Equinor ASA

your conference operator for today. At this time, I would like to welcome everyone to the Ekinor analyst conference call. At this time, all lines have been placed on mute to prevent any background noise. Should you require any assistance, please press star and zero on your telephone keypad and an operator will come on the line to assist you. Thank you. Or you may now begin the conference.

Thank you, operator, and good morning, everybody. It's a pleasure to welcome you to the analyst call for Equinor's second quarter result. My name is Bård Glad Pedersen. I'm heading up investor relations. I'm here together with Torgum Reitan, our CFO, and he will present the results before we open for questions, as usual. So with that, I hand it over to you, Torgum.

Thank you board and good morning everyone and we appreciate you joining us and I hope you all are enjoying your summer and that you also get some time for vacation. So let's go straight to the results. We are delivering solid earnings this quarter with adjusted earnings totaling $7.5 billion and $2.2 billion after tax. The main explanation for the drop in results is of course the energy prices are significantly down from the extraordinary levels we saw last year. But compared to prior years, these are still solid results. Particularly European gas prices are lower. And after a record warm winter, current storage levels in Europe are more than 80% full. Still, we see that the market is very sensitive to minor events and only small supply disruptions. Going into autumn, we expect more volatility. Prices will depend on weather, impacting both heating demand and renewable energy production. Also, Chinese and Asian demand competing for LNG will impact prices. We believe this vulnerability will continue into this winter and for the coming years. Longer term, we expect to get more LNG into the market and that LNG will be the price setter, providing fundamental support for higher gas prices. We take our role as perhaps the most important energy provider to Europe very seriously. And towards the end of this decade and beyond, we can deliver 40 BCM annually. We have a very competitive cost for piped gas from the Norwegian continental shelf, below $2 per mbtu, and that puts us in a strong position. This quarter, cash flow from operations continues to be solid. But as expected, and as we discussed in connection with first quarter results, our net cash flow is negative due to your high tax and capital distribution payments reflecting the extraordinary strong results last year. Cash flow from operations after tax year to date is $9.4 billion. positioning us well to deliver on average $20 billion per year, as we said at our capital markets update in February. We see strong liquids production in the quarter, both from the Norwegian continental shelf and internationally. It is actually up 12% in total. but our NCS gas production is lower than last year. It is down 14%. That is due to planned turnarounds, but also due to unplanned shutdowns, you know, at Hammerfest, LNG, and Nyhamna, impacting Snøvit, Åsta Hansden, and Ormen Lange production in the quarter. We also continue to deliver on our strategy across the business. In the quarter, we reached yet another milestone at Johan Sverdrup, increasing capacity to 755,000 barrels of oil per day. And this resulted in record high production from this field. And it will contribute with strong value creation for years to come. In Brazil, we took the final investment decision for the BMC 33 gas fields. And we also continue to invest in a portfolio on the Norwegian continental shelf. This quarter, the development plans for Irpa and Verdande were approved. Both are subsea tiebacks in the Norwegian Sea and can be developed over the next few years, adding new high-value, low-carbon barrels. Last week, we announced the acquisition of the Brazilian renewable energy company, Rio Energy, with a proven organization, a producing asset delivering close to one terawatt hour per year, and a solid pipeline of onshore wind and solar projects. And I look much forward to welcome our new colleagues. The acquired project portfolio is anticipated to deliver at the high end of the range for our expected renewables return of real 4% to 8%. And that includes the acquisition price. We are developing a portfolio in a country we know well. taking part in the largest power market in South America. This is similar to what we have done in other selected markets, such as with Bento in Poland and BGreen in Northern Europe. In the U.S., the lease for floating offshore wind in California has been approved, and here in Norway, Hyven Tampen is in production. We continue to deliver capital distribution in line with what we communicated at our capital markets update. For the quarter, the board has decided an ordinary cash dividend of 30 cents per share. In addition, the extraordinary dividend of 60 cents per share, totaling 90 cents in cash dividend. We continue our share buyback program. The third tranche will be $1.67 billion in line with a program for 2023 of $6 billion. In total, we expect a capital distribution of around $17 billion for 2023, as we have discussed at our capital markets update in February. Okay, turning to safety. we see that the serious incident frequency is 0.3. This is our best result so far. And also the total recordable injury frequency is down from 2.7 to 2.5. Safety remains our top priority. We produced 1,994,000 barrels of oil and gas per day in the quarter, slightly higher than second quarter last year. In addition to record production at Johannes Fedrup, we also had strong liquids production from our international operations, particularly due to high production from Peregrino in Brazil and the partner-operated Vito and Cesar Tonga fields in the Gulf of Mexico. We have lower gas production this quarter, partly because we had more planned turnarounds, but also due to the unplanned shutdowns at Hammerfest LNG, G and Nyhamna, impacting Åstad Hansten and Ormelange. They are all back in normal production now, but the impact for the quarter was around 70,000 barrels per day. On power production, 345 GWh from renewable assets is slightly higher than last year, due to two new solar power plants in Poland and Highwind Tampen being fully operational. We are now waiting for the startup of Doggebank A, a milestone for the world's largest offshore wind farm. We are assembling the first turbines as we speak, and we expect first power later this summer. Let me turn to our segment results. Adjusted earnings on the NCS totaled $6 billion, driven primarily by strong liquid production. It is a reminder that even if we are the largest gas supplier to Europe, we are also a large oil producer, and we create significant value from that. Internationally, good production growth drove solid results. Our US business posted adjusted earnings of $226 million, while E&P International delivered $751 million. This includes the reversal of previously expensed exploration of $227 million. Our marketing and midstream segment delivered solid adjusted earnings of $665 million. This is within our increased guided range, achieved in a quarter with lower volatility and with lower prices. Our acquisition of Danske Commodities pays off, and we had received our first dividend of 1.5 billion euro. In our renewables business, our assets in operation contribute with $33 million. But with high activity, both within projects and business development, adjusted earnings are negative $84 million. We expect a further lowering of adjusted earnings in the coming quarters related to this segment as activity continues to increase. Inflation and global supply chain pressure continues to affect the industry. Transportation costs, high maintenance and activity levels, and increasing CO2 prices contribute to increased costs compared to the same quarter last year. From first quarter, we see a fairly flat cost development, but we are prepared for continued cost pressure and strong cost management remains important. The reported costs for our operation in Norway are impacted by the strength of Norwegian kroner. Over the last year, Norwegian kroner has weakened, impacting the results. Now we see that the Norwegian kroner is strengthening somewhat, and that will also impact our operational costs going forward. In the quarter, we reported cash flow from operations of $10.5 billion, and negative $356 million after tax, following two tax installments in Norway of $10 billion in total. In the third quarter, we will pay one tax installment of around $3.75 billion. In the second quarter, we also paid significant capital distribution of $6.8 billion in cash dividends and share buybacks, including $3.6 billion to the state for their share of previous tranches. Working capital decreased by $2.2 billion, primarily due to lower gas prices and lower gas volumes sold. After tax, capital distribution and capital expenditures, our net cash flow was, as expected, negative $10.8 billion. When that is said, our financial position remains robust with a strong balance sheet and cash and cash equivalents and financial investments of $42.6 billion and a net debt to capital employed ratio of negative 35%. So let me then conclude by taking you through our guiding. We had unplanned production losses with an impact of around 70,000 barrels per day in the quarter. Despite this, we maintain our guiding of around 3% production growth this year. However, the risk is no more on the downside of this guiding. Organic CAPEX so far this year is $4.6 billion, and we maintain the CAPEX guiding we gave in February. With that, I hand it back to you, board, and I look forward to your questions.