Equinor ASA (EQNR) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals several concerns: a significant cash flow deficit, reduced MMP guidance, impairment charges due to lower oil price assumptions, and unclear management responses. Although there are positive aspects like a decrease in the net debt to capital ratio and active shareholder involvement in Ørsted, the overall sentiment is negative. The financial health and shareholder return plans are weak, with potential risks in offshore wind investments and asset disposals. These factors suggest a likely negative impact on stock price, potentially within the -2% to -8% range.
Key Financial Performance
Production Production is up 7% from third quarter last year. Johan Sverdrup delivered close to 100% regularity and Johan Castberg is producing a plateau with a premium to Brent of around $5.
Adjusted Operating Income Adjusted operating income was $6.2 billion before tax and net income was negative $0.2 billion, impacted by net impairments, mainly due to lower long-term oil price outlook.
Cash Flow from Operations Year-to-date, cash flow from operations after tax has been strong at $14.7 billion.
Adjusted Earnings Per Share Adjusted earnings per share was $0.37, impacted by negative results from financial items and a one-off effect related to decommissioning of Titan.
Operating Costs for Renewables Operating costs for Renewables business have decreased by around 50% compared to the third quarter last year, driven by less business development and reduced early phase work.
Production Growth on NCS Production on NCS was even stronger with 9% growth, driven by Johan Castberg, strong performance at Johan Sverdrup, and other developments.
U.S. Onshore Gas Production U.S. onshore gas production was up 40%, capturing higher prices.
Adjusted Operating Income from E&P Norway Adjusted operating income from E&P Norway totaled $5.6 billion before tax and $1.3 billion after tax, impacted by production roles and increased depreciations due to new fields coming on stream.
E&P International Results E&P International results reflect lower production but also lower depreciation. Peregrino and assets tied to Adura IJV are classified as held for sale, so no longer depreciated.
E&P U.S. Results E&P U.S. results are driven by increased production but impacted by a one-off effect related to decommissioning of the U.S. offshore Titan field of $268 million.
Net Impairments Net impairments of $754 million were reported, mainly driven by lower long-term oil price assumptions. E&P International business booked an impairment of $650 million tied to assets being transferred to the Adura IJV. U.S. offshore assets had impairments of $385 million, while M&P had a reversal at Mongstad of $300 million due to higher expected refinery margins.
Cash Flow from Operations (Quarterly) Cash flow from operations was $9.1 billion, with NCS tax installments totaling $3.9 billion.
Organic CapEx Organic CapEx was $3.4 billion, and net cash flow was negative $3.6 billion.
Net Debt to Capital Employed Ratio Net debt to capital employed ratio decreased to 12.2% this quarter.
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Operating Highlights
Bacalhau Project: First presold project in Brazil by an international operator, with over 1 billion barrels reserved and production capacity of 220,000 barrels per day. Production started in October and will ramp up through 2026.
Johan Castberg and Johan Sverdrup: Johan Sverdrup delivered close to 100% regularity, and Johan Castberg is producing at a premium to Brent of around $5.
Smørbukk Midt: Discovered and put into production during Q3, with expected payback within 6 months.
U.S. Onshore Gas Production: Increased by 40%, capturing higher prices.
Empire Wind Project: All 54 monopiles installed, with project execution progressing well.
Aker BP Discovery in Yggdrasil Area: Important discovery where Equinor has a material ownership position.
Cost Management: Operating costs for Renewables decreased by 50% compared to Q3 last year, expected to be down 30% annually. Two early phase electrification projects on NCS stopped to reduce costs and CapEx.
Production Growth: Overall production up 7% from last year, with NCS production up 9%. On track to deliver 4% production growth for the year.
Safety: Strong safety results, but a tragic fatality at Mongstad. Learnings from the accident will be implemented.
Ørsted Collaboration: Participated in Ørsted's rights issue with a cash flow impact of $900 million in Q4. Equinor will nominate a candidate for Ørsted's Board to seek closer industrial and strategic collaboration.
Capital Distribution: Board approved $0.37 per share dividend and a share buyback program of up to $1.266 billion for 2025, totaling $9 billion in capital distribution for the year.
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Risk or Challenges
Net Income Impacted by Impairments: The company reported a negative net income of $0.2 billion, primarily due to net impairments driven by lower long-term oil price assumptions. This could affect future profitability and financial stability.
Geopolitical and Market Volatility: Energy markets remain volatile due to geopolitical unrest, tariffs, and trade tensions, which continue to impact pricing and trading conditions. This poses risks to revenue predictability and operational planning.
Decommissioning Costs: A one-off effect related to the decommissioning of the Titan field in the U.S. offshore resulted in a $268 million impact, highlighting potential future liabilities and cost overruns.
Renewables Business Challenges: While operating costs for renewables have decreased, the company has stopped two early-phase electrification projects on the NCS due to insufficient profitability, indicating challenges in achieving cost-effective renewable energy expansion.
Production Disruptions: Production was impacted by planned maintenance and the prolonged shutdown of Hammerfest LNG, as well as a temporary stop at Peregrino. These disruptions could affect short-term revenue and operational efficiency.
Impairments in U.S. Offshore and International Assets: Impairments of $385 million in U.S. offshore assets and $650 million in international assets tied to the Adura IJV were recorded, driven by lower price assumptions. This reflects potential challenges in asset valuation and profitability.
Supply Chain Issues: Maersk informed the company of an issue concerning its contract for the wind turbine installation vessel planned for Empire Wind in 2026. This could delay project timelines and increase costs.
Safety Concerns: A tragic fatality at Mongstad underscores ongoing safety risks, which could lead to operational disruptions and reputational damage if not addressed effectively.
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Guidance & Outlook
Production Growth: The company is on track to deliver 4% production growth for the year, with a 7% increase in production compared to the same quarter last year. Johan Castberg and Johan Sverdrup fields are key contributors.
Renewables Operating Costs: Operating costs for the Renewables business have decreased by around 50% compared to the third quarter last year, and are expected to be down by 30% on an annual basis.
Capital Expenditures (CapEx): The company has stopped two early-phase electrification projects on the NCS that were not sufficiently profitable, reducing costs and CapEx going forward.
Bacalhau Production Ramp-Up: Production from the Bacalhau field has started and ramp-up will continue through 2026.
Empire Wind Project: The Empire Wind project in New York is progressing well, with all 54 monopiles installed. However, there is an issue with the wind turbine installation vessel planned for 2026, which the company is working to resolve.
Financial Guidance for M&P: The company expects to deliver average adjusted operating income of around $400 million per quarter for M&P, with larger upside potential than downside risk.
Net Debt Ratio: The net debt to capital employed ratio is expected to be at the lower end of the guided range of 15% to 30% by the end of the year, based on current forward prices.
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Shareholder Return Plan
Ordinary Cash Dividend: The Board approved an ordinary cash dividend of $0.37 per share for the quarter.
Share Buyback Program: The Board approved a fourth and final tranche of the share buyback program for 2025, amounting to up to $1.266 billion, including the state's share.
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Key Q&A
Q:What caused the 13% increase in unit depreciation charge in Norway in Q2?
A:The increase was driven by new assets coming onstream, particularly Johan Castberg and smaller developments. These assets will depreciate over time, leading to a gradual reduction in the charge going forward.
Q:Why did Equinor decide to participate in Ørsted's rights issue and take a more active shareholder role?
A:Equinor sees the offshore wind industry facing its first downturn and believes consolidation is needed. They aim to create shareholder value through closer collaboration with Ørsted and leverage their industrial and strategic competencies. However, they will limit further capital commitments into offshore wind due to current challenges.
Q:What changes were made to MMP guidance and why?
A:The guidance was changed to around $400 million quarterly, down from a range of $400-$800 million. This reflects normalized gas markets in Europe, reduced volatility, and the divestment of gas transportation assets. Equinor also plans to provide updates on MMP results ahead of each quarter.
Q:Why did Equinor not initially consider a Board seat in Ørsted?
A:Initially, a Board seat was not part of the discussion around the CMU. However, the environment and policy changes have led Equinor to see value in having a long-term industrial perspective on Ørsted's Board.
Q:What has changed in Equinor's approach to Ørsted since their initial share acquisition?
A:Equinor now aims to signal support as a shareholder and sees value in taking a Board seat to provide long-term industrial expertise and risk management.
Q:What is the ramp-up plan for Bacalhau after achieving first oil?
A:Bacalhau started on October 15th and involves continuous drilling and completion until 2026. The ramp-up will be gradual, with 19 wells planned for Phase 1, including producers and injectors.
Q:What is Equinor's outlook for the global gas market?
A:In the short term, the market is tight, with storage levels at 83%, 12 percentage points below last year. Prices will depend on winter weather. Long-term, LNG projects are expected to come online, with Asia's demand growing at 3% annually. U.S. gas prices and political factors may also impact the market.
Q:What is the status of the Peregrino disposal?
A:Peregrino resumed production on October 17th, producing over 100,000 barrels per day. Equinor will divest its 60% ownership to Prio in Brazil, with 40% closing in Q4 2023 and the remaining 20% in Q1 2024. The transaction value is slightly below $3 billion.
Q:What is the production outlook for Johan Sverdrup?
A:Johan Sverdrup has maintained high production levels with close to 100% regularity. Production is expected to decline in 2024 after fast-forwarding production in previous years. Phase 3 is planned to come online by the end of 2027.
Q:What are Equinor's plans for Offshore Wind investments?
A:Equinor will limit significant further capital commitments in Offshore Wind due to current challenges. They aim to improve free cash flow and explore opportunities in the power market while maintaining capital discipline.
Q:What caused the $750 million impairment charge?
A:The charge was driven by a lower long-term oil price assumption of $75 per barrel. Assets in the U.K. and Gulf of Mexico were affected, with some U.K. assets held for sale and not depreciated since early 2023.
Q:What is the status of the Empire Wind project?
A:Empire Wind is 55% complete, with all monopiles installed. A dispute between Maersk and Seatrium over an installation vessel is being managed, with alternative solutions being explored. The project remains on track.
Q:What is the status of the Rosebank project in the U.K.?
A:The permit for Rosebank was revoked due to Scope 3 emissions concerns. Equinor has submitted a response, and public consultation ends on November 20th. There is no set date for a decision.
Q:What is Equinor's strategy for the Norwegian Continental Shelf (NCS)?
A:Equinor plans to maintain production levels on the NCS until 2035 by focusing on smaller discoveries, quicker developments, and lower costs. They aim to drill 30 exploration wells and develop 6-8 subsea projects annually.
Q:What is the milestone for receiving U.S. tax credits for Empire Wind?
A:The milestone is achieving first power production, expected in 2027.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing the potential outcomes of a joint venture with Ørsted, including the amount of cash Equinor might need to contribute. They also did not provide a clear timeline for when Johan Sverdrup's production would reach a plateau or specific details on the impact of the Maersk-Seatrium dispute on Empire Wind's timeline.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Analyst Instructions
CFO result
Head Investor
Instructions Senior
Instructions speaker
Investor relation
President Head
President Investor
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Reitan CFO
Relations Vice
Senior Vice
Vice President
analyst result
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conference today
hour result
name conference
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remark answer
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EQNR Transcript
Equinor ASA (EQNR) Q3 2025 Earnings Call Transcript
Unknown10-29
The earnings call reveals several concerns: a significant cash flow deficit, reduced MMP guidance, impairment charges due to lower oil price assumptions, and unclear management responses. Although there are positive aspects like a decrease in the net debt to capital ratio and active shareholder involvement in Ørsted, the overall sentiment is negative. The financial health and shareholder return plans are weak, with potential risks in offshore wind investments and asset disposals. These factors suggest a likely negative impact on stock price, potentially within the -2% to -8% range.
Equinor ASA (NYSE:EQNR) Q1 2025 Earnings Call Transcript
Unknown5-1
The earnings call presents a mixed picture. While there are strong shareholder returns via dividends and buybacks, and a solid financial position with low net debt, the EPS miss and regulatory challenges with the Empire Wind project are concerning. The Q&A reveals uncertainties around this project and potential impacts on strategy. Despite strong gas prices, increased OPEX and unclear guidance on key projects weigh down sentiment. Given these factors, the stock is likely to remain stable, resulting in a neutral prediction for the next two weeks.
Equinor ASA (EQNR) Q1 2025 Earnings Call Transcript
Unknown4-30
The earnings call summary indicates a miss in EPS expectations, regulatory challenges with the Empire Wind project, and increased operational expenses. Although there are positive aspects like increased gas production and a strong capital distribution plan, the uncertainties surrounding the Empire Wind project and cost control challenges weigh heavily. The Q&A further reveals management's evasiveness on key issues, adding to investor concerns. Without a clear market cap, the negative sentiment is driven by these operational and regulatory risks, likely resulting in a stock price decline of -2% to -8%.
Equinor ASA (NYSE:EQNR) Q4 2024 Earnings Call Transcript
Unknown2-6
The earnings call summary reveals mixed signals: strong operational performance and safety improvements, but an EPS miss and geopolitical risks. The Q&A section highlights cautious optimism in renewables and production growth, but management's unclear responses on tariffs and political risks raise concerns. The share buyback and dividend program offer shareholder value, but the EPS miss tempers enthusiasm. Overall, the mixed financial results and strategic outlook suggest a neutral stock price movement.
EQNR Report
Frequently Asked Questions
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