Equinor ASA

Welcome to the Equinor Company update conference call. Throughout the first part of the call all participants will be in listen only mode and afterwards there will be a question and answer session. Today I'm pleased to present Mr Peter Hutton. Please begin.

Thank you very much ladies and gentlemen. Welcome to the Equinor results call for the first quarter of 2020. This morning, we're running the call from Oslo, Stavanger and the UK. So reflecting, to some extent, the more remote working under present conditions. With me on the line, we have Lars Christian Bakker, CFO, Svein Scheier, the Head of Performance Management, and Oyan Kvelvana, Head of Accounting. As normal, Lars Christian will introduce the results and presentation for 10 to 15 minutes, and then we will run a Q&A session, which instructions you have had in order to poll, for around 45 minutes. Thank you very much, and with that, I'm pleased to pass the line to Lars Christian.

Thank you, Peter, and good morning, everyone, and welcome. I truly hope all is well with you and your families during these difficult times. Before I go into our quarterly reporting, I'd like to reflect shortly on the truly extraordinary times and how we as a company are responding. We are being hit by two storms at the same time, the coronavirus pandemic and a sharp fall in energy markets due to demand destruction leading to an unprecedented oversupply. The corona pandemic and the forceful mitigating actions from governments impact societies and economies. As a global company, Equinor and our people are affected, albeit in different ways. Those who can work from home and travel is reduced to a trickle. On all our installations and facilities, we have introduced strong measures to reduce the risk of infection. In the last two months, Equinor has taken forceful actions to further strengthen our financial position. First, we suspended the buyback under the share buyback program until further notice. Second, we introduced an action plan to reduce spending by $3 billion before tax in 2020. Third, we issued bonds for $5 billion at attractive terms to be proactive given the uncertainty of our national markets. And finally, we reduced the first quarter dividend by 67 percent compared to the one proposed for the fourth quarter last year. This reduction reflects the current unprecedented market conditions and uncertainties. These measures strengthen economic liquidity and resilience and increases the flexibility in support of investing in a high-quality portfolio, including renewables. Throughout this crisis, we will be guided by our values and stay committed to our strategy towards a low-carbon future. We all have seen the world responding in various ways to the pandemic. OPEC Plus has decided on significant cuts, and last week the Norwegian government announced production cuts at the Norwegian continental shelf. of 250,000 barrels per day in June and 134,000 barrels per day for the second half of this year. The implementation of this on a field-by-field basis remains to be detailed out by the government. The Norwegian government has also announced that they will put forward to the Parliament a proposal on temporary changes in the tax regime for our industry. The purpose of these measures is to maintain activity through a short-term release or increase in liquidity and improved profitability. We agree on these goals, but we do not see the current proposal achieving the intended result. We hope that the dialogue between the industry and the government will lead to a good solution. Then I move on to the first quarter. As expected, our financial results have been negatively impacted by the lower prices. Our average realized liquid price was $44.2 per barrel, down 21 percent since the first quarter last year. Similarly, our average invoice gas prices, both in Europe and the U.S., were down 41 percent in the quarter. Despite this, Equinor delivers a solid net free cash flow of $362 million after capital distribution. We close the quarter with a solid balance sheet, a net debt ratio of 25.8%, and we keep our credit ratings in the AA category. We had safe and stable production, and our improvement and cost focus continues even more than before. In the quarter, our unit production cost was down by 6% compared to last year. Johan Sverdrup continues to impress by achieving 470,000 barrels per day by end of April. This is 30,000 barrels higher than designed capacity. And remember, with a unit production cost below $2 per barrel, Johan Sverdrup contributes with a very strong cash flow. As you all know, last summer we increased our equity in Johan Sverdrup by 2.6% through a transaction with Lundin. We invested in Lundin back in 2016, and two days ago we divested all our remaining shares in the company. Over several transactions, we have had all our invested money back and 2% equity in Johan Sverdrup effectively for free. Let's take a quick look at our safety performance. This quarter, we report a serious incident frequency of 0.6 per million working hours the last 12 months and a strong improvement in the total recordable injury frequency of 2.3 versus 2.9 in the first quarter last year. We have had no reported cases of COVID-19 impacting production in the first quarter, but it has led to reduced manning, impacting the development schedule of certain projects. Now to the financial results. IFRS net operating income this quarter came in at $58 million, and we delivered adjusted earnings before tax of $2 billion, down 51% from the same period last year. We report net impairments of $2.45 billion this quarter. Of this, around 900 million are related to E&P Norway and 1.4 billion to assets E&P International, of which 1.1 billion is related to our assets in North America. The impairments are mainly due to lower short-term price expectations. The price drop at the end of the quarter and the uncertainties ahead makes cost discipline and continuous improvements even more important. It is therefore good to see the strong capital discipline in the organization and that costs are trending down. We are on track to deliver on the $700 million cost improvement for 2020. The tax rate on adjusted earnings was 73% due to the earnings composition. IFRS results after tax was negative $0.7 billion. Adjusted earnings after tax was $0.6 billion, down from $1.5 billion in the same period last year. Now, a few comments to each of the reporting segments. The unprecedented market situation has negatively influenced earnings in all segments. Increased product differentials and the lower data brand price, which is the basis for much of our realized prices, has further reduced our results. Exploration Production Norway delivered adjusted earnings before tax of $1.9 billion, down from $3.2 billion for the same period last year. The continued cost and efficiency focus within E&P Norway resulted in a 12% reduction in unit production costs, impacted positively by currency effects. Expression of production international delivered high production, adjusted earnings of $15 million before tax and around $100 million after tax as a result of a tax settlement in Canada. Absolute and per barrel adjusted OPEX and SGA costs are stable in the quarter. Then to the MEP segment. M&P delivered adjusted earnings of $229 million before tax, compared to $359 million in the same period last year. We saw strong results from sale and trading of gas to Europe, again beating the spot price. This was partly offset by weaker products trading and refinery margins. The after-tax result was negative $40 million. Due to high contributions from NCS gas trading with a high tax rate and losses in product trading with a low tax rate, M&P ended up with a high tax rate in the quarter. Our renewable business delivered positive earnings in the quarter, reported as part of the other segment. Equinor delivered record high equity production in the quarter, 2,233,000 barrels per day. New fields on stream, in addition to new well capacity, more than mitigated the natural decline in existing fields and divestments. As previously announced, we expect an average annual production growth of 3% from 2019 to 2026. However, the short-term outlook remains unclear, with the market uncertainties and government-imposed production curtailments. Since the last quarter, we have reported new discoveries in Brazil, the Gulf of Mexico, Azerbaijan, and Norway, which will add to our strong non-sanctioned project pipeline. Our renewable segment produced 559 gigawatt hours this quarter, which is a new record and is enough to supply a half a million homes in UK. Despite a difficult market situation, we delivered a solid net free cash flow of $362 million. And remember, this is after capital distribution. The net debt ratio increased by two percentage points from last quarter to 25.8 percent, which is in line with the currency effect on reported equity. We paid around $900 million in taxes this quarter, and the capital distribution in the quarter was around $900 million, including the end of the first tranche in the market of our share buyback program at $58 million. Year-to-date organic investments are $2.3 billion. Let me end with our guiding. There is unprecedented uncertainty regarding the global economic outlook. Based on this, it is difficult to guide unexpected 2020 production. Nonetheless, we have a very strong project pipeline and maintain our guiding of an average 3% annual production growth rate between 2019 and 2026. As part of our $3 billion action plan, the 2020 organic capex guiding has been reduced from $10 to $11 billion to around $8.5 billion. And the 2020 exploration guiding is reduced from around $1.4 to around $1 billion. We now guide on an organic capex level of around $10 billion, and the average capex for the years 2022 and 2023 is around $12 billion. Thank you very much for your attention, and I look forward to your questions, and I pass it back to you, Peter. Thank you.