Equinor fourth quarter 2018 and year end results

Equinor reports adjusted earnings of USD 4.4 billion and USD 1.5 billion after tax in the fourth quarter of 2018. IFRS net operating income was USD 6.7 billion and the IFRS net income was USD 3.4 billion.

The fourth quarter and full year were characterised by:

Solid results and strong cash flow. Net debt ratio reduced to 22.2%
Strong operational performance. Record high fourth quarter and full year production
Continued growth in return on average capital employed to 12%
The reserve replacement ratio (RRR) was all time high at 213%
Step-up in quarterly dividend by 13% to USD 0.26 per share, subject to approval by the annual general meeting

“Strong operational performance and high production gave solid results and cash flow in a quarter with significant market volatility. We delivered growing returns for the full year and expect continued earnings growth. Following strong improvements in recent years, the board proposes an increase in quarterly dividend of 13% to USD 0.26 per share,” says Eldar Sætre, President and CEO of Equinor ASA.

“Our cash flow generation was strong across the business. At an overage oil price of 71 dollars per barrel, we generated an organic free cash flow well above 6 billion dollars for the full year. We have also done several value-enhancing transactions, strengthened our financial position and reduced our net debt ratio from 29 to 22.2 percent,” says Sætre.

Adjusted earnings [5] were USD 4.4 billion in the fourth quarter, up from USD 4 billion in the same period in 2017. Adjusted earnings after tax [5] were USD 1.5 billion, up from USD 1.3 billion in the same period last year. High production at higher prices contributed to the increase. Due to sales pricing mechanisms in the market, the significant fall in oil prices led to a negative one-off effect with a higher than normal differential between realised liquids prices and Brent Blend average. In addition, higher exploration activity and lower refinery and products trading margins impacted adjusted earnings negatively. For the full year, adjusted earnings were USD 18 billion, up 42 percent from USD 12.6 billion in 2017.

IFRS net operating income was USD 6.7 billion in the fourth quarter compared to USD 5.2 billion in the same period of 2017. IFRS net income was USD 3.4 billion, up from USD 2.6 billion in the fourth quarter of 2017. For the full year, IFRS net income was USD 7.5 billion, up from USD 4.6 billion in 2017.

“In 2018 we sanctioned seven new projects, which will deliver more than 1 billion barrels of resources to Equinor at an average break-even price of 14 dollars and very low CO2 emissions. In the quarter, we started production at Aasta Hansteen, Oseberg Vestflanken and Big Foot, and at the Apodi solar plant in Brazil. We also had the winning bid in an offshore wind lease round offshore Massachusetts in the US," says Sætre.

Equinor delivered total equity production of 2,170 mboe per day in the fourth quarter, an increase from 2,134 mboe per day in the same period in 2017. The increase was mainly due to portfolio changes and new wells especially in the US onshore. New fields coming on stream added to the increase. Expected natural decline in addition to reduced gas off-take partially offset the increase. Equinor delivered all-time high production in 2018 with an underlying production growth of more than 2% [7].

As of year-end 2018, Equinor had completed 24 exploration wells with nine commercial discoveries. Adjusted exploration expenses [5] in the quarter were USD 417 million, up from USD 274 million in the same quarter of 2017, mainly due to higher seismic and drilling activity.

The reserve replacement ratio (RRR) reached an all-time high of 213% in 2018, mainly driven by sanctioning of new fields, positive revisions and acquisitions. The reserves to production ratio (R/P) increased from 7.6 to 8.7 years.

Cash flows provided by operating activities before tax amounted to USD 27.6 billion in 2018 compared to USD 21.0 billion in 2017. Organic capital expenditure [5] was USD 9.9 billion for the full year of 2018. At year-end, net debt to capital employed [5] was reduced to 22.2%.

The board of directors proposes to the annual general meeting to increase the dividend by 13% to USD 0.26 per share for the fourth quarter.

The twelve-month average Serious Incident Frequency (SIF) was 0.5 for 2018, compared to 0.6 in 2017.

Capital markets update

Today, Equinor presents its update to the capital markets, focusing on three key deliveries:

Growing cash flow and returns – capacity to generate around USD 14 billion in free cash flow [5] from 2019 to 2021, and more than 14% return on average capital employed (ROACE) [5] in 2021 . Equinor can be organic free cash flow positive below USD 50 per barrel from 2019 to 2021
Investing in a highly competitive portfolio of projects, expected to start production by 2025 and deliver 6 billion barrels to Equinor with low emissions and an average break-even oil price around USD 30 per barrel
Delivering continued profitable growth at the Norwegian continental shelf, targeting international opportunities where we increasingly can leverage our industrial strength as an operator, and building a profitable core area in Brazil. Equinor expects to deliver around 3 percent compound annual production growth from 2019 to 2025 [7]

“Equinor is already delivering industry leading returns, and we expect to increase returns and cash flow even further going forward. We delivered record high production in 2018, and we are well positioned for profitable growth in the coming years. Internationally we are increasingly taking the role as operator, and we are strengthening Brazil as a core area for Equinor. On the NCS we expect to deliver at a record high production level in 2025," says Sætre.

“We have a strong and highly profitable portfolio of projects coming on stream towards 2025. In 2019 we will start production from Johan Sverdrup, which is expected to deliver a total production close to 300,000 barrels per day to Equinor at plateau, with a break-even price below 20 dollars per barrel,” says Sætre.

“We have over the past few years significantly improved our project portfolio and fundamentally strengthened our competitive position, creating a stronger and more resilient company. We continue to develop a culture of consistent capital discipline and continuous improvement. Digitalisation and innovation will support further enhanced safety, increased value creation and reduced emissions,” says Sætre.

Equinor’s unit production cost is industry leading around five dollars per barrel. The company is aiming to sustain a unit production cost at around 2017 level in 2020 . Equinor has reduced the average break-even price of its non-sanctioned portfolio to below 40 USD per barrel, and increased the net present value of this portfolio by more than USD 7 billion since 2017.

Equinor is already an industry leader on carbon efficiency, and the portfolio of projects that will come on stream towards 2025 has 30% lower CO2-emissions per barrel than the current producing portfolio. Equinor continues to develop as a broad energy company, and is gradually building a profitable portfolio also within renewable energy.

Finally, Equinor announces its updated outlook:

Equinor expects organic capex [5] of around USD 11 billion in 2019
Equinor expects 2019 production to be around the same level as 2018, and to deliver an average annual production growth of around 3% from 2019 to 2025
Equinor expects exploration activity of around USD 1.7 billion in 2019

¹ Assuming USD 70 per barrel, real, including announced transactions, excluding new accounting standards and changes in future tax assets
² USD per boe Equinor equity production, real, assuming fixed currency