponed to come towards later in the production Life of the field, meaning that the discounted value of the asset is going down.

Speaker 2

So that's Martellinge. This is not a broader concern at all on the NCS. This is isolated to these assets. Yes. And then you we talked about the reversal in the U.

Speaker 2

S. That is related to an asset on in Gulf of Mexico, dollars 290,000,000 So thanks, Peter.

Speaker 6

Thank you,

Speaker 1

Peter. And Anders Rosenlund from SEB is the next question. So Anders, please go ahead.

Speaker 3

Thank you. It feels like repeating almost the first of the previous question, but I'd like to revert to the overcapitalization situation. And the path you are pursuing is not remedying the situation. So what's the natural consequence of that? Is that more aggressive dividends and buybacks?

Speaker 3

Or are you happy with the development that you're seeing?

Speaker 2

So, yes, Anders thanks. Yes. At Alsaid, I think it's important for me to reflect upon the volatility and uncertainty that we are facing as an industry. In 2020, we had the weakest result in history for Equinor. In 2022, we had the highest and strongest results.

Speaker 2

So within 2 years, we went to worst to best as such, and that is the volatility and the exposure that we need to manage, Meaning that we will have to and we shall run with a solid balance sheet to be able to weather any storms That is ahead of us. And then we are, of course, in an extraordinary situation now where Capital distribution gives room for additional capital distribution as you have seen this year. And then we said again, We will continue to use capital distribution as one of the tools to bring this back to a more efficient Capital structure. So yes. So but we'll speak much more to this in our Capital Markets Day in February.

Speaker 2

So looking forward to see you then.

Speaker 1

Thank you, Anders. Next one is Michele Dela Vigna from Goldman Sachs. So Michele, please.

Speaker 6

Thank you very much and congratulations again on the strong delivery this quarter. My question really is about the Security of your Norwegian pipeline infrastructure, we've seen issues in Sweden, in Finland, Estonia. I was just wondering Over the last couple of years, what has changed in terms of the focus on guaranteeing the security of those pipelines and that would make you comfortable that such an issue would not take place on the Norwegian continental shelf? Thank you.

Speaker 2

Thanks, Mikael. It's a very, very important question. So thank you very much. Clearly, this is front and center for us these days. After the terrible attack on Ukraine, we are seen as the most important energy company in Europe.

Speaker 2

And clearly, we will do our utmost to serve Europe with natural gas and other energy sources As well. We have increased the security levels on all our installations and infrastructure on the shelf, And we have taken many measures. As you would understand, we have a very good dialogue with the Security Institutions and Safety and also Yes, international organization as I'm sort of understanding. We have a lot of support from Those institutions and also from support from military organizations as well. What we have done over the last year is that we have mapped all our pipelines.

Speaker 2

We have Screen them with sort of underwater equipment to all of them and we are monitoring closely the situation. So this is Front and center and top attention to the company. And we are doing everything we can together with Norwegian and international authorities To safeguard energy deliveries to Europe.

Speaker 6

Thank you.

Speaker 1

Thank you, Michele. Next This is Henry Tarr from Berenberg. So Henry, please.

Speaker 11

Thanks very much for taking my questions. 2, please. One is just on the to come back again to the offshore winds and the RFP process, etcetera. I guess, as you've said, you're looking at the opportunities going forward And that you need an economic return on those. Would it be right then to look at the request you put in for the uplift and think that that's the kind of level that you're going to want to see to get an economic return on those assets on Beacon and Empire?

Speaker 11

And then the second question is just on the cost inflation you're seeing on the portfolio on the non Sanctioned assets. Is there a difference? Are there any hotspots, particularly, either in Norway or outside that Thank you,

Speaker 2

Rojos, Hendrik. So offshore wind, yes, so very important for me to again say That for us to move forward with these projects, we need to have a they need to be profitable and the returns need To match the risk that we are facing. It is too early to conclude, but we put request in the petition, and that clearly illustrates Changes that needs to happen. I mean, we have communicated that we would like to see 4% to 8% real unlevered return From our businesses in within Renewables. And that still is the case.

Speaker 2

On cost inflation, and that is the way I understood your question, that is more general, not only related to renewables. So I would say that across the supplier base, it is still a challenge. We see that within the raw materials in the situation is easing, driven by sort of Global growth actually it is easing, but we see a continued tightening in the supply market. That is driven by energy prices, But also the activity level. And if I should go into more on your hotspots, let me pick a few.

Speaker 2

On the rigs, We see that as a challenging environment. 50% of the fleet has been scrapped since 2015 And no or hardly any new builds as such. NCS will be strained, but as you have seen, we have Taken on capacity with the coastal rigs, so we are in good shape there. Then If you talk about engineering and construction, we see Short term, high utilization in yards in Norway, that is probably going to last a couple of more years Until sort of the wave of new project on CNCS has come in production internationally, driven very much by LNG newbuilds and FPSOs as such. So we see a tight situation there as well, but there are opportunities.

Speaker 2

There are opportunities.

Speaker 12

Yes.

Speaker 2

Then clearly, across the whole universe of electrification and Cables going into renewable and offshore wind, but also the electrification projects we have on the Norwegian continental shelf, We see tightness and limitations. So I mean, it is all of this is pointing to a rather tight situation across the supplier base. And we see that sort of filtering into inflation in sort of the numbers that we are looking at. But as a Big company as we are and a big procurer, we have priority and we will be able To get access to what we will need. So thanks, Hendrik.

Speaker 3

Thank you very much.

Speaker 1

Thank you. We Fast approaching the hour, but let's try to cover 1 or 2 more. Chris Kuplent, Bank of America, you are next. Chris?

Speaker 12

Yes, thank you very much. I hope you can hear me okay. I'll try and keep it brief with only one talk, Raymond. I know it's an unfair question and I look forward to February already. But I wanted to just see whether you would like to comment on the fact that you seem to be the only American in Europe when it comes to how you define shareholder distributions I.

Speaker 12

E. In $1,000,000,000 rather than in a payout ratio. Do you feel consciously aware of that in the way you are thinking around how you're going to update us in February? And I'm not asking for a number or Just about the principle of guiding for future shareholder distributions through the cycle. Thank you.

Speaker 2

Thanks, Chris. I think it will be wrong for me to be specific here at all, but I can give you maybe One thing to reflect upon, and that is in our cash flow, we typically have so many specialties related to Norwegian tax We delayed payments and all of that. So that is sort of always a disturbing factor if you're going to think about But we have what we have currently. And we will be $17,000,000,000 this year. And we will come back to this on Capital Markets Day in February.

Speaker 12

Understood. Thank you.

Speaker 1

Thank you. Then we'll do the final question, and that will be you, Paul Redman from BNP Paribas. Paul, please go ahead.

Operator

Last but least, I hope everyone, just one quick one. If the agreements with the New York government do not go in a positive direction. And Equinor did step away from the offshore wind portfolio. What could we expect to see at that point? Would we expect to see challenge on the longer term gigawatt targets with CapEx come down?

Operator

Or when you look at the renewable portfolio, do you have other assets

Speaker 2

Okay. Thanks, Paul. So over the last few years, we haven't won New leases as such. I mean, we have used opportunity to actually divest out of assets and capitalize on significant prices. And instead of sort of fighting for in this sort of Lease rounds, we have actually built an onshore portfolio through acquisition of various platforms both in Denmark, Brazil And Poland as such, with quite a good pipeline of opportunities.

Speaker 2

So our target for 2,030 remains Affirm, but what you might expect is that there will be maybe a little bit shift of content between offshore and onshore in the delivery of that. When it comes to sort of the U. S. Project as such, I mean, they are part of our planning and we are working closely with the New York State On the ongoing process as such. So I mean, we will come back to this later on when we know more about the process.

Speaker 2

We have not concluded yet. And again, and that will probably be my final word, any investments into U. S. Wind will have to be profitable.

Speaker 1

Thank you, Torgrim. And let me remind you all that we are, of course, always available in the Investor Relations team, so if there is any follow-up after this call or any additional question, please give us a call and we will do our best. Then finally, thank you all of you for calling in and for your questions during this hour. So thank you and goodbye.

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Key Takeaways

  • Equinor delivered $8 billion in adjusted earnings ($2.7 billion after tax) and $7.5 billion in net operating income for Q3, with YTD operating cash flow of $17 billion keeping it on track for its $20 billion annual target through 2030.
  • Production averaged 2.007 MMboe/d, driven by a 12 % increase in liquids (e.g., Johan Sverdrup, Buzzard) while NCS gas fell due to planned and unplanned maintenance, prompting a full-year growth guidance cut from ~3 % to ~1.5 %.
  • In renewables, Equinor achieved first power at the 3.6 GW Dogger Bank A offshore wind farm but took a $300 million impairment on U.S. East Coast wind projects after New York denied inflation-adjusted contracts, and is now engaging in an expedited RFP process.
  • Key upstream milestones include BredaBlik starting four months early (55–60 kbd), PDO approval for Sverdrup electrification to cut 850 kt CO₂/year, and a final investment decision on Rosebank in the U.K.
  • Equinor approved a €0.90/share dividend and $6 billion of buybacks for 2023, holds $40 billion in liquidity, and maintains a −22.9 % net-debt-to-capital ratio to support financial flexibility.
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Earnings Conference Call
Equinor ASA Q3 2023
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