Equinor promises greater resilience, as profits disappoint
The rebranded Norwegian firm’s results take a hit from the lower oil price
Equinor reported lower than expected fourth quarter 2018 profits on Wednesday, blaming "one-off" conditions created by an oil price fall late in the year. But the Norwegian oil and gas firm's leadership urged investors to focus on its efforts to diversify and streamline to cope better with market volatility in the future.
The state-owned company's share price fell as much as 3pc, after it announced quarterly earnings of $4.4bn, compared to 4bn a year earlier—analysts forecasts had centred on fourth quarter earnings of around $4.8bn. It was a disappointing end to a year in which the firm had rebranded from Statoil to Equinor as it strove to be seen as a company that is broadening beyond the hydrocarbons sector.
Eldar Sætre, president and chief executive told a media conference in London said that "solid" figures elsewhere in the results underlined an improved resilience to such oil market volatility since the 2014 price crash.
"In almost 40 years in this industry I've seen oil prices at record highs and record lows, and I've seen industry costs follow right behind the commodity cycles. We are determined not to repeat the mistakes of the past, because we must be competitive at all times," he said. "The market volatility in recent months is clear evidence of the need for consistent cost and capital discipline".
The company had said that the oil sell-off, which saw Brent prices plummet from a peak of $85/bl in October to $49/bl in December, led to a "negative one-off effect with a higher than normal differential between realised liquids prices and Brent Blend average".
The figures looked better for 2018 as a whole, which showed a 46pc increase in net operating income to $20.1bn. At an average oil price of $71/bl, organic free cash flow was above $6bn for the full year and production rose to a record 2.1mn boe/d. Reserve replacement ratio also reached an all-time high of 213pc, and the firm's break-even price for projects sanctioned last year was just $14/b.
Output will receive a significant boost in 2019, with the start of production from the company's flagship Johan Sverdrup project, tapping estimated resources of 2.1bn-3.1bn boe in the Utsira High area of the North Sea. Production from the project is expected to be between 300,000 and 500,000 boe/d by 2030.
Sætre said the company hoped to "leverage its experience in oil and gas to find the right opportunities" to develop its presence in "new energy". Its current hold wind and solar assets in the UK, Baltic Sea area and Brazil with a total of 1.3 gigwatts of renewable generation capacity.
The company plans to invest around US 12bn in new renewable energy towards 2030 and currently has achieved 10% returns on average in its current assets.
However, analysts at the company's capital markets day sought more information about future capital plans for renewables, such as when financial details of the renewables portfolio and the return rate would be disclosed separately.
Sætre said "The returns are very different from oil and gas in renewables – and risk-reward is a very important consideration. We want to do good projects that fit our long-term strategy, and the competition is fierce".