Equinor ASA — 2019 Annual Report on Form 20-F
Reporting period: Fiscal year ended December 31, 2019. Although the request identifies 2019 Q4, this filing reports annual results, not standalone fourth-quarter financial results. Amounts are generally in USD unless stated otherwise. Equinor reports under IFRS.
Business context
Equinor is an international energy company spanning oil and gas exploration and production, marketing and processing, and a growing renewables business. Norway’s continental shelf accounted for about 60% of 2019 equity production; international operations accounted for about 40%. The Norwegian State owned 67% of the company at year-end.
Financial and operating performance
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Total revenues and other income | $64.36 billion | $79.59 billion | Down 19% |
| Net operating income | $9.30 billion | $20.14 billion | Down 54% |
| Net income | $1.85 billion | $7.54 billion | Down 75% |
| Operating margin, calculated as net operating income/revenue | 14.4% | 25.3% | Lower |
| Net margin, calculated as net income/revenue | 2.9% | 9.5% | Lower |
| Adjusted earnings (non-GAAP) | $13.48 billion | $17.96 billion | Down |
| Adjusted earnings after tax (non-GAAP) | $4.93 billion | $6.69 billion | Down |
| Cash flow from operating activities | $13.75 billion | $19.69 billion | Down $5.95 billion |
| Capital expenditures, including acquisitions and other items | $14.78 billion | $15.20 billion | Down |
| Organic capital expenditures (non-GAAP) | $10.0 billion | $9.9 billion | Slightly higher |
| Equity oil and gas production | 2.074 million boe/day | 2.111 million boe/day | Down 2% |
| Average Brent price | $64.30/barrel | $71.10/barrel | Down 9% |
| ROACE | 9.0% | 12.0% | Lower |
Management attributed weaker results principally to lower oil and gas prices and lower liquids volumes, along with higher impairments. European and North American average invoiced gas prices fell 18% and 20%, respectively. Net operating income also reflected increased depreciation and impairment charges and higher exploration expenses.
Segment net operating income: E&P Norway $9.63 billion (2018: $14.41 billion); E&P International loss of $0.80 billion (2018: income of $3.80 billion); Marketing, Midstream & Processing (MMP) $1.00 billion (2018: $1.91 billion); Other $92 million (2018: loss of $79 million).
Liquidity, debt and capital returns
Cash and cash equivalents were $5.18 billion at year-end, and current financial investments were $7.43 billion. Net interest-bearing debt was $16.43 billion, up from $11.13 billion; gross interest-bearing debt was $29.03 billion. The reported net debt-to-capital-employed ratio rose to 28.5% from 20.6%; the company’s adjusted ratio excluding lease liabilities was 23.8%, versus 22.2%. Equinor had a committed, undrawn $5 billion revolving credit facility and stated it considered liquidity sufficient for its needs.
Adoption of IFRS 16 added approximately $4.2 billion of lease liabilities at transition, affecting debt and cash-flow presentation; prior-year figures were not restated. The board proposed a fourth-quarter dividend of $0.27 per share, subject to AGM approval. 2019 cash dividends paid totaled $3.34 billion. A share-buyback programme of up to $5 billion through 2022 was announced; $442 million had been settled by year-end.
Material changes and unusual items
- Net impairment losses were $4.09 billion, compared with impairment reversals in 2018; the charges mainly reflected lower long-term price assumptions and included North American assets, Norwegian offshore assets, and damage to the Bahamas terminal.
- Hurricane Dorian damaged the South Riding Point terminal in the Bahamas, caused an oil spill reported at 8,744 cubic metres, and resulted in cleanup costs, provisions and impairment. The terminal was out of operation pending assessment of restoration options.
- Johan Sverdrup started production in October, ahead of schedule and below cost, and helped offset natural decline and reduced flexible gas production. Mariner, Utgard and Trestakk also started up during 2019.
- Proved reserves fell by 171 million boe to 6.004 billion boe. Additions of 527 million boe were below production of 698 million boe; the annual reserve replacement ratio was 0.75 and the three-year average was 1.47.
- Equinor sold a 16% Lundin Petroleum shareholding in exchange for a direct 2.6% interest in Johan Sverdrup and cash, increased its Caesar Tonga interest, acquired Danske Commodities, sold its Eagle Ford interest, and sold a 25% interest in the Arkona wind farm.
Outlook, management commentary and risks
Management’s stated outlook included equity production growth of about 7% in 2020 and roughly 3% compound annual growth from 2019 to 2026. Organic capital expenditures were estimated at $10–11 billion annually in 2020–2021 and about $12 billion annually in 2022–2023. At an assumed $65/barrel oil price, management targeted adjusted ROACE of about 15% in 2023 and approximately $30 billion of cumulative organic cash flow after tax and organic investment over 2020–2023. These are forward-looking estimates, not guarantees.
Renewables equity capacity was targeted at 4–6 GW by 2026, including Equinor’s Scatec Solar holding; management also described a 12–16 GW ambition toward 2035. Climate targets include at least a 50% reduction in net carbon intensity by 2050 and carbon-neutral operated global operations by 2030. The company reported 2019 upstream CO₂ intensity of 9.5 kg/boe.
The report was signed in March 2020 and discusses the emerging COVID-19 pandemic and the sharp oil-price decline in March as material uncertainties that could affect demand, prices, operations, asset valuations and project delivery. Other key risks include commodity-price and currency volatility, project execution, reserves replacement, safety and environmental incidents, climate-transition impacts, political and regulatory risk, sanctions, and cybersecurity. The serious incident frequency increased to 0.6 per million work hours from 0.5, despite lower recordable injury frequency.
At year-end, Equinor recognized an $853 million provision for the Agbami ownership redetermination. It disclosed approximately $1.3 billion of exposure from ongoing gas-contract price-review arbitration without a provision; an approximately $180 million Norwegian tax assessment under review without a provision; and approximately $700 million of exposure in a Brazilian ICMS tax dispute without a provision. These matters are uncertain and may take years to resolve.
Investor facts to verify
- Review the distinction between reported IFRS results and non-GAAP adjusted earnings, adjusted cash-flow measures and debt ratios; reconcile the effects of IFRS 16 when comparing periods.
- Assess the assumptions underlying the $4.09 billion impairment charge, proved reserves, and the decline in the reserve replacement ratio.
- Track the COVID-19 and oil-price shock’s effects on 2020 production, capital spending, project schedules, liquidity and asset valuations; the guidance predates the full impact and is expressly uncertain.
- Check progress on remediation of the material weakness in IT user-access controls. Management and the auditor concluded internal control over financial reporting was ineffective at December 31, 2019; the auditor issued an adverse opinion on controls. The financial-statement audit opinion itself was unqualified, and no material misstatement was identified.
- Monitor the Agbami provision and the unprovided arbitration, tax and other contingent exposures, as well as the South Riding Point cleanup and restoration assessment.
- Confirm approval and payment of the proposed $0.27 fourth-quarter dividend and the terms and execution of the share-buyback programme.