Equinor ASA

Good day and welcome to the Equinor Analyst School first quarter results. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll 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, please press star one again. For operating 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 Board Gladg Peterson, Senior Vice President and Head of Investor Relations, to begin the conference. Board, over to you.

Thank you, operator, and thank you all for calling in for the presentation of Equinor's first quarter results. I'm here together with our CFO, Torgum Reitan, As usual, he will give an introduction about our results, and then we'll open for the Q&A. I know it's a busy reporting day, and we will keep the session within one hour.

So with that, I hand it to you, Tore. Thank you, Bård, and good morning, everyone, and thank you for joining. I know you are interested in the situation we are facing on Empire Wind. I will address that. But let me start by saying that today we are reporting strong financial results for the quarter. Gas production was particularly strong in Norway and the US, capturing higher prices. We reported adjusted operating income of $8.6 billion before tax and an IFRS net income of 2.6. Cash flow from operations after tax came in strong at 7.4 billion. Adjusted earnings per share was 66 cents. Earnings per share based on net income was 97 cents, impacted by currency effects and book value gains. We are in turbulent times. The significant increase in tariffs and risk of trade wars creates uncertainty and volatility in the global economy and global supply chains. The uncertainty, combined with increased production from OPEC, led to a drop in oil prices. It has recovered somewhat, but uncertainty do prevail. These circumstances confirm the importance of a strong balance sheet and resilience toward lower commodity prices. We are well prepared for market volatility. We have a strong cash position of around $25 billion, and our net debt ratio is below 7%. Strong cost control and capital discipline remain a priority for us. For a quarter, we deliver capital distribution in line with our CMU guiding. The board approved an ordinary cash dividend of 37 cents per share, and a second tranche of share buyback of up to 1.265 billion, including the state's share. In total, we expect to deliver $9 billion in capital distribution for the year. Before I get to our financial results, I want to address Empire Wind. And I want to be clear. This situation is extraordinary and unprecedented. Equinor has over decades built a material position in the U.S., you know, a core country to us. Since the early 2000s, we have invested around $60 billion, mainly within oil and gas. In the first quarter, we produced around 425,000 barrels of oil equivalents per day and delivered earnings of more than $500 million. During recent years, we have, on the invitation from authorities, also invested to build a renewable business in the U.S. In 2017, we signed the federal lease for Empire Wind after being successful in a bid round, hosted by BOEM. Since then, we have worked to mature and realize this 810 megawatt project. The site assessment plan for the project was approved back in 2018. Then we submitted a construction and operations plan in January of 2020. This plan was approved by the Department of Interior in February of 2024. It was not a rushed process by any means. It took more than four years from submittal to approval after extensive documentation, consultations and review. So based on this approval and an improved offtake contract with New York, we took a final investment decision and started construction in the spring of 2024. Project financing is a prerequisite for Empire Wind, and this was also secured last year. Empire Wind has already passed 30% completion. The project invests more than $1.2 billion in supply chains across the U.S., and so far, around 1,500 local workers have been involved in the development. On 16th of April, we received an order from BOEM to halt all ongoing activities related to the Empire Wind on the outer continental shelf. We have complied with this order. However, the order did not include any information about the alleged deficiencies in the approval. And our position is clear. stop work order is unlawful. It is disregarding applicable law and the prior reviews and the valid approvals of all agencies, including BOEM and NOAA. So Equinor has invested in good faith. And this is no question about the sanctity of contracts, the legal protections and rights afforded through lawfully issued permits, and the security of investments based on valid approvals granted in the US. Empire Wind is an important project for Equinor, and we believe it contributes positively to New York and the United States. So we are seeking to engage with the administration to clarify the situation, and we are considering our legal options. In our first quarter report, the halt order is treated as a subsequent event. The current book value for Empire Wind is $2.5 billion, including the South Brooklyn Marine Terminal. The book value reflects our investments to date in the project. Of this, around $1 billion is covered by equity injections. The remaining 1.5 billion is drawn from project finance. Equinor U.S. Holdings has provided guarantees for the equity commitment in the project financing. If the project is forced to stop due to the U.S. administration's decision, the 1.5 billion dollars will be repaid from the equity commitment to the project finance lenders. In addition, Various companies within the Equinor Group have exposures related to the Empire Wind project, including guarantees and termination fees towards suppliers. This is an aggregated gross exposure on an Equinor Group level of USD 1.5 to 2 billion. This is before taking into account tax and any potential reductions from negotiations, settlements, legal actions and damages, and rules of limitation of liabilities. One thing is clear. Our priority is to protect the value for Equinor and our investors. And I'm, of course, ready to take any questions on this during the Q&A. But now, let's go through the results for the first quarter. Safety. That remains a top priority, and we have a solid safety trend. This quarter, the series incident frequency was record low at 0.28. And the total recordable injury frequency was 2.2 per million hours worked for the last 12 months. We continue to learn from any incidents and work towards improvements. In the first quarter, we produced 2,123,000 barrels per day. We saw increased gas production and somewhat lower oil production than the same quarter last year, when it was extraordinary high. On the Norwegian continental shelf, we have good operations, and several fields have near historic high regularity, including Johans Vørdrup and Troll. NCS production was impacted by the shutdown of Hammerfest LNG. This quarter, Kastberg and Halten East started production. These fields at full production will contribute 150,000 barrels net to Equinor. For EMP US, we are seeing the positive effect of our increased non-op position in Marcellus. We have high production, and we are creating value from higher gas prices. For EMP International, production was lower, as you should expect, due to the divestment of Nigeria and Azerbaijan. We produced 1.4 TWh this quarter, and have announced that we will establish a new power business area that will go live from September. Now to our financial results. Liquids prices were lower this quarter, while gas prices were higher in Europe and the US. Storages in Europe ended the gas winter at 34% of total capacity, around 24 percentage points lower than last year. In the short term, we expect balances to be tight, and summer demand will be impacted by the need to fill storages in Europe. Uncertainty around Asian demand and potential supply disruptions may also cause further volatility. This quarter, adjusted earnings in E&P Norway totaled $7.4 billion before tax, driven by higher gas prices. Our international segments combined delivered more than $1 billion in adjusted operating income and around $500 million after tax, supported by higher gas production capturing higher prices in the U.S. I realized US gas price was actually $4.06, and this was stronger than Henry Hub. So it was a 74% increase from the same quarter last year. The EMP international tax rate was higher due to a one-off non-cash effect caused by the extension of the UK EPL period. M&P came in below the guided range, impacted by lower liquids and LNG trading results, and the drilling of two CCS wells. This is a one-off cost, and excluding these, we would have been close to the lower end of the range. The results of our renewables business reflect lower business development and early phase costs. Across our portfolio, we continue to focus on cost control and capital discipline. The reported adjusted OPEX and HDNA was up 11%. This was impacted by a change in over-underlift position in the quarter, increased transportation costs and royalties. And adjusting for that, the increase was 3%. At our CMU, we said that we are targeting flat cost levels for 2025, realizing improvements to beat inflation. This remains our target, but this quarter, Group OPEX and SGA came in around 3% above this ambition, primarily due to increased maintenance and one-off costs like the CCS wells. This quarter, our cash flow from operations was $7.4 billion after tax. We paid one NCS tax installment of $3.1 billion. Next quarter, we will pay two equal installments. Those will be the last payments related to the 2024 earnings. Remember, the Norwegian tax system has a dampening effect when it comes to lower prices. If prices are lower, 78% will be offset by reduced taxes, and investments are deducted immediately. As you know, there is a lag in the tax payment. We see through this when we decide on guiding and capital distribution. In June, we will decide the tax installments for the second half of this year based on our estimated 2025 full-year earnings. This quarter, we distributed $2.5 billion to our shareholders. Our ground in CAPEX was $3 billion, and our net cash flow was just above $2 billion. We have a solid financial position with around $25 billion in cash and cash equivalents, and our net debt to capital employed ratio decreased to 6.9% this quarter. Next quarter, the state's share of the buyback will be booked as a finance debt, impacting the net debt ratio by around 8 percentage points. The actual payment and cash flow impact will be in the third quarter. Finally, to our guidance, you know, we maintain the guidance we communicated at our CMU in February. So, by that, I'll leave the word to you, board, to take us through the Q&A. So, thank you very much.