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.