Business Context and Reporting Period
Company: Equinor ASA (formerly Statoil ASA)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: First Quarter ended March 31, 2016
Filing Date: April 27, 2016
Currency Change: Effective January 1, 2016, the company changed its presentation currency from Norwegian Krone (NOK) to US Dollar (USD). Comparative periods have been re-presented in USD.
Key Financial Metrics
| Metric | Q1 2016 (USD Million) | Q1 2015 (USD Million) |
|---|---|---|
| Net Operating Income | 1,060 | (3,303) |
| Net Income | 611 | (4,571) |
| Total Revenues | 10,115 | 15,513 |
| Cash Flow from Operations | 2,205 | 3,740 |
| Organic Capital Expenditure | 2,400 | N/A |
| Net Debt to Capital Employed | 28.1% | 24.0% |
| Equity Production | 2,054 mboe/day | 2,056 mboe/day |
| Group Average Liquids Price | $29/bbl | $47/bbl |
Material Changes vs. Prior Period
- Profitability Turnaround: Net operating income improved from a loss of $3,303 million in Q1 2015 to a profit of $1,060 million in Q1 2016. Net income swung from a loss of $4,571 million to a profit of $611 million.
- Impairment Reversals: The primary driver for the improvement was a net impairment reversal of $308 million in Q1 2016, compared to net impairment charges of $5,935 million in Q1 2015. This was due to improved production profiles and lower cost estimates for unconventional assets in North America and conventional assets internationally.
- Price Environment: Revenues decreased 35% year-over-year due to significantly lower realized liquids and gas prices. The group average liquids price dropped 39% to $29/bbl.
- Cost Reductions: Operating and administrative expenses decreased by $677 million (21%) due to efficiency gains and lower maintenance activity. Exploration expenses dropped 80% to $351 million.
- Production: Total equity production remained flat at 2,054 mboe/day. Underlying production growth was 2% after adjusting for divestments, driven by strong operational performance in Norway offsetting declines elsewhere.
Guidance, Outlook, and Risks
- 2016 Guidance: Management maintains its 2016 guidance. Organic capital expenditures are estimated at approximately $13 billion for the full year.
- Efficiency Targets: The company expects to deliver pre-tax cash flow effects of around $2.5 billion from efficiency improvements in 2016.
- Production Outlook: Equity production for 2016 is estimated to be somewhat lower than 2015 levels due to a "value over volume" approach. Scheduled maintenance is expected to reduce production by approximately 60 mboe/day for the full year.
- Dividend: The board declared a dividend of $0.2201 per share for Q1 2016. A scrip dividend program (option to receive shares at a 5% discount) is proposed for shareholder approval.
- Risks: Key risks include commodity price volatility, operational regularity, timing of new capacity, gas off-take, and geopolitical factors. The company notes that forward-looking statements are subject to significant uncertainties.
Investor Verification Checklist
- Impairment Volatility: Verify the sustainability of the $308 million impairment reversal, noting the massive $5.9 billion charge in the prior year was driven by long-term price assumption changes.
- Currency Impact: Confirm the impact of the presentation currency change from NOK to USD on comparative financial ratios and equity components.
- Debt Levels: Review the net debt to capital employed ratio of 28.1% and the company's ability to maintain this leverage in a low-price environment.
- Dividend Sustainability: Assess the ability to maintain the $0.2201 quarterly dividend given the 41% decrease in operating cash flow compared to the prior year.
- Asset Sales: Monitor the pending divestment of unconventional non-core US properties (agreed April 20, 2016) for a cash consideration of approximately $400 million.