Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Equinor ASA (EQNR, Financial) reported solid financial results with an adjusted operating income of $7.5 billion before tax and an IFRS net income of $1.9 billion.
- The company achieved a 3% production growth this quarter, with total production up 5% from the same quarter last year and gas production up 13%.
- Equinor ASA (EQNR) continues to make strategic progress, including starting production from the Kristin South area and the partner-operated Hanz field.
- The company has a strong financial position with $32 billion in cash and cash equivalents, and a net debt to capital employed ratio of negative 3.4%.
- Equinor ASA (EQNR) announced a competitive capital distribution, including an ordinary cash dividend of $0.35 per share and an additional $0.35 in extraordinary dividend, along with a two-year share buyback program worth $10 billion to $12 billion.
Negative Points
- The Argerich well in Argentina was dry and expensed in the quarter, impacting the company's exploration efforts.
- Equinor ASA (EQNR) expects a significant turnaround program in the third quarter, with an impact of 125,000 barrels per day, which is higher than the previous year's 38,000 barrels per day.
- The company's renewables production guidance has been updated, with full commercial production for Dogger Bank A now expected during the first half of 2025, impacting this year's production outlook.
- The company reported a negative net cash flow of $4.2 billion for the quarter, and plans for a negative net cash flow for the year.
- Equinor ASA (EQNR) faces challenges in the offshore wind supply chain, which could impact project timelines and costs.
Q & A Highlights
Q: Wondering whether the overlift in this quarter will be mirrored in an underlift maybe next quarter or the quarter thereafter. And also, if then, it's just a volume effect or if there's also a sort of a price/revenue sort of element to it. Can you sort of talk a little bit about that? And then secondly, last quarter, you mentioned that European industrial gas demand was starting to show a bit of a sign of life. I think you mentioned something like up 5% on a weather adjusted basis. But sort of listening to your comments now and also other comments that you made this morning, maybe that has reversed. I was wondering if you could give us an update on that.
A: Yes, this quarter we had an overlift situation both within the NCS assets and also internationally. On the NCS, we had a similar underlift in the last quarter as we have an overlift in the current quarter. So there's no carry forward effect; it will fluctuate from quarter to quarter. Internationally, the overlift was related to Angola and Azerbaijan mainly. Regarding European industrial gas demand, we see approximately a 10% growth or increase. However, other drivers like demand from Asia, particularly China, and weather conditions are more important in price setting.
Q: First, on your production guidance for oil and gas. At the first quarter presentation, you mentioned that we should expect lower production and definitely seeing that during the second quarter. How should we think around the total production guidance for the year being flat year over year? Do you still see some downside risk to that? Second question, that is on renewable. I know that you have recently made some reorganization in your renewable business and that you may be looking to reduce the project portfolio somewhat. How will that impact your long-term target of 35 to 60 terawatt hours production by 2030?
A: On production guidance, we have seen strong operational performance and effective maintenance. We have finalized the Equity transaction, adding volume. We still expect some curtailment of US Gas production but remain firm on the guidance. Regarding renewables, we will build a profitable business with capital discipline. We will focus on reducing costs and investing where value creation is evident. The projects we have ongoing are moving forward and will contribute to growing renewables production.
Q: On the Rosebank sale, you've talked about selling down your interest in the past but then suspended the sale due to the change in government. Any clarity on fiscal changes, particularly around whether there could be any retroactive changes in the UK oil and gas taxes? And secondly, on Empire Wind, has there been any update on the project financing progress there? Are you still expecting that by year end?
A: On Rosebank, we plan to farm down part of our 80% interest. We have a close dialog with the UK government, and they are aware of the needs of our industry. We expect any tax changes to be balanced and business-friendly. On Empire Wind, we renegotiated the price contract with the State of New York, increased the price to $155 per megawatt hour, and are progressing with project financing. We plan for a financial close towards the end of this year.
Q: I have two questions. First, on low carbon spend and evolution there. At some point, do you go actually we just can't spend all this money on low-carbon because the projects are becoming more expensive or there aren't those value creation opportunities? Secondly, on the cash return side, how are you thinking about this? We got $14 billion this year, a bit less next year, and then lower in 2026. Are we thinking about that as a minimum level?
A: On low carbon solutions, projects like Northern Lights are progressing well with appropriate returns. We are working on carbon capture and storage projects in the UK. Hydrogen projects are not moving forward as quickly. On cash returns, $14 billion this year translates into an 18-19% direct yield. Next year, we plan between $4 billion and $6 billion in share buybacks. For 2026, we will use capital distribution to bring our gearing and balance sheet back to better balance. We will provide more details at the Capital Markets Day in February.
Q: Can you provide an update on M&A activities overall? How many assets are classified as held for sale as of June? What is the impact of Rosebank on the Group CapEx this year? And any color on the timing for closing deals that have been announced but have yet to complete?
A: Currently, the Azerbaijan asset and a leg of the swap with Petoro are classified as held for sale. On Rosebank, our CapEx guidance of $13 billion remains firm, and we are comfortable delivering on what we have promised. For closing deals, both Nigeria and Azerbaijan are progressing towards closing, with some outstanding topics in discussions with the government.
Q: On Dogger Bank, can you talk about what the issues have been that have led to the delays? And can you provide an update on some of your upcoming major project startups in oil and gas, for example, Castberg and Bacalhau?
A: On Dogger Bank, the operator SSE should provide more details, but one reason for delays is a very windy summer. We expect full production in the second half of this year. On major projects, Johan Castberg is on track to come into production by the end of this year. Bacalhau is progressing well, with first oil expected in 2025. Other projects like Rosebank, Raia in Brazil, and Sparta in the Gulf of Mexico are also moving forward according to plan.
Q: Has there been any progress on Wisting and Bay du Nord? And can you provide some general comments on the cost and contracting environment in the offshore? Also, I see that you've acquired a small lithium project in the US. How serious are you about lithium?
A: Wisting is maturing towards a final investment decision in 2026, and Bay du Nord is progressing well. The contracting environment is tight, and we see inflation, but we have good control over sanctioned projects. On lithium, we see synergies with our existing activities and view it as an interesting commodity for the future, taking an early and small position.
Q: Could you elaborate on the dry well in Argentina in Q2? Was the result so disappointing that you will give up exploration in the area, or do you plan further exploration wells?
A: The Argerich well was dry, and it was a frontier exploration well with naturally lower expectations for discovery. We have not made a decision on the way forward and are still analyzing the results.
Q: On the renewable business, given the equity accounting practice, only a small portion
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
