Equinor ASA

Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the Equinor 3Q results call. 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 touchtone telephone to register 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.

Thank you, and indeed, very much welcome to the Equinor 3Q results call. Thank you for the participation. We're joined today by Ulrike Fern, CFO, who will run through a presentation of our results, and then we'll open up for questions, which we hope to complete within the hour. Also on the call, we have Svein Scheier, Head of Performance and Risk, Ooyang Kvelvana, who is Head of Accounting, and Mads Holm, Head of Tax and Treasury. With that, I pass immediately over to Ulrike. Thank you.

Thank you, Peter, and thank you all for joining the call today. Today, we present our strongest financial results since 2012. Clearly, these results benefit from higher prices, particularly European gas prices. But they also reflect our ability to capture those prices through our solid operational performance with high production efficiency, our flexible gas capabilities, which gives us potential to optimize volumes, and our continued focus on cost. We deliver very strong cash flow from operations of over $10 billion in the quarter before tax, and over $9 billion after tax, reflecting the normal facing with only one tax payment on the NCS in the third quarter. Along with strict capital discipline, this further strengthens our balance sheet, makes us more robust for any future volatility, and allows us to continue to invest in the energy transition. It also allows us to increase our capital distribution, and I'll get back to that shortly. We are seeing significant moves in the energy markets and particularly in the gas market in Europe. Record prices in the second quarter were beaten in the third quarter and prices have continued to rise in October. This generates higher revenues for Equinor but also serves as a reminder of the level of volatility in our markets. We are experiencing a tight gas market at present European inventories are low and we expect the market to remain tight and subject to volatility going into the winter. The tightness of the energy market affects European industry and households and Equinor remains committed to be a stable and reliable supplier of gas to Europe. Therefore, we are now flexing to produce as much as we can and turning every valve to produce and export more gas to meet European demand. Earlier this autumn, we received permission to produce 2 billion cubic metres of additional natural gas from Troll and Ulseberg. And I can also mention that at Guinacorg, we have in October decided to redirect gas from normal injection to be able to increase exports over the next six months by about 30,000 barrels per day oil equivalent. This is an extraordinary measure resulting from the collaboration of partners and authorities. We started production from Troll Phase 3, and as I witnessed myself when visiting the platform this month, the production of Troll A has fully ramped up again after the start-up. It's worth reminding you of its profitability, a break even below $10. While this has only limited impact on near-term production, it improves resilience, and its real value is over the longer term with recoverable reserves of almost 350 billion cubic metres of gas extending to deliveries to Europe beyond 2050. We continue to make progress on our ambition to reach net zero by 2050 as outlined in our Capital Markets Day. We passed an important milestone for low carbon value change when the East Coast cluster in the Humber region was selected as one of the two first carbon captured usage and storage projects in the UK. This is the area where Equinor has its largest portfolio of projects for blue hydrogen and low carbon gas power to be realised with CCS. We further introduced the concept of our Norway Energy Hub an industrial plan for the energy transition in Norway. This sets out how, by working across industries and supply chains, we can industrialize offshore wind, make carbon capture and storage profitable, and scale hydrogen production. It further shows how we can mature the solutions for the future using a base of existing capabilities and technologies. The Board has decided on a cash dividend of 18 cents per share. At our Capital Markets Day in June, we introduced a share buyback programme which provides more flexibility for capital distribution to shareholders. Our first tranche was set at $300 million and completed in the quarter. Based on the strong commodity prices, strong cash flow generation, a strong net debt ratio, the Board has decided to increase the size of the second tranche of the share buyback programme from the indicated level of $300 million to $1 billion, including the government's shares. At the CMU, we highlighted the cash returns of $0.18 per share in cash dividend and $0.09 per share from the share buyback. This took us to 27 cents per share, level with April 2020. With this increase in the share buyback, the return to shareholders increases in the quarter to 30 cents per share from the buyback, which in addition to the dividends of 18 cents, takes us up to 48 cents per share for the third quarter. This is over 75% higher than the pre-COVID levels of 27 cents. and shows the advantage of the flexibility in the capital distribution process and ability to return cash to shareholders. For the last 12 months, we report a serious incidence frequency of 0.4 and a total recordable injury frequency of 2.5 per million working hours. We are not satisfied with this. and we work systematically to find root causes while working with our suppliers and partners to strengthen our joint safety culture. Turning to our financial results, adjusting earnings totaled $9.8 billion up from $780 million same quarter last year. The IFRS net operating income was $9.6 billion and the IFRS net income $1.4 billion. We see strong results across all our business areas in the quarter. From our Norwegian upstream business, the higher prices, solid production efficiency and continued cost focus result in the highest contribution to net operating income since 2012. Our midstream and marketing segment, MMP, post results far above our normal guidance. This is mainly due to the mark-to-market development on our derivatives. Equinor's gas sales are mostly spot-based, but relatively small proportion of our volumes are based on longer-dated indices. Equinor uses derivatives to change this price exposure towards spot and front-month pricing, to obtain and match that of the rest of the portfolio. We don't report any realised gains or losses on the underlying gas volumes until the period when they are physically delivered. However, any mark-to-market gains or losses on the derivatives are reported every quarter. This is part of normal accounting. The recent scale of movements in the gas market make these unrealised gains of derivatives associated with future gas deliveries significant. At current market prices, you should expect these gains to be approximately matched to the loss on physical deliveries in MMP over the next two quarters. Excluding the effect of these gas derivatives, the results for MMP in the quarter would have been a little below the normal range of $250 to $500 million, consistent with what we've said in the second quarter call. Overall, this has allowed us to capture current European gas prices. In the quarter, we have net reversals of impairments of around $500 million, the two largest factors being the reversal of impairment of almost $980 million on one of our assets on the Norwegian continental shelf, mainly due to increased short-term gas prices. This is partially offset by an impairment of a refinery of $480 million due to the expected increased CO2 cost going forward. The group tax rate in the quarter will be 71.6%. This is up from 66% last quarter and due to strong earnings on the Norwegian continental shelf where the uplift deduction has less effect with higher prices. And now to more detailed comment on the earnings by segment. EMP Norway deliver another excellent quarter. We achieved high production efficiency and have optimised gas production, supporting stable supply and capturing the higher prices. In the quarter, you will see an increase in reported costs in US dollars, which mainly reflects an increased non-cash removal cost from gas-led of around 200 million, as well as currency effects due to strengthened Norwegian kroner compared to the same period last year. the underlying unit costs are stable. E&P International delivers solid cash flow and strong earnings of $556 million before TAC. We have continued the optimization of the portfolio as announced in the Capital Markets Day, and it is reflected by the reduction in reported exploration costs in the quarter as well as continued cost focus. EMPUS delivers production on par with the third quarter last year, adjusting for divestment in Bakken. This despite the effects of Hurricane Ida, which for Equinor had the highest impact of any hurricane in Gulf of Mexico and impacted production by over 20,000 barrels per day. By now, volumes have effectively come back to normal levels. We also reap the benefit of long-term improvement efforts and cost focus. These, in combination with higher prices, lower capex, generate strong cash flow from our US business of $477 million and solid earnings of $285 million after tax. Our midstream and marketing segment delivers adjusted earnings of $2.2 billion before tax and $428 million after tax. As already mentioned, this record high result is largely due to the effect on mark-to-market gains on derivatives, but at current prices this will be followed by a loss on physical deliveries in MMP in later quarters. A strong sales of gas volumes and trading in North America also contributes to the results and account for 25% of MMP's earnings after tax. Hammerfest LNG remained shut down with expected start-up end of March. In the renewables business, lower wind than seasonal average was partly offset by higher electricity prices and earnings from assets in production totaled $15 million. High activity levels on development contributes to a negative result of $28 million. As announced, we changed our policy of including gains and losses from sales in the adjusted earnings from the third quarter. This policy is now consistent with our other segments where gains and losses from sales are included in the IFRS results but not in adjusted earnings. We delivered solid operational performance with total production of 1,996,000 barrels of oil equivalent. per day. Adjusting for the divestment of Bakken, production increased by around 3.5% compared to the third quarter last year. We optimise our gas production and in addition to Troll Phase 3, it's worth mentioning that about half of the production from Martin Linge is gas transported through the Frigg pipeline to the UK. Increased volumes from Johan Sverdrup adds to the production in the quarter. In the US, the production in the Gulf of Mexico is returning to normal after the impact of Hurricane Ida. We delivered a production of 304 gigawatt hours down from about 319 in the same quarter last year. Our wind farm had good availability, but less wind than Cecil on average impacted production. We are on track with maturing our renewables portfolio and developing projects. For Empire Wind, we recently selected the preferred supplier of the 15 megawatt wind turbines. These are turbines of size that one single rotation can meet the energy demand of households in New York for one and a half days and further improve efficiency and cost for the project. In the UK, we have started up the Joint Operations Centre for Sheringham Shoal and Dungeon, an important step in the effort to capture synergies and increase in the efficiency in the industry. The cash flow from operations is very strong, with $10.8 billion in the quarter before tax and a total of $24 billion so far this year. Higher prices, solid operational performance and strict capital discipline contribute positively to the cash flow. In the quarter, we had one tax payment for the Norwegian continental shelf of 11.8 billion kroner. With higher prices and solid results, we also updated the estimated tax payment for 2021. In the fourth quarter, we will pay a total of 55.5 billion kroner In total, we expect to pay more than 130 billion in taxes related to 2021 on the Norwegian continental shelf. The net debt ratio is 13.2% and it's adjusted for half our tax payments paid on the 1st of October, which increases the ratio by around five percentage points. Let me briefly mention our guiding before we open for questions. We expect a production growth of around 2% for the current year. And we are approaching year end and we see that our capex will come in somewhat lower. We therefore adjust our expectations for the year to around $8 billion in 2021. The rest of the guiding remains firm and we will revert to this at our next capital market update that will be on the 9th of February 2022. And with that, I hand back to you, Peter, and look forward to questions.

Thanks, Ulrike. And I immediately pass over to the operator to open up for the polling.

Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you're using speaker equipment today, please lift the handset before making your selections. Anyone who has a question, they press star followed by one at this time. One moment for the first question, please. First question is from the line of Oswald Klind from Bernstein. Please go ahead.

Oswald Klind Oh, good morning. Thank you very much, everyone. Two, please. The first one just on natural gas and your business. Your invoice gas price in Europe was lower than the internal gas price, which is unusual. I know there's obviously a lot of stuff going on. So it's a little bit tricky to understand that. Perhaps you could explain that dynamic. Perhaps it is just a derivative. So what was happening to that in the quarter? And when might we expect that to revert to the mean and just get that margin that we're much more accustomed to coming through, please? And then the second was, I think there's obviously still some COVID impacts here, scheduling delays, some cost pressures. I think you're still pointing to, as it's still happening, potentially project execution cost risk still out there, but obviously unpredictable. I'm always cognizant of Equinor just announcing project delays and cost hikes with press releases. Ulrike, I just want to get a sense, is there anything you're looking at or worrying about here as you think about that particular comment, please? Thank you.

Thank you very much, Oswald. So let's start with the natural gas invoice price then. They are a little bit lower than the benchmarks because we did talk to you in the last quarter about some strategic positions we had outstanding that were weighing us down a little bit in the last two quarter. We are out of that now and what you're going to see is probably a move towards the more benchmark in the coming months. On the COVID impact, Yes, it has been impacting us and it continues a little bit as well. And we have come out with the impacts, but it's clearly moving in the right direction. what isn't moving in the right direction in general is, of course, the cost pressures in the supply chains in general, which we are watching very, very closely. And this is something we haven't really seen direct impact of just yet in the business, but we are very much paying attention to. And this is more the indirect supply constraints in some areas. But as it stands at the moment, we are sort of quite confident in where we're at. But as I said, it feels like there is some outstanding risk that might be coming our way. Steel and metal prices are trading flat. They might actually be easing further out going forward. And we do see sort of on the rigging side, we see high and stable rig utilization rates. And, you know, there is going to be increased demand on the actual supply chain and where that will pop up. And if there's going to be any more bottlenecks, we remain to watch and see.

Mm-hmm. Very good. Thank you.

Next question is from the line of Biraj Borkiataria from RSB. Please go ahead.

Hi. Thanks for taking my question. Two, please. The first one's on the announcer on Gina Krog. Very interesting that you're deciding to not re-inject the gas so you can sell more. I have a few questions on that. Are you looking to do that at other fields? And if so... Could you talk about the potential, like incremental supply to the European gas market that come from activities like that? And then secondly, why did you decide to do that for a period of six months? Is that just the market needs it through the winter or is there something else that drives that decision? And then the second question is on your CapEx guidance, which implies a reasonable step up into 2022. Just going back to the prior question, does that step up reflects some contingency because of supply chain pressures or inflation or anything like that? Or is that an activity-led increase? Thank you.

Thank you very much, Biraj. And let's start on Gina Krogden. You know, this is a very big step and we are looking to see across the portfolio what we can do in different ways. And yes, we will be looking across and seeing whether there are similar things we can do elsewhere. But this is the one where we have really taken clear actions for now. Why six months? This is a start. We want to make sure we know how this works and we need to put this forward. And it's temporary for now, but we need to revisit the situation as we go along. On our CapEx... I mean, I think there's a couple of things here. There are some delays from this year because, as we've talked about before, but we've also got some positive news. We have got many projects that have been, you know, incorporation across the, you know, different portfolios and the different parts of our business are coming in with better costs. So there is a combination of the delays and the better costs. So what we're looking at in the next year is mainly that, rather than an update from, you know, and then in contingency around inflation. But of course, we're going to continue to review all of that, as I said before.

Okay, thank you. Next question is from the line of Theodora Nielsen from SB1 Markets. Please go ahead.

Good morning and thanks for taking my questions and also congrats on very strong results. Two questions from me, if I may. Ulrik, as you highlighted, you have very strong cash flow now and lower net debt to capital employed than previously reported. Going into next year, you probably will have net cash given the current oil price, oil and gas prices. I just wonder, should we expect Equinor to be run as a net cash positive company going forward? That's my first question. Second question is just on these technical effects around the hedging gains and hedging losses. I understand that some of the gains you booked in an MMP for third quarter will be reversed. And just with regards to the timing, should we expect that to happen in Q4 or Q1? And also, will the size of those potential losses roughly match the gains in the third quarter? Thanks.

Thank you very much, Theodore. Let's start on the first question there on the net cash position, whether you could expect that. We have stated what our net debt ratio long-term guidance is, and that is 15% to 30%. And That remains the case. We are where we are and we are looking every quarter, as you know, around our sort of overall level of investments, our overall level of other uses of cash, but also our overall capital return to shareholders by looking at our three guiding lights that we have put out there at the Capital Market today. We are looking at our financial strength and net debt ratio, the outlook on commodity prices. And we said, you know, 50 to 60, you'd expect a 1.2 billion share buyback. And, you know, you're looking at the general economic environment. So we continue to live by those general guidelines and we'll take every quarter when they come. On the technical effect in MMP, yes, there is a big gain in the third quarter. As I mentioned, you can expect that to be reversed, and that will be in quarter four and in quarter one.

Okay, thank you.

Next question is from the line of Mehdi Enebat from Bank of America. Please go ahead.

hi good um good good morning everyone and thanks for taking my questions so two questions on my side i i just would like to to come back uh on the tax installment that you explained uh please related to 2021 earnings so you revised up this tax installment due to higher earnings than previously expected Please, can you just confirm that you will pay around $8.8 billion tax in Norway in the first half of 2022? Did I understand well? And should I then just consider that the tax installment is up from around $1.4 billion earlier to something like $2.9 billion earlier? And the second question is about the law proposal regarding the change in Norwegian taxation. That was in the beginning of September. Since then, the government has changed. But I just would like to know if this is voted, is it fair to consider that the tax payments will come down the first year compared to if the new tax proposal is not voted. Because, you know, in my model, I have an $8 billion positive impact if, you know, that new taxation law is voted from 2022 to 2025. So just wanted to know if you can, you know, give us some color there. Thank you.

And thank you very much for your question. A 67 billion Norwegian for half 1.22, I can confirm, at present prices. And that's in line with what we've been communicating before. On the tax question, I don't really like to speculate on what's going on, but I'll hand over for some further comments from just fine here.

Yeah, there is a proposal out there that was proposed by the government. We are now in the face of a hearing on that one, giving them feedbacks onto it. The proposal as it is, is that there will be direct expenses towards the special tax in the Norwegian continental shelf, six years for the ordinary tax there. There are also some of the rules in the transition phase that is being looked at as it is. But then on the overall, more than related to the direct expensive asset currently, of course, this needs also then to... to go to the parliament and expected to be voted on during the first half of 2022. So that's the current status. So it's a hearing round which is ongoing now.

But the principles there are very clear and we understand where they are and the impact. So thank you for the question.

All right, thank you very much.

Next question is from the line of Yuan Sherinton from Societe Generale. Please go ahead.

Good morning, everyone. I will use this opportunity to ask again about this transition phase, basically as far as the move to the new tax system. I understand that it's difficult for you to quantify at this stage, so I'm just willing to understand if you are happy to share with us some estimates of tax balances for under-appreciated or basically for uplift and capex that have yet to be offset against tax payments and basically what is the portion of this that sits outside of the temporary tax scheme is that is possible On the second question, which is more, let's say, a broader question with a perspective on your capital allocation, it looks like the excess cash buildup is set to continue when looking at your balance sheet. And at the same time, you continue to underspend versus guidance in oil and gas. So I'm just wondering, basically, if this signals potential for higher distribution in the midterm, or is that... more lets the signal for increased flexibility for further investment in low-carbon solution and renewable. That would be great if you could provide some call on this.

Very good. And on the proposed tax system, I mean, what we're clear on is that, you know, we will get no benefit from the uplift and the overall tax rate will move towards the overall 78%. But some more colour in that, again, I'll hand over to Svein to give.

Yeah, as it is then working is that since they are then taking the proposal, they might then to be taking away the uplift part of it. That means that the reported tax tax rate when we have full effect for it, then it will go towards 78%. But remember, there's also the temporary changes in the tax system, which we now have. That is relevant for 2020-2021, but also for all projects that have a final investment decision prior to the end of 2022, meaning that if we deliver a plan for development, those will come under development. under the temporary tax system, which are beneficial. So that means that tax rates will then be reported lower. It will have an impact on the cash taxes that you have more deductions upfront. But following when all projects are then delivered under the temporary tax regime, the reported tax rate will go up towards the 78%, but that's into the latter part of the decades. But the cash tax and the deferred tax will be different from what it was earlier, meaning more direct expensing early compared to what it was prior to the temporary tax regime.

Where the direct expensing will help us in the shorter. On the capital allocation, I'll come back to what I said before we will continue using the guided methodology that we launched in June when we're looking at it and I went through it before we will look at the net debt ratio we will look at the outlook on commodity prices and we will look at the general environment we're in and we'll stick to that and we'll do that every quarter and as we have now become accustomed to and we will look at the overall situation in Q4 again therefore

Yes, thank you, Ulrike, and it's fine.

Next question is from the line of Michelle Dallavina from Goldman Sachs. Please go again.

Thank you. Thank you, Ulrike and Peter. I have two questions, if I may. The first one is related to your buyback, and congratulations for tripling the pace of buybacks there. At this pace, you're buying back about 5% of outstanding shares. I was wondering if When does this start to feed into your dividend policy? Because clearly reducing outstanding shares by 5% per annum could allow you to grow the dividend per annum faster than probably what you would have previously assumed. And then my second question, and sorry if it is a little bit too specific, when I think about your North American offshore wind development, I was wondering if You are starting to see some issues in terms of tightness there, not just on the equipment side, but more on the vessel side for construction. I believe there are some restrictions under the Jones Act, which could make it a bit more difficult to get the right vessels to do the installation there, especially as more projects will start to compete in the future. Thank you.

Thank you very much for your question. And I'll start with North America wind development. We don't yet see any of this, but it's a little bit comes back to the comment I made earlier, which is we don't yet see it. But that doesn't mean that there is a some supply crunch out there, which we are all worrying and seeing that we are seeing the uneven deliveries and shortages coming up in areas where you can't quite predict. And that's the same thing. across the whole world, and that also applies to the North America wind development. On the dividend versus the share buyback conversation, we are not needing to directly consider that in the short term, and we will, as I said, take this on a quarter-by-quarter basis and cross that bridge. If we get to that, we are in a comfortable place where we are at the moment.

Thank you.

The next question is from the line of Peter Lowell from Redburn. Please go ahead.

I just had a couple of questions on the mechanics of the buyback. So the first challenge has been completed, but only $100 million has been bought back with the remaining $200 million to be redeemed from the Norwegian government. How does that work? Is it a cash payment to them, and when will that be executed? And then as a follow-up, just for the next $1 billion change, presumably in the same fashion, you'll complete a third of it in the market by the end of January, I think. But then again, when will the government portion be executed? Thanks.

So yes, the two-thirds of it will be settled and that will be past the AGM deadline. So that's in June, July. And that's 200 million shares at the market price. And that will go for the – and that's 109.5. And that goes for both this tranche and when we get to the next tranche.

Thank you. Next question is from the line of Anders Holte from Kepler Chivro. Please go ahead.

Thank you for taking my questions. I have two questions if I may. Our first one is related to, not surprisingly, natural gas. And I know you cancelled Tanzania LNG quite a while back. And I'm just curious to check with you if you are now seeing interest again from counterparties willing to sign longer, long-term plans LNG contracts, and if that is the case, does that facilitate a potential reopening of the Tanzania LNG project? And second is on offshore wind. And it's almost related to the previous question, but I guess it's a little bit broader, and it's just you did take down your expected future return for offshore wind during your last TMD in June. Now, raw material prices have somewhat stabilized, but still there seems to be quite a fierce competition on offshore wind, as we see in the Scotland around in Scotland. So I'm just curious to see if you are seeing a continuous margin pressure on offshore wind or a tapas east of a little bit. Thank you.

Thank you very much. And on your first question, I won't comment on that. That will be commenting on activity in the market that we normally don't comment on. On the offshore wind comment, I think we could say it's about the same as to where it was. And it's a tight market. It's a lot of activity going on. And I would probably characterize it as the same.

Thank you. Next question is from the line of Martin Ratz from Morgan Stanley. Please go ahead.

Yeah, hi, hello. Quite a few things have already been asked, but I was actually quite interested in the impairment on the refinery of $500 million. It seems a fairly chunky amount for such an asset. I was wondering if you could walk us through what the key moving parts is and why it is such a big number.

Yeah, thank you, Martin. On the refinery, I mean, the driver of this is updated CO2 prices. And, of course, estimating that into the future and then taking that into the value of the asset is basically the one big driver on the back of that. And CO2 projections internationally and in Norway are going up. And that's the straightforward answer.

And there is no sort of capex project that you could do that would be less than half a billion dollars to sort of compensate us for this, I take it, right?

We continuously look for strategies as to the long-term sort of robustness and viability of all our assets.

Okay. Thank you.

Thank you.

Next question is from the line of John Olaizen from ABG. Please go ahead.

Good afternoon, ladies and gentlemen. I got questions regarding some of your offshore wind projects. You mentioned the US situation, but I also understand that the Empire Wind, that you have applied to regulators to have a later startup of the Empire Wind project. And also, you recently announced a Dutch and extension on UK Shoringham Shoal. are postponed or delayed. Could you explain a little bit more what's going on with these three projects in particular, please? And what are the reasons for these delays, please?

So the Empire Wind is not really a delay. It's a combination of the projects so that we can coordinate and get the synergies out of the projects rather than delaying it. So that's That's a benefit that we will reap the benefits of later on. On dungeon, I'll hand over to Svein to give you a heads up on that one.

Things are then progressing. We are looking into then also optimizations and then going forward there as we are moving along. So no big updates on this one, but we are progressing and progressing the portfolio in the different parts of it and see how we are then being able then to mature it and build according to what we said at the capital market day in June.

Thank you. Okay, so there's no structural change in this project. Because, I mean, like optimizing the project, I assume you try to optimize the synergies with Empire Win initially as well. So it must be something that has changed. Otherwise, the deadline is extended.

And Empire is about, as Ulrika said, looking at one common development for Empire 1 and 2.

Yeah. All right. Okay. Thank you.

Thank you.

As a reminder, if you'd like to ask a question, please press star followed by one on your touchtone telephone. Next question is from the line of Andre Klotz from Jefferies. Please go ahead.

Hi, thanks for taking my question. A very small one for me actually. On the Kallenborg refinery sale, you mentioned your Q4 closing. Any more details? Are we talking sort of nowish, end of Q4? Any details would be very helpful. Thank you.

Thank you. It is a short question and no more details on that. So thank you.

Thanks.

Next question is from the line of Lucas Herman from XN. Please go ahead.

Yes, Ulrike, thanks very much for the opportunity. A couple of follow-ups, if I might, just on comments you've already made. Just going back to CapEx, you indicated that there were two features that had driven the reduction this year. Part was efficiencies and savings, and part of it was delay. Do you mind quantifying the extent to which... The benefit this year is savings, so we might get a better view perhaps on next year. And another follow-up, just the carbon price you've used to determine the impairment and the refining business. And thirdly, to follow up, can you give us any indication as to how the MMP excess will spread over Q4 and Q1, i.e. will it be 50-50, 60-40, or is it impossible for you to say, given where gas prices reside today? Thanks very much.

Thank you very much. I'll start with the MMP question, and I'll hand over to Oyan on the disclosure of the CO2 price, and then I'll hand over to you, Svein. So I'll start with the MMP Q4, Q1. It's impossible to say. It's basically completely depend on the underlying market and where that moves. And of course, the underlying delivery will be dependent on that, but also the size and the direction of the derivative will also move in accordance both in Q4 and Q1. If we take it from the back up, so I'll start with you then, Ojan, on the CO2 price assumption.

Yeah, so we see on the... On the refinery side, we see that we have increased in the CO2 price, so we assume around 58 US dollars per tonne in 2022, and we move it upwards towards 100 US dollars per tonne. And this is one part of it, but we also see a decrease of CO2 quotas into the calculation because that is also part of the expectation to how the market will run for the refineries.

Very good, thank you.

Regarding the CAPEX there and the exact impact year by year, as Ulrika said, some delays, but we're also seeing some positive contribution in the overall part of it. So it's a combination that we're seeing, and we're seeing it both in the in some in in norwegian portfolio but but also we are we are seeing impact in in the international part of it and then and and then as we normally do we will come back to to further update on on further outlook at the capital market update in february on on that one so without going into exact details on on the amount so you can't quantify the amount that you've realized from savings

How much of the reduction is about saving? How much of the reduction is just delay?

It's a combination of those two. We are seeing good savings. For example, we have seen that on projects that have been put on stream on the Snorra as we did. We did it on the Troll, but going into details on that one, on the exact numbers that we are not giving.

Okay, thank you. Next question is from the line of Alastair Saimi from Citi. Please go ahead.

Yeah, thanks. I just wanted to follow up on the question about the new Norwegian tax proposal. You've already answered the question on it, but it sort of strikes me after so many years of fiscal stability. We saw tax incentives introduced last year, and now this year we seem to be going a bit the other way, given that the effective rate is going to go up over time. Can I just get a sense from you about what you think is behind the motivation from the government in making this change? Thank you.

What they have said is that we had the Norwegian tax system, we had the temporary tax system. There has been some debate on the valuation of the uplift, where the government has used lower discount rates than the companies in a way. So that might be one of the reasons why. behind it and then being argued and then taking out the uplift and then having direct expenses. And that could be one of the reasons that I have used that there are differences in how those are being valued with lower discontents than from the states and more higher discontents than for the companies. So that has been one of the reasons I have used. follow-up, uplift, follow-up.

It's easier suggesting simplification of the tax process. Can I say that, is it true that you think the effective rate, you know, if you sort of roll forward five to ten years' time, the effective rate is going to be higher than it would have been under the old system?

The reported rate will go up since you don't have the effect of the uplift anymore on the special tax. But remember... Cash-wise, you will have much more on direct expensing towards the special tax. So cash-wise, when you get the direct expensing there, that is benefiting you. on a cash flow and also then on a breakeven part of it. But in some, in nominal terms, there will be an increase and then we will then report a 78% tax rate if the proposal goes through. Also fair to say, it's a proposal, it's out now on hearing, and it needs to be voted in in the parliament. So that means that the reported tax rate is there, and that means that you will then have the cash tax and the deferred tax, which will then change compared to how it traditionally was. But more direct expensing, more deduction early for us as investors.

Brilliant. Thank you so much.

Next question is from the line of Jason Kenney from Santander. Please go ahead.

Oh, thanks. Just to follow up on an earlier question, how confident are you in fully unwinding the MMP gain over the next two quarters, or is there a chance that it's only a partial unwinding over the next two quarters?

Thank you, Jason. And we'll say we're confident on this. This is a very sort of hedged position and it's only a small, the majority of it is completely matched with the underlying. So there's a small, very high confidence in the matching here.

Great, thanks.

Next question is from the line of John Rigby from UBS. Please go ahead.

Thank you. Hi, Ulrike. Can I ask, you announced or you highlighted the good news around the Humber project and the low-carbon initiatives you have around that, zero-carbon initiatives around about that. Can you just maybe sort of update when you expect to start real activity, spending money, et cetera, and how will that be structured? Will it be a little like a traditional – a renewables project where you start to invest directly and get to critical mass and then maybe project finance it or separately finance it. What's the sort of thought process around that? Because I'm sort of of the view that it's quite a lot of capital, I guess, ultimately that's going to go into that. If you can update me on that, that'd be great.

Well, this is very early days and in our sort of real activity is on its way, but I think it takes a long time to work on all of these developments. We need to develop new markets and we need, you know, understand the market risk and the technologies that we need to deploy here. So there's... Basically, a lot of work to do before we mature this project and can go in and be very, very specific on the outcomes, on exact timings and exact technologies and enablers. But it's very exciting for us. It's where we've got the most technologies. It's where we're building the biggest capabilities. And I think it's good for the company and for the UK.

Would it be fair if I sort of took the UK government's aspiration and they put some 2030 numbers out there and sort of back up from there and sort of assume that probably by 2024-ish activity should be really starting to get into the swing?

I will just say it's really early days to give more detailed guiding on the materiality of the portfolio in this area. All I can say is it's an exciting project, and it really establishes a foot for us here.

Okay.

Thank you.

Thank you very much.

There are no further questions at this time, and I would like to hand back to Ulrike for any closing comments. Please go ahead.

Well, thank you all for all your great questions and for your time today. And we're looking forward to seeing you again. Next time will be the 9th of February, as I mentioned before, 2022, which is our full year results, but also our capital market update. So looking forward to speaking to you then. And thank you.

Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.