Equinor ASA

Ladies and gentlemen, thank you, Eveline. Welcome to the third quarter 2020 Equinor results call on what I know is an especially busy day. Last Christian Backer, CFO, will run through the results and then open up for questions. Also on the line, we have Sain Shire, Head of Performance, and from the 1st of November, Acting CFO. Oyan Kelvana, Head of Accounting, and Mads Holm, Head of Finance. The operator will run through the mechanics of the polling for a question, but I would also note that given the timing of the call and along with others reporting today, we request that people keep to one question with a maximum of two parts and those parts should be connected. So this allows us to get through the call fairly and effectively. So with that, I am very pleased to pass the word through to Lars Christian. Thanks very much.

Thank you, Peter, and good morning, everybody. I hope you are all doing well, and thank you for joining the call. Equinor delivered solid overall operational performance in the quarter. Prices have recovered somewhat from the very low levels in the second quarter, and we have seen less volatility, but concerns of a second COVID wave in many countries have muted further demand and corresponding price upticks. Despite this challenging price environment, Equinor delivered a positive cash flow in the quarter. We acted early and forcefully to the effects of the pandemic and its impact on commodity prices. Now, six months later, we see the benefits. We have materially reduced our costs and we have maintained strong financial flexibility. We were significantly helped by the strong measures taken over the last years to improve our competitiveness. This has made us more robust and equipped to handle this situation. CAPEX spending has been tightly controlled and strictly prioritized. Costs are significantly down with adjusted OPEX and SG&A per barrel for the upstream segments, down 20% since the third quarter of 2019. And we are on track on our plan to save $700 million in 2020. In the quarter, we have demonstrated that we are able to create value and grow our renewables business. We formed a strategic offshore wind partnership with BP in the US and divested 50% of our East Coast offshore wind projects, Beacon Wind and Empire Wind. Equinor continues as the operator of both projects and will now benefit from complementary competencies, experience and skill sets. This is fully in line with our strategy to secure a mature renewable projects for large scale development and to capture the value, to capture the value creation by taking in strong partners when the timing is right. A net capital gain of around $1 billion is expected to be booked early next year. We use a similar model for the Acona project in Germany, where we booked a gain of more than $200 million in 2019. Econoid is making good progress in our low carbon projects, which will contribute towards the development of full value chains for capturing, transporting and storing CO2. This includes H2H Salten in the UK, a project for large scale hydrogen production with carbon capture. In addition, the Northern Lights project in Norway will contribute to the transport and storage of CO2 from industrial discharge points in Europe. We continue to develop our competitive oil and gas portfolio and in September we submitted the PDO for the Breidabik field in Norway. This is one of the largest undeveloped discoveries on the NCS and it will be developed as a subsea tieback to the Grane field with 23 wells from four subsea templates. Bredabrik is one of several projects that will benefit from the temperature changes to the tax regime on the NCS, with an average reduction in break-even of $10 per barrel. We have discovered hydrocarbons in the Capahaden and Cambriel prospects off the east coast of Canada, and they are currently being evaluated. Continued technology development and digitalization provides opportunities for increased value creation and risk reduction. At Johan Sverdrup, which just celebrated its first year anniversary, digital solutions have yielded more than 2 billion Norwegian kroners in additional earnings, and the field has achieved a unit production cost below $1 in the quarter, a UPC below $1 in the quarter. This quarter, after growing insight and maturing our market view through a deep analysis, we have reduced both our short and long-term price assumptions. Our focus has been, as always, on the long-term and fundamental trends, not on short-term volatility and market reactions. Based on our analysis, including supply as well as demand impacts, We expect average oil prices to gradually increase to $65 per barrel in 2025, with a continued modest uptick towards 2030. After 2030, we expect a gradual decline to $64 in 2040 and below $60 in 2050. Clearly, oil price estimates that far out in time are associated with great uncertainty. But remember, we require sanctioned projects to be robust at much lower prices than these long-term levels. At our capital markets update in February, we presented our project portfolio of new fields to be put in production by 2026, representing around 6 billion barrels of oil equivalents net to Ekenoen, with an average break-even oil price below $35 per barrel. Since February, this has been improved further. In April, with the unprecedented market conditions, we said when deciding on future dividend payments, the Board of Directors would take into consideration factors such as expected cash flow, capital expenditure plans, financing requirements and financial flexibility. We have seen some signals of recovery in the commodity market. We have also demonstrated an ability to react swiftly and effectively during the difficult conditions. And this gives the board confidence to raise the dividend to nine cents for third quarter. This confirms the statement made in April that the cut was a reaction to extraordinary conditions and that the dividend policy was unchanged. Now on to the results, and let me start with our safety performance in the quarter. The safety of our people and conducting safe operations is the bedrock of what we do. The recent fire at our LNG plant at Melkøya was serious, but most importantly, it was without any personal injuries. The plant is expected to be shut in for up to 12 months for repairs. For the last 12 months, we reported a series incident frequency of 0.6 and a total recordable incident frequency of 2.3 per million hours worked. Year to date, series incident frequency is 0.5 and the total recordable incident frequency is improved when compared to the levels achieved in 2019. And now to the financial results, which again were impacted by lower prices. I realized liquids price in the quarter was $38.3 per barrel, down 27% from the same period last year. Average invoice gas prices of $2.72 per million BTU for Europe and 1.53 for North America are down 48% and 23% respectively. The IFRS result is negative $2 billion, while adjusted earnings in the quarter is positive $780 million, down from $2.6 billion in the same period last year. We have further reduced our costs this quarter, and the unit production cost has been reduced by more than 20% year on year. We are also well on track to reduce our operating costs by $700 million, as announced as part of our action plan in March. Lower price assumptions and reduced reserve estimates for some fields result in a net impairment this quarter of $2.9 billion. Most of the net impairments are related to the US onshore field Bakken and the mariner field offshore UK. In Norway, total net impairments are $360 million on producing fields. The group tax rate in the quarter was 65%. A lower tax rate in Norway was offset by higher than guided rates in E&P International and M&P due to the earnings composition. Then some comments to each of the reporting segments. ENP Norway delivered adjusted earnings before tax of $773 million. Underlying OPEX and SG&A was reduced by more than 25% per barrel year on year in Norwegian kronor through increased production from new fields with very low cost and further efficiencies on mature fields. Our new organizational unit focusing on improved value creation on late life fields on the NCS is off to a strong start with the visible cost improvements already. The tax rate in the quarter is lower than previously due to the temporary changes in the NCS petroleum tax regime. E&P International delivered adjusted earnings before tax of negative one of $4 million. The result is impacted by the low prices and reduced production from the Peregrino field in Brazil. Peregrino is temporarily shut in for repairs and is expected to start production in the first quarter of 2021. We see strong progress on cost reductions in the segment with OPEX and SG&A down 19% year on year. Cash flow from operations is $381 million for the quarter. The tax rate of 84% is higher than normal guidance, mainly due to uplift on carry forward losses in the UK. E&P USA third quarter results are of course also impacted by the weak prices. Costs have been forcefully reduced and we have stopped drilling onshore due to the current price environment. Adjusted earnings before tax came in at negative $193 million. Cash flow from operations was $276 million, with a positive contribution from our onshore business. Our US business delivers a positive cash flow also after investments in the quarter. Our M&P segment was impacted by weak refinery margins, offset by a strong contribution from European gas sales and trading. M&P delivered adjusted earnings before tax of $262 million. In our other segment, we also report activity in our new energy solutions business area, and we had good availability across our offshore wind portfolio in the quarter. Our equity accounted investments delivered a net income of $60 million in the quarter, and the NAS business segment as a whole delivered a positive contribution. We delivered stable field operations in the quarter without any negative COVID-19 effects. Equinor's total oil and gas equity production in the quarter was 1,994,000 barrels per day. Compared to third quarter last year, we grew our group equity production by 9% when allowing for portfolio changes and production curtailments. We adhered to the production curtailments imposed by Norwegian authorities on the NCS, but we used this opportunity to perform modifications and upgrades without further production impact. New fields and new wells put on stream contribute to the production growth. We also took the opportunity to increase our NCS gas production as the European gas prices recovered throughout the third quarter. In the quarter, exploration activities resulted in seven commercial discoveries, but two wells results are still being evaluated. Year to date, we have delivered 13 value creating discoveries globally. This is a strong 50% success rate. Our renewable electricity production in the quarter has been in line with expectations. In the third quarter, we delivered a net positive cash flow of $216 million. This is after capital distribution, which in third quarter included a payment of around $1 billion for the Norwegian state's portion of the share buyback program. We received a tax payment of $160 million in the quarter, reflecting the temporary changes in the NCS tax regime, in addition to the low prices assumed. when the tax installments for 2020 were first estimated in June. Based on increased prices for the second half, we expect taxes payable in the second half of 2020 at around 2 billion Norwegian kroners. Year to date, we have had organic investments of almost $6 billion, and we are on track to deliver on the full year $8.5 billion organic capex guiding for 2020. The net debt ratio at the end of the quarter was 31.6%, up from 29.3%. 1.3 percentage points is due to the impairments, while 1.5 percentage points is due to the share buyback program payment to the Norwegian state. Without these, the net debt ratio would have been slightly reduced in the quarter. So let me conclude with our guiding. For 2020, we expect a production growth between 1.5 and 2%. This outlook depends on how European gas market develops, where we use our gas production flexibility to boost value creation. The production impact from the strike on the NCS was marginal, and we expect a full recovery of the volumes by year end. The impact from maintenance in 2020 is expected to be around 30,000 barrels per day. We expect around 3% compound annual growth rate in equity production from 2019 to 2026. We also maintain our expected exploration expenditure level for the year of around $1.1 billion. The guided organic capex levels for 2020 and 2021 are unchanged at around $8.5 billion and $10 billion, respectively. And then to the closing. As you are aware, this will be my last analyst call as CFO of Equinor, and I would like to pass on my thanks to all of you for the engagement and the dialogue we've had over the last few years. It has always been a pleasure, and I know you will be in very safe hands when Svein takes on the role as acting CFO. And by that, Peter, I pass the word back to you as you open up for questions. Thank you very much.

Thank you, Last Christian. I also sort of pass the thanks that I've had from a number of people through to you as well. Take this opportunity to do that. Many thanks. And with that, can I pass the word through to Evelina, the operator, to run you through how you may poll for questions?