Equinor T3 jumps on gas and derivatives, boosting share buybacks

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The Equinor flag in Stavanger, Norway on December 5, 2019. REUTERS / Ints Kalnins

  • Profit before tax $ 9.77 billion vs. $ 8.4 billion forecast
  • Co sharply increases its share buybacks
  • Co takes advantage of soaring gas prices in Europe
  • The increase in profits from derivatives will be reversed later

OSLO, Oct.27 (Reuters) – Norwegian company Equinor (EQNR.OL) on Wednesday posted its best quarterly result in nine years, driven by a global energy supply crisis that has pushed natural gas prices in Europe to rock bottom. record highs and skyrocketing the value of derivative contracts. .

The company said it would sharply increase the size of its share buybacks in the coming months, while maintaining a quarterly dividend level of $ 0.18 per share.

Adjusted profit before tax reached $ 9.77 billion in the July-September quarter, up from $ 780 million a year ago, beating the $ 8.4 billion predicted in a survey of 25 analysts compiled by Equinor .

“The unprecedented level and volatility of gas prices in Europe underscore market uncertainty,” Managing Director Anders Opedal said in a statement.

“Equinor plays an important role as a reliable energy supplier in Europe and we have taken steps to increase our gas exports to meet the strong demand.”

Norway is the largest oil and gas producer in Western Europe, pumping around 4 million barrels of oil equivalent per day. Last year, it supplied 22% of the gas consumed in the European Union, according to Norwegian government data.

Equinor said it would seek to increase pipeline gas exports to Europe by increasing production from the Troll and Oseberg fields, as well as reducing gas injections normally used to pump oil. Read more

Global gas prices rose sharply in the third quarter as the European benchmark TTF contract tripled to around € 90 per megawatt hour (MWh) due to higher demand, below average storage levels and concerns about Russian supplies ahead of the winter heating season. . Read more

In early October, the price of gas soared again, reaching a record 155 euros per MWh before falling back to 89 euros on Tuesday. The price of North Sea crude oil, meanwhile, rose 67% this year to trade at a three-year high of $ 86 a barrel.

DERIVATIVE GAINS AND LOSSES

Equinor’s marketing, processing and processing (MMP) unit profits reached $ 2.19 billion from $ 262 million, boosted by derivative contracts related to European gas, the company said.

Equinor sells most of its gas short term, or spot, but also sells a small share based on longer term indices. For the latter, MMP used financial contracts to modify the price exposure to benefit from strong spot and first month pricing.

Mark-to-market gains on these contracts in the third quarter will be followed by losses in the MMP segment when these volumes are delivered under long-term contracts, Equinor reiterated in its earnings report.

“The decision to take derivative positions has been beneficial for the group but has created volatility in this segment,” the company said with reference to the MMP unit.

The one-off nature of the MMP’s gains should be a caveat to investors, said SpareBank 1 Markets analyst Teodor Sveen-Nilsen.

“MMP’s profitability is a black box with low visibility,” he wrote in a note to clients.

Nonetheless, Equinor’s share price could outperform its peers by around 2-4% on Wednesday, the analyst added.

REDEMPTION OF 1 BILLION DOLLARS

The rising cost of energy has caused electricity prices to soar across much of Europe and the world, hitting households as well as businesses that have been forced to close factories as profits were eroding, triggering more shortages in the supply chain. Read more

Equinor plans to repurchase $ 1 billion worth of shares over the next three months, up from its previous $ 300 million share purchase plan.

In the previous three months, the company had also planned to buy up to $ 300 million in stock, but ultimately only spent $ 99 million.

Equinor revised its capital spending for 2021 to $ 8.0 billion from a previously seen range of $ 9 billion to $ 10 billion. The average for 2021 and 2022, however, will still be between $ 9 billion and $ 10 billion.

He maintained his intention to spend around $ 12 billion a year in 2023 and 2024.

Equinor shares have risen 60.6% year-to-date. Trading on the Oslo Stock Exchange is expected to resume at 07:00 GMT.

Reporting by Nerijus Adomaitis and Nora Buli; edited by Subhranshu Sahu and Jason Neely

Our Standards: Thomson Reuters Trust Principles.


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