The severe impacts on energy markets after the outbreak of war in Ukraine earlier this year led the Norwegian oil giant Equinor to deliver another record result – its third in a row.
Equinor generated an adjusted operating profit of $18 billion in the first quarter, or 169 billion crowns. This exceeds the previous record set in the fourth quarter of 132 billion Norwegian kroner. Analysts in advance had forecast a profit of $17.1 billion, according to the average estimate that the company itself collects before each quarterly report is published.
We delivered very strong financial results in a quarter marked by high oil and gas prices, CEO Anders Obedal said at a press conference Thursday morning at the company’s office in Fornebu.
Equinor shares slumped early in trading on the Oslo Stock Exchange, dropping 2.5 percent at most, before turning positive and rising 1.6 percent at lunchtime. Oil prices also rose sharply on Wednesday morning.
Write off ten billion in Russia
The invasion of Ukraine represents a dark moment for Europe, and our thoughts go to all who suffer the consequences of the brutal war. After working in Russia for three decades, we considered the situation unsustainable, and quickly decided to halt new investments in the country and begin the process of withdrawing from the Russian joint venture Equinor, Obedal says in the quarterly report.
– Obedal says the withdrawal from Russia affects our employees and leads to the write-off of our assets in the country this quarter.
The report states that Equinor’s writedowns in Russia amount to $1.08 billion, equivalent to ten billion kroner. The company had earlier announced book values of $1.2 billion at the end of last year and said everything could be lost.
No new increase in profits
When Equinor presented its previous quarter numbers, in February, the company delivered a sharp increase in its dividend to shareholders.
Ordinary dividends were increased from 18 to 20 cents per share in the quarter, and at the top the board of directors proposed an extraordinary dividend of the same amount for the next four quarters. In addition, the buyback program will be increased to $5 billion for 2022, well above previous plans. These buybacks are another way of paying shareholders, by deleting shares and increasing the value of the stock.
Some analysts envision there may be room for larger payouts to shareholders after the first quarter, but Equinor sticks to its dividend plans despite another record result.
Although the company is awash with money — and has tough targets to ramp up investments in renewable energy and other low-carbon solutions — CEO Anders Obedal announced capital discipline after the previous quarter. And “capital discipline” is the word in today’s press release.
– We build durability, Obidal says at the press conference.
With this, we maintain a good balance, investing in the energy transition at the same time as providing attractive capital allocation to our shareholders, he adds.
This has consequences for the company’s debt ratio, which goes deeper into negative terrain – a good example of the totally exceptional situation the company is in. At the end of the quarter, the debt ratio was -22.2 percent, down from minus 0.8 percent. months ago.
Equinor now has $21 billion in cash and similar funds — a more than 50 percent increase in three months.
The situation on the European gas market was already very tense when Russia attacked Ukraine at the end of February. A few weeks later, European gas prices reached an all-time high, at $600 per barrel of oil equivalents, based on concerns that Russian gas exports would be hampered or halted. At one point, oil prices rose to $139 a barrel, the highest level since 2008.
Both have since declined, particularly the price of gas, but they have remained at historically high levels. Energy prices have been very high since last fall, and that’s also true for coal and electricity.
In the first quarter, Equinor’s Norwegian operations managed to achieve an oil price of over $100 per barrel, up from around $78 per barrel in the previous quarter.
Norway is Europe’s largest supplier of gas after Russia, and the companies on the Norwegian shelf, with Equinor in the driver’s seat, along with the authorities have implemented a number of measures to maximize exports since last fall.
The latter was introduced last month. Increased production permits will ensure Norway is able to maintain roughly the same level of export in summer as in winter. Gas production and sales typically decline during this period due to reduced demand in warmer weather, and oil companies are taking the opportunity to perform maintenance on platforms and other facilities.
Equinor produced 2.11 million barrels of oil equivalent per day in the first quarter, down from 2.17 million in the same period in 2021. But on the Norwegian shelf, production increased by four percent, including a ten percent increase in gas production.
Norway as a country also benefits from raw materials from higher raw material prices. In March, we exported gas with a record amount of NOK 112 billion, and over NOK 160 billion of petroleum in total.
With an energy crisis in Europe, Equinor’s top priority is to ensure reliable and safe deliveries. Strong operations and good orderliness led to higher production in the quarter. We’ve optimized gas production to make more volumes available, and Hammerfest LNG is on track for a safe start-up on May 17, Obidal says.
Here he is referring to the Melkøya plant, which has been shut down since September 2020 due to a fire and has therefore been unable to supply LNG to a historically strong market throughout this period. Analyst Theodor Sven-Nielsen’s latest estimates put it as a buzz in the company with NOK 20 billion.
Obidal will not yet provide any official figures on the losses this has caused, but admitted on Wednesday that they are “significant”.
Renewable in minus
While Equinor’s oil and gas business is more profitable than ever, the renewable energy sector is losing money. It was minus ten million crowns adjusted result in the first quarter of this year. The renewed segment features a number of new projects that are not yet operational, such as the East Coast of the United States and Scotland.
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