Thank you for standing by and welcome to the Equinor Q3 2023 Analyst Call. All lines have been placed on mute to prevent any background noise. [Operator Instructions]. Thank you. I'd now like to welcome Bard Glad Pedersen, Senior Vice President of Investor Relations to begin the conference. Bard, over to you.

Thank you, operator, and good morning to everybody on this call. As the operator said, my name is Bard Glad Pedersen, and I'm heading up Investor Relations in Equinor. I'm here together with our CFO, Torgrim Reitan, he will take us through the results before we start the Q&A section and we will try to keep this within one hour in total. So, with that, I give the word to you, Torgrim.

So, thank you, Bard. And good morning, everyone, and thank you for joining us. Today, we delivered strong results. In a quarter with lower prices than the extraordinary levels we saw last year. We have strong adjusted earnings of $8 billion and $2.7 billion after tax. Our net operating income came in at $7.5 billion and net income was $2.5 billion. Year-to-date, we have a strong cash flow from operations after tax of $17 billion. This corresponds well to what we said at our Capital Markets Day in February, when we expected to deliver on average $20 billion annually all the way to 2030. We are on track with our delivery this year. European gas prices are significantly lower than last year. Storages are now for all practical purposes full, and this is as expected. However, the gas market is tight, and it is still very sensitive. We have seen price spikes related to possible strikes in Australia, the terrorist attack on Israel, and the situation with the Baltic pipeline. This winter, prices will again depend on weather, gas demand recovery in Europe, competition for LNG from Asia, and any supply disruptions. We believe volatility will continue into the winter and for the coming years. During the quarter, we have seen strengthening liquids prices, and we captured these higher prices through increased liquids production across our portfolio. Our NCS gas production, however, is down due to planned maintenance but also due to unplanned extended turnarounds. And I will come back to production later in my presentation. We had strong liquid sales and trading that drove our MMP results above the increased guidance for the quarter. This fall, we have passed significant milestones, and I'm proud of the hard work and collaboration of our colleagues who make this happen. In early…

Thank you, Torgrim. And we are then ready to start the Q&A session. So, operator, if you can remind of the instructions for that?

[Operator Instructions].

Your first question comes from the line of Biraj Borkhataria from Royal Bank of Canada.

I wanted to circle back on the U.S. wind position. So, you've taken the impairment today. Last night, there was some news from the New York State around a request for consultations. It seems like they're making an effort to expedite some of these things and push these things forward. Where does this leave Equinor and Empire Wind? You obviously took the decision to impair because you couldn't negotiate the PPA, but I'm just wondering what the next steps are from here? And then the second one is on Norwegian output. Arguably, you've had more than your fair share of unplanned outages this year. When you do some audits and analysis? Is there a common theme here in terms of the issues or all of these projects specific? And how can investors get some comfort around your ability to produce reliably going forward given the issues this year? Thank you.

Okay. Thank you very much, Biraj. So, on your first question on U.S. wind, yes. So, I mean, the repetition towards the state, it was rejected. And that was the basis for the impairments that we have done. And right after we received that rejection, the state came out with a 10-point action plan, for opportunities to rebid on our contracts. And then as you said last night, they came out with sort of, how they want to run this process, where they would like feedback from us next week on our process, and then we'll see where that leads us. So, first of all, we clearly, we welcome, that they push forward the action plan quickly and what they are doing now. I do find that as a signal of commitment and a willingness to fast forward process. For us, it's too early to conclude. But what I want to say is that for us to move forward with these projects, we need to see profitability that is sort of reflecting the risk at hand. So, we will continue to work closely with the state as sort of the process unfold, and we will be more than happy to share more details when we know no more naturally. On your second question, on the Norwegian output. So, let me first go through the different sort of incidents or things that happened. We had Melkoya during the summer, with a gas leakage an incident that sort of halted production from Snohvit during summer and also into the third quarter. We had Nyhamna, which is a processing plant operated by Shell, where the turnaround was prolonged. And that sort of led to that we need to hold back production from Aasta Hansteen, which we operate, but also Ormen Lange operated by…

Thank you. Very much.

The next question will be Giacomo Romeo from Jefferies.

Yes. Thank you. First question I have is on Dogger Bank A. You announced first power in October, however, we noticed that only four turbines have been installed out of the 94 since the end of August. Just wondering when do you expect to reach full power capacity? That's some clarity there if possible? Thank you. Just second question is, you had a good contribution in MMP from crude products and liquids again this quarter. Obviously, we normally talk about your gas and power trading business, but crude has and products have done very well and pretty decently. Is anything has changed here in the way you sort of look at the optimization in trade around liquids? Some color there would be great. Okay.

Thank you very much, Giacomo. So first on Dogger Bank. Yes, first power, very glad to see that. So, this is sort of being installed. There are many turbines, and we expect sort of full power. Next year, in third quarter, as such for Dogger Bank A. Really looking forward to that. And, Dogger Bank projects are looking good from a profitability perspective. In the UK, the contractual differences are adjusted for inflation, and with sort of the inflation seen in the UK over the last years, that has contributed well to do very attractive assets. On your second question on MMP, yes. So, I mean, MMP continues to deliver strongly and this quarter above the increased guidance that we gave at the Capital Markets Day. And I also think it's worth noting that natural gas which was sort of the big contributors last year, it's still contributing solidly, but they are not the one doing sort of the heavy lifting in this result. That is the liquids trading as such. So, this comes out of arbitrage opportunities, resulting from that global trading flows are changing due to Russian oil being delivered into Asia. So, we see that creates opportunities when you have a good and large shipping fleet, combined with the qualities that we produce around the globe. So, I'm very glad to see that we have been able to really take out the value opportunities that arise in a changing oil market as such. So, going forward, you should, it's very hard to predict naturally who is going to be the biggest contributor from quarter to quarter. But as long as there are arbitrage opportunities within the oil market, we'll take them. And the gas results, they will typically be driven by volatility in the markets and arbitrage opportunities between the various geographical markets as well. Those have been fairly muted in the third quarter, but they have been very, very large early on. So, when that changes, we are ready to take, and then create more value from that part.

The next one is Oswald Clint from Bernstein. Oswald, please go ahead.

Thank you. Good morning. I wanted to also ask about MMP and the $400 million to $800 million quarter guidance, that was increased at the start of the year. Obviously, beating it this quarter, it's normally less exciting for natural gas. You just discussed the liquids side. But, I remember the chart back in February had quite a lot more upside from optionality and optimization. That fuzzy blue bar was significantly higher. So, I mean the question is as we roll into next year, is there any confidence building, I guess internally that you can probably do more than this guidance or at least more than the lower end of that guidance range. That's the first one. And then secondly, yes, I've got a follow-up. I wanted to know if you could tell us more about the [ph] Breidablikk field in offshore NCS. Seems like it's a sizable one and it may be moving forward. So just your latest discussions in the consortium around the concept and whether we could see this moving forward, please? Thank you.

Okay. Thanks, Oswald. Yes, so MMP continues to deliver strongly. And I think it's fair to say that, I mean, we have confidence In that, we will be able to continue to deliver strong results from that segment. Going into next year, clearly, volatility will be important to monitor. And we have seen in particular with a lot of volatility in the market, we can make our balance sheet available to take risk and make significant profit. And we saw that in 2022 and from downstream commodities and from the gas trading as well. So yes, we are confident that we will be able to deliver good value. So on [indiscernible], it is not operated by ourselves, this is operated by Shell. So, it will be natural to confer with them on the specifics. But clearly, it is a gas and condensate field. And it is an asset that we like and support and we stand fully behind Shell in sort of the way forward on that asset.

And the next question is Teodor Sveen-Nilsen from Sparebank 1 Markets.

Two questions. The first on Sverdrup. the field is currently producing very well. I just wondered, should we expect the current level, also next year? Also noticed, also added that the lift is loading has declined substantially over the past few weeks. Should we read anything out of that when it comes to fourth quarter production from Sverdrup? Second question is on NCS, gas, and of course, there has been a lot of maintenance there in the past few months, so we should reduce production. Just wondering, could you discuss whether we should relate this to the very high production last year? That some of the maintenance was skips and that is the reason why we see low production this year? Or is that totally unrelated from last year's strong gas production? Thanks.

Okay. Thanks, Teodor. So, on Johan Sverdrup, very glad to see how Johan Sverdrup is performing with high production efficiency. And we will continue to produce at high levels. But of course, with the increased capacity, we will also sort of come off plateau at some point in time. It is expected to be coming off plateau in 2024 and 2025 as such. But as you know, we are actively working with the reservoir and getting to understand it better and optimizing it on a daily basis. We are, also working on a Johan Sverdrup phase 3, which will be a subsea development, with two templates typically and eight wells that we will try to tie in or we will tie into to the platform. And the purpose of that development is of course to maintain a high-level of production on Johan's product continuously. On sort of lifting, you shouldn't put much to that. I mean, production is stable last week on Johan Sverdrup. On your second question, Teodor, on the gas production and whether the production issues we have seen this year is related to last year's high production. And the answer to that is that is unrelated. So, there's no sort of link back to that.

The next question is Alastair Syme from Citi.

Torgrim, can you talk about, just back on the renewables about your supply chain commitments? I mean, I think I remember you saying that on Empire Wind 1, there was already quite a lot of contracting a place around turbine supplies and maybe a Bard, but there doesn't seem to be much remaining book value. So, I was just wondering how we square that out, or are we seeing break clauses or something in there? And then just secondly, I'm interested to hear what you're seeing in the recent gas demand data in recent weeks. We can all see the aggregate data, but I'm sure you've got a lot more color on what different customer groups are doing, so I'd be really interested to hear that? Thank you.

Okay. Thanks, Alastair. So, on renewables and supply chain commitment. So, let me talk to the situation in the U.S. So, the impairment that we have done is $300 million, as I said. We have now still $100 million in book value in sort of the two assets. And in addition to that, we have $200 million books related to real estate in New York and some equipment, which is in reality cables. Beyond that, we have commitments, that is not sort of booked, but we still have them. They are mainly related to a lease arrangement to a property in Brooklyn, as such, which is a lease that and a property that can be used for other purposes. And we have also contracts related to ships and turbines, which are typically, can be used other places in the portfolio as well. But I mean, it's too early to give specific numbers on those, but that is sort of the exposure as such. So, in addition to that, we have a termination fee to the current offtake contract, which is at $16 million as such. So, I think that gives sort of the totality of the exposure at hand. And again, sort of we are welcoming the process that the New York State now is starting. And we will work closely with them to see what sort of opportunities that can arise out of that. On, gas demand, yes. I mean, storages are for practical purposes for the time being. But clearly, we see a very tight market and a rather nervous market, where sort of small, not small, but where happenings have typically a significant impact on prices. We have seen it on the terrorist attack on Israel. We have seen it on the pipeline, the Baltic pipeline and we see quite a bit of volatility in the prompt particularly. So, I think we just need to be prepared for a rather volatile and tight situation through this winter. Weather will, of course, always be a significant thing, and, as well, demand from Asia. Demand is sort of I mean, in demand from industrial customers are not really coming back to pre-war levels, but it is still sort of a helps the demand also from the industrial segments as I see it.

Next one is Henri Patricot from UBS.

Two questions, please. Just first one, I wanted to ask about M&A. We've seen there could be a full consolidation in the U.S. upstream lately and we've seen changes in renewables. So, I was wondering whether these recent developments are changing in a way your potential appetite for M&A and then your focus in terms of, where you like to make acquisitions in the future, in terms of region, but also between upstream and renewables? And then secondly, I wanted to ask about the CapEx. So, you mentioned that you see CapEx for this year more in the lower end of the guidance range. Can you expand on what's driving CapEx toward the lower end for this year and whether you see risk a bit to the downside as well for the next few years or if there is just inflationary pressure and, risk may be more to the upside?

Thanks, Henri. So First on M&A. So, I mean, the two large acquisitions in the U.S. clearly sends some signals to the market, one that is that sort of oil and gas to be attractive for a long period as such. And also, I think there is an element of energy security importance as well, that is sort of driving that. So, I don't think it's unlikely that we will see more transactions of also bigger size going forward but this time, it is a little bit different than last time around. Last time around, it was driven by a low-price environment and cost synergies and efficiency. This is not a driver this time around, there are different drivers. So, I think what this will lead to is more uncertain this time around. So, we will have to follow that closely. But we have, when you talk, our portfolio as such, I mean, it is a strong portfolio within oil and gas already. I mean, we are growing towards 2026, and we will keep the same level all the way to 2030. And we have an average breakeven of $35 per barrel and internal rate of return on 30% of these projects. So, it is a good investment program going forward. When that is said, I mean, we are using M&A actively as a tool. And you have seen it last year. We have made an acquisition into oil and gas, the Suncor portfolio in the UK, and you have seen several acquisitions within the renewable space as well. Rio Energy, BeGreen in Denmark. So, we will continue to use M&A actively to focus and deepen our oil and gas activities and to support the energy transition, and building a new portfolio. So, I mean, we will do that. And then, it is very important for me to say that capital discipline is front and center when doing M&A. Timing is of essence and quality is of essence. Your second question on CapEx. So, the reason for that we will come towards the lower end of the guiding this year is phasing of projects. So, these are spending that typically will move on to later years. When it comes to from 2024 and onwards, we are in the midst of our planning season. We are prioritizing among a set of very attractive investment opportunities. There is competition for funds. So, we are in the midst of doing that. I think it's fair to say that we will continue to demonstrate capital discipline. And then, of course, we note that there is inflationary pressure in the portfolio, which is particularly linked to the non-sanctioned part of the portfolio. But we are managing this well, and we will come back to this on the Capital Markets Day in February.

Next question is Kim Fustier from HSBC. Kim, please go ahead.

Hi, thanks for taking my question. My first question is on the low-carbon solutions. I think you recently bought a 25% stake in Chevron's Bayou Bend CCS project in the U.S. Gulf Coast. Could you just talk about the development timeline and about what Equinor is bringing to the consortium? And secondly, it seems that there's some controversy from environmental groups in Norway with respect to new NCS developments, including Breidablikk and Yggdrasil. Could you comment on the operating environment in Norway? Could things maybe become more difficult going forward if these environmental groups gain more traction? Thank you.

Okay. Thank you, Kim. So, you're right. We made an acquisition, into Bio Band in Texas. That's a storage carbon CCS project and then storage. Chevron is operator, and we now sit on 25% on that lease. So, this is a reservoir of very high quality, and with potentially significant capacity to store CO2, I mean benefiting from the IRA regulation. So, we are enthusiastic about that opportunity. We typically bring quite a bit of experience when it comes to reservoir management and understanding of capacities and how to do this. And we have a long experience working together with Chevron in the Gulf of Mexico, also particularly working on the reservoir topics together with them. So, we see that as a clear and then, we shouldn't forget that, we have more than 30 years of experience on CCS from the Norwegian continental shelf through our experience on Slater [ph] and also on some other fields as well. Your second question on the sentiment in Norway for future developments. It is clear, there is, there is opposition in Norway as well as in other places. I would say there is a politically a very strong and good consent and collaboration across political landscape to support the development of the Norwegian continental shelf. So, I feel confident that this is an area where investing into oil and gas is giving a predictable and a stable environment as such. And then there will always be institutions and voices that are against what we do, and we need to treat that with respect and openness. And clearly, we are in dialogue with everyone as such. So, I don't find it to be any particular concerns in Norway compared to other places.

Next question is Peter Low from Redburn. Peter, please go ahead.

Just a question on the balance sheet. It remains firmly net cash. You've talked in the past about wanting to return to that 15% to 30% leverage ratio, perhaps distributions being something that will kind of get you there. As we begin to think about 2024 shareholder distributions. Can you give us any insight on kind of how quickly you'd like to get back to that level of change? And then the second one was just very quickly, you mentioned the impairment you've taken on the NCS due to, I think, an asset, having kind of a lower reserve estimate a previously, and then also reverse development impairment in the U.S. Are you able to name those assets and say what led to that change in assessment? Thanks.

So, on your first question, on the balance sheet and capital distribution going forward. Yes, we are in a situation where we have a negative net debt of minus 22.9%. And we have a sort of a long-term guiding, which is sort of 15% to 30% net debt, which is sort of mathematically what is solidly supporting a strong single A category credit rating on a standalone basis. We have a higher rating than that currently. So that's you should read that as sort of a range that we will sort of find as a more optimal capital structure of the company. And from time to time, we are above and then also below as such. So that is sort of a long-term aspiration. We are, and I have said earlier that capital distribution is something that we are using currently to distribute cash that we have on the balance sheet to drive a more efficient capital structure of the company. And I've also said that we will continue to use that as one of our tools to achieve that going forward. It is, of course, nothing that I can go into any details on in this call, but clearly, we will come back to that in our fourth quarter call and capital markets update. On your second question, Peter, NCS impairment. Yes. That is Martin Linge. It is an asset that we took over from total many years ago. And we have issues with that asset repeatedly, as well. So, this time around, it is, related to the reservoir where we see that production is postponed to come towards later in the production life of the field, meaning that the discounted value of the asset is going down. So that's Martin Linge. This is not a broader concern at all on the NCS. This is isolated to these assets. Yes. And then we talked about the reversal, in the U.S. that is related to an asset in Gulf of Mexico, $290 million. So, thanks, Peter.

Thank you, Peter. And Anders Rosenlund from SEB is the next question. So, Anders please go ahead.

It feels like repeating almost the first of the previous question, but I'd like to revert to the overcapitalization situation, and, the path you are pursuing is not remedying the situation. So, what's the natural consequence of that? Is that more aggressive dealers and buybacks, or are you happy with the development that you're seeing?

Yes. So, yes, Anders, thanks. Yeah. I thought that I think it's important for me to reflect upon the volatility the uncertainty that we are facing as an industry. In 2020, we had the weakest result in history for Equinor. In 2022, we had the highest and strongest results. So, within two years, we went to worst to best as such. And that is the volatility and exposure that we need to manage. Meaning that we will have to and we shall run with a solid balance sheet to be able to weather any storms that is ahead of us. And then we are, of course, in an extraordinary situation now, where, capital distribution gives room for additional capital distribution as you have seen this year. And then we said again, we will continue to use capital distribution as one of the tools to bring this back to a more efficient in capital structure. So, but we'll speak much more to this in our Capital Markets in February. So, looking forward to see you then.

Next one is Michele Della Vigna from Goldman Sachs.

Thank you very much and congratulations again on the strong delivery this quarter. My question really is about the security of your Norwegian pipeline infrastructure. We've seen issues in Sweden, in Finland, Estonia. I was just wondering over the last couple of years what has changed in terms of the focus on guaranteeing the security of those pipelines and that would make you comfortable that such an issue would not take place on the Norwegian continental shelf? Thank you.

Thanks, Michele. It's a very, very important question, so thank you very much. Clearly, this is front and center for us these days. After the terrible attack on Ukraine. We are seen as the most important energy company in Europe. And clearly, we will do or utmost to serve Europe with natural gas and other energy sources as well. We have increased the security levels on all our installations and infrastructure on the shelf, and we had taken many measures. As you would understand, we have a very good dialogue with security institutions and safety. And also, international organizations, so to understand. And we have a lot of support from those institutions and also from support from military organizations as well. What we have done over the last year is that we have mapped all our pipelines. We have screen them with sort of underwater equipment to all of them, and we are monitoring closely the situation. So, this is front and center and top attention to the company. And we are doing everything we can together with Norwegian and international authorities to safeguard energy deliveries to Europe.

Next is, Henry Tarr from Berenberg.

Thanks, so much for taking my question. Two, please. One is just on the, to come back again to the offshore winds and the RFP process, et cetera. I guess, as you've said, you're looking at the opportunities going forward and that you need an economic return on those. Would it be right then to look at the request you put in, for the uplift and think that's the kind of level that you're going to want to see to get an economic return on those assets, on Beacon and Empire? And then the second question is just on the cost inflation you're seeing on the portfolio on the non-sanctioned assets. Is there a difference, are there any hotspots particularly, either in Norway or outside that we should watch? Thank you.

So offshore wind, yes. So very important for me. I can say that for us to move forward with these projects, we need to have a, they need to be profitable, and the returns need to match the risk that we are facing. It is too early to conclude, but we put forward a request in the petition, and that clearly illustrates changes that needs to happen. I mean, we have communicated that we would like to see 4% to 8% real unlevered return from our businesses in within renewables. And that still is the case. On cost inflation, and that is the way I understood your question, that is more general, not only related to renewables. So, I would say that across the supplier base, it is still a challenge. We see that within the raw materials in the situation is easing, driven by sort of global growth actually, it is easing, but we see a continued tightening in the supply market. That is driven by energy prices, but also the activity level. And if I should go into more on your hotspots, let me pick a few on the rigs. We see that as a challenging environment. 50% of the fleet has been scrapped since 2015. And no or hardly any new builds as such. NCS will be strained, but as you have seen, we have taking on capacity with the coastal rigs, so we are in good shape there. Then if you talk about engineering and construction, we see short-term, high utilization in yards in Norway. That is probably going to last a couple of more years until sort of the wave of new project on NCS has come in production. Internationally driven very much by LNG new builds and FPSOs as such, so we see a tight situation there as well. But there are opportunities. Then clearly, across the whole universe of electrification and cables going into renewable and offshore wind, but also the electrification projects we have on the Norwegian continental shelf, we see tightness and limitations. So, I mean, it is, all of this is pointing to a rather tight situation across the supplier base, and we see that sort of filtering into inflation in sort of the numbers that we are looking at. But as a big company as we are and a big procurer, we have priority, and we will be able to get access to what we will need. So, thanks, Andre.

Thank you. We are fast approaching the hour, but let's try to cover one or two more. Chris Kuplent, Bank of America, you are next.

Yes. Thank you very much. I hope you can hear me okay? I'll try and keep it brief with only one talk, Raymond. I know it's an unfair question, and I look forward to February already. But I wanted to just see whether you would like to comment on the fact that you seem to be the only American in Europe when it comes to how you define shareholder distributions, i.e., in $1 billion rather than in a payout ratio. Do you feel, consciously aware of that, in the way you are thinking around how you're going to update us in February? And I'm not asking for a number or anything, just about the principle of guiding for future shareholder distributions through the cycle. Thank you.

Thanks, Chris. I think it would be wrong for me to be specific here at all, but I can give you maybe one thing to reflect upon, and that is in our cash flow, we typically have so many specialties related to Norwegian tax. We delayed payments and all of that. So that is sort of always a disturbing factor if you're going to think about as such. But we have what we have currently, and the $17 billion this year. And we will come back to this on Capital Markets Day in February.

Then we'll do the final question, and that will be you, Paul Redman from BNP Paribas. Paul, please go ahead.

Last but least, I hope everyone just one quick one. If the agreements with the New York government do not go in a positive direction? And Equinor did step away from the offshore wind portfolio. What could we expect to see at that point? Would we expect to see challenge on the longer-term gigawatt targets? Would CapEx come down? Or when you look at the renewable portfolio, do you have other assets with a high return that could potentially fill the slot that the wind portfolio essentially cannot meet?

Okay. Thanks, Paul. So, over the last few years, we haven't won new leases, as such. I mean, we have used opportunity to actually divest out of assets and capitalize on significant prices. And instead of sort of fighting for in these lease rounds, we have actually built and onshore portfolio through acquisition of various platforms, both in Denmark, Brazil, and Poland as such, with quite a good pipeline of opportunities. So, our target for 2030 remains firm, but what you might expect is that there will be maybe a little bit shift of content between offshore and onshore in the delivery of that. When it comes to sort of the U.S. project as such? I mean, they are part of our planning, and we are working closely with the New York state on the ongoing process as such. So, I mean, we will come back to this later on when we know more about the process, we have not concluded yet. And again, and that will probably be my final word, any investments into U.S. wind will have to be profitable.

Thank you, Torgrim, and, let me remind you all that we are, of course, always available in the investor relations team. So, if there is any follow-up after this call or any additional question, please give us a call, and we will do our best. Then finally, thank you, all of you for calling in and for your questions during this hour. So, thank you, and goodbye.

This concludes today's conference call. Enjoy the rest of your day. You may now disconnect.