Equinor ASA

Thank you for standing by and welcome to the Equinor Q3 2023 analyst call. 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 the number one on your telephone keypad. If you would like to withdraw your question, press the star one again. For operator assistance throughout the call, please press star zero. And finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Bård Gladpedersen, Senior Vice President of Investor Relations, to begin the conference. Bård, over to you.

Thank you, Operator, and good morning to everybody on this call. As the Operator said, my name is Bård Gladpedersen, and I'm heading up Investor Relations in Equinor. I'm here together with our CFO, Torgrim Reitan. He will take us through the results before we start the Q&A session, and we will try to keep this within one hour in total. So with that, I give the word to you, Torgrim.

So thank you, board, and good morning, everyone, and thank you for joining us. Today, we deliver strong results in a quarter with lower prices than the extraordinary levels we saw last year. We have strong adjusted earnings of $8 billion and $2.7 billion after taxes. Our net operating income came in at $7.5 billion, and net income was $2.5 billion. Yet to date, we have a strong cash flow from operations after tax of $17 billion. This corresponds well to what we said at the Capital Markets Day in February, when we expected to deliver on average $20 billion annually all the way to 2030. We are on track with our delivery this year. European gas prices are significantly lower than last year. Storages are now for all practical purposes full, and this is as expected. However, the gas market is tight, and it is still very sensitive. We have seen price spikes related to possible strikes in Australia, the terrorist attack on Israel, and the situation with the Baltic pipeline. This winter, prices will again depend on weather, gas demand recovery in Europe, competition for LNG from Asia, and any supply disruptions. We believe volatility will continue into the winter and for the coming years. During the quarter, we have seen strengthening liquids prices, and we captured these higher prices through increased liquids production across our portfolio. or NCS gas production, however, is down due to planned maintenance, but also due to unplanned extended turnarounds. And I will come back to production later in my presentation. We had strong liquid sales and trading that drove our M&P results above the increased guidance for the quarter. This fall, we have passed significant milestones, and I'm proud of the hard work and collaboration of our colleagues who make this happen. In early October, we saw first power at Dogger Bank, the world's largest offshore wind farm. When fully complete, its 3.6 gigawatt capacity with 277 turbines will produce enough energy to power the equivalent of 6 million British homes. This is a large and profitable project with inflation-adjusted off-take contracts that support value creation. So we see progress. But the offshore wind industry is also experiencing challenges with inflation, higher interest rates and supply chain bottlenecks. Our petition to New York for price adjustment of projects on the US East Coast was denied, together with similar petitions from many other developers. Contrary to in the UK and Poland, off-take contracts here or in the US are not inflation adjusted. So based on this, we have taken an impairment on the US East Coast projects. We are now assessing the impact of New York's decision, and we are working closely with the state as they further develop their 10-point action plan to expand and support the renewable industry. Last night, New York advanced an expedited renewable energy procurement process, as they call it, as part of the 10-point plan. We welcome this. But it is important for me to say that our projects must be financially robust to proceed. More broadly, we remain confident that offshore wind will be important for the energy transition, and that we can be a leader in this industry. Our strategy to profitably grow in renewables remains firm, We have a strong portfolio within offshore wind, but also within onshore renewables, where we have accessed attractive opportunities when prices for offshore wind have been too high. For example, our Bolton acquisitions of B-Green in Denmark, Vento in Poland, and Rio Energy in Brazil. Energy security remains very important. We have mature projects with high value and low emissions. And just last week, we brought Bredablik on stream, on cost and four months ahead of schedule. At Plateau, Bredablik is expected to send 55 to 60,000 barrels per day to the market. This is a subsea tieback to the Grane platform in the North Sea. And it is a good example of our use of existing infrastructure, generating production with low cost and low emissions. The field is expected to be paid off in less than two years. We also received PDO approval for our Snøvit future projects, which will electrify our Hammerfest LNG plant and significantly reduce emissions by 850,000 tons per year. And last but not least, in the quarter, we reached a final investment decision and got approval for Rose Bank in the UK, a significant project for our international portfolio. We continue with strong capital distribution in line with what we communicated at our capital markets update. For the quarter, The board approved an ordinary cash dividend of 30 cents per share, as well as continuing the extraordinary dividend of 60 cents per share, for a total of 90 cents in cash dividend. We continue our share buyback program. The fourth and final tranche will be $1.67 billion, in line with a program for 2023 of total $6 billion. For this year, we are delivering a total capital distribution of around $17 billion. Then, turning to safety. In August, there was a fatality of a crew member who fell overboard on an LNPG tanker in Malaysia. The vessel was in operation for Equinor. And the tragic incident is affecting everyone involved. So this is a strong reminder that even with a positive safety trend, we must keep focusing on safety in all our activities. Safety will remain our top priority. In the quarter, we produced 2,007,000 barrels of oil and gas per day. And as you see on the slide, this is substantially more oil, but less gas than in the third quarter last year. Our liquids production increased 12% compared to this quarter last year, driven by Johan Sverdrup in Norway with increased production capacity, Peregrino in Brazil, the partner-operated Vito Field in the US Gulf of Mexico, and the addition of Buzzard in the UK. Our NCS gas production, however, is down 16% this quarter, driven by planned maintenance, but also unplanned extended turnarounds on Troll A and Nyhamna gas processing plant. They are all back in normal production now, but the impact for the quarter was around 60,000 barrels per day, And we had a similar impact last quarter of around 70,000 barrels per day. Therefore, we have adjusted our guidance for production growth from around 3% to around 1.5% in 2023. Power production for the quarter ended at 883 GWh. 373 of this is from our renewable assets, slightly higher than last year, driven by onshore renewables in Poland and Highwind Tampen being fully operational. Gas to power production was 510 gigawatt hours from our Triton power plant, which is lower than in second quarter. So let's now turn to our financial results. The prices for both oil and gas are lower than last year. A realized gas price is down around 75%, 75%, and even more in the U.S. actually. Adjusted earnings in EMP Norway totaled $6.1 billion before tax, driven primarily by strong liquids production. Our EMP International delivered $809 million And our U.S. business posted adjusted earnings of $343 million. Both segments driven by higher liquid production and high realized liquids prices. Adjusted earnings after tax from our combined international segments was more than $900 million. In the marketing and midstream segment, our adjusted earnings came in above our increased guidance with $876 million. This was driven by strong liquid sales and trading due to our ability to capture opportunities in inefficient markets and our strong performance from our LNG and shipping activities. Our renewables business posed negative results as we continue to invest in new projects and business developments. We see operating costs coming down with 2% from second quarter, from last quarter. But costs have increased over several quarters, so we will continue with strong cost management and capital disciplines. We have net impairments in the quarter of $971 million. This includes impairments for a field in the North Sea and the Mongstad refinery, and a reversal for a field in the Gulf of Mexico. The impairment of a US East Coast offshore wind project is $300 million. Here, we now have a remaining book value totaling around $300 million. $100 million in the projects and around $200 million related to real estate in New York and cables. Our total exposure also includes additional commitments related to infrastructure and contracts with suppliers. But you should also remember, we entered these US East Coast projects early, and we paid less than $200 million on a 100% basis. We later divested 50%, and we booked a gain of $1 billion. In the quarter, cash flow from operations was $11.3 billion, and $7.6 billion after tax. We have paid one tax installment of around $3.7 billion, and capital distribution of $3.1 billion. Next quarter, we are paying two NCS tax installments of around $3.75 billion each, and one additional tax payment of $1 billion due to increased commodity prices. After tax, capital distribution and capital expenditures, our net cash flow was positive $1.5 billion. For the full year, we expect to have negative net cash flow as discussed at CMU. And with higher tax payments next quarter, we expect negative net cash flow in the fourth quarter. So far, we have negative $5 billion for the year, and this is in line with our expectation. We have a robust financial position with cash, cash equivalents, and financial investments of $40.2 billion, and a net debt-to-capital-employed ratio of negative 22.9%. This includes tax normalization to even out taxes across the third and fourth quarter. And without that, the net debt ratio would have been around negative 30%. So let us conclude with our guiding. As stated last quarter, we saw a higher downside risk to our production guidance. Due to the unplanned production losses in the third quarter, we adjust our guidance to around 1.5% production growth in 2023. Organic CAPEX is so far this year $7.2 billion. We maintain our guiding of $10 to $11 billion for the year, and we expect to be in the lower end of this range. We will, as usual, revert to longer-term CAPEX guidance at our capital markets update in February. So with that, I will hand it over back to you, Bård, and I do look forward to your questions. So thank you very much.

Thank you, Torgrim, and we are then ready to start the Q&A session. So, operator, if you can remind of the instructions for that.

Thank you both. And at this time, I would like to remind everyone, in order to ask a question, press star, then the number 1 on your telephone keypad. And in the interest of time, would you request to please limit your questions to 1 and 1 follow-up? Again, if you would like to enter in the queue to ask a question, press star 1. And your first question comes from the line of Baraj Bokhtari from Royal Bank of Canada. Your line is open.

Hi, Board. Thanks for taking my questions. I wanted to circle back on the U.S. wind position. So you've taken the impairment today. Last night there was some news from the New York State around a request for consultation. So it seems like they're making an effort to expedite some of these things and push these things forward. Where does this leave, you know, Equinor and Empire Wind? You obviously took the decision to impair because you couldn't negotiate the PPA. But I'm just wondering, you know, what the next steps are from here. And then the second one is on Norwegian output. You know, arguably you've had more than your fair share of unplanned outages this year. When you do your audits and analysis, is there a common theme here in terms of the issues or all of these projects specific? And how can investors get some comfort around your ability to produce reliably, you know, going forward given the issues this year? Thank you.

Okay. Thank you very much, Biraj. So on your first question on the U.S. win, yes. So, I mean, the petition towards the state, it was rejected. And that was the basis for the impairments that we have done. And right after we received that rejection, the state came out with a 10-point action plan for opportunities to rebid on our contracts. And then, as you said, last night, they came out with... We sort of, you know, how they want to run this process, where they would like feedback from us next week on our process. And then we'll see where that leads us. So, first of all, you know, we clearly we welcome that they push forward the action plan quickly and what they are doing now. I do find that as a signal of commitment and a willingness to fast forward a process. For us, it's too early to conclude. Too early to conclude. But what I want to say is that for us to move forward with these projects, we need to see profitability that is sort of reflecting the risk at hand. So we will continue to work closely with the state as sort of the process unfold. And we will be more than happy to share more details when we know more naturally. On your second question, on the Norwegian output. So let me first go through the different sort of incidents or things that happened. We had Melkøya. during the summer with a gas leakage, you know, an incident that sort of halted production from Snøvet during summer and also into the third quarter. We had Nyhamna, which is, you know, a processing plant operated by Shell, where the turnaround was prolonged. And that sort of led to that we need to hold back production from Osterhansden, which we operate, but also Ommelange operated by Shell needed to hold back production due to the prolonged turnaround in Nyhavn. And the third one is on Troll A, which was due to a turnaround. But as we were starting that up, we discovered some welding issues on some of the work. So we needed to revisit that and that sort of delayed the startup of Troll with 13 days as such. My point is that these three events are not interconnected in any way. They are separate incidents. And, you know, all of these are plans of high integrity and high quality. And it's not going to – I mean, we are confident that these will – have no long-term impact as such. In general terms, I would say that the standard and quality of our facilities is very high and demonstrated by high production efficiency. I think when we talk about production output next year and following year, let me give you a couple of data points. You have seen Bredaby coming on stream recently, so that is sort of adding production next year. Also Vito in the Gulf of Mexico. Then Johan Casberg is sort of the big new startup next year. That is planned to come towards the end of 2024, so it will have a limited impact on the full year. But in the last quarter, we expect that to have a good impact. We are also, you know, a startup of Christian Salt, phase one, with some volumes and such. But please remember, there is an underlying decline in the portfolio that we need to be aware of as well. And then in 2025, we have Bacalao, phase one, as a significant startup. And also there's a lineup of NCS assets that are coming with a good production output as such. So, I mean, it's a solid portfolio with profitable assets coming on board. And what we have seen this year, we don't see that having a long-term impact on the ability to produce. So thanks, Spiros.

Thank you very much.

Thank you, Turgim, and thank you, Biraj, for your question. The next question will be Giacomo Romeo from Jefferies. Please, Giacomo.

Yes, thank you. First question I have is on Dogabank A. You announced first power in October. However, we noticed that only four turbines have been stalled out of the 94 turbines. Just wondering when do you expect to reach full power capacity? Have some clarity there if possible. Thank you. Just second question is you had a contribution in MMP from crude products and liquids again this quarter. Obviously, we normally talk about your gas and power trading business, but crude has and products have done very well and pretty consistently. If anything has changed here in the way you sort of look at the optimization and trade around liquids, Tom Kohler, that would be great. Thank you.

Okay. Thank you very much, Nicola. So first on Dogger Bank. Yeah, first power. I'm very glad to see that. So this is sort of being installed. There are many turbines and we expect sort of full power next year in third quarter as such for Dogger Bank A. Really looking forward to that. And as you know, Dogger Bank projects are looking, you know, good from a profitability perspective. In the UK, the contracts for differences are adjusted for inflation and with sort of the inflation seen in the UK over the last years, that has contributed well to a very attractive assets. On your second question, on M&P, yeah. So, I mean, M&P continues to deliver strongly and this quarter above the increased guidance that we gave at the Capital Markets Day. And I also think it's worth noting that natural gas, which was sort of the big contributor last year, is still contributing solidly, but they are not the one doing sort of the heavy lifting in this result. That is the liquid trading as such. So this comes out of arbitrage opportunities resulting from that global trading flows are changing due to Russian oil being delivered into Asia. So we see that creates opportunities when you have goods and large shipping fleet combined with the qualities that we produce around the globe. So I'm very glad to see that we have been able to really take out the value opportunities that arise in a changing oil market as such. So going forward, it's very hard to predict naturally who is going to be the biggest contributor from quarter to quarter. But as long as there are arbitrage opportunities within the oil market, we'll take them. And the gas results, they will typically be driven by by volatility in the market and arbitrage opportunities between the various geographical markets as well. Those have been fairly muted in the third quarter, but they have been very, very large early on. So when that changes, we are ready to take and then create more value from that part.

Thank you, and thank you, Giacomo, for your question. The next one is Oswald Klint from Bernstein. Oswald, please go ahead.

Yes, thank you. Good morning. Yeah, I wanted to also ask about MMP and the $400 million to $800 million a quarter guidance that was increased at the start of the year. Obviously, beating it this quarter is normally less exciting for natural gas. You just discussed the liquid side. You know, I remember the chart back in February had quite a lot more upside from optionality and optimization. That fuzzy blue bar was significantly higher. So, I mean, the question is, as we roll into next year, is there any confidence building, I guess, internally that you can probably do more than this guidance or at least more than the lower end of that guidance range? That's the first one. And then secondly, yeah, I had a follow-up. I wanted to know if you could tell us more about the Linnorm field in offshore NCS. It seems like it's a sizable one and it may be moving forward. So just your latest discussions in the consortium around the concept and whether we could see this moving forward, please. Thank you.

Thanks, Oswald. Yeah, so MMP continues to deliver strongly. And I think it's fair to say that we have confidence in that we will be able to continue to deliver strong results from that segment. Going into next year, clearly volatility will be important to monitor. And we have seen in particular with a lot of volatility in the market, we can make or balance it available to take risk and make significant profit. And we saw that in 2022 from Danske Commodities and from the gas trading as well. So, yes, we are confident that we will be able to deliver good value. So, only norm. You know, it is not operated by ourselves. This is operated by Shell. So it will be natural to confer with them on the specifics. But clearly, this is, you know, it is a gas and condensate field. And, you know, it is an asset that we like and support and we stand fully behind Shell in sort of the way forward on that asset.

okay okay very good thank you thank you and the next question is theodore sven nielsen from sparbanken markets hello there thanks for my questions and uh congrats on strong results um two questions the first on sweater the field is currently producing very well i just only should expect the current level uh also next year i also noticed on sweater that the lifting so loading has declined substantially over the past few weeks should we read anything out of that when it comes to fourth quarter production from from swederup uh second question is on on ncsbs and of course there has been a lot of maintenance during the past few months which has reduced production just want to discuss whether we should should relate this to the very high production last year that some of the maintenance was was skipped and that is the reason why we see low low production this year or is that totally unrelated from last year's strong gas production thanks okay um thanks theodore so on your hands further you know

Very glad to see how Johan's World Up is performing with high production efficiency. And we will continue to produce at high levels. But of course, you know, with the increased capacity, We will also sort of come off plateau at some point in time. It is expected to be coming off plateau in 2024. and 2025 as such. But as you know, we are actively working with the reservoir and getting to understand it better and optimizing it on a daily basis. We are also working on Johan's Word Group Phase 3. which will be a subsea development with two templates typically and eight wells that we will try to tie into the platform. And the purpose of that development is, of course, to maintain a high level of production on Johan's product continuously. On sort of lifting, you know, you shouldn't put much to that. I mean, production is stable last week on Johan Sverdrup. Excuse me. On your second question, Theodor, on the... on the gas production and whether the production issues we have seen this year is related to last year's high production. And the answer to that is that is unrelated. So there's no sort of link back to that.

Thank you. Okay, thank you. Thank you, Teodor. The next question is Alistair Syme from Citi. So please go ahead, Alistair.

Yeah, thanks, Bård. Torbjörn, can you talk about, just back on the renewables, about your supply chain commitment? I think I remember you saying that on Empire Wind 1, there was already quite a lot of contracting in place around turbine suppliers and maybe a boat. but there doesn't seem to be much remaining book value. So I'm just wondering how we square that up, or are we seeing break clauses or something in there? And then just secondly, you know, I'm interested to hear what you're seeing in the recent gas demand data in recent weeks. You know, we can all see the aggregate data, but I'm sure you've got a lot more color on what different customer groups are doing, so I'd be really interested to hear that.

Thank you. Okay. Thanks, Alistair. So on renewables and supply chain commitment. So let me talk to the situation in the US. So the impairment that we have done is $300 million, as I said. We have now still $100 million in book value in sort of the two assets. And in addition to that, we have $200 million books related to real estate in New York and some equipment, which is, you know, in reality cables. Beyond that, we have commitments that is not sort of booked, but we still have them. They are mainly related to lease arrangements to a property in Brooklyn as such, which is a lease and a property that can be used for other purposes. And we have also contracts related to ships and turbines, which are typically, you know, can be used other places in the portfolio as well. But, I mean, it's too early to give specific numbers on those, but that is sort of the exposure as such. We have, yeah, so in addition to that, we have, you know, a termination fee to the current offtake contracts, which is at $16 million as such. So I think that gives sort of the totality of the exposure at hand. And again, sort of we are welcoming the process that the New York State now is starting. And we will work closely with them to see what sort of opportunities that can arise out of that. So thanks, Alistair. On gas demand. Yeah, I mean, storages are for practical purposes full for the time being, but clearly we see a very tight market and a rather nervous market. We're sort of small, not small, but where happenings have typically a significant impact on prices. We have seen it on... on the terrorist attack on Israel. We have seen it on the pipeline, the Baltic pipeline. And we see quite a bit of volatility in the prompt particularly. So I think we just need to be prepared for a rather volatile and tight situation through this winter. Weather will of course always be a significant thing and as well demand from Asia. Demand is sort of, I mean, demand from industrial customers. are not really coming back to pre-war levels, but it is still sort of a healthy demand, also from the industrial segments, as I see it.

Okay, thanks for the kind talk.

Thank you. Next one is Henri Patricot from UBS. So, Henri, please.

Thank you for the presentation. Two questions, please. The first one I want to ask about M&A. We've seen quite a bit of consolidation in the U.S. upstream lately, and we're seeing changes in renewables. I was wondering whether these recent developments are changing in a way your potential appetite for M&A and your focus in terms of where you're likely to make acquisitions in the future in terms of regions, but also between upstream and renewables. And then secondly, I wanted to ask about the CapEx. You mentioned that you see CapEx for this year more in the lower end of the guidance range. Can you expand on what's driving CapEx toward the lower end for this year and whether you see risk a bit to the downside as well for the next few years or if there's just inflation or pressure and risk maybe more to the upside? Thank you. Yeah.

Thanks, Henry. So first on M&A, yeah, so I mean the two large acquisitions in the U.S. clearly, you know, send some signals to the market. One that is that sort of oil and gas, you know, is, you know, to be attractive for a long period as such. And also I think there is an element of energy security importance as well that is sort of driving that. So I don't think it's unlikely that we will see more transactions of also bigger size going forward. But this time it is a little bit different than last time around. Last time around it was driven by a you know, a low price environment and cost synergies and efficiency. This is not a driver this time around. There are different drivers. So I think what this will lead to is more uncertain this time around. So we will have to follow that closely. You know, but, you know, we have our portfolio, I mean, it is a strong portfolio within oil and gas already. I mean, we are growing towards 2026 and we will keep the same level all the way to 2030. And we have an average break even of $35 per barrel and internal rate of return on 30% of these projects. So there's a good investment program going forward. When that is said, I mean, we are using M&A actively as a tool. And you have seen it, you know, last year, we have made an acquisition into oil and gas, the SEMCO portfolio in May. in the UK, and you have seen several acquisitions within the renewable space as well, you know, Rio Energy, BeGreen in Denmark. So we will continue to use M&A actively. to focus and deepen our oil and gas activities and to support, you know, the energy transition and building a new portfolio. So, I mean, we will do that. And then, you know, it is very important for me to say that capital discipline is front and center when doing M&A. Timing is of essence and quality is of essence. Your second question on CAPEX. So the reason for that we will come towards the lower end of the guiding this year is phasing of projects. So these are spending that typically will move on to later years. When it comes to from 2024 and onwards, We are in the midst of our planning season. We are prioritizing among a set of very attractive investment opportunities. There is competition for funds. So we are in the midst of doing that. I think it's fair to say that we will continue to demonstrate capital discipline. And then, of course, we note that there is inflationary pressure in the portfolio, which is particularly linked to the non-sanctioned part of the portfolio. But, you know, we are managing this well, and we will come back to this on the Capital Markets Day in February.

Thank you. Thank you. Next question is Kim Fustier from HSBC. Kim, please go ahead.

Oh, hi. Thanks for taking my question. My first question is on low-carbon solutions. I think you recently bought a 25% stake in Chevron's Bayou Bend CCS project on the U.S. Gulf Coast. Could you just talk about the development timeline and about what Equinor is bringing to the consortium? And secondly, it seems that there's some controversy from environmental groups in Norway with respect to new NCS developments, including Bredeblik and Uvdrasil. Could you comment on the operating environment in Norway? Could things maybe become more difficult going forward if these environmental groups gain more traction? Thank you.

Okay. Thank you. Kim? So you're right, we made an acquisition into Bioband in Texas. That's a carbon CCS project and storage. Chevron is operator and we now sit on 25% on that lease. So this is a reservoir of very high quality. and with a potentially significant capacity to store CO2. I mean, benefiting from the IRA regulation. So we are enthusiastic about that opportunity. We typically bring quite a bit of experience when it comes to reservoir management. and understanding of capacities and, you know, how to do this. And we have a long experience working together with Chevron in the Gulf of Mexico, also particularly working on the reservoir topics together with them. So we see that as a career. And then, you know, we shouldn't forget that, you know, we have, you know, more than 30 years of experience working on CCS from the Norwegian continental shelf through our experience on Schleipner and also on some other fields as well. On your second question, on the sentiment in Norway for future development, Yeah, it is, you know, clearly there is opposition in Norway as well as in other places. I would say there is politically a very strong and good consent, you know, and collaboration across political landscape to support the development of the Norwegian continental shelf. So I feel confident that this is an area where investing into oil and gas is giving a predictable and a stable environment as such. And then there will always be you know, institutions and voices that are against what we do. And we need to treat that with respect and openness. And clearly we are in dialogue with everyone as such. So I don't find it to be any particular concerns in Norway compared to other places.

Thank you. Thank you. Next question is Peter Lowe from Redburn. Peter, please go ahead.

Thanks. It's a question on the balance sheet. It remains firmly net cash. You've talked in the past about wanting to return to that 15% to 30% leverage ratio, and perhaps distributions being something that will kind of get you there. As we begin to think about 2024 shareholder distributions, can you give us any insight on kind of how quickly you'd like to get back to that leverage range? And then the second one, which is very quickly, you mentioned the impairment you've taken on the NCS. uh due to i think an asset uh uh having kind of a low reserve estimate than previously and then also a reversal of an impairment in the us are you able to name those assets and say what led to that change in assessment thanks okay thanks peter so uh on your first question on the balance sheet and capital distribution going forward

Yeah, you know, we are in a situation where we have a negative net debt of minus 22.9% and we have a sort of a long term guiding, which is sort of 15 to 30% net debt. which is sort of mathematically what is solidly supporting a strong single A category credit rating on a standalone basis. We have a higher rating than that currently. So you should read that as sort of a range that we will sort of find as a more optimal capital structure of the company. And, you know, from time to time we are above and then, you know, also below as such. So that is sort of a long-term aspiration. We are – and I have said earlier that capital distribution is something that we are using currently to – distribute cash that we have on the balance sheet to drive a more efficient capital structure of the company. And I've also said that we will continue to use that as one of our tools to achieve that going forward. It is, of course, nothing that I can go into any details on in this call, but clearly we will come back to that in our fourth quarter call and capital markets update. On your second question, Peter, NCS impairment. Yes, that is Martin Linge. It is an asset that we took over from... from Total many years ago, and we have had issues with that asset repeatedly as well. So this time around, it is related to the reservoir, where we see that production is postponed to come towards later in the production cycle. life of the field, meaning that the discounted value of the asset is going down. So that's Martin Linge. This is not a broader concern at all on the NCS. This is isolated to this asset. Yeah, and then we talked about the reversal in the US. That is That is related to an asset in Gulf of Mexico, $290 million. So thanks, Peter. Thank you.

Thank you, Peter. And Anders Rosenlund from SCB is the next question. So, Anders, please go ahead.

Thank you. It feels like repeating almost the first or the previous question, but I I'd like to revert to the overcapitalization situation, and the path you're pursuing is not remedying the situation. So what's the natural consequence of that? Is that more aggressive dividends and buybacks, or are you happy with the development that you're seeing?

I think it's important for me to reflect upon the volatility and uncertainty that we are facing as an industry. In 2020, we had the weakest result in history for Equinor. In 2022, we had the highest and strongest results. So within two years, we went to worst to best as such, and that is the volatility. and exposure that we need to manage meaning that we will have to and we shall run with a solid balance sheet to be able to weather any storms that is ahead of us and then we are of course in an extraordinary situation now where capital distribution gives room for additional capital distribution as you have seen this year and then we said again you know we will continue to use capital distribution as one of the tools to bring this back to a more efficient capital structure. But we'll speak much more to this in our Capital Markets Day in February. So looking forward to see you then.

Thank you, Anders. Next one is Michele De La Vigna from Goldman Sachs. So, Michele, please.

Thank you very much, and congratulations again on the strong delivery this quarter. My question really is about the security of your Norwegian pipeline infrastructure. We've seen issues in Sweden, in Finland, Estonia. I was just wondering, over the last couple of years, what has changed in terms of the focus on guaranteeing the security of those pipelines, and that would make you comfortable that such an issue would not happen?

take place on the norwegian continental shelf thank you thank you michael it's a very very important question so thank you very much uh clearly this is you know front and center for us you know these days after the the the terrible you know attack on ukraine um We are seen as the most important energy company in Europe and clearly we will do our utmost to serve Europe with natural gas and other energy sources as well. We have increased the security levels on all our installations and infrastructure on the shelf and we have taken many measures. As you would understand, we have a very good dialogue with the security institutions and safety and also international organizations so to understand and we have a lot of support from those institutions and also from support from military organizations as well. What we have done over the last year is that we have mapped all our pipelines. We have screened them with sort of underwater equipment to all of them and we are monitoring closely the situation. So this is front and center and top attention to the company and And we are doing everything we can together with Norwegian and international authorities to safeguard energy deliveries to Europe.

Thank you. Thank you, Miguel. Next is Henry Thal from Berenberg. So, Henry, please.

Thanks very much for taking my questions. Two, please. One is just on the... to come back again to the offshore winds and the RFP process, et cetera. I guess, as you've said, you're looking at the opportunities going forwards and that you need an economic return on those. Would it be right then to look at the request you put in for the uplift and think that that's the kind of level return on those assets on beacon and empire and then the second question is just on the on the cost inflation you're seeing on the portfolio on the non-sanctioned assets um is is there a um is there a difference are there any hot spots particularly um either in norway or uh or outside that we should watch thank you okay thank you thank you so um

um so offshore wind yeah so very important for me to again say that that for us to move forward with these projects we need to have a they need to be profitable and you know the returns need to to to match the risk that we are facing uh it is it is too early to conclude but but uh but we we put forward requests in the petition and that clearly illustrates, you know, changes that needs to happen. I mean, we have communicated that we would like to see 48% real unlevered return from our businesses within renewables. And that still is the case. On cost inflation, and that is the way I understood your question, that is more general, not only related to renewables. So... I would say that, you know, across the supplier base, it is still, you know, a challenge. We see that within the raw materials in this situation is easy, you know, driven by sort of, you know, global growth, actually. It is easy. But we see a continued tightening in the supply market. That is driven by energy prices. but also the activity level. And if I should go into more on your hotspots, let me pick a few. On rigs, we see that as a challenging environment. 50% of the fleet has been scrapped since 2015. And, you know, no or hardly any new builds as such. NCS will be strained, but as you have seen, we have taken on capacity with the coastal rigs, so we are in good shape there. Then, if we talk about engineering and construction, we see, you know, short-term, you know, high utilization in yards in Norway. That is probably going to last a couple of more years until sort of the wave of new project on CNCS has come in production. Internationally driven, you know, very much by, you know, LNG new builds and FPSOs as such. So we see a tight situation there as well. But there are opportunities. There are opportunities. Yeah. then clearly across the whole universe of electrification and cables going into renewable and offshore wind, but also the electrification projects we have on the Norwegian continent itself, we see tightness and limitations. So, I mean, all of this is pointing to a rather tight situation across the supplier base. and we see that sort of filtering into inflation in sort of the numbers that we are looking at. But, you know, as a big company as we are and a big procurer, we have priority, and we will be able to get access to what we will need. So thanks, André.

Thank you very much.

Thank you. We are fast approaching the hour, but let's try to cover one or two more. Chris Coupland, Bank of America, you are next, Chris.

Yeah, thank you very much. I hope you can hear me okay. I'll try and keep it brief with only one talk, Raymond. I know it's an unfair question, and I look forward to February already. But I wanted to just see whether you would like to comment on the fact that you seem to be the only American in Europe when it comes to how you define shareholder distributions, i.e., in billion dollars rather than in a payout ratio. Do you feel consciously aware of that in the way you are thinking around how you're going to update us in February? And I'm not asking for a number or anything, just about the principle of guiding for future shareholder distributions through the cycle. Thank you.

Thanks, Chris. I think it will be wrong for me to be specific here at all, but I can give you maybe one thing to reflect upon, and that is In our cash flow, we typically have so many specialities related to Norwegian tax with delayed payments and all of that. So that is sort of always a disturbing factor if you're going to think about, you know, a search. But, you know, we have what we have currently, and, you know, we – We have $17 billion this year, and we will come back to this on Captain Marcus Day in February.

Understood. Thank you.

Thank you. Then we'll do the final question, and that will be you, Paul Redman from BNP Paribas. Paul, please go ahead.

Last but least, I hope, everyone, just one quick one. If the agreements with the New York government do not go in a positive direction and Equinor did step away from the offshore wind portfolio, what could we expect to see at that point? Would we expect to see challenge on the longer-term gigawatt targets? would capex come down or when you look at the renewable portfolio do you have other assets which are high return that could potentially fill the slot that the wind portfolio essentially cannot meet okay thanks paul um so um you know over the last few years you know we haven't won

new leases as such. I mean, we have used opportunity to actually divest out of assets and capitalize on significant prices. And instead of sort of, you know, fighting for In these sort of lease rounds, we have actually built an onshore portfolio through acquisition of various platforms, both in Denmark, Brazil, and Poland as such, with quite a good pipeline of opportunities. So our target for 2030 remains firm, but what you might expect is that there will be maybe a little bit shift of content between offshore and onshore in the delivery of that. When it comes to sort of the US project as such, I mean, they are part of our planning and we are working closely with the New York State on the ongoing process as such. So, I mean, we will come back to this later on when we know more. about the process. We have not concluded yet, and again, and that will probably be my final word, any investments into US wind will have to be profitable.

Thank you, Tore Grim, and let me remind you all that we are, of course, always available in the investor relations team. So if there is any follow-up after this call or any additional questions, please give us a call and we will do our best. Then finally, thank you, all of you, for calling in and for your questions during this hour. So thank you and goodbye.

This concludes today's conference call. Enjoy the rest of your day. You may now disconnect.