Equinor ASA

Ladies and gentlemen, good morning and apologies for the slight delay to the start of this call. I'm delighted to welcome you all to our second quarter 2020 analyst call. With me on the line in Oslo, we have Lars Christian Bakker, the CFO, and Spine Shire, who's the Head of Performance Manager. Also joining the call is Oyan Kervana, who is Head of Accounting. He's calling in from Stavanger, and I'm here in London. With that, I'm delighted to pass straight over to Lars Christian to start the call. We will have questions for the rest of the hour that we have on this call. Thank you very much.

Thank you, Peter. And good morning, everybody. We really appreciate you joining us today. I hope that you... Your families and your colleagues are all doing well. Let me start by saying that this has been a second quarter and a first half year like no other. Our most experienced traders call it the most dramatic quarter in oil market history. In April, dated Brent, the reference price for most of our liquid product sales, reached a low point of $13.20 per barrel. and at one point the WTI plunged into negative territory for the first time in history. In addition, European gas prices were at the lowest in more than a decade. Prices have since partly recovered, especially for oil, but the economy remains well prepared for continued volatility going forward. Many countries are now gradually opening up, but the path toward recovery from the global pandemic remains tentative and uncertain at all our locations offices fields and facilities the safety and well-being of our people are top priorities this year we have really seen the value of having solid contingency plans for low price scenarios we took rapid and forceful actions to protect our financial position in that extraordinary situation and we now see the effects Costs and capex are down, and through suspension of share buybacks, cut in dividend, and bond issues at attractive rates, we secured our liquidity and financial flexibility. And thanks to quick and effective action, we have had less than 1,000 barrels per day in production loss due to COVID-19. Our results are, as expected, impacted by the prices in the quarters. However, Equinor was able to not only capture significant value, but also provide the flow assurance needed for stable and reliable operations. They delivered record high results from our MMP segment, with very strong trading results within crude and liquids. As CFO, I'm happy to see the organization continue to deliver cost reductions and solid operations. We are also progressing our quality portfolio projects under development within oil, gas, and renewables, despite delays on a small number of projects due to COVID-19. The very low prices increased our net debt ratio to 29.3% from 25.8% at the end of Q1. Going forward, we will work diligently and systematically to continue to strengthen our competitiveness. Let me spend a few minutes on the temporary tax changes in Norway. In June, the temporary changes in the petroleum taxes were decided by a broad coalition in the Norwegian Parliament with the purpose of maintaining investment, activity, and value creation in the oil and gas industry. To operators and suppliers in Norway, including Equinor, this secures frame conditions, which makes it possible to continue progressing with planned profitable development projects. For 2020 and 2021, we can now fully expense all NCS investments against the 56% special petroleum tax rate in the year they are incurred rather than over six years. For 2020 and 2021, the uplift have been increased from 24% to 24% from 20.8%. And we are also allowed to expense the uplift towards the special tax the year we invest, rather than previously over four years. These changes will also apply to new project sanctions by the end of 2022, with impact on tax and cash tax or cash flow in subsequent years. Over time, the temporary changes are close to neutral, cash-wise and in nominal terms, since the taxes saved due to direct expense will be paid back in later years. So, to the effect of the changes for Ekinur as a company. These temporary tax changes provide liquidity and enhance project economics. Under these terms, cash tax charges from second half will be materially lower. Indeed, we expect the next settlement due in August to be a cash receipt of around 1.5 billion Norwegian kroner. The changes in fiscal terms increase the profitability of our project on the MCS, sanctioned by 2022, and improve breakeven prices by around $10. Such improvements will influence the ranking and facing our projects. And now I move on from tax. As we have tackled the demanding market situation, our strategy remains firm. We are developing as a broad energy company and aim to create long-term value through the energy transition and in a low-carbon future. In the quarter, we have achieved milestones on the climate ambition we communicated earlier this year. Approval of the PDO for our floating offshore wind project, Highwind Thumpton, The investment decision on partial electrification of Sleipnir. Investment decision on Northern Light project for transportation and storage of CO2. In line with our dividend policy, our board of directors have considered expected cash flow, capital expenditure plans, financing requirements, and appropriate financial flexibilities. And again, it's a difficult quarter in terms of prices. The board has decided on a dividend of 9 cents per share for the second quarter of 2020 at the same level as for first quarter 2020. Let me then turn to the quarterly results. And as usual, I start with our safety performance in the quarter. We have a systematic and proactive approach on safety and security. This quarter, the efforts have been particularly focused on preventing the spread and impact of COVID-19. We report a serious incident frequency of 0.6 and an overall injury frequency rate of 2.3 million, 2.3 per million working hours the last 12 months. Compared to 2019, this is an improvement in overall injury rate, while the frequency of serious incidents is at the same level. Let me then go into more detail on the quarterly financial results. A realized liquid price in the quarter was $22.9 per barrel, down 61% from the same quarter last year. This is below the average dated Brent for the quarter at $29.2, mainly explained by differentials for the light and quality. Our average European invoice gas price in the quarter ended at $2.24 per million BTU, down 59% from the same quarter last year. In the U.S., our average realized gas price was down 37% to $1.47 per million BTU. The IFRS net operating income in the quarter was negative $472 million, down from $3.5 billion in the second quarter last year. Adjusted earnings were $354 million positive, down from $3.2 billion. We are happy to report that we are on track to deliver the $700 million cost reductions announced in the first quarter. The temporary changes in the tax regime have some special effects on our after-tax results this quarter. As a consequence of increased uplift applicable from January, We also recognize the benefit for the first quarter and second quarter, which contributes to a negative tax rate of 82.3%. After tax, we delivered a negative IFRS result of $251 million, down from $1.5 billion last year, while adjusted earnings after tax were positive, $646 million, down from $1.1 billion. Then to the segments. From this quarter, EMP USA is a separate reporting segment, and we provide increased visibility of renewables within the other segment. EMP Norway delivers negative adjusted earnings of $85 million, caused by very low prices for both oil and gas. They are chosen to defer significant gas volumes to periods for higher expected prices, and we have adhered to government-imposed oil production cuts in June. EMP Norway delivered strong operations in the quarter, with underlying operations cost down 8% per barrel. EMP International delivers negative adjusted earnings of $379 million. This result is due to the low prices combined with lower production and higher depreciation per barrel. At the same time, we also see a clear cost reduction in this segment. EMP USA is also affected by the very low prices. This segment delivers negative adjusted earnings of $341 million. In the U.S., we see the biggest cost reductions with a 10% reduction in the underlying operating cost per barrel and a 22% reduction in adjusted operating and administration costs. We have substantially reduced drilling and completion activity onshore to adapt to the market situation compared to the same quarter last year. The marketing, midstream and processing segment delivered record high adjusted earnings of nearly $1.2 billion this quarter. The record result is mainly due to strong contributions from oil trading, capturing value in volatile markets, benefiting strongly from taking positions backed by solid assets. Renegotiations of gas sales contracts also contributed to the adjusted results, with a one-off effect of around $150 million. In our other segment, we get contributions from our renewable plants in operations, or $38 million in net income. After adjusting for costs such as progressing and maturing our next milestone projects, Dogger Bank and Empire Wind, the total reported results for NAS was around zero. Equinox equity production in the second quarter was 2,011,000 barrels per day on par with the second quarter last year. In the quarter, we delivered a high production efficiency with increased capacity from new fields and wells and had no turnaround activity offshore. Against its background, a good operational efficiency. Volumes on the NCS in June were affected by the curtailments announced by the Norwegian government. Also, our international business was impacted from OPEC Plus actions. Adjusted for divestment of assets and government-imposed production curtailments, we still delivered an underlying production growth of more than 4%. We put value over volume and moved significant gas volumes out in time to pair it with higher expected prices, mainly on the NCS. On the NCS, it is notable positive that the liquid production growth is 33%. The startup of Johan Sveidrup with very low operating costs is the main driver. Let me also mention that we made three commercial discoveries in the quarter, while two wells are still under consideration. So far this year, we have made six commercial discoveries in Norway and internationally, which bodes well for future value. The production for our renewable business was 300 gigawatt hours after conducting maintenance at the Dudgeon. Adjusted for the sale of half of our ownership interest in our corner, production is at about the same level as last year. The cash flow slide represents over the year. Note that the cash flow from operations is affected by the prices in first half 2020, while the taxes and dividend paid are related to 2019. We paid taxes of $2.6 billion so far, with $1.5 billion related to NCS in the second quarter. Dividend payments in the first half totaled $1.75 billion. Organic investments are at $4.1 billion, while we sold our shares in Lundin Energy for $332 million as a good return. The net debt ratio at the end of the quarter increased to 29.3%. Before I move to Outlook, I would like to mention that to maintain our strong credit ratings, and we have also received ratings from our affiliates, Ekinor New Energy and Danske Commodities. Both achieved BBB plus equivalent ratings and are strategically important to Ekinor in creating value through the energy transition. So let me end with our guiding. We will continue to put value over volume, in demanding markets. This makes it difficult to commit to guiding on production growth in 2020, but we still expect average annual production growth of about three percent from 2019 to 2026. Expiration activity is expected to come in at around 1.1 billion dollars. This is slightly up from first quarter, partially due to the drilling of equation wells around new discoveries. Our guiding for organic investment remains unchanged in U.S. dollars at around 8.5 billion and around 10 billion in 2021. However, note that we have used an exchange rate of 9.5 kroner per U.S. dollar, down from 11 kroner per dollar last quarter in our guiding for exploration and organic investments. And with that, I'm pleased to open up for questions, and I hand it back to you, Peter.

Thank you, Lars Christian, and we do open up the questions, and I'll pass it back to the operator to remind you of the polling.

Thank you. If you do wish to ask a question, please press 01 on your telephone keypad. If you wish to withdraw your question, you may do so by pressing 02 to cancel. That is 01 if you would like to ask a question. Our first question is from Oswald Kuhn from Sandford Bernstein. Please go ahead, your line is open.

Thank you. Good morning, Large Christian. Thanks. Just on some of the sanctions in the quarter, specifically Northern Lights, I mean, obviously still questions around, I guess, economic viability of CCS projects. So I just wanted to see if you could shed any light on how profitable you see this project or really how we should think about profitability of this project, especially if it does become a big $2.5, $3 billion CapEx project. That's the first question. And secondly, related to the report, it's a risk that I saw popped up last quarter and is still present this quarter. And you're calling out risk around force majeure clauses around both suppliers and customers. So, I mean, I know you can't quantify any impact yet, but can you say, you know, how those conversations are going through the last couple of months into July? Has this risk diminished or is it still unchanged today? Thank you.

Thank you. It is the ambition of the Northern Lights partners to achieve by 2030 cost levels for transport and storage in range described in the IOGP report the potential for CCS and CCU in Europe for this type of project of around 30 to 55 euros per ton of CO2. So You know, this is how to put it, a supply chain in many ways that needs to be put in place. So for us, other part of this is more from transportation and storage, and then other companies need to sort of look at the possibility for them to capture it for the totality of this to be realized. And could you then please repeat the second part of your question?

Yes, it's just around one of the risks that you put in your quarterly reports. It appeared last quarter. It's here again today. It's around some of your suppliers and customers seeking to potentially enact force majeure clauses within contracts as a consequence of what's happened. You say you can't quantify the impact, but I want to know, you know, are those gas contracts we're speaking about, and has the risk diminished, or it's impossible to say here?

I can hand it also over to Örjan to comment on this in more detail, but I think that it's still a huge sort of uncertainty as to sort of how the whole supplier market is going to develop and the relationship between buyers and sellers of products too, but But all in all, I think it is somewhat of a better position at the end of this quarter than the previous quarter. Then, you know, everybody looked into a steep fall in activity and prices. And at least now we have some more visibility. It is still a huge uncertainty how this is going to be planned out. Jan, any comments?

Yeah, so just to... support your comment so this is related to what we write in note number 8 and we point to the uncertainty out of what has happened the recent period we assess it every month and every quarter and there is no significant kind of development in this statement but we need to keep it in due to the situation okay very good thank you

And our next question is from Bard Barkataria from RBC. Please go ahead.

Hi, thanks for taking my questions. Two, please. The first one is on cash taxes. You mentioned the rebate in the third quarter. I was wondering if you could say anything about the rest of the year. You have your accountant on the call, so I guess I just want to try and get a rough sense of the cash tax situation. potentially based on the prevailing commodity prices for the rest of the year. And the second question, I appreciate you breaking out the renewable segment. I guess the 38 million in earnings is better than definitely I expected. I was wondering if you could just clarify whether that is purely the generation side or whether the Danske commodities electricity trading goes into that number as well, or whether that goes into MMP. And as you did break out the U.S. business today yesterday, Could you just comment on what you need to see from the renewables segment to, you know, start breaking that out as a separate business as well? Thank you.

On the last part of, you know, the two questions, Danske Commodity is reported as part of the M&P segment. So this is purely from the renewables assets in operations segment. the numbers that we refer to under the other segment. We have said that on-day renewables will be reported as a separate segment. It has to do with sort of materiality, and it is a question of time before we get to it. If you look at production numbers or returns, earnings, it will take a very, very long time for renewables to be material compared to the oil and gas segments. So this for us has more to do with material on its own sort of methods and with the portfolio that we are having. I would argue that as that progresses one day, we will be having a material position to start reporting it as a separate segment. And until that today, we are going to gradually, as we started out with, that the capital markets in February to give you more visibility and granularity and to give you somewhat more this quarter in the notes. On the cash tax, there will be sort of a 1.5 billion Norwegian kroners effect in August, a positive for us to put it with those wording. we are going to do the calculations, the tax calculations in September for the total second half of this year. And until we've done that, we are not in a position to guide you on the tax or the cash tax for the second half.

Okay, understood.

And our next question is from Thomas Adel from Credits. Please go ahead.

Good morning. The first question is on the dividend and obviously you're aware that the two Qs sold quite well and the second half should see strong free cash generation. But obviously gearing is at the upper end of where you want it to be and there may be some impairments with the third half. quarter results and maybe perhaps you can share some updated sort here if any and you know there's been some changes to the tax regime in the Norwegian continental shelf maybe that will mitigate some of the potential impairments so if you kind of combine the free cash generation potential and where gearing may be at the end of the year how should one think about you know the dividend at which point you're you're you're happy to again raise it and then I guess the second question is um Just on the conversation you're having with your relationship banks, obviously investors are looking more closely where the money is invested and banks are looking harder where the money is lent to. Do you see any changes in the conversation you're having with your relationship banks being a fossil fuel company? Thank you.

On the discussion with banks, seriously, let me then start there. even more of a helicopter view. The discussions that we are having with banks, investors, analysts, and the like, I think the ESG topic has risen on the agenda. It is especially in Europe, in many places, but I will also argue strongly that it is on the table for the most executive committees and boards in most of the U.S. companies and Canadian companies too. And a lot of it is actually about maturing our understanding and one's own understanding of what this is and what it's not all about, and in many ways who are the good companies in this on a current status basis, but also on a forward-looking basis. um so we um get a lot of good comments from from bankers um when it comes to our strategy uh but even more so our position the current portfolio and that we have not only an active strategy and active ambitions when it comes to climate but also that we can actually back it with a quality oil and gas portfolio but also quality renewables portfolio So no questions of sort of a negative nature when we have this year borrowed money both in the euro market and in the U.S. market. Well, on the dividend side of it, you know, we – We have said that when we one day will start looking at increasing the dividend again, then the 27 cents per share is a good sort of reference point. And for us to start increasing the dividend again, we need to see more visibility both when it comes to our own position in this, but also the market outlook going forward. We both live and see a huge uncertainty or volatility, so that remains somewhat to be seen for us to make such a decision. On the giving, it's just up to 30%. We have said that we are fine by having a bow for periods of time, so we have a very strong balance sheet. We have a very strong project portfolio, and we have a growth story towards 2026, despite all the measures that we have taken to secure liquidity. On impairments, and if you get any, you know, when we revise prices, that remains to be seen, and You said third quarter. I can't sit here and comment that we're going to adjust the prices in third quarter and by that having impairments. If that were the case, then I should have done it yesterday in many ways. So we believe in the prices that we are having, and then we are looking at the development of different factors, and we do so on an ongoing basis, and we will do a revision of the prices when we believe that there is solid ground for doing so. And there are good reasons for believing it should be taken down, but it's also good reasons for believing it should stay high or it could be taken up also. So perhaps a little long answer, but I guess I could get some questions about the prices too. And a lot of people are focusing on the demand side and how COVID-19 affects the demand side. definitely been affected by it in the short term since, you know, February, March. And one could argue that perhaps the demand medium term has been softened based on this. But you shouldn't forget either the supply side, a huge uncertainty on the supply side too. That has to do with the capacity in the industry. With consolidation in the supplier industry, the capacity will be taken down, and that will have the limiting factor of the total capacity that the industry then can have to deliver new volumes. We see that the risk appetite has been taken down by many companies. Projects have been postponed and cancelled. So the willingness to sanction projects is also softened. So this is balancing those two to make a view, and what we did this quarter is that we stick to the $77 in 2025 and $80 in 2030. Thank you.

And our next question is from Alistair Fine from Citi. Please go ahead. Your line is open.

Thank you. Just one question really just on CapEx and Norwegian tax. So the CapEx change is obviously zero in dollar terms, but there is a double-digit move in kroner terms. So can you just sort of explain the moving parts there? I kind of thought the principle of the tax change was meant to preserve investment. And then As a sort of follow-up, I wonder if you could elaborate on the point that you made in your remarks about Norwegian tax changes will influence the phasing and ranking of projects. What are you specifically referring to there? Is there any difference between the way you think of greenfield or brownfield or oil or gas? What do you mean by the rankings?

Well, I'll leave the first question to Spine, the CapEx, and take care of it, but I can start by answering your second question. Our project portfolio is kind of a moving target from the point of view that there is competition among the projects to be among the sponsors so that they can make sure that their project is sanctioned. And, of course, a big sort of improvement in the economics and reduction of $10 per barrel break-even-wise for many projects now over the next couple of years, 2020 to 2022. Of course, that reshuffles somewhat the ranking of the projects in that portfolio. And so there's more to do with productivity than on the NCP. compared to oil and gas activity internationally. So that is more what I allude to. Svein?

And the CARPEX and the Norwegian tax, as Lars Christian also explained in his speakers, the change is simple. We are now able to expense towards special petroleum tax. The CARPEX that happens in the year that it's procured for 2020 and 2021, but also then for projects that reach a final investment position within 2022. So those will have the benefits in the third period. In quarter, since it's given effect back to 1st of January this year, we will get the benefits for the new tax system, including the increased uplift in this quarter, and that is impacting the cash in taxes. uh which uh which we will pay for the remaining part of the year and as lucasian said and negative one and a half then in august and then we do a week when we are in september then for for the to see what will be the remaining and the remaining part of it will come in in the three installments in 2021 but also remember in 2021 we will have the direct expenses of all

So I'm still slightly confused because effectively there's been a big reduction in the Krona capex. It's converted the rates that you've given, and yet you're implying with the tax change you're going to put more money into Norway versus internationally.

What we had as the gutting and the outlook as we had in the first quarter, we based it on the coronavirus dollar of 11. Now we're setting it on 9.5. We keep the amount in dollars. But of course, it's affecting by... the higher Norwegian foreign cost was the dollars. So we also are working on the Norwegian assets and securing those. And, of course, also the new tax system, you know, and those are the things that we are up to sanction to come up until 2022. Okay. Thank you very much.

And our next question is from Michele Telavina from Goldman Sachs. Please go ahead.

Thank you. Last question, congratulations on a very resilient quarter in an incredibly difficult environment. it's um very exciting to see equinor leading the first large-scale blue hydrogen project in the uk um i was wondering if you could elaborate on the regulatory framework you would want to go ahead and particularly what kind of incentives um you believe would be best placed for the project whether it's something similar to what i think the offshore wind contracts with a contrast for difference, and what cost of hydrogen you believe you will need to have a profitable blue hydrogen development there. Thank you.

You know, for the world to decolonize, I think we need to pull a lot of different strings. for that to happen, and hydrogen being one of them. The terms and all that kind of stuff, I think the best way would be if Peter can come back to you on this one and follow up, because this is very much into the details. And if others would like to have the insight in the same answer, please contact Peter. I think that would be the best way. best of me to do, actually. But we believe that pursuing different opportunities is a way to broaden our understanding and to help an athlete to figure out where we really want to put our bets going forward. Green hydrogen is cheaper than green hydrogen. And also the green hydrogen to actually work here. It is dependent on all the capacity in renewables. So I think our current thinking as of today perhaps is blue hydrogen is somewhat more of an alley to pursue. So, yeah. Thank you.

And our next question is from... Sorry?

And I'll be happy to take those separately, so we can get to more questions this morning in limited time.

Okay, so our next question is from Mehdi Tanabadi from Bank of America.

Hi, good afternoon, and thanks for taking my question. One question, please, regarding your priority. So, you know, if the oil price remains as it is, and even if the natural gas price remains under pressure, it is likely that you will start benefiting from, let's say, a positive organic Africa flow post-dividend payment, and then a decrease in your net debt in the coming quarter until maybe end of 2021. So how would you rank your priorities? Would it be to reinstate the dividend around 27 cents per share, Or would you rather first significantly try to increase the capex in Norway, given the return on the project, you know, is boosted by the temporary tax change? Or would you take, you know, this potential extra money to, let's say, accelerate your shift towards renewable energy? So just to understand your priorities here. And second question on the capex. So your capex went down significantly in the second quarter versus the first quarter. That makes sense. However, to reach your $8.5 billion guidance, you need to increase your capex in the second half of this year versus the first half. So do you intend to increase your activity in the second half of this year, really? Or have you been able to lower your capex in the second quarter more than what you were initially expecting? Just for us, you know, to see if there is a room, you know, to download revision of your capex payments for 2020. Thank you.

I trust both of your questions, and I say try, because you brought up quite frequently during your speech, but I think I... I got it, and if not, please correct me or ask me again. 8.5 for this year and 10 for 2021 billion dollars. Your question was more, you know, are we expecting to spend more capex second half compared to the first half which is true there this is a facing and a timing issue and um we have in lower activity in some yards given the covet situation and we we are seeing those yards are picking up again so so it's just sort of straightforward in many ways uh good development in in many of our projects delays in a few projects but um On the totality of it, we have good control over the spending, which is still good to see, and there always will be something that we pursue. On the privatization, we want to safeguard the balance sheet for us. That's more to do with what kind of company we would like to be coming out of this downturn. It's not about Q1. This is not about Q2 or Q3. This is when the world is a better place to be and there is more balance between supply and demand and the prices coming up again. What kind of company do you want to be at that point of time? And we want to be among the strong companies so that we can take advantage of the opportunities that we see going along. but also so that we can represent competitive capital distribution to shareholders. So we haven't taken down the dividend to fund other projects. We took the measures we did on postponing temporarily the share buyback and the cut in the dividend and taking on more debt and the three billion action plan. and so on, we all did that to safeguard the balance sheet and to have flexibility so that we can maneuver in the challenging terrain. And I think the weather has been somewhat of a nicer nature in the back end of this quarter compared to the back end of the first quarter, but it is difficult times still ahead.

Svein? Just a comment to the 8.5 guiding. As you pointed to, we have spent 4.1 billion so far. We are giving them the guiding based on our own 8.5. What we are now seeing is that we have got the clarity on the Norwegian tax system there. We are also then being able then to to work on the project here. We had more impact in the beginning of the quarter, but now you're seeing that people are gradually coming back to yards and those things. So that means that our best estimates for this year is around $1.5 billion.

Thank you. And you also talked about the dividend. I think I heard that you said, you know, coming back to 20 cents. You know, we had 27 cents dividend, at the year end dividend per share, per quarter. And we have taken it down to nine. And the reference point for us coming back up again one day will be the 27 cents. Just to be clear on that.

Yeah, sure. Understood. Thank you.

And our next question is from John Allison from ABG. Please go ahead.

Good afternoon, gentlemen. In your annual report, you wrote that you are considering entering the onshore wind market. I wondered if you had any progress in this so far, and also, if you're entering the onshore wind market, where would it be, and would it be likely to do an acquisition, or organic?

In many ways, it's a very easy question to answer, and at the same time, a very difficult question to answer. The answer is if you're entering into a business, onshore, offshore, oil, gas, deep water, shallow water, renewables or not, it has to be among the good assets. In my mind, people too often are having a vertical line between assets. that you should invest in one category or the other. For me, it's a horizontal line. Everything above a certain, you know, a good return, I'm very eager to look at and see if we can get it, if it's among the best ones. That goes also for onshore positions, whether we will enter and when and where, that remains to be seen.

Let me follow up on that. I just wonder if What do you see as your rationale? What's your competitive advantage in onshore wind? I could see that you have some obvious advantages offshore. What would you say would be your competitive advantage way to add value by going onshore wind, please?

We have had and we still are having a competitive advantage, we believe, in the offshore wind, to your point. But then we also find out that when we start to learn the offshore business to know and master it and operate it, then it's not that difficult to operate onshore. So I think it's more difficult to go the other way around, actually. And the only purpose for us to enter into any onshore wind project would be if it makes good returns for us.

If I could just intervene for questions, remaining questions. I get that we started five minutes late, but we do have a hard stop after the hour, so around 12 o'clock Norwegian time. So we'll just give it one question each, and we'll need to move through quite quickly in the remaining ten minutes or so. Thank you.

I'm done, so thank you.

And our next question is from Lydia Report from Barclays. Please go ahead.

Thank you, and I will keep this quick. Last question, does that view on long-run pricing that you outlined earlier in terms of the impairment testing, does that impact how you allocate capital? So effectively, if you're looking at $80 oil price in 2030, does that mean that you would naturally allocate more capital to oil and gas versus something like renewables, or does that not play a role at all? And I hope I know the answer to that one, but I just wanted to double-check.

The oil price and gas price assumptions is key for us to have a firm view on and balance view, and we use it for accounting purposes. When we make business decisions, there are totally other criteria that we factor into this, and that is, I think, what you see reflected in our prioritization on projects between oil, gas, and renewables. So, yeah.

Great. Thanks for confirming.

And our next question is from John Rugby from EBS.

Yeah, hi. Thanks for taking the question. Can I talk about the trading result? I guess you won't talk about exactly how you made the money, but can you talk about something around the framework of it? Did you take greater risk in the quarter? Is there a way that we can see between quarters how you're positioning yourself, because I look at volumes traded, I look at the working capital movements, etc., and it's not clear where this is coming from. And perhaps if you were to disclose, let's say, a VAR number or inventories held for trading, would we be able to see a change in the operating dynamic? in Q2 versus other quarters that you've been operating this model. Thanks.

Yeah, I mean, we're very, very happy with the quarterly results from M&P, of course, and the results are from the crude trading business of it. So perhaps, Svein, you can give some meat to the bone.

Thank you. I can give some further details on it. It's what we talked about, as you might have noticed, Remember how over the last year, it's about asset-backed trading. It's about utilizing positions that we have that we're optimizing around. That means that, for example, having shipping capacity available, utilizing storage and those things. And what we did during... last quarter into this quarter, was that we took positions for forward selling in March for delivering into the physical market later on. And there was a strong contango in the market, so we were able then to utilize that one, but actively taking positions around it. So, Contango contributed, but also on top of that, the active utilising our positions and taking positions that are a key contributor to deliver the results. We are following the environment very closely to make sure that those are in good control. going off with the VAR mandates and those things are, but we have a very strict control on the VAR mandates and then how we are running the business. So it's about optimizing our own assets and then also taking positions based on what we have available. Okay.

Thank you.

Thanks. And our next question is from Christiane Merritt from J.P. Morgan.

Hi, good morning. Again, congrats on a great course given the circumstances. The question I have is around the E&P US position. I know that it's been sort of mixed through the last few years, but with the sale of Eagleford and you've obviously acquired Caesar back end of last year, the question I have for you is now that you've reported it separately, which is very useful, What are your thoughts of how U.S. sits within the portfolio, more broadly speaking, from a strategic standpoint? Should we expect you to allocate more capex towards the U.S. or continue to vest out potentially wholesale? I'd love to hear your thoughts on that. Thank you.

Well, what we're going to do on M&A side, whether it is to add assets or get, you know, sell out of assets, you will read about it when we've done it, so I can't give you any indication of that. It's important for us. It is a huge resource base with a lot of good opportunities. And for oil and gas companies like ours, with the position and the strength, I think it will be strange if we are not continuing to look at opportunities in U.S. as we do elsewhere. We look at opportunities in Norway, in Brazil, and many, many, many other places. But the good thing is that we have a CAGR of 3% from 19 to 2026. We are not distressed. We don't have to sell assets. We don't have to buy assets. So that means that we can work the market and look for the good opportunities. whether that is from an acquisition point of view or a direct point of view. Thank you.

And our next question is from Howard Thomas from Exxon BNP Paribas.

Hi, thanks for taking the questions. I'll keep it quick. Just looking at production guidance, obviously you kept that flat to 2026. But you've seen a reasonable number of operational impacts during the last few months. We've seen Casper delayed, the impact at Peregrino as well. I was wondering, to think about the production guidance now, is it more back-end loaded? And perhaps you can give a little bit of colour on some of the issues you've experienced and the timings you now expect from some of those projects. And perhaps within that, whether you're able to just discuss what you expect for Norwegian gas volumes to be sold through the rest of the year. Thank you.

On the last one, that is very, very difficult to answer because we are focusing on value over volume and how much we're going to push out in time remains to be seen. and those decisions are made more or less on a daily running basis, depending on the prices. If, for example, the gas prices one day would spike, of course, we would like to take advantage of that and produce fully. So, I mean, this can go all ways. On the production guiding, I think I heard you said it's flat. I interpret it as we are keeping the one that we had at this venue, and that is around 3%. CAGR from 19 to 2026, and that remains. I just knew that it would be somewhat of a, you know, front-end loaded, given the startup of Johan Sverdrup and many other projects coming. And then all the small delays and the reprioritization that you have seen, that front-end loading will be somewhat faster, but still a healthy, good production growth in the short term.

Okay, thanks.

Okay, and there are no further questions. I will hand the word back to Peter for any finishing comments. Anything, finishing comments from the speakers?

No, just thank you for coming in and for being so engaged. And I wish you a wonderful continued day. And please remember to stay safe. This coronavirus is definitely challenging for each and all of us, but it's also a very, very serious business. So take care of yourself and your dear ones. Bye-bye.

This now concludes the conference call. Thank you all for attending. You may now disconnect your lines.