Equinor ASA

Good morning, good afternoon, ladies and gentlemen. Thank you for standing by. Welcome and thank you for joining the Equinox Analyst Q3 call. Throughout today's recorded 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 telephone. Please press the star key followed for zero for operator assistance. It's my pleasure, and I would now like to turn the conference over to Mr. Matt Holm, Head of Reinvestor Relations. Please go ahead, sir.

Thank you, Operator. Ladies and gentlemen, I'm very pleased to welcome you to the presentation of Equinor's third quarter result call. I'm Matt Holm, Head of Investor Relations. It's my great pleasure to introduce Torgrim Reiten, who, as you know, started as CFO just a few weeks ago. For those of you unfamiliar with Torgrim, he has been with the company for 27 years and held several management positions in Norway, the United States and the United Kingdom. His most recent position was Senior Vice President for Finance and Control in Renewables. Torgan was a member of the Corporate Executive Committee for 10 years, first as CFO, then as Executive Vice President for Development and Production USA, and later the Combined International Business. With strong experience from upstream trading and operations of natural gas and renewables, we are delighted to welcome Torgan back as CFO to present Equinor's result and outlook, and to engage in the important dialogue with analysts and the investor community. Torgan will take us through the results, and then we will open up for questions as usual. We aim to complete the call within the hour. So with that, let me pass straight over to Torgan for the presentation. Thank you very much.

Thank you, Mats, for that kind introduction and good morning, everyone. Very good to be with you. And I do look forward to meet you face to face at a later point in time. So it's a privilege to step into this role in a company so financially solid with such a rich and attractive investment portfolio and with a clear plan for transition. Coming into this role, I have two main priorities. The first is to ensure that Equinor steers safely through these uncertain times. We see high geopolitical uncertainty, weaker prospects for global economic growth and high volatility in the markets we operate. And I want Equinor to come out of this as a stronger company. My second priority, but equally important, is to support the transition for Equinor to be a leading company as the energy transition develops. So my role will be to ensure that we continue to invest and optimize the portfolio in oil and gas, as well as grow and develop within renewable and low carbon solutions, ensuring that we focus on quality and value creation. I see your strategy as even more relevant now than before, and you should not expect any changes to the strategy as I am coming into this role. We will continue to drive value creation, which is always more important than volume targets. The numbers this quarter and for the coming quarters will be impacted by all the changes around us. One factor we will monitor closely is the inflation and cost increases. This is a growing concern. We see bottlenecks and delays, lower efficiency and risks of a drop in quality in the global supply chains. Our sanctioned project portfolio is mostly protected from this by contracts already entered into. However, our unsanctioned portfolio is exposed to changes in the supply markets and in the frame conditions. For instance, the proposed change in the temporary tax regime on the Norwegian continental shelf will increase break-even prices for the relevant projects with $2 to $5 per barrel. Second, the outlook for commodity markets carries significant uncertainties, and we expect high volatility. Our balance sheet is robust, with a net debt ratio of minus 19%. But I ask you to note and remember that this is impacted by delayed tax payments on the NCS, the Norwegian Continental Shelf. So as an example, if we paid all the taxes we owe as of today, net debt would move from minus 19% to within the guided range, which is plus 15 to 30%. So the point here is if we see a drop in commodity prices, that can quickly increase the net debt ratio. So this is why capital discipline is so important. So we will prioritize in our investment portfolio so we can execute projects with quality on time and on cost. Furthermore, maintaining a competitive capital distribution through the cycles will be very important to me. And looking at the capital distribution framework presented last year in 2021, we have used the flexibility with both significant step ups in the share buybacks and an extraordinary dividend. And we will continue to use the framework and the flexibility within it. Okay, so let's turn to today's topic. So we present strong results, still against a dark backdrop. And Norway and Equinor's role as a supplier of energy to Europe is more important than ever. And I want to use the opportunity to thank all our employees and suppliers for all the strong efforts this quarter. We expect continued tight and volatile markets through the fall and winter. But as always for European gas, temperatures and weather will have an impact. As usual for the third quarter, we update our commodity price assumptions. This is a slight increase in our expectations for Brent from $70 to $75 in 2025 due to limited expected supply. For European gas, we expect TTF at $20 per mbtu in the same year, as we expect Russian volumes to be reduced for the foreseeable future. We assume these prices will spill over to the prices for CO2 quotas and German electricity prices. We post adjusted earnings of more than $24 billion, driven by high prices, particularly for gas, where European gas prices grew by 240% from last year, but also driven by continued high production. The production performance both at Hammerfest LNG and Peregrino, which came back on stream this summer, has been good. All the 13 LNG cargoes from Hammerfest went to Europe. And by the way, so did 96% of our crude from NCS in the quarter. Peregrino Phase 2 came on stream now in October, almost two years delayed by the corona pandemic, but it is still on budget. Gudrun phase two also came on stream, and this will contribute with a higher recovery rate and extend the tail production of that field. And talking about renewables, the first solar plant in Poland is completed. Although energy security and production are on top of the agenda, we remain firm on our strategy and transition plans. In the quarter, we've seen Northern Lights sign its first commercial contract for CO2 transport from the Netherlands to Øygarden outside Bergen for storage under the seabed. An important step in the development of commercial and viable value chains for CO2. We have entered several partnerships to develop projects for large scale commercial CO2 storage on the Norwegian continental shelf and to develop low carbon opportunities in the United States and UK. We deliver strong financial results and with updated earnings expectations for 2022, we took a commercial decision to make an additional tax payment of around $10 billion in September. The strong results allow for continuing a competitive capital distribution. The board has decided on a cash dividend of 20 cents per share for the third quarter. On the back of the continued strong financial results, the extraordinary cash dividend is further increased from 50 to 70 cents per share for the third quarter. This is an increase in our cash payments to shareholders of around 30% from second quarter. Furthermore, we continue our share buyback program now at $6 billion for 2022. The fourth and final tranche will be around $1.8 billion with a market share of around $600 million. In total, we increase the capital distribution from $13 to $13.7 billion for 2022. We view this as a balanced approach. where we invest in our competitive portfolio and in the energy transition, while showing a clear commitment to offer an attractive shareholder return. Energy production from the Norwegian continental shelf is crucial to Europe's energy security. We have increased the state of alert based on our assessment to the threat to Equinor. And as a precautionary measure. And as a precautionary measure, and we collaborate closely with authorities on safety and security matters. No to safety statistics. The 12 month average serious incident frequency is 0.4, a slight improvement from last quarter. The total recordable injury frequency for the past 12 months is 2.4 per million hours worked. We deliver a high production in a quarter where we also carry out a bigger scope of seasonal turnarounds. And even with a turnaround at Oseberg, we deliver 11% more gas from the Norwegian continental shelf than in the same quarter last year. Trollgas set a production record delivering 38 BCM or billion cubic meters on a 100% basis in the gas year ending in September. where total oil and gas production ended at 2,021,000 barrels per day. Power production for the quarter ended at 491 gigawatt hours. 294 gigawatt hours of this production came from over-renewable assets, slightly lower than last year due to maintenance activity and less wind. This summer, we acquired 50% of Triton Power in the UK. with the key plant being the Salt End Power Station. Around one month of production is included in the third quarter numbers with nearly 200 gigawatt hours and $29 million in earnings, already paying down on the investment, which was $140 million for Equinox Share. We continue to deliver very strong financial results. The adjusted earnings totaled $24.3 billion and $6.7 billion after tax. The reported net operating income was $26.1 billion, and net income was $9.4 billion. So, we are not isolated from the cost increases impacting the rest of society. Higher energy costs and increased CO2 tax and price impacts our operating costs, but we also see effects from longer lead times on equipment for maintenance. The cost increase is masked in our report due to substantial currency effect, as we are reporting in dollars. We will continue our improvements as well as working strategically with long term suppliers to mitigate rising cost pressure. Then we have net impairment reversals of $1.1 billion, mainly due to increased expectations for refinery margins and higher expected commodity prices. Also, we see value creation from portfolio optimization with a gain of $655 million from the divestment of a share in Ecofisk and a share in Martin Linge to Sval Energi. The tax rate in the quarter ended at 72.4%. Now let's move to the segments. Our Norwegian upstream business delivered its best results ever, with adjusted earnings of $21.1 billion and $4.7 billion after tax. High production, particularly of gas, combined with high prices, drives this result. Our international business, excluding the U.S., performs very well in the quarter, with adjusted earnings of $942 million and $641 after tax. Our U.S. upstream business delivers strong adjusted earnings of $889 million before tax and $868 million after tax. The midstream and marketing segment contributes over $1.4 billion in adjusted earnings and more than $500 million after tax. The gas pipeline network with access to many markets, combined with our marketing and trading capabilities, has enabled us to create value from volatility and geographical spreads, delivering gas where it is needed the most. Excluding the positive impact of timing derivatives this quarter, the result from MMP is $1.2 billion, which is more than twice the high end of what we consider a normal result for MMP. This shows MMP's ability to deliver strong results in volatile markets. Our renewable business has negative adjusted earnings, as expected, of $46 million and negative $32 million after tax. However, our producing facilities contribute with a positive result of $28 million. In the quarter, we have a cash flow from operations of $24.5 billion. The cash flow so far this year is $62.6 billion. In August, we started tax payments based on the 2022 results. In addition to the ordinary payment of 70 billion kroner in August, we choose to make an additional payment based on commercial considerations of 105 billion kroner at the end of September. In total, we paid around 17 billion dollars in tax in the quarter. In fourth quarter, we will pay an additional 140 billion kroner in tax. Capital distribution in the quarter is 3.3 billion dollars. It consists of the dividend from the first quarter, extraordinary dividends, and the market share of the buybacks we made in the quarter. This also includes the state's share of share buybacks done in 2021, totaling $1.4 billion. We are doing some adjustments to our guiding. We expect a year-on-year production increase of around 1%, down from the previous guiding of 2%. This is mainly explained by Johan Sverdrup phase two, starting up later in fourth quarter than we expected. Due to its high production impact, it affects our estimates on a corporate level. We see very high volatility in the natural gas markets in Europe. For days with low prices, we will defer some production to periods where the gas is more needed and the prices are higher. As you know, we did some of this in the second quarter, and we will continue to use our flexibility in the fourth quarter when appropriate. In the third quarter, we have organic investments of $5.8 billion. This is somewhat lower than previously expected and impacted by removal of investments to Russia. For the year as a whole, we expect to invest around $8.5 billion. We still expect an average of about $10 billion for 2022 and 2023, and an increase to around $12 billion on average for 2024 and 2025. So we will revert on this at our capital markets update in February. So thank you very much. And with that, I'll leave the microphone back to you, Mats, and I do look forward to your questions.