Summary
Equinor has an impressive portfolio of assets and continues to bring new assets online and invest in growth.
The company is betting from current extremely high gas prices in Europe which could make 4Q incredibly strong.
The company is investing ~8-12% of its market capitalization in annualized growth.
The company has an incredibly low net debt ratio and significant FCF. It’s been buying back shares.
We expect the company to be able to continue generating strong shareholder returns.
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Leamus/iStock via Getty Images Equinor (NYSE: EQNR ) is a large Norwegian oil company with a market capitalization of almost $90 billion. The company has a dividend yield of more than 2% and a unique portfolio of assets it’s adjusting to climate change. As we’ll see throughout this article, the company has the ability to provide continued shareholder returns. Equinor Financial Results
Equinor has generated impressive financial results showing its portfolio’s strength. Equinor’s 3Q 2021 results represent the company’s strongest results since 1Q 2012. The company’s long-term debt is ~$30 billion and the company had a significant NCS tax payment. The company has been benefiting from massive price spikes in the European gas market, leveraging flex gas production, and we expect this will help support earnings.
The company has taken advantage of the market with share buybacks. It’s extended buybacks from $300 million to $1 billion and we expect it’ll continue taking advantage of low prices. Equinor Portfolio Segment Performance
Equinor has continued to perform incredibly well in its various market segments. Equinor Segment Performance – Equinor Investor Presentation
The company has had strong operational performance and is continuing to capture value. The company’s Troll Phase 3 has come online with breakevens at roughly $10 / barrel , making it one of the most profitable projects in the company’s history. The project has 2.2 billion equivalent barrels of oil volumes, which’ll be produced through gas.
Now’s a great time to be producing it given natural gas prices in Europe. Roughly half of the company’s production is gas, which has increased recently, and that’s incredibly profitable. Equinor Renewables – Equinor Investor Presentation
The company is also building up an impressive renewables portfolio. The company had lower than seasonably average wind, but it produced 304 GWh in the quarter. Given electric rates (~$0.1 / KWh), that’s roughly $130 million in annual electricity rates, so it’s still a small part of the company’s overall business.
However, there’s significant opportunity in the area, especially for offshore wind investments. Equinor Cash Flow
From a cash flow perspective, the company’s overall portfolio performed incredibly well. Equinor Cashflow – Equinor Investor Presentation
Equinor has generated strong cash flow year to date. The company’s net cash flow after investments are ~$16.4 billion. The company is steadily increasing capital expenditures from ~$8 billion in 2021 to ~$10 billion in 2022 and ~$12 billion in 2023-2024. These are significant capital expenditures equivalent to ~13% of the company’s market capitalization annualized.
The company’s net debt ratio is 13.2% (although there are some tax payments due). The company is continuing to aggressively buy back shares, with on top of its cash flow points to the ability to drive significant returns. That’s with incredibly low net debt. Equinor Shareholder Return Potential
Equinor has the potential to drive significant shareholder returns. Based on 2021 numbers, the company will generate more than $20 billion in net cash flow for the year. We expect, given gas prices in Europe it could be a blowout quarter for the company, however, that extra cash could be hurt with higher tax expenses.The company’s net debt is now ~13%. The company could continue reducing that significantly. The company has recently repurchased shares and we expect it could continue doing so, even rapidly ramping up buybacks. Additionally the company will be expanding capital spending supporting additional shareholder rewards.The company’s renewable business is small but has significant additional potential as well. All of this together could mean long-term double-digit shareholder rewards. Equinor Risk Equinor’s risk is twofold. The first is that they’re moving through a transitory period. As a company that always presents a risk to the transition. The second is their current value is based on crude oil prices. The company is valuable at $60+ per barrel Brent, however, there’s no guarantee that prices will remain that high. Conclusion Equinor has an impressive portfolio of assets. The company has had […]
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