Equinor ASA

Thank you for standing by. Welcome and thank you for joining the Equinor Analyst Q2 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 would 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 Mads Holm, Senior Vice President. Please go ahead.

Thank you, Operator. Ladies and gentlemen, welcome to the Equinor Result Call for the second quarter of 2022. And thank you for the participation. I'm Mads Holm, Head of Investor Relations. This call will be led by Ulrike Fern, Chief Financial Officer. Ulrike will present the results and then we'll open up for questions as usual. We aim to complete the call within the hour. also on the call today we joined by swan shire who's now svp new value change and also my shares the anger who's the svp group accounting so with that let me pass straight over to rebecca for the presentation thank you well thank you very much madison and good morning everyone uh today we present continued strong financial results against the dark backdrop of the war in ukraine and an energy crisis in europe

The war continues to influence an already tight energy market and energy prices started to climb already last year and European gas prices reached record levels. This was driven by demand coming back after the pandemic, lower than expected production of renewable energy combined with a tight supply side in oil and gas. Energy markets are also closely linked to the global economy. With energy prices at a high level, we see inflationary pressures, central banks are raising interest rates, and there's increased uncertainty for global economic development going forward. On the other hand, when Asia, and especially China, comes out of COVID, this is expected to drive growth in energy demand. How these and other macroeconomic forces play out is uncharted territory. On the supply side, we do know that there is a limited free capacity of supply. OPEC has increased their quotas. However, several countries do not have the capacity to deliver on these. It underscores the importance of more investment in energy production and infrastructure to re-establish a balance between the cost of energy, security of supply whilst decarbonizing the energy sector. And right now, our most important contribution is to secure stable operations and delivery of energy whilst continuing to invest in energy security and the energy transition. We also need to prepare for high levels of uncertainty in the markets and ensure robustness and resilience and maintain cost and capital discipline. In the quarter, we continued to deliver strong financial results. Cash flow from operations after tax was $10 billion. We have maintained high levels of gas production into the second quarter, a summer quarter in which we normally would have produced less compared to the winter months. Having taken several steps to increase gas deliveries to Europe, we achieved 18% more gas from the NCS compared to the same quarter last year, only 4% down from the first quarter. the higher summer production has been an important contribution to help fill European storages. After extensive repairs, improvements and maintenance, Hammerfest LNG was safely back in production on the 1st of June and has been successfully ramped up since, sending the first cargoes to Europe. Recently, the Peregrino field was brought back on stream. It has been a challenging process due to COVID restrictions in Brazil. We've had good industrial progress this quarter, and we are delivering on our strategy. We conducted several value-creating transactions, both on the Norwegian continental shelf and internationally. On the NCS, we completed the acquisition of interest in Statfjord, increasing our share in the field, and as a result, we even received a payment at closing due to price development since the effective date. And the assets continue to deliver good cash flow. In the US, we took over all the equity in North Platte, then sold shares and transferred the operatorship to Shell. All in all, this leaves us with a higher interest in the project and a payment from Shell. We also completed the transfer of our assets in Russia, as previously announced. Furthermore, we have progressed in developing new value change for power supply. Together with SSC, we have acquired the UK power company Triton Power, The Salton power station is key part to this, and we will start prepare it for future use of hydrogen in the power production. In the US, we have acquired East Point Energy, a battery storage developer. Energy storage is an important and necessary part for the transition to more renewable energy and other low carbon value chains. At the beginning of the quarter, we were awarded a CO2 storage license for Smirheja, a project with a CO2 storage capacity of 20 million tons per year. Together with Belgium's Fluxus, we are studying opportunity for transporting captured CO2 by pipeline from the continent to save storage on the Norwegian continental shelf. We continue to deliver very strong results, which enable us to invest in the business and build resilience in our balance sheet. The board has decided on a cash dividend of 20 cents per share for the second quarter. And in addition to this, on the back of continued strong financial results, the extraordinary cash dividend is increased from 20 to 50 cents per share for the second and the third quarter. Our share buyback program is conditional upon the Brent price, our net debt ratio and as well as the commodity prices. And on the back of continued supportive conditions, we increased the buyback program from $5 billion to a maximum of up to $6 billion for 2022. The third tranche will be around $1.8 billion, with a market share of around $600 million. In total, we increased the capital distribution from $10 billion to up to $13 billion for 2022. In total, this represents a balanced approach where we invest in our competitive portfolio in the energy transition whilst showing a commitment to offer attractive shareholder returns. On safety, the 12-month average serious incident frequency is 0.5 and the total recordable injury frequency for the past 12 months is 2.5 per million hours worked. We deliver solid operational performance for oil and gas and electricity. For NCS gas, we have delivered a substantially higher volume than normal in the second quarter. In the quarter, our equity production of hydrocarbons totaled 1,984,000 barrels of equivalent per day. Adjusted for the divestment of Bakken and the assets in Russia, this is slightly more than 1% higher than in the second quarter of last year. Ramp-up of Martin Linge continued in the quarter, and the investment was paid back after tax after one year in operation. We expect Johan Sverdrup Phase 2, Njord Future and Peregrino Phase 2 to start production later this year. And for the full year, we expect the impact of turnarounds to be 40,000 barrels per day. For the third quarter, we expect a quarterly impact of less than 70,000 barrels per day. We have increased power production by 15% from the same quarter last year to 325 gigawatt hours. The progress on our offshore wind projects were good, but bottlenecks in global value chains affect the whole industry. For example, we had to adjust the plan for high wind tampon due to delays associated with the delivery of steel. Four turbines are already installed on the field and another three will be towed out and come on stream this year. The last four turbines will not make it for this year's weather window and must therefore be installed on the field next spring. However, even with just seven turbines installed, Highwind Tempen will have 60 megawatt capacity and will be the world's largest floating offshore wind farm. This quarter, the average invoice liquids price was around $107, up around $10 from last quarter. The blended price of liquids and gas for Equinor was $117 per barrel of oil equivalent in the quarter. European gas prices have eased off slightly, but have still high levels and have started to increase again as we entered the third quarter. In Europe, we have seen an unprecedented divide between MBP and TTF. Continental Europe is more exposed to Russian gas supply, hence the TTF has reacted more to recent uncertainty. Our adjusted earnings totaled $7.6 billion and $5 billion after tax. Net operating income ended at $17.7 billion and net income after tax was $6.8 billion. The global increase in prices and inflationary pressures also impact us. We see this combined with higher prices of electricity and CO2 starting to impact our costs. We continue our improvement efforts to keep costs under control and to mitigate cost pressures. The tax rate on adjusted earnings in the quarter was 71.6%. This is thanks to a large part to our earnings being generated on the Norwegian continental shelf. Here, a high tax rate is a clear sign of having delivered strong results. And now on to the segments. Our Norwegian upstream business has delivered its best second quarter ever, with about $14 billion in adjusted earnings and about $3 billion after tax. Stable and good operational performance, in addition to high gas production, has enabled us to capture high values on the Norwegian continental shelf. In this segment, we see that both electricity prices and higher CO2 prices, in addition to new fields and turnarounds, put an upward pressure on costs. This is partially offset by a stronger US dollar exchange rate. The performance of our international business is very good this quarter, delivering high earnings and good cost control. Overall, these are the best results ever delivered across our combined international business. Our international upstream business outside the US had adjusted earnings of more than $1.1 billion before tax and $700 million after tax. The US upstream business delivered record high results, and that's despite slightly lower production due in part to lower production from Marcellus and the divestment of Bakken last year. Adjusted earnings were at almost $900 million, whereas the simplified cash flow was more than $1.1 billion. The midstream and marketing segment contributed strongly to the group with adjusted earnings of over $1.3 billion. In particular, optimized sales trading and trading of European gas and power strengthened these results. The price spreads within European gas markets have been record high during the quarter. And Equinor's captured value from the optimization of physical flows towards markets with higher demand and prices. There is a net positive impact from the timing effects from derivatives as mark to market has increased the value of the derivatives related to future European gas sales compared to last quarter. The tax rate for this segment is higher than usual due to the earnings composition with the dominant share of the profit coming from NCS. Our renewables business has, as expected, negative adjusted earnings. of $42 million due to high level of activity progressing our portfolio. Adjusted earnings from our assets in operation was $32 million this quarter. So far this year, we've had cash flow from operations of $38 billion. We have paid $12 billion in taxes and ended up with a cash flow from operations of $26 billion after tax. After proceeds and capital distribution, the net free cash flow is almost 20 billion so far this year, strengthening the balance sheet materially. For the second quarter specifically, we had a cash flow of 18 billion dollars and taxes paid of 8 billion. Our cash flow for operations after tax totals 10 billion dollars. We had two tax installments on the Norwegian continental shelf in the quarter, totaling 73 billion krona, or 7.8 billion dollars. the two last instalments based on 2021 results. From the third quarter, tax instalments will be based on 2022 results, as well as the new tax regime for NCS adopted by the Parliament before the summer. And just to remind you that the new tax regime is a cash tax, removing the uplift on petroleum taxes. However, as earnings are strong, the effect of the loss of uplift would be low. In the third quarter, we will pay the first of the three tax installments for the Norwegian continental shelf to be paid in 2022. The August payment is 70 billion kroner, around $7.4 billion. The capital distribution in the quarter was $1.6 billion. The buyback of shares from the Norwegian state is conducted on an annual basis, and last week we paid for the state's share buybacks made in 2021 and the first quarter, a total of more than 13.5 billion kroner, or $1.4 billion. This will be part of the cash flow in the third quarter. After tax payments, investments and capital distribution, net free cash flow for second quarter was $7 billion. This further strengthens our balance sheet to an adjusted net debt capital employed of negative 38.6%. With the market movements and uncertainty in the energy markets, as well as our upcoming cash tax and capital distribution payments, resilience in the balance sheet is important. Our strategic direction remains firm. We keep investing and progressing on our strategy and make no changes to our guiding. So far this year, we have organic investments of $3.8 billion. We expect to invest around $10 billion on average this year and next. However, this will be back-end loaded. So I will round off here and then hand it back to you, Mads, and I look forward to your questions.