While contributing to Europe’s energy security, Equinor rakes in all-time high profits

Norway’s state-owned energy giant Equinor has more than doubled its annual profit in 2022, setting a new record driven by higher oil and gas prices and bolstered production due to growing energy demand, especially in Europe, where the Norwegian player stepped up its gas exports to bolster energy security in the wake of the Ukraine crisis.

As the global energy crisis took the world by storm in 2022, price volatility became the norm with energy prices skyrocketing amid high demand and tight supply. This resulted in record-high profits for energy companies, as illustrated by the quarterly and annual results provided by TotalEnergies, BP, Shell, Chevron and ExxonMobil. These oil majors recorded bumper profits of $20.5 billion, $27.7 billion, $39.9 billion, $35.5 billion and $55.7 billion, respectively.

Equinor reported on Wednesday, 8 February 2023, that it delivered adjusted earnings of $15.1 billion in the fourth quarter of 2022, down from $24.3 billion in the previous quarter, but up from $14.99 billion in the fourth quarter of 2021. The firm’s adjusted earnings after tax were $5.8 billion in 4Q 2022, up from $4.4 billion in the same period in 2021.

The Norwegian giant posted adjusted earnings of $74.9 billion for the full-year 2022, compared to $33.5 billion for the full-year 2021. On the other hand, the adjusted earnings after tax were $22.7 billion in the full-year 2022, up from $10.0 billion in 2021.

Anders Opedal, president and CEO of Equinor, commented: “Equinor is uniquely positioned to provide energy and contribute to decarbonisation while delivering strong returns. Strong earnings and cash flow will enable continued competitive capital distribution and investments in high-value, resilient projects within oil and gas, renewables, and low-carbon solutions.”

The Norwegian giant’s net operating income was $16.6 billion in 4Q 2022, down from $26.1 billion in the third quarter of 2022, but up from $13.58 billion in the same period in 2021, while net income was reported at $7.90 billion in 4Q 2022, down from $9.37 billion in 3Q 2022, compared to $3.4 billion in the fourth quarter of 2021. Equinor also reports a net operating income of $78.8 billion for the full-year 2022, and a net income of $28.7 billion.

“In 2022, we responded to the energy crisis and contributed to energy security. With strong operational performance, we delivered record results and cash flow from operations. We stepped up capital distribution to shareholders while continuing to invest in a balanced energy transition and contributing to society with high tax payments. On the back of strong earnings, outlook, and balance sheet, we step up capital distribution to expected 17 billion dollars in 2023,” added Opedal.

Although prices are comparatively higher than the corresponding quarter in 2021, European gas price weakened through the fourth quarter of 2022, thus, Equinor realised a European gas price of $29 per mmbtu while realised liquids prices were $80.4 per bbl in the fourth quarter of 2022. In addition, the company delivered strong sales and trading results, particularly from gas and power, selling to the markets with the highest demand.

On the back of strong earnings and the robust financial position in 4Q 2022, Equinor’s board of directors has decided to propose an extraordinary cash dividend of $0.60 per share for the fourth quarter of 2022 and increase the $1.2 billion share buy-back programme with up to $4.8 billion, resulting in a programme up to $6.0 billion in 2023.

The Norwegian firm claims that strong earnings and firm capital discipline resulted in a free cash flow of $23.4 billion after capital distribution and a return on average capital employed of 55 per cent for 2022. During the year, Equinor paid $42.8 billion in tax related to operations on NCS.

In the Exploration & Production U.S.A. segment deferred tax asset has been recognised at $2.7 billion, with a corresponding decrease in income taxes of $2.8 billion, resulting in a low reported effective tax rate this quarter compared to last year.

The Norwegian energy giant delivered total equity production of 2,046 mboe per day for the fourth quarter of 2022, down from 2,158 mboe per day in the same quarter of 2021, impacted by turnarounds in the U.S. offshore, the exit from Russian assets and deferral of gas production from the Norwegian continental shelf (NCS) to periods with higher demand.

The company’s gas production has increased in response to the energy security crisis in Europe with E&P Norway’s full-year gas production rising by 8 per cent and liquids production declining by 6 per cent compared to 2021. The energy giant says that elevated prices and optimised product split have balanced the reduced production levels while the overall context of 2022 was marked by the realisation of significantly higher prices, which is responsible for the significant increase in results for the full-year 2022 relative to 2021.

Furthermore, Equinor brought on stream during 4Q 2022 the Peregrino phase 2 project in Brazil and Askeladd, Johan Sverdrup Phase 2 and Njord Future on the NCS. The company also completed five exploration wells offshore with one commercial discovery in the quarter and four wells were ongoing at the quarter-end.

During 2022, seven new fields were brought on stream, adding a total capacity of around 200 mboe per day when fully ramped up. Equinor says it is progressing its “highly competitive project portfolio” while 13 plans for development and operations were submitted in 2022.

The Norwegian player’s floating offshore wind farm Hywind Tampen generated its first power on the NCS in the fourth quarter and will be completed in 2023. The firm’s production from renewable energy sources was 517 GWh in 4Q 2022, down 2 per cent from the same quarter in 2021. Including gas-to-power, total power production for the quarter ended at 1,332 GWh.

The firm’s operational and administrative costs increased through 2022 due to higher electricity prices, CO₂-costs, inflationary pressure, and higher field cost, partially offset by significant currency effects when presenting in the U.S. dollar and mitigating actions.

Additionally, the company progressed several projects to reduce emissions from production, and the average CO2 emissions from the operated upstream production, on a 100 per cent basis, was 6.9 kg per boe for 2022. Equinor’s twelve-month average serious incident frequency (SIF) for 2022 was 0.4, stable from the previous year.

Equinor claims to be well positioned for high-value creation, providing energy security and contributing to decarbonisation. In line with this, the company believes that it can deliver “strong returns through the energy transition” with “a strong cash flow supporting a competitive capital distribution, and continued investments in a robust high-value portfolio.” The Norwegian state-owned player has made up its mind to continue its development “as a broad energy company, offering energy security and decarbonisation opportunities.”

As a result, Equinor’s key ambitions are to deliver strong cash flow and returns, with an expected average annual cash flow from operations after tax of around $20 billion and return on average capital employed (ROACE) of above 15 per cent towards 2030^, along with a 50 per cent reduction of net group-wide greenhouse gas emissions by 2030.

Based on – what it describes as – an increasingly flexible asset portfolio, and continued volatility in the markets, the Norwegian firm’s adjusted earnings guidance for the MMP segment has increased from $250-500 to $400-800 million per quarter.

Meanwhile, Equinor intends to continue to invest and optimise its oil and gas project portfolio to maintain “a long-term reliable energy supply with low emissions from production.” In lieu of this, the firm underlines that the portfolio of oil and gas projects coming on stream within ten years has an average break-even price of around $35 per barrel, an internal rate of return of about 30 per cent, an average pay-back time of about 2.5 years and an upstream CO₂-intensity of below 6 kg per boe.

Together with the producing assets, Equinor expects this to generate a strong cashflow with longevity, thus, the firm will continue to develop NCS as its home ground and optimise in other core areas internationally.

With the first power from the world’s largest floating wind farm Hywind Tampen in 2022 and the world’s largest offshore wind farm, Dogger Bank in the UK, to start production in 2023, Equinor says that it is demonstrating leadership within offshore wind.

Under construction off the North East coast of England, Dogger Bank Wind Farm, is a joint venture between SSE Renewables (40 per cent), Equinor (40 per cent), and Vårgrønn (20 per cent). This project is being built in three 1.2 GW phases known as A, B, and C.

Offshore Energy’s sister site, offshoreWIND.biz, reported in October 2022 that SSE and Equinor had kicked off investigation work for the fourth Dogger Bank project, called Dogger Bank D. This includes geophysical surveys at the offshore wind farm’s array area. Therefore, if Dogger Bank D moves forward, the Dogger Bank Wind Farm, already the world’s largest with 3.6 GW in the construction stage, would reach almost 5 GW.

As reported earlier this month, SSE Renewables and Equinor are mulling over two options for Dogger Bank D, which include using the fourth wind farm for electricity that would feed into the UK grid and/or for green hydrogen production.

Equinor’s portfolio of projects within renewables and acreage is progressing well towards the firm’s ambition of 12-16 GW of installed capacity accessed by 2030. The company underscores that its strategy remains focused on profitable growth, demonstrating discipline and capturing value through market cycles, expecting project base returns of 4-8 per cent.

Moreover, Equinor was awarded the Smeaheia CO₂ licence on the NCS in 2022 and had in total accessed storage capacity of 30 million tonnes CO₂ per year with current equity. The company claims to be “well positioned” as the CO₂ transport and storage market develops, and policies for low-carbon projects progresses.

The Norwegian firm confirmed that several projects with industrial partners were maturing. The company is also progressing toward offering decarbonisation to industrial customers. Equinor concludes that the combined portfolio of projects for CO₂ storage, hydrogen, energy storage and natural gas, provides “flexibility and optionality, as well as a broad energy offering to industrial customers.”

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The energy giant expects an organic capex of $10-11 billion in 2023 and an annual average of around $13 billion for 2024-2026. During 2023, Equinor anticipates production growth of around 3 per cent in oil and gas, compared to 2022.

Like other energy companies, Equinor did not escape the trend of tongue-lashing, which was initiated by multiple NGOs and environmental activists in response to oil and gas companies’ record high profits in 2022. With the cost of living crisis in full swing and inflation ragging out of control, the Norwegian giant’s profits attracted even more attention as they are higher than those recorded by oil majors, BP and Shell, combined.

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Equinor is already facing opposition from environmentalists, while it is working to develop its Rosebank project located West of Shetland with the FID planned in 3Q 2023. The company also has a court fight on its hands for another project, Bay du Nord oil and gas project off the coast of Newfoundland and Labrador, which was recently postponed, according to Ecojustice.

Commenting on Equinor’s 2022 profits, Global Witness, an international NGO, said in a post on social media: “While raking in obscene amounts of wealth from wrecking the planet, Equinor and partners are set to receive over £500 million in tax breaks to develop Rosebank.”

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