Equinor ASA

So it's now 11.30. Would you like to begin on time or do you want to wait a few more minutes? Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the Equinor Analyst Call Q2. 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 would like to ask a question, you may press star followed by one on your touch-tone telephone to register for questions. Please press the star key followed by zero for operator assistance. And I would now like to turn the conference over to Mr. Peter Hutton, Senior Vice President. Please go ahead.

Hi, and thank you. And welcome, everybody, to, as we say, Equinor's 2Q21 Results Call. Peter Hutton, Head of Investor Relations. And with us today, I'm very pleased to introduce Ulrike Fern, who, as you know, started as CFO just over a month ago, and who will take us through the results and the main points. And then we will open up for questions and answers. The operators just run through the process, but she'll give a reminder after this presentation. And we expect the call to finish within around the hour. Also joining us on previous calls, we have Svanshaya, Head of Performance and Risk, Orian Kvelvana, who's Head of Finance and Accounting, and Mads Holm, Head of Treasury and Tax. So with that, I'm very pleased to pass over to you, Ulrike, to start us off. Thank you.

Well, thank you very much, Peter, and thank you all for joining the call today. It's a pleasure to be making this, what is my first quarterly results call for Equinor. Having started mid-June, as Peter said, this has been a good opportunity to get insight into the key drivers of performance in the organisation. And while this call is by phone, I do look forward to the discussion and hope to have a chance to meet with you more directly in the near future. So this is a good quarter where we delivered strong financial results in which we were able to capture value through strong operational performance and cost focus. And this enabled us to deliver strong net cash flow, strengthening our resilience in an uncertain and volatile market. Compared with the same quarter last year, the price environment could hardly be more different. Last year has demonstrated clearly the volatility that can impact the industry. But it has also demonstrated the advantages of being a resilient company with strong execution plans and a clear long-term strategy that also provides flexibility. With uncertainty still substantial, volatility remains as seen last when, for example, Brent went from $76 to $68 over just a few days in July. The path of the economic recovery, development of commodity prices and inflation are some of the elements playing into the volatility. Equinor has delivered solid and stable production through the pandemic. And last spring, restrictions prevented us from conducting planned maintenance on the NCS, leaving us with a catch-up effect and high level of maintenance this quarter. Despite this, we delivered high production with low unplanned losses at stable underlying cost. We have run our flexible gas fields at full capacity to capture additional value from the higher gas prices of the quarter. and we have also captured higher value from the deferrals we did last year. The result is strong cash flows, reducing the net debt ratio significantly. At our Capital Markets Day in June, we presented our updated strategy for accelerating our transition whilst growing cash flow and returns. At the CMD, we also covered our industrial progress and the project portfolio. And since then, we have received government approval for Bredeblik PDO and have brought Martin Linge on stream. Looking a bit forward, Troll Phase 3 is well on track to start up later this year. We do, however, see continued effects from COVID on some of our projects. Restrictions are limiting the workforce in Singapore, where the Johan Casberg Hull is under construction, and the yards in Norway, where Nord A and B are being upgraded. For Njord, we now expect start-up during summer 2022. While we continue to watch and act on COVID, you should note we are currently developing over 20 projects and others remain on track or even slightly ahead. Overall, our projects coming on stream by 2030 have an average breakeven of below $35. You will recall that as communicated in our capital markets day, the board has decided on a cash dividend of 18 cents for the quarter. This is up 20% from the previous quarter and twice the level of the second quarter last year. And today we commence the first tranche of $300 million of the announced new share buyback program. This is the first of two expected tranches in 2021 of about $600 million in total. From 2022, we expect yearly buybacks of shares of around $1.2 billion. This is a level which can be expected going forward, assuming an oil price in or above a range of $50 to $60 per barrel, an expected net debt ratio in the 15 to 30 range, and supportive commodity prices. Imperious with sustained higher price levels and a low net debt ratio, share buybacks can be used more extensively. In this quarter, we see a stable trend for the serious incident frequency, but a negative trend for the total recordable incident frequency. For the last 12 months, we report a serious incident frequency of 0.5%, and a total recordable incident frequency of 2.5 per million working hours. For us, this is too many incidents and injuries. And it is a real area of focus. Solid operational performance and continued value focus enabled us to capture additional benefit from the higher prices and deliver a strong financial result for the quarter. Adjusted earnings ended at $4.6 billion, up from $0.4 billion in the same quarter last year. But, as mentioned, second quarter last year was very special. The IFRS net operating income came in at $5.3 billion, and the IFRS net income at $1.9 billion. In the quarter, we have seen net reversals of impairments of around $280 million and mainly due to the increase in short-term gas prices. This includes impairments of exploration expenses of around 110 million. The group tax rate in the quarter is 66%. This is up from 51.3% in the first quarter, when it was somewhat low due to low tax on gains on divestments in renewables. The tax rate of 66% is due to higher revenues from the NCS and also a higher than usual effective tax rate in MMP due to the earnings compositions in this quarter. So to EMP Norway. With adjusted earnings in the quarter of $4 billion, EMP Norway achieved the best results in second quarter 2014 when Brent was around 110 and compared to a small loss a year ago. Continued solid operational performance, stable underlying cost and flexibility in production enable us to capture the value. EMP International delivered earnings of $399 million, which is a further improvement from the first quarter. EMP International, of course, also benefited from the higher commodity prices, but also from production growth of 7% from second quarter last year. reduced depreciation and lower exploration costs, and stable underlying OPEX and SG&A. In E&P USA, we see the effect of long-term cost improvements and portfolio optimization, with a 7% reduction in the unit cost. The result ended up at $230 million and a significantly improved cash flow after investments in the quarter of around $500 million. The sale of Bakken was closed in the quarter, and the payment contributed further to the strong cash flow. Our midstream and marketing segment delivered a result of $144 million. The results are impacted by Hammerfest LNG shutdown and weak refinery margins. Cold weather in the beginning of the quarter, low storages after the cold winter in Europe, and tight supply of European gas and LNG strengthened prices throughout the quarter. And we now see record high summer prices over $12 per million BTU. As reported last quarter, results are impacted by losses on derivatives in MMP, on gas forward contracts, entered into last year, offset by gains in other contracts. Some gas positions are still outstanding and will have a negative impact beyond the second quarter. So in the renewable segments, earnings from assets in operations, including the semi-annual dividend from Dodgen, were $37 million, up $7 million from a year ago, despite lower wind. As you would expect from a business in build-up phase, this high level of activity on business development and progressing projects increase costs. You should therefore normally expect development costs to outweigh earnings from operating assets, except in quarters like last quarter where we benefit from farm downs. We deliver stable production and solid operating performance with a total equity production of 1,997,000 barrels of oil equivalent per day. On the NCS, we conduct the normal planned maintenance as well as the catch-up on NCS from last year. The total turnaround effect ended up at around 100,000 barrels per day, significantly higher than the normal for second quarters. Despite this, regularity has been high and unplanned losses have been low. The outage at our Hammerfest LNG plant at Peregrino and as well as the sale of Bakken impacted the total production volumes in the quarter. This was partially offset by Johan Sverdrup increasing production to 236,000 barrels net to Equinor in the quarter, around 50,000 barrels up from the same quarter last year. With the increase in gas prices, we have leveraged our flexible gas fields and produced at full capacity on the NCS, as well as increased production in the US and in Sala. Martin Linge was brought on stream and is now in the ramp-up phase towards plateau production in the first half of 2022. Our offshore wind farms had high availability, but lower winds impacted the power production, ending at 282 gigawatt hours, down from 304 for the same quarter last year. We continue to progress our project pipeline. Our offshore wind projects, Baltic 2 and 3, We're awarded contracts for difference for up to 25 years. At full scale, these wind farms will constitute a hub for renewable energy in the Baltic Sea and support Poland's energy transition. We have high level of activity, maturing our projects and taking strategic positions, focusing on high value growth, not volume targets. The cash flow from operations is strong at $6.5 billion for the quarter and more than $13 billion before tax year to date. Increased prices combined with improvements and strict capital discipline all contribute to the strong net cash flow at $9.7 billion year to date. In the quarter, we paid around $820 million for the redetermination settlement process of Agbami, around $60 million less than the provision in our books. The tax payments on NCS for the quarter are based on our 2020 earnings and are hence low. From second half of the year, the tax instalment will be based on 2021 numbers. In third quarter, we have an instalment of around 12 billion kroner or approximately 1.3 billion dollars, the first of three instalments in the second half of 2021. With the solid financial results and strong net cash flow, our net debt level improved significantly. Since the beginning of the year, we have almost halved our net debt level from 31.7% to 16.4%, making us more resilient towards market volatility. And today, we commence the first tranche of the share buyback program in line with the program announced in June. is just over a month since our capital markets day so you would not expect changes to our guiding and we are on track to deliver so to summarize we delivered strong financial results in which we were able to capture value through solid operational performance and cost focus the results deliver strong net cash flow which further improve our resilience in an uncertain and volatile market We are on track to deliver on our guiding and we commence our announced chair buyback programme. So with that, I'll hand back to you, Peter, and I look forward to your questions.