Equinor ASA (NYSE:EQNR) Q4 2023 Earnings Call Transcript

Equinor ASA (NYSE:EQNR) Q4 2023 Earnings Call Transcript February 7, 2024

Equinor ASA misses on earnings expectations. Reported EPS is $0.64 EPS, expectations were $1.08. Equinor ASA isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Bard Glad Pedersen: Good afternoon, ladies and gentlemen. It’s a pleasure to welcome you all to the presentation of Equinor’s 2023 Results and Capital Markets update. My name is Bard Glad Pedersen, and I’m heading up Investor Relations. Before we start, I want to give some safety instructions for those of us here in the room. If an emergency situation should occur, the evacuation signal is a voice alarm. Please note that we only evacuate if the voice announcement says that we should do so. Then please use the fire exits, follow the signs and messages from the guards. The procedure during an evacuation is to exit and disperse safely away from the building. And then further notice will be given during normalization. Today, we will have four presentations in the preliminary session.

First, our CEO, Anders Opedal. Then the EVPs for EPN and TDI, that is Kjetil Hove and Hege Skryseth. And finally, our CFO, Torgrim Reitan. After the presentations, we will have a Q&A session in this room. And the full CC team is here and available and ready to answer your questions. During the Q&A, we will also take questions from those of you following us online. After the Q&A, we have three breakout sessions. One with Anders and Torgrim. The second, with the EVPs for EPI and PDP, Philippe Mathieu and Geir Tungesvik. And the third with the EVPs for REN and MMP, Pal Eitrheim and Irene Rummelhoff. Finally, let me remind you that this presentation does include forward-looking statements and non-GAAP measures, and we refer you to Slide number 2 in the pack in this respect.

Then we are ready to start, and I hand it over to you, Anders.

Anders Opedal: So thank you, Bard, and welcome to all of you. It’s really good to see you here in London, and I’ve looked forward to meet all of you today. So let me start with my key messages. We present strong results for 2023. Second, we deliver on what we said last year, and are on track for our 2030 ambitions. Third, we provide visibility for the cash flow growth and transition all the way to 2035. And finally, we sustained returns, and continue to deliver competitive capital distribution. Geopolitics remain tense in 2024, with wars in Ukraine and in the Middle East. Uncertainty and volatility continue to impact economic growth, transition frameworks and energy markets. Despite all uncertainties, one thing is clear: Energy security and energy transition will be on top of all societies’ agenda.

In this environment, Equinor’s strategy is resilient, secures transition and growth and we remain firm on our direction. We are developing the energy solutions for tomorrow, while securing the energy needed today. We believe in a balanced energy transition and will develop new growth engines to stay competitive long-term. Our market position in Europe, and our industrial legacy from the Norwegian continental shelf, is a strong competitive advantage. Currently, European gas storage levels are high, and industrial demand is below average. Forward prices have come down for 2024 and for 2025 but are at higher levels than we have been used to in the past. We see signs of demand recovery in Europe and higher demand in Asia, this may put upward price pressure on prices.

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Q&A Session

We are well positioned and our strong project pipeline gives line of sight to 2035. We can deliver a stronger cash flow a broader energy offering, and lower emissions. I will revert to this, but first, our 2023 results. Safety of our people is our number one priority. Last year, we had a tragic fatality when a crewmember fell overboard from a contracted LPG tanker in Malaysia. It made a deep impact on all of us. And together with the ship owner, we follow up the incident and implement learnings. Our key safety indicators have improved over several years, and we maintain this level for 2023. But, we are not satisfied and we will continue our efforts to improve. Our goal is clear: All our people returning safely home from work, every day. Securing our assets is important to safeguard our people, operations, and energy security.

We have continued to improve, by implementing new measures and closer collaboration with authorities and industry partners. In 2023, we delivered strong results, with adjusted earnings of $36 billion. This is our second-best result ever. We set the bar high at our Capital Markets update last year. And we have delivered around $20 billion in cash flow from operations after tax, and capital distribution as communicated. Overall, our financial performance was strong, with 25% return on capital employed. Last year we increased our guiding for the midstream segment. And we have delivered in, or above, the range for all quarters. In total $3.2 billion. We produced close to 2.1 million barrels per day with a CO2-intensity of 6.7 kilo per barrel. This is less than half of the industry average.

Gross CapEx share, to renewables and low carbon was 20%. We are on track to above 30% by 2025, and above 50% by 2030. And we added 8 gigawatts to our renewables project pipeline. In sum; we are on track, delivering on our strategy and on our Energy transition plan. This is hard work, in a challenging and competitive context. I am proud of the strong efforts by competent colleagues across Equinor. Through this year we welcomed around 2000 new colleagues, replacing and renewing competence, demonstrating our continued attractiveness in a tight labor market. We are on track to our 2030 ambitions, delivering on our strategy. We demonstrate transition, profitability and growth, coming from the actions already taken. And for the first time we extend our outlook further, to 2035.

We are changing. We will grow our cash flow and become stronger. We will transition and be broader. And we will cut emissions as a leading company in the energy transition. In 2035 we expect a stronger cash flow. Oil, gas and trading is expected to contribute with an annual average of around $20 billion after tax. All the way to 2035. Cash flow from renewables and low carbon solutions comes on top of this. We expect this around $3 billion in 2030, increasing to more than $6 billion in 2035. We will transition and grow while maintaining profitability. We expect around $13 billion of CapEx in 2024, and indicate $14 billion to $15 billion in 2025 to 2027. It is important to note that Empire Wind is fully included here, consolidated in our accounts and with 100% ownership.

Excluding this effect, our CapEx outlook is fully consistent with what we said last year. And remember, we intend to use project financing and farm-down at the right time, and this would then reduce the CapEx. Towards 2030 we expect above 15% return on capital employed. And we target to maintain around 15% to 2035. And Torgrim will share more when he is on stage. Our energy mix will be broader in 2035. We expect to produce more than 80 terawatt hours of renewable power and decarbonized energy. At the same time, we increase our ambition for CO2 transport and storage, targeting 30 to 50 million tons per year by 2035. We will continue cutting our own emissions, and we will increase renewables, decarbonized energy and carbon storage. With this, we expect to reduce our net carbon intensity with 40% by 2035.

Our oil and gas portfolio will create value well beyond this decade. And our three-year average of organic reserve replacement ratio is 107%. And we have profitable projects coming on stream, with an average break-even price of around $35 per barrel. Maintaining this level, with the recent cost inflation, demonstrates capital discipline and improvements. Johan Castberg is the first of the big ones, expected to come on-stream late this year. We expect to increase our production by more than 5% from 2023 to 2026 and deliver around 2 million barrels per day in 2030. We have a pipeline of projects to halve emissions from operations by 2030. About half of the projects needed to achieve this are already approved by government and we expect to progress more projects this year.

Towards 2030, we expect annual investments of around $10 billion in oil and gas. And get on average around $20 billion back in cash flow from operations after tax. Our oil and gas portfolios in Norway and internationally are distinct. Internationally, we are improving the quality of the portfolio, and expect to increase the cash flow by 50% by 2030. On the Norwegian continental shelf, we have a unique position and can increase recovery, creating high value for longer well into next decade. Let me share some details. Our international portfolio is becoming more robust and profitable. Last year, we announced divestments in Nigeria and Azerbaijan. And we continued to deepen in core areas with final investment decision on Rosebank in the UK, Raia in Brazil and Sparta in the U.S. These large projects bring high value growth, and we expect to increase our international oil and gas production to around 800 thousand barrels per day in 2030.

But more important: We expect the cash flow to grow more than the production. Therefore, cash flow per barrel will be $5 higher. In total, we expect to grow our production by 15%, and our cash flow from operations by more than 50% from 2024 to 2030. And keep this level towards 2035. This is quality improvement. On the Norwegian continental shelf, we work systematically to drive long-term production. And we know the geology, we have the expertise, the competence and the technology. The infrastructure is already paid for and will be decarbonized. We use all of this as we plan wells, develop projects and increase recovery. This enables high production for longer at around 1.2 million barrels per day in 2035. Hege and Kjetil will share how we work and implement new technology to create high value for longer.

We expect to continue to deliver 40 bcm of gas to Europe, Equinor share, on average to 2035. And we have low cost and low emissions, with an average supply cost to Europe below $2 per mmbtu. We have proven our ability to deliver renewable projects and value creation. We are firm on our strategy, flexible in execution and have adapted to the market conditions. The acquisitions of the onshore platforms Wento, BeGreen and Rio Energy contribute with capacity and cash flow. And recently, we started our first commercial battery storage in the UK. Our trading company, Danske Commodities, brings additional returns. Danske already has more than 12 gigawatt of assets under management. In total, we are developing an integrated power portfolio. In the U.S., we are high-grading our offshore wind portfolio, taking the full ownership of the Empire Wind project and have delivered a bid for the fourth bid round in New York.

This is the solution creating most value, and we intend to use project financing and farm-down, to reduce exposure and increase returns. Equinor is well positioned in a long-term growth market. We have accessed our renewable pipeline to achieve the ambition of 12 to 16 gigawatt installed capacity by 2030. And we aim to deliver above 65 terawatt hours of renewable power by 2035. Real base project return is the foundation for prioritization and ensuring capital discipline. On top we capture additional value, pulling different levers depending on the project and the market. We achieve nominal equity returns of 12% to 16% both for Dogger Bank the world’s largest offshore wind farm, and for our solar plants in Europe. The framework for CO2 storage is improving rapidly.

And based on our project pipeline, we increase our ambition for CO2 storage, targeting 30 to 50 million tons per year by 2035. Our first commercial CO2 storage facility, Northern Lights, is on track to be completed this year. This kickstarts the market for CO2 transport and storage needed to reduce emissions for the hard to abate industries. Based on almost 30 years of experience with safely storing CO2, we expect to grow this as a business. We expect real returns of 4% to 8% real for the early phase, when we build markets and there is government support. As markets are more developed and commercialized, we expect higher returns. With the profitability, and the volumes, low carbon solutions will be a source for long-term cash flow. Then, turning to capital distribution.

Today we present an outlook for cash flow growth and strong returns. For me, it is important that this is reflected also in our capital distribution. The Board proposes a 17% step-up in the ordinary cash dividend to $0.35 per share. Our dividend policy is to grow the annual cash dividend in line with underlying earnings, and this remains firm. To increase predictability, we now state our ambition to grow the ordinary cash dividend by $0.02 per year going forward. In addition to growing the ordinary cash dividend, we also propose an extraordinary cash dividend of $0.35 for fourth quarter. This brings the total cash dividend to $0.70 per share. The Board is clear on its intention to continue the extraordinary dividend for the first three quarters of 2024, and then expects to conclude the use of extraordinary dividends.