Equinor ASA

Gentlemen, thank you for standing by. Welcome and thank you for joining the Equinor Analyst Call Q1. Throughout today's presentation, all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. If you'd like to ask a question, you may press star followed by one on your touch-tone telephone. For questions, please press the star key followed by zero for operator assistance. I would now like to turn the conference over to Mr. Peter Hutton, Senior Vice President. Please go ahead.

Hi, thanks, and thanks, everybody. Welcome to the Econocle, as you heard, for the first quarter of 2021. I'm pleased to welcome Sven Scheier, Acting CFO, who will present the results for around 15 minutes. And then we will move to the Q&A. This call will last for a maximum of one hour. I know there are a number of companies reporting today. Also joining the call, we have Foyan Kralvana, Head of Accounting, Luna Carlson, Acting Head of Performance, and Matt Holm, Head of Finance. And with that, let me pass immediately over to Simon to start the presentation. Many thanks.

Thank you, Peter. And good morning, everyone. I very much appreciate you joining us. especially on what we know is a busy day, as Peter said. Today, we present our best quarterly results since 2014. This is, of course, driven by better commodity prices, but we also capture value from strong operation performance, continued cost improvements, and strict capital discipline. In 2014, the oil price was close to $100 per barrel. We now deliver results at this high level, with an average oil price of over 60. We booked gain on divestments within renewables, and we are of course also helped by Johan Sverdrup's major contribution to these results. A year ago, we saw rising uncertainty in the markets, and we implemented our operational and financial contingency plans. Now, we see a clear improvement in the world economy, and some countries are starting to reopen. However, in other areas like Brazil, where we have large operations, the situation is still very demanding and unpredictable. The status on infections and restrictions also affect manning at construction yards in several countries and may have further impact on the progress of our projects in execution. But I continue to be impressed and grateful for all our employees and suppliers who have kept our operations running safely, supplying energy to people around the world during these difficult times. The Trolla platform has provided enormous amounts of gas to Europe, delivering a total of more than 1.6 trillion Norwegian kroner in revenue to date. And still, we expect the remaining potential to be significantly above this. Last week, we delivered the plans for the full and partial electrification of the Troll B and the Troll C platforms, cutting almost 500,000 tons of CO2 per year from 2024 and onwards. Troll 3 will start production this autumn, adding a total of more than 2 billion barrels of oil equivalent and at a break even below $10. And for three of our commercial discoveries in first quarter, Tie back to Troll B or Troll C is an option. The same technology used to build the enormous Troll A structure is now being developed to build the 100 meters tall sparse substructures for the 11 floating bin turbines of Heiden-Tampen. This is a great illustration on how we exploit value creating synergies between offshore oil and gas and offshore wind. Heidentampen will be the world's largest floating wind farm, providing electricity for the Frives Norge and Guldfax platforms, and is an important step in commercializing this technology. We also continue to mature our offshore wind project in the U.S. During the quarter, Equinor and our strategic partner BP were selected to provide renewable energy to the state of New York from our assets Empire and Beacon Wind. We completed the divestment of 50% of these win assets in the quarter, as well as the farm down of the 10% of Dogger Bank A and B, and booked an aggregated gain from renewable transactions of nearly $1.4 billion. The Board of Directors has increased the dividend for first quarter 21 to 15 cents per share, up from 12 cents last quarter. This is consistent with our statements that the board will assess the dividend on a quarterly basis, reflecting assessments on the company's financial position and funding requirements, investments in our competitive portfolio, the market conditions, and the commodity price expectations. Before discussing our safety performance this quarter, I want to remember our 13 colleagues and friends who five years ago, on April 29, lost their lives in the Tyre accident on their way home from the Guldfax B platform. Our thoughts go to the families. The safety and security of the thousands of people working at our plants, projects and offices, and the integrity of our operations is Equinor's top priority. The fires at Hammarfest LNG and Kjellbergården last year but fortunately without personal injury. But we see these as serious incidents. And after the fires, we have started several initiatives to improve on safety across the company. We will learn from previous incidents to avoid new ones. For the last 12 months, we reported a serious incident frequency of 0.5 and a total recordable incident frequency of 2.3 per million working hours. This is an improvement from the first quarter of last year. And now onto our financial results. The financial results this quarter reflect the increase in oil and gas prices. Our realized liquid price was up 28% and inverse European and US gas prices up 64 and 46% respectively. Underlying upstream operating costs were down 4% in the quarter. The continued cost control and solid operational performance positioned us to capture value from the price increase. IFRS net operating income was $5.2 billion and net income $1.9 billion. Adjusted earnings before tax were strong at $5.5 billion, up from $2 billion in the same period last year. The group tax rate this quarter was 51.3%, and for the upstream business in Norway, the tax rate was 72.6%, due to the strong results giving less impact from the tax package. Note the comments to each of the reporting segments. E&P Norway delivered its best quarterly results since 2014. In 2014, E&P achieved this quarterly result, with a brand price of around $100 per barrel, while Snow making it at just above $60. A true testament to the major improvements done over the last years. The production efficiency was strong, and this together with other improvements secured a reduction of 3% in underlying operating costs. Sverdrup and Troll are the largest contributors, but we see strong deliveries across the board. In the quarter, we had four high-value discovery wells on the NCS, close to existing infrastructure, adding a total of around 90 million barrel of oil equivalent net to Equinor. E&P International delivered a strong result, with $382 million in adjusted earnings before tax. Adjusted earnings after tax are negatively affected by a non-recurring effect in Angola, impacting the tax rate. The continuing efforts to reduce costs by ourselves and our partners are rewarded, as underlying operating expenses are down 6% in the quarter. Our business in Brazil is impacted by the Peregrino field not producing, due to the pandemic impacting the repair of the risers. and delivers a negative bottom line in the quarter. We will drill two exploration wells towards the summer, with a potential financial exposure, as we know, of around $150 million, including signature bonuses. Our US upstream segment delivered adjusted earnings of $192 million, and a strong cash flow from operations of around $600 million. The sale of Bakken closed on Monday, and therefore both production and revenues from Bakken are included. E&P USA is continuing to reduce costs, and the investment level has been significantly reduced, compared to the same quarter last year. So the M&P. An M&P delivered adjusted earnings of $61 million in the quarter. Last year, we decided to move sales of some gas volumes from 2020 to summer 2021 and some beyond, taking advantage to capture higher prices. With the impacts of colder weather in Asia and Europe and the draw of greater LNG volumes into Asia, European gas prices were even better than anticipated. The increase in gas prices was positive for the group overall, as reflected in upstream results this quarter. But it also means that M&P report losses on derivatives for gas forward sales against the stronger prices seen at the end of the quarter. Refinery margins were weak in the quarter and affected the results negatively. And the shutdown of Hammerfest LNG also impacts the results. However, we deliver solid results within liquids trading, especially within LPG and the light ENF. So to renewables, the new segment, and a report of renewable business as a separate segment this quarter. The structure of this segment differ from the other ones in important ways, affecting how we report. It has been a common practice to establish separate companies to develop and to operate the renewable assets. This, combined with those often having an ownership share of 50% or less, leads to equity accounting being common in this segment. Both project financing and portfolio optimization are key parts of our value creation strategy in renewables. And like other renewable companies, we will therefore not adjust for profits and losses from transactions in this segment. We will, however, continue to provide full visibility of how we consolidate and report gains and proceeds from transactions. In addition, I would like to remind you that on Equinor.com, there's further information about our renewable assets. Our share of the results from renewable assets in production was $24 million in the quarter. Including the costs associated with maturing our renewable project pipeline and gains from transaction, adjusted earnings for the segment was $1.34 billion. So to the production, and I will start with the oil and gas. This quarter, we delivered stable and safe operations with high regularity despite COVID restrictions and strict infection control measures. Our equity production was 2,168,000 barrels per day in the quarter, slightly down from the record production in the same quarter last year. Production is negatively affected by the outage at our Hammerfest LNG plant and at Peregrino, partially offset by higher production at Johan Sverdrup and production ramp-up at Snorre Expansion. To capture additional value from higher gas prices, we also had high production from our flexible gas fields in Norway and from our US gas operation. To the renewables production, our offshore wind farms had high availability and stable operation throughout the quarter. In March, Highland Scotland was named the UK offshore wind farm with the highest capacity factor for the third time. However, there was less wind this quarter than expected for the season, and the production ended at 450 gigawatt hours, down from 558 in the same quarter last year. In the quarter, we deliver a strong cash flow from operations of $6.6 billion, and a very strong net cash flow of $5.2 billion after net investments and dividends. Driving the cash flow were continuous improvements and strong capital discipline, combined with proceeds from the investment. We paid cash tax of $78 million in the quarter at NCS and will pay around $160 million in the second quarter, based on the 2020 results. But based on the first quarter results, we expect increased tax payments in the second half of 2021. The strong cash flow helps to significantly improve our net debt ratio. By 7.1 percentage points, down to 24.6%. So, going towards the end, and let me end with our outlook. We expect annual organic capex in 2021 and 2022 at $9 to $10 billion, and 2021 exploration is capped at around $0.9 billion. The expected annual average production growth from 2020 to 2026 is around 3%, while the rebased production growth for the current year is expected to be around 2%. Thank you very much for your attention, and I look forward to your questions and pass it back to you, Peter.