Equinor : Q4 2022 - CMU 2023 transcript

REFINITIV STREETEVENTS

EDITED TRANSCRIPT

EQNR.OL - Q4 2022 Equinor ASA Earnings Call and Capital Markets Update

EVENT DATE/TIME: FEBRUARY 08, 2023 / 12:00PM GMT

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FEBRUARY 08, 2023 / 12:00PM, EQNR.OL - Q4 2022 Equinor ASA Earnings Call and Capital Markets Update

C O R P O R A T E P A R T I C I P A N T S

Anders Opedal Equinor ASA - President & CEO

Bård Glad Pedersen Equinor ASA - SVP of IR

Irene Rummelhoff Equinor ASA - EVP of Marketing, Midstream & Processing

Kjetil Hove

Pål Eitrheim Equinor ASA - EVP of Renewables (REN)

Torgrim Reitan Equinor ASA - Executive VP & CFO

C O N F E R E N C E C A L L P A R T I C I P A N T S

Alastair Roderick Syme Citigroup Inc., Research Division - MD & Global Head of Oil and Gas Research

Anders Kirkhorn Rosenlund SEB, Research Division - Analyst

Biraj Borkhataria RBC Capital Markets, Research Division - Director, Co-Head of European Energy Research Team & Lead Analyst John A. Schj. Olaisen ABG Sundal Collier Holding ASA, Research Division - Co-Head of Research

Lydia Rose Emma Rainforth Barclays Bank PLC, Research Division - Director & Equity Analyst

Michele Della Vigna Goldman Sachs Group, Inc., Research Division - Co-Head of European Equity Research & MD Oswald C. Clint Sanford C. Bernstein & Co., LLC., Research Division - Senior Research Analyst

Paul Redman BNP Paribas Exane, Research Division - Research Analyst

Teodor Sveen-Nilsen Sparebank 1 Markets AS, Research Division - Research Analyst

Yoann Charenton Societe Generale Cross Asset Research - Equity Analyst

P R E S E N T A T I O N

Bård Glad Pedersen - Equinor ASA - SVP of IR

Ladies and gentlemen, good afternoon. It is our pleasure to welcome you all to the presentation of Equinor's Fourth Quarter and Full Year Results for 2022 and our Capital Markets Update.

My name is Bård Glad Pedersen. I am, since December last year, heading up the Investor Relations team in Equinor. We have looked forward to engage with you all, and I will soon take you through the program for today.

But safety first. If an emergency situation occurs, while we are here, the evacuation signal is a voice announcement. We will only evacuate if the announcement say that we should do so. Then please follow the marked fire exits and the instructions from the guards. Exiting is at the ground floor and the venue staff will show you to the assembly point.

Today, we will have 3 presentations here in the plenary session. First of all, it's Anders Opedal, our CEO; then our EVP for MMP, Irene Rummelhoff will present before the session is concluded with Torgrim Reitan, our CFO.

After the presentations, there will be a Q&A session, where the 3 presenters will be on stage and also the CEC is here and available to respond.

Following that, you are all invited to join us for lunch. And for those of you who have signed up, there are breakout sessions with the EVPs for EPN, EPI, REN, MMP, PDP and TDI afterwards. They will all give short introductions and will be ready to answer your questions.

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FEBRUARY 08, 2023 / 12:00PM, EQNR.OL - Q4 2022 Equinor ASA Earnings Call and Capital Markets Update

Finally, let me remind you that all the presentations here today are subject to the forward-looking statements that are included. Then Anders, we are ready to start, and the floor is yours.

Anders Opedal - Equinor ASA - President & CEO

Thank you, Bård. And it's really good to see you all. And to me, it's a pleasure to welcome you finally here in London for our Capital Markets Update. And I and my team, we are really looking forward to share our financial results and the progress on strategy and ambitions.

2022 was a special year. The war in Europe still causes human suffering and has disrupted the energy markets, contributing to inflation and a cost-of-living crisis. In Europe, this year marks a shift as we move forward, not relying on Russian oil and gas. Equinor responded quickly, and we are well positioned to be a part of the solution. Short term, deliver the energy needed; longer term, to build up sustainable energy sources contributing to energy security and decarbonization. Our milestone this year is the start-up of the Dogger Bank, the world's largest offshore wind farm here in U.K.

This leads me to the topic of the day, how we will deliver strong returns through the transition. Our strategy remains firm, creating value on the way to net zero. We are progressing on optimizing oil and gas, high-value growth in renewables and developing market opportunities in low-carbon solutions.

Position for high value creation, we expect a strong and resilient cash flow. In a $70 Brent scenario, we expect to deliver a very strong cash flow from operations. On average, around USD 20 billion after tax annually all the way to 2030. We estimate an annual return of capital employed above 15% towards 2030. This strong outlook annually, $20 billion after-tax and solid financial position, funds increased capital distribution and continued investments in profitable projects.

For fourth quarter 2022, we stepped up our capital distribution and propose a 50% increase in the ordinary cash dividend to $0.30 per share. In combination with extraordinary dividend and share buyback, we expect a total distribution to shareholders of around $17 billion for 2023. I will revert to this,but let me first present our results.

On safety, we have achieved improvements on key indicators over several years. Our serious incident frequency of 0.4 was stable from 2021, the best level ever so far. We had no serious well control incidents and hydrocarbon leakages are down. Total injury frequency was 2.5. We continue with our clear goal. All our people returning safely home from work every day.

Last year, we enhanced security within cyber and for our assets, stricter security protocol, more training and closer collaboration with authorities. All of this to safeguard our people, operations, and security of supply for our customers. Sustainability is all about making progress for society. We are committed to creating local value and equal opportunities and protecting the environment.

In 2022, we responded to the energy security situation by boosting our gas production and shipping more crude to Europe. I'm really proud of the hard work from colleagues to ensure safe and efficient supply of energy. This is a true team effort.

And during the year, 2,600 new colleagues joined Equinor replacing and renewing competence, demonstrating our attractiveness in a tight labor market. Last year, we delivered strong operational performance. 5 new fields on stream at a capacity of more than 200,000 barrels per day, around half of this from Johan Sverdrup Phase 2. In addition, we have put our floating wind farm, Hywind Tampen in production on NCS.

We delivered net operating income of $79 billion and adjusted earnings of $75 billion. This clearly demonstrates our ability to capture value from high prices and volatile markets. Our free cash flow before capital distribution came in at $32 billion. The earnings brought -- these earnings brought return on capital employed to 55%.

Across the portfolio, we have progressed on projects to reduce our own emissions. Our CO2 intensity ended at 6.9, well below half the industry average. We are progressing our projects for decarbonization with CO2 transport and storage. Including the Smeaheia license on NCS awarded last year, we have our acreage to store around 30 million tonnes CO2 annually.

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FEBRUARY 08, 2023 / 12:00PM, EQNR.OL - Q4 2022 Equinor ASA Earnings Call and Capital Markets Update

Our strong cash flow outlook, continued capital discipline and robust balance sheet is the basis for the increase in capital distribution. To me, it is important that the step-up provides highly competitive distribution for 2023 and increase predictability and commitment in the long run. The Board proposes a 50% increase of the ordinary cash dividend from $0.20 to $0.30 per share from the fourth quarter. Our dividend policy remains firm. We expect to increase the annual ordinary cash dividend in line with long-term underlying earnings now from a higher base.

In addition to the ordinary cash dividend, now above pre-COVID levels, share buyback are an integrated part of our ordinary capital distribution. We continued the program we introduced back in June 2021 of $1.2 billion per year.

The record earnings last year and our strong financial position also enables extraordinary distribution to shareholders in 2023. We proposed an extraordinary cash dividend of $0.60 per share for fourth quarter. This will bring total quarterly cash dividend to $0.90 per share subject to AGM approval. The Board is clear in its intention to maintain this level for the first 3 quarters of 2023.

In addition, we proposed an extraordinary buyback of shares of $4.8 billion, making it $6 billion for the year. In total, this leads to a capital distribution to shareholders of around $17 billion in 2023.

We are in a unique position to create value, providing energy security and decarbonization, on liquids, gas and power production. Our liquids gas and power production is high, but far exceeded by the volumes we sell and trade. Last year, we sold more than 800 million barrels of liquids, 100 BCMs of gas and traded more than 175 terawatt hours of power. We optimize and create value from production, our infrastructure and the volumes we sell and trade.

On top of this, we will provide decarbonization through CCS and hydrogen. We leverage our full portfolio as we seek to develop new value chains with industrial partners and customers.

Going forward, we are set to continue capturing high value from volatile and tight markets. On back of this, we increased our guiding for marketing, midstream and processing by 60%. Creating and capturing value across our business, we estimate our free cash flow over the 4 years to 2026 of around $25 billion.

We will continue to develop our profitable oil and gas portfolio. Last year, we sanctioned 13 projects, adding around 600 million barrels in reserves. We keep on exploring with around 35 exploration wells planned this year. In 2023, we estimate a 3% production increase. By the end of the decade, we expect the production to be on par with today, while delivering a 50% reduction in our emissions. The estimated production will secure long-term supply of gas from NCS to Europe. We expect the average annual production to be above 40 Bcms throughout the decade. And our piped gas to Europe have less than 1/5 of the CO2 intensity compared to LNG imports.

Our Norwegian portfolio is the backbone of the company, and we continue developing assets, increasing value creation. Internationally, we have further focused our portfolio with a clear mindset of value over volume.

Kjetil and Philippe will show you how our Norwegian and International portfolio are set to deliver strong cash flow to 2030 and beyond. Our oil and gas business is robust and cash flow neutral at around $30 per barrel, and we continue to improve.

Our projects in execution have reduced costs since investment decision despite inflation. Hege and Geir will talk about execution excellence and how we manage cost and create value through technology implementation.

Across the full company, including renewables and low carbon solutions, we plan to invest $10 billion to $11 billion in 2023 and around $13 billion annually from '24 to '26. No company, including Equinor, is shielded from the inflation and cost pressure in our industry. Capital discipline and cost management is high on our agenda, and we take firm actions. We use flexibility and optionality in our portfolio. We collaborate closely with suppliers, and we use new technology to reduce cost and increase production.

From this year and until 2026, we expect unit production costs for oil and gas below $6. We continue to work to manage costs and mitigate inflation, and Torgrim will provide more details on this.

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FEBRUARY 08, 2023 / 12:00PM, EQNR.OL - Q4 2022 Equinor ASA Earnings Call and Capital Markets Update

Profitability is at the core as we grow in renewables. This is demanding and will require discipline. As history shows, we have won bids at price level supportive of value creation, also making us more robust towards impairments. Our California lease serves as a new demonstration. Our farmdowns have been at high price levels, capturing the benefit of early access. We maintain our expectation of projects return of 4% to 8% real.

As projects start production, power generation will grow rapidly, and we have the optionality to prioritize the projects, bringing the best returns. We expect to grow our annual production from the 1.6 terawatt hours today to between 35 terawatt hours and 60 terawatt hours in 2030.

Pål and Helge will show you how we will further increase value creation from this. We remain firm on strategy, but flexible on execution and continue putting value over volume.

Equinor has safely stored CO2 for almost 30 years at the Sleipner field. We introduced low-carbon solutions as a part of our corporate strategy in 2021. Since then, we have made strong progress. We are taking the lead in developing the North Sea as a hub for commercial carbon storage. And we are on track to store 15 million to 30 million tonnes CO2 per year by 2035.

For our projects and plans in Europe and U.S., the recent policy developments will strengthen the commercial potential. We see growing interest in CO2 storage and hydrogen from industrial customers. Irene will give more details, but let me share a few highlights.

Last summer, Northern Lights on Norwegian Continental Shelf signed the first commercial agreement. In U.K., our East Coast cluster was shortlisted in the government clustering process. And in January, we announced a cooperation with RWE in Germany for energy security and decarbonization. Together, we aim to help Germany transition from coal to gas to low-carbon hydrogen and finally, hydrogen from renewables. We are collaborating on new value chains in several industrial clusters. By 2035, we aim to have 3 to 5 clean hydrogen projects.

The energy transition will be demanding with difficult dilemmas. We believe in a balanced transition and Equinor must solve for three things, reduce emission for ourselves and our customers, build up new energy sources and secure reliable energy. We will work hard to deliver on this, but at the same time, create value for shareholders and society. We continue to cut emissions from operations. Since 2015, we have cut almost 30% of our emissions on the way to net 50% reduction in 2030.

The share of gross investments in renewable and low carbon is on track to our 30% share by 2025 and progressing towards -- with more than 50% in 2030. We are also progressing on our energy transition plan and remain committed to the ambition of net zero.

So let me sum up. We are uniquely positioned to create value and strong cash flow on average around $20 billion after tax per year towards 2030. We reaffirm our commitment and step up capital distribution while investing in our profitable portfolio. We can deliver the energy needed while driving the transition to a low carbon future.

So thank you, everyone, for the attention. And I look forward to the question later. But first, Irene, happy birthday, and the floor is yours.

Irene Rummelhoff - Equinor ASA - EVP of Marketing, Midstream & Processing

Just hoping to keep that a secret. But there you go. Well, thank you, Anders, and it's really good to see you all. I'll cover 3 topics today. I'll share some reflections on the gas market, then I'll explain why we upped our guidance. And then thirdly, I'll talk about and convince you that we're uniquely positioned to develop low carbon value chains.

So first, the gas market. You all know what happened to the Russian volumes last year and how here have managed to replace them through increased exports from Norway, severe demand reduction, but also very costly LNG imports. Lately, we've seen some relief, a relief that is directly correlated to the fact that we're in the midst of one of the warmest winters on record in Europe, and we actually saw demand reduction at 32% in January.

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