Equinor ASA

Welcome to the Equinor analyst call first quarter 2023 results. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by number one on your telephone keypad. If you would like to withdraw your question, please press star one again. For operator assistance throughout the call, please press star zero. And finally, I would like to advise all participants, this call is being recorded. Thank you. I'd now like to welcome Bård Glad-Pedersen to begin the conference. Bård, over to you.

Thank you, Gavin, and good morning to you, ladies and gentlemen. It's a pleasure to welcome you all to Econo's analyst call for our first quarter results for 2023. As it was said, my name is Bård Glad-Pedersen, and I am head of investor relations. As usual, our CFO, Torgim Reitan, will present the results before we open for questions. And we know it's a busy day, so we will aim to keep this session within an hour. Also on the call today, we have Frida Seljevold-Metti, our SVP for Performance Management, and we have Maj Kirsti Enger, our SVP for Accounting. So with that, I hand it over to you, Torgrim, to present our results.

Okay, thank you very much, Bård, and good morning, everyone, and thank you for joining us today. So this quarter, we are delivering strong results across the business, but with lower prices than the historic heights we saw last year. A mild winter in Europe has helped bring energy prices down, And this is good for Europe, and we continue to be a reliable supplier. But the gas market is still vulnerable. And looking ahead to next winter, storage levels will again depend on weather, demand across Europe and China, and LNG capacity. So these factors can easily put pressure on prices in a tight market, and small changes can lead to significant fluctuations. We continue to be a stable supplier of energy to Europe and the world. Therefore, I'm happy to see solid operational performance, and we are on track to deliver 3% production growth in 2023. We are still in uncertain times, and we need to ensure that we steer safely through volatility. And our strategy remains firm, and we aim to be a leading company in the energy transition while offering energy security and delivering strong cash flow, creating value for our shareholders as we change. Our balance sheet is very strong, and our cash flow expectations continues to be high, positioning us well to transition in an investor-friendly way. So, let me take you through the results. For the first quarter, we have strong earnings and cash flow across the business with very high value creation from our marketing and midstream segments. We have seen solid operational performance with production growth driven by ramp up of new fields and resumed operations. We continue to have high gas production from the Norwegian continental shelf to Europe with no deferral of gas volumes this quarter. We experience cost pressure as any industry or consumer, and therefore we are carefully prioritizing our activities and driving cost control. At our capital markets update in February, we announced a step-up in capital distribution based on strong outlook and results, and we are committed to deliver a competitive capital distribution. And it is our clear intention to deliver in total $17 billion in 2023, which results in an industry leading yield of around 20%. For the first quarter, the board has approved a regular cash dividend of 30 cents per share, which was a 50% step up last quarter. And in addition, an extraordinary cash dividend of 60 cents per share, making the total cash dividend 90 cents. We continue to execute a $6 billion share buyback program for this year. Subject to approval of our annual general meeting next week, we will start a second tranche of $1.67 billion, which will start on the 11th of May. So this reflects our clear intention to continue with this level for 2023. And also going forward, beyond 2023, we will continue to use capital distribution as one of our tools to achieve a more efficient capital structure. Safety. The trend for our safety performance is positive in several areas. The 12-month serious incident frequency is 0.4, but we see an increase in the 12-month average when it comes to total recordable injury frequency, which is 2.7 per million hours worked. We investigate every single injury to learn and prevent it from happening again. So production, we are on track to deliver 3% production growth for 2023. In this quarter, we deliver high production of oil and gas with 2,130,000 barrels per day, which is 1% up from a strong first quarter last year. In that quarter, it was the last quarter we had production in Russia. And since then, we have also divested our share in ecofisk and reduced our interest in Martinlinge. So these all contributed to a high production in the same quarter last year. This quarter, production growth is driven by Johan Sverdrup phase 2 and Peregrino coming on stream, and Snøvitt and Sisartonga coming back in operations. In the U.S. Gulf of Mexico, the shell-operated vitofield was put on stream and will contribute to future production growth. We saw high deliveries of natural gas to Europe, with gas up almost 2% from last quarter, and kosher and colesness, you know, or processing plants, delivering 99% production efficiency. We had some short-term operational issues on Johan Sveldrup in the beginning of the year. These were quickly resolved, but they impacted production growth in the quarter. Expected turnarounds for next quarter will impact production by 80,000 barrels per day. With this, we maintain our guidance for maintenance impact on production of 45,000 barrels per day for the year. We made three commercial discoveries in the quarter, with two of them in the Trollfam area. We have also increased our ownership share in five discoveries in this area, strengthening our positions in one of our core areas on the Norwegian continental shelf. Power production for the quarter was 1.2 terabatt-hours. 0.5 of this production is from our renewable assets, slightly higher than last year due to good wind and regularity and high wind thumping in production. We also had strong gas to power contribution from the Triton power plant in the UK. So, turning to our financial results. We have a net income of $5 billion and net operating income of $12.5 billion. Adjusted earnings came in at $12 billion and $3.5 billion after tax. These results are driven by solid operations across the business while impacted by reduced prices. Costs increased compared to first quarter last year due to inflation. increased transportation costs and higher CO2 costs, in addition to high activity levels. For our operations in Norway, reported costs are impacted by the further weakening of Norwegian kroner. This quarter, our unit production cost was $6 per barrel, which is in line with our expectations and what we discussed at our capital market update. We continue to work strategically with our suppliers and across our business units to manage costs. The tax rate on adjusted earnings was 70.6%. Then moving to the segments. Within our upswing segments, we see strong earnings and good cash flow, driven by increased production and solid operational performance. Within our international business, we acquired Suncor Energy UK, with ownership shares in Rosebank and the Buzzard Field, in line with our strategy to optimize our oil and gas portfolio and building on our long-standing position as a broad energy partner to the UK. For the US upstream business, the tax rate on adjusted earnings was 23.4% in the quarter, within the new guided range. But remember, this will be credited against the tax asset we recognized in fourth quarter last year. So the cash flow effect is lower at around $27 million, including the federal alternative minimum tax and state taxes. The midstream and marketing segment delivered very strong results, with $1.3 billion in adjusted earnings. So this is well above the new and increased guiding range for the segment. This is driven by strong results from trading of crude oil and refined products, while results from pipeline gas and power trading are down this quarter from an extraordinary level last year. From this quarter, we have made some changes to our MMP reporting methodologies. We have removed the mark-to-market timing effects of price hedging mechanisms to defer these to the time of physical delivery. The fact is that adjusted earnings are more than $800 million lower in the quarter than it would have been with the methodology we used before. In the report, we have included restatements of previous quarters to enable you to compare results over time. When it comes to mark-to-market effects on derivatives related to geographical optimization, we have concluded to continue to report this within the adjusted earnings. We believe that after a totality of changes made, adjusted earnings will better reflect MMP's underlying performance. Our renewable business delivered $29 million from assets in operation. And as we continue to build this business and the high level of project activity and business development will result in negative adjusted earnings. And we expect results at this level also for the next quarters before it will improve following the startup of the Dogger Bank project. So over to cash flow. At our capital market update, we presented an ambition to deliver average annual cash flow from operations of $20 billion after tax through this decade. This quarter, we deliver cash flow from operations of $9.7 billion after tax. So this is strong, and it is a good start. But remember that this cash flow is impacted by only one tax installment in Norway of $5.4 billion. Next quarter, we will pay two similar tax installments. In the quarter, we paid $3.3 billion in cash dividends and share buybacks. A smaller cash flow impact than we will see in the next quarter. In June, we will pay the state's share of buybacks covering the last four tranches, from the second tranche last year up to and including the first tranche this year. A total of around $3.7 billion. So, with two tax installments in Norway, total cash dividends of $0.90 per share payment, payment of state share of buybacks, and start above the second tranche of the share buyback in the market, we expect a total cash flow impact related to tax and capital distribution to be around $17 billion in the next quarter. So, our solid balance sheet is the basis for good risk management, and our strong cash flow makes us resilient. Or net debt is further reduced to negative 52%, driven by the strong cash flow shown on this slide. And in addition, lower working capital, which has been reduced by around $5 billion. And also lower collaterals due to lower gas prices. So when the net debt is in the negative territory at this level, this ratio is very sensitive to even small changes. And therefore, we see larger than normal fluctuations in the net debt ratio. With current forward prices and tax and capital distribution payouts coming, we expect negative net cash flow in the second quarter and a net debt ratio to increase. After Capital Markets Day in February, we presented our balanced approach to the energy transition, highlighting our ambitions and portfolio. Our direction remains firm, and we maintain our guidance for production growth and organic COPX. So, thank you very much for your attention, and I look forward to your questions and comments. So, thanks.