Equinor ASA

Ladies and gentlemen, I'm really pleased to welcome you to the presentation of our fourth quarter and full year results and our capital markets update. We would have preferred, of course, to have done this in person, but that's not been possible this time. So we'll try to make it as real as we can, live with you from here in Oslo. We will have presentations from Anders Opadar, our Chief Executive Officer, and Ulrike Fern, our Chief Financial Officer, of around 20 to 25 minutes each. Then we'll have a question and answer session of around 45 minutes with Anders and Ulrika, but also all of the EVPs who are here with us in the room today, and also some of those who will be leading the breakout sessions afterwards for those of you who have signed up. We expect to close the call around 1.45 Norwegian time. We've got a lot to get through, so let me please pass over through to Anders Opedal. Thank you, Anders.

Thank you very much, Peter, and good morning, everyone, and welcome. I really look forward to presenting our strong results and capital markets update together with my team today. I will focus on three main topics. First and foremost, we report earnings at record level. due to our strong operational performance and the high prices. This is also the basis for our increased capital distribution. I will come back to that. Second, we continue to progress on our three strategic priorities. We turn ambitions into actions for optimized oil and gas, high-value growth in renewables, and developing new market opportunities in low-carbon solutions. Third and finally, we announce a step up in our climate ambitions. By 2030, we aim to reduce our group-wide net emissions by 50%, while maintaining high-value creation and growing returns. Let me start with our strong results for 2021. Last year, we saw continued impacts from the pandemic and unstable and increasing energy prices. We focused on protecting our people, safe and reliable operations, and cost and capital discipline. I am incredibly proud of our people and partners delivering very strong results, both operational and financial, during a pandemic that has impacted our lives. Safety is my most important responsibility. The serious incident frequency has a positive trend and we have achieved our best result to date. We will continue the collaboration with our employees and safety delegates, partners and suppliers to improve our shared safety results. Our goal, always safely home from work every day. Our strong operational performance laid the foundation for our financial results in 2021, both for earnings of the tax and cash flow are very strong. we reduced the unplanned losses on our producing assets by almost 30% compared to the five-year average. In eight months last year, Johan Sverdrup achieved nearly 100% production efficiency and delivered 230,000 barrels per day to Equinor. Strong operations, new wells and fields on stream and optimized gas production increased our production by more than 3%. Above the 2% expected for the year. We achieved adjusted earnings of $10 billion after tax. Our free cash flow for the year ended at $25 billion after tax and capital distribution. The cash flow is improved from the temporary tax regime and the facing of tax payments on the Norwegian continental shelf. Return on capital employed was 23%, 23% in 2021, well above the range we gave in June. Optimizing our oil and gas portfolio is about creating value while improving and reducing emissions. For 2021, we achieved an upstream intensity of 7 kg CO2 per barrel of oil equivalent. It was improved by lower emissions, portfolio changes and high production, including volumes from the electrified fields Johan Sverdrup and Martin Linge. Our renewable business booked substantial capital gains of 1.4 billion dollars in 2021. We delivered solid operations, securing high availability from our wind farms. The last two years have demonstrated the large price movements our sector is exposed to. And this winter, the energy realities in Europe have demonstrated the importance of stable and reliable deliveries of gas from Norway. Currently, we see low inventories, low spare capacity, and too low energy investments over time. In the breakout session later, Irene will share some details on what impact we expect. This complexity in the energy markets adds to the challenge of transforming the energy system while providing enough energy. The energy transition is necessary, but must also be balanced to ensure energy security and affordability. Achieving the net zero targets of society and industry will depend on growth in renewables and low carbon solutions. We are positioned to create value as these markets develop. With our technology, capabilities and customers, we can shape value change and grow profitability. all while remaining competitive with low cost and low emissions from production of oil and gas. As European gas demand surged in late autumn, we turned every valve to increase volumes. New measures were taken, and for 2021, we increased our production of gas to Europe by more than 5%. we delivered operational excellence when European households and industry needed it most. And for fourth quarter, we delivered 16.5% more gas to Europe than the same quarter in 2020. This was enabled by operational performance of almost 100% production efficiency on our onshore gas facilities. The strong competence and efforts of our people and suppliers made this possible. Looking ahead, the global supply chain disruptions and growing inflation are a shared concern for all industries. We will remain focused on cost and improvements and working on mitigating the inflation pressure. We know from experience that we must work closely with suppliers, mature and improve the projects, use design to cost methodology and ensure strict capital discipline. Only sanction projects when they are good enough. Since the Capital Markets Day last summer, our ambitions are being put into action. We optimize our oil and gas portfolio. Martin Linge and Troll Phase 3 were put on stream, both ramping up successfully. Troll Phase 3 is already paid back, and Martin Linge is expected to be paid back during 2022. And on that note, Asta Hansen, which started production in late 2018, is already paid back as well. Kjetil will elaborate on our progress on the Norwegian continental shelf. We focus our international portfolio on high value assets and have exited six countries and seven assets. Al will share more on the progress internationally, but let me mention Bakalao. Phase one was sanctioned last summer and is 50% complete towards first oil in 2024. Last year, we made eight commercial discoveries with 125 million barrels of oil equivalent net to Equinor. We focus our exploration strategy on value creation with prospect near infrastructure with short payback time and low emissions. Our oil and gas portfolio is expected to create significant free cash flow with an outlook of more than $40 billion in the period 2022 to 2026. And remember, this is in a $65 Brent scenario. In renewables, we continue our progress, pursuing high value growth. In Korea, we have entered into collaboration to develop three gigawatt of offshore wind projects. We have secured additional capacity and have a competitive renewables portfolio. Our flagship projects are progressing with Doggebank A and B well on track towards first power in 2024. Dogebank C has secured financing and final investment decision has been made. The floating wind farm, Highwind Tampen, is on track for startup later this year and will support decarbonization of Guldfax and so on. The competition in the renewable industry has increased over the last years. we remain value driven and maintain our expectation of real base project returns of four to 8%. In low carbon solutions, our technology and competence position as well. We are receiving increased interest from our customers in the development of hydrogen value chains and carbon transport and storage. In UK, our low carbon portfolio is progressing. We reached a milestone when East Coast Cluster was selected as one of UK's first carbon transport and storage projects. With the price development we have seen for CO2 in Europe, the market for transport and storage is emerging. Northern Lights is well on track to start up in 2024, and four potential customers have been granted EU funding for carbon capture. Our ambition is to have a capacity to transport and store 15 to 30 million tonnes of CO2 per year by 2035. We have the actions in place to create high value while transitioning to deliver energy in a low carbon future and achieve our net zero ambition. In a $65 scenario, we expect to generate a free cash flow of around $25 billion towards 2026. This means a return on capital above 14% towards 2030 and speaks to the profitability of our portfolio. We expect more than 30% of our gross investment to be in renewables and low carbon solutions by 2025 and more than 50% by 2030. Over a year ago, we stated our ambition to become a net zero company by 2050. Since then, the pathway to get there has been part of every major discussion and decision. By cutting emissions and increasing our capacity in renewables and low carbon solutions, our ambition is to reduce the net carbon intensity by 20% by 2030 and 40% by 2035. The world needs deep and rapid emission cuts already this decade to get net zero by 2050. Our efforts are twofold. First, we take action on our own emissions. Second, by developing renewables and low carbon solutions, we will make new business by helping our customers to decarbonize. Today, we launch a step up of our climate ambitions, focusing on reducing emissions under our own control. I'm pleased to present our new group-wide ambition, a net 50% reduction of emissions from our operations, scope one and two by 2030 compared to 2015. We aim for 90% of this to be delivered as absolute reductions. The new ambition is aligned with the Paris Agreement over 1.5 degree pathway. We are not starting from scratch. Since 2015, we have cut emissions from operations significantly. Our solid pipeline of abatement measures will help us cut emissions while maintaining high value production from oil and gas. On the Norwegian continental shelf, power from shore will be an important contribution. We have several electrification projects in execution and under development. In our international projects, we are taking advantage of offshore combined cycle technology, reducing emissions. Our ability to grow cash flow and returns comes from being a solid company. We focus on continuous improvement, cost control and capital discipline. Kari will share more on how we use technology and digitalization in our improvements efforts. By 2050, we aim to improve cash flow by $4 billion in total. We will continue to invest in our attractive portfolio. We are working proactively to reduce effects of cost pressure and inflation and further improve profitability in the projects. Ulrika and Arne Sigve will elaborate on this. We will maintain stable investments in our profitable oil and gas portfolio while investing in high value growth in renewables and low carbon solutions. Overall, we maintain our guided capex levels from June for 2022 to 2024. Our balance sheet is solid with net debt below zero, providing for strong credit ratings. This gives us access to capital at competitive terms. We maintain our ambition for a net debt ratio between 15 to 30%. Our balance sheet is also a competitive advantage. For us, project financing is a commercial option, not a requirement. Our capital distribution remains competitive and we have been firm in executing our policy and grow annual cash dividend in line with long-term underlying earnings. The Share by Back program launched last summer has been executed efficiently. including the share buyback program launched in 2019, we have bought back 130 million shares, including the government share. At our capital markets day in June, we presented our capital distribution framework. Our dividend policy remains firm, We aim to grow the annual cash dividend in line with long term underlying earnings. Typically, this has been an annual increase of one to two cents per share in the quarterly dividend announced together with our four quarter results. We increased our quarterly dividend to 18 cents per share at the capital market day. The board will propose to the annual general meeting to further increase in the cash dividend to 20 cents per share per quarter from fourth quarter 2021. Also, at the Capital Markets Day, we announced a share buyback program at a level of 1.2 billion dollars annually from 2022, with the option to be used more extensively to optimize capital structure. The 1.2 billion US dollar annual level can be expected assuming an oil price in or above a range of 50 to $60 per barrel, an expected net debt ratio within the 15 to 30% ambition and pending commodity prices. Already in third quarter, we demonstrated our willingness to use share buyback more extensively. We increased the second tranche last year from 300 million to $1 billion. the board proposes an increase up to $5 billion, including the government share for 2022. This is subject to the normal renewal of the board authorization of the annual general meeting in 2022. The first tranche of $1 billion, including the government share, will start in the market tomorrow. This is lower than the annualized rate of $5 billion due to the narrower trading window this quarter. This level will be assessed quarterly and we expect the level to remain at $5 billion in 2022 when commodity price outlook is strong and the development in the balance sheet is supportive. In addition, the board proposes an extraordinary quarterly cash dividend for 20 cents per share for four quarters. Starting from the fourth quarter 2021, subject to approval of the annual general meeting. The extraordinary quarterly cash dividend is backed by high commodity prices in the second half of 2021, strong earnings and outlook. The total proposed distribution is cash dividend of 20 cents, extraordinary cash dividend of 20 cents, share buyback of up to 5 billion during the year, which potentially represent another 40 cents per quarter in 2022. The proposals and required authorizations will be presented to the annual general meetings in May 2022. This equates to a total capital distribution for 2022 of up to $10 billion in total, of which around half is expected to be in cash dividends and half in share buybacks. This demonstrates our commitment to offer attractive shareholder returns. So let me sum up our main messages. We are on track to deliver on our focus strategy and accelerate the transition. We are progressing our portfolio in renewables and low carbon solutions. and have set a new group-wide ambition of net 50% emission reductions by 2030. In 2021, we delivered strong operational performance, adjusted earnings after tax of $10 billion, and net cash flow of $25 billion. This enables us to deliver competitive shareholder returns while investing in the energy transition. Thank you all for the attention. And I really look forward to your questions later. And I also have the full and my great team with me that will join for the Q&A. So now, Ulrika, the floor is yours.

Thank you Anders and thank you all for joining us today on the call today. It's always good to be able to present to our stakeholders even if it is still via video and I hope that will change soon. I started at Equinor just after the capital markets day in June and I have after that spent time rapidly learning and bringing to execution the strategy that was presented then. And today is an opportunity to show how we are delivering on this strategy and our ambitions as we clearly demonstrated then, and we've demonstrated it again by our fourth quarter and our full year results. So let me first focus on these results, but also in the context of the strategy, provide you some further details on our portfolio and our financial framework. What we will show today is that we're able to capture high prices and thereby report record adjusted earnings after tax for the quarter. Oil prices are high and in the second half of 2021 we saw record gas prices in Europe with an average realised price of $28.8 per mm BTU compared to five a year ago. We have actively responded to the tight market and increased our gas production in Norway by 16.5% in the fourth quarter and by 5% for the full year to provide much needed additional supply to industries and consumers in Europe. And the record gas prices combined with our focus on optimizing gas volume paid dividends quite literally. Meanwhile, underlying upstream unit production costs were stable and we delivered organic capex in line with our reduced guidance at $8 billion in 2021. And these factors all contributed to record cash flow from operations in the quarter of $11.3 billion after tax. And to put this into context, this cash flow more than covers our full year organic capex in just this one quarter. At our Capital Markets Day in June, we introduced a more flexible capital distribution framework. We have actively used this flexibility by increasing our second tranche of share buybacks to one billion in the last quarter. And that tranche was completed last week. I'll come on to this framework and how it fits into our long-term financials later on in this presentation. But starting with production. We talk about value over volume as a strategy. And in these market conditions, volume is also value. We have delivered high efficiency and flexed production towards the most valuable opportunities. And during the fourth quarter, production in Norway was up 12% year on year. Our oil and gas production was up 5.6% or actually near 9% if you adjust for the sale of Bakken. So these production results reflect new fields coming on stream, but also high production efficiency on the NCS. Meanwhile, in renewables, power generation increased 10% from 480 to 526 gigawatt hours. And we had continued high availability in offshore wind assets and added production from the solar plant in Argentina. Clearly, these results reflect the stronger commodity prices. And as you can see in our realized prices, which increased to an average of over $100 per barrel oil equivalent. Production performance and stable up gains cost per units also contributed. Reported net operating income of $13.6 billion is over 10 billion higher than a year ago. It includes some 1.8 billion of impairments, mainly related to the mariner field, as per our announcement earlier this year. Adjusted earnings in the quarter were 15 billion pre-tax and 4.4 billion after-tax at an effective tax rate of 71%. The tax rate is reflective of high earnings in E&P Norway, partly offset by losses in our M&P segment. The quarter saw record levels of earnings after tax and record cash flow for E&P Norway and E&P USA. E&P Norway achieved the highest quarterly production volume in nearly a decade and gas production as a percentage of the total increased to 55% as we optimized our gas volumes. Adjusted OPEX and SG&A per barrel increased 14% in US dollars and increased by around 11% in underlying Norwegian krona. And now half of this increase is attributable to increased environmental taxes and CO2 costs. And the other half was driven by gas-led removal costs. driven by new fields and mainly due to Martin Linge, which started production in June and is expected to pay back within 2022 at present prices. Currently, translation also contributed to the increase. In E&P International, production was roughly flat, with declines on some more mature fields. And this was partly offset by the 12,000 barrels per day of additional volumes from the Angora JV in Russia that we acquired last year. SG&A, excluding royalty, increased by just under $50 million, all of which is explained by additional charges on one asset and one-offs in the fourth quarter of 2020, leaving underlying costs stable. In the US, production volumes were down 40,000 barrels per day, impacted by the sale of Bakken. Correcting for that, onshore production was flat, while offshore production was up 20,000 barrels per day. The increased volumes are generating strong cash flow due to our US tax position, and underlying unit costs were down 4%. So altogether, these factors contributed to record earnings of $587 million or 574 after tax. In MMP, as advised, earnings last quarter of $2.2 billion included of around 2 billion of an unrealized gain on gas derivatives. This quarter shows a loss of around 1 billion, including the loss of around 1.4 billion on physical delivery of gas volumes, partly matching the gain on the derivatives in the last quarter. At year end prices, an amount similar to that loss will be booked in total over the next two to three quarters. And as a reminder, although these gas positions introduce volatility in the results of the MMP segment, they do allow us to capture the current high gas prices by converting forward gas contract prices to 70% day ahead and 30% month ahead prices. And you can see this effect in our invoice gas prices, which consequently tracks these short-term indices. So this quarter underlying results in M&P were within the normal guided range of $250 to $500 million per quarter. And this included strong performance by Danske Commodity. In our renewables business, results showed improved earnings from operated assets of $52 million up from $36 million a year ago. We are focusing on efficiencies and continue to make good progress on the development portfolio. For example, we announced the purchase and sales agreement with the state of New York earlier this month. And also we completed a financial close of Dogger Bank C, contributing 180 million to cash flow. So this high level of activity increases business development costs and resulted in adjusted earnings of minus 38 million in the quarter. Our cash results also reflect our ability to capture market prices through solid operating performance and strict capital discipline. We posted record high cash flow of $25 billion after tax for the full year 2021. And this was around $9 billion for the fourth quarter. Our organic capex for full year 2021 was around $8 billion in line with our guidance in the third quarter. The significant generation of cash flow in the fourth quarter has continued to strengthen our balance sheet, and we now have a net debt ratio below zero. And this is down from 13.2 in the previous quarter and down with over 30 percentage points from the end of 2020. Note that Equinox NCS tax installments in the fourth quarter 2021 was 55.5 billion Norwegian kroner. And based on actual earnings for 2021, the taxes payable are 177 billion Norwegian kroner. In the second half of 2021, we paid 67 billion kroner, leaving 110 billion to be paid during the first half of 2022. So now let's look at these results and put them into the context of the strategy that Anders already outlined. Execution of our strategy is well underway along all our main priorities, with flexibility to address evolving markets as we progress. Our financial position, as mentioned, is very strong and we capitalise on enhanced value in our oil and gas portfolio whilst transitioning to new growth areas. Central to our strategy is our ambition of becoming a net zero company by 2050. And today, as Anders mentioned, we take a further step with an ambition of a 50% cut in net carbon emissions by 2030, demonstrating our commitment to make real progress in the energy transition. In addition to this, we will simultaneously deliver strong cash flow and attractive returns, as well as providing competitive capital distribution to our shareholders. We think this will be a distinguishing feature for Equinor leading in the energy transition. It's easier to do this simultaneously if commodity prices are high. But we believe we have the discipline, the capability and the financial strength to do so through the cycles, creating a long-term, sustainable, resilient and profitable business. Before taking you through some of the key highlights and measures across our business, I'll point out that our strategic priorities are connected. We see synergies between our different businesses across operations, capabilities and technology, but also financial. The strong cash flow from a profitable oil and gas portfolio funds not only reinvestments to further high grade our oil and gas portfolio, but also disciplined investment in our attractive renewables and low carbon solution portfolios. So let me start with our advantage portfolio in oil and gas and our key measures. Our oil and gas production outlook reflects Equinor's commitment to supply energy for society towards 2030 and simultaneously aim to reduce our emission by 50% over that period. In 2021, the CO2 intensity was seven kilos per BOE, which continues to be well below half of the industry average. Our oil and gas portfolio is cash flow positive at prices around $30 per barrel after investments. And this ensures resilience through the cycles. This portfolio is expected to generate over $40 billion of free cash flow over the next five years. I also want to highlight Equinor's commitment to securing gas supplies from the NCS to Europe, and we expect to produce more than 40 BCM annually towards 2026. With flexibility in production and our low cost of supply below $2 per mm BTU, we are positioned to create significant value. A strong pipeline of the development projects coming on stream by 2030 provides a solid outlook to deliver around 6.5 billion barrels of oil equivalents net to Equinor, with low break-evens at below $35 per barrel, high returns of around 30% internal rate of return, fast paybacks of 2.5 years on average. And this portfolio gives us the flexibility to deliver and further high grade. So Johan Sverdrup phase two reflects this strong position very well. It's on track to start up later this year, adding 220,000 barrels a day at an operating cost below $2 per barrel and a CO2 intensity below one kilo of CO2 per barrel oil equivalent. In order to be a leader in the energy transition, we are leveraging being an integrated energy company and are scaling our renewable and low carbon solutions businesses. Both are built on our capabilities and operational competitive advantages funded by the oil and gas. You see here a strong pipeline of projects from the high value growth in renewable. We presented our guidance around growth in renewables at the Capital Markets Day in June, so these numbers will be familiar. We're on track to deliver. The list of projects reflects the pace of development and mix of opportunities towards these ambitions, and Paul will go into more on this in detail later. We're also financially positioned to ensure long-term returns. Applying strong capital discipline and leveraging our financial position enables us to utilize the most attractive financial structures and effectively manage risk such as merchant, inflation, interest rate and foreign exchange. We have talked consistently about the importance of flexibility and focus on costs. We have several examples on how we've optimized our gas portfolio to capture valuable opportunities, and such an example is Ulster-Hansden. On Ulster-Hansden, we saw high production regularity of around 99% in the fourth quarter. We also increased capacity and production efficiency by utilizing the integrated operation center, the IOC. With these combined elements, we capitalized on strong markets and investments were paid back both before and after tax in the fourth quarter. Even with today's strong results and high commodity prices, discipline remains critical. It's a mindset we keep and we have been driving across the business. The focus on cost can be seen as critical in the downturn, but it's just as important to capture these benefits in the upturn as we enter into more uncertain capital and supplier markets. And today we reiterate our improvement ambition of $4 billion by 2025, as announced in June, and we're on track to deliver. In 2021, we have realized more than $1.8 billion in improvements. We are delivering on our ambition for low unit production cost of around $5 per barrel of oil equivalent. And Arne Sigver will talk a little bit more about this and our clear actions that we're taking later on in this section. So turning to our financial framework. Here we help quantify and show the robustness of our cash flow from operations using the price scenarios of $50, $65 and $80 for Brent and reflecting gas prices of $22 per MMBTU in 2022 to $7 in 2024 in the $65 case. The bars in the graph highlight the robustness we have through the scenarios, carrying our capex at $50 in all periods. In the low $50 sensitivity scenario, we could of course also flex our capex, noting the high level of non-sanctioned capex in the 24-25 and even more so from 2026 onwards. With this strong financial position and the cash generated in mind, I will take you through the way we look at capital allocation. Firstly, our capital expenditure reflects a full program delivering the advantage portfolio I have just outlined across both oil and gas, renewables and low carbon solutions. Balancing and delivering on our high value, low carbon ambition was maintaining capital discipline and flexibility through the cycles. We have a high activity level and are able to move forward at pace and with efficiency. So we continue to look for opportunities to invest to high grade and optimize this portfolio. And our guidance and ambitions, though, are based on organic opportunities. We do not see any strategic gaps in the portfolio and have demonstrated an opportunistic approach to M&A. And we will only screen for value and for where we can bring synergies and competitive advantage at attractive price. And this might mean we could be net sellers. Secondly, we have strengthened our financial positions and reduced the net debt ratio from above 30% at the end of 2020 to below zero at the end of 2021. And our ambition remains 15 to 30%. We're comfortable being outside this range for periods of time, but see this as a long-term resilient and effective range, demonstrating financial efficiency and discipline. Finally, we're committed to deliver competitive shareholder distribution. Our cash dividend is expected to grow in line with our underlying earnings and we have built in flexibility in our capital distribution framework via our share buyback program. So let me run through the third point in a little bit more detail with a reminder of the proposed increase in capital distribution we announced this morning. As Anders took you through, the total proposed distribution for the fourth quarter is cash dividends of 20 cents, extraordinary cash dividend of 20 cents, and the share buyback of up to $5 billion during the year, which potentially represents another 40 cents per quarter in 2022. We also provide you with the drivers and visibility supporting each of these elements, each consistent with the distribution policy and the additional flexibility provided at the Capital Markets Day. And today we show you we deliver on what we say by using that flexibility in practice. This demonstrates our commitment to offer attractive shareholder returns, And now I will conclude with our guiding before opening for questions. Looking ahead, our capex guidance of 2022-23 is around $10 billion and around $12 billion for 2024-25. For this year, we expect production growth to be around 2%. And with that, I hand it over to you, Peter, and look forward to your questions.