Earnings Call Transcript
EQUINOR ASA (EQNR)
Earnings Call Transcript - EQNR Q4 2025
Bård Pedersen, Head of Investor Relations
Good morning to everyone here in Oslo and to all our participants online. Welcome to the presentation of Equinor's Fourth Quarter and Full Year Results for 2025. My name is Bård Glad Pedersen, and I am the Head of Investor Relations at Equinor. For those present in the room, I want to mention that there are no emergency drills scheduled for today. In the event of an alarm, we will evacuate and follow the necessary instructions. We will begin with a presentation from our CEO, Anders Opedal, followed by our CFO, Torgrim Reitan, before we move into the Q&A session. Now, I will turn it over to Anders for the presentation.
Anders Opedal, CEO
And thank you all for joining here in the room, and thank you for participating online. So for Equinor, 2025 was a year of strong deliveries, but it was also a year of increased geopolitical tension and market uncertainty. Our job is to ensure we allocate our resources in a way that maintains a competitive business, creating value at all times. Today, Torgrim and I will show how we take the necessary measures to further strengthen our competitiveness, cash flow, and robustness. This ensures that we can navigate through and leverage market volatility and the current macro environment. So we have three key messages for you today. First, we are well-positioned for maximizing long-term shareholder value. Today, we will share how clear strategic priorities guide capital allocation for 2026 and 2027, and we will revert at our Capital Market Day in June to present our strategy towards 2030. Second, we take firm actions to strengthen free cash flow. We reduced our CapEx outlook by $4 billion and maintain strong cost discipline. This makes us more robust towards lower prices and ensures that we can maintain a solid balance sheet through the cycles. And third, we continue to develop an attractive portfolio, delivering oil and gas production growth. With this, we are prepared for volatility ahead. The energy transition is shifting gears in many markets with governments and companies changing priorities. Current oil prices are supported by geopolitical risk, but we are prepared for strong supply combined with moderate demand growth, putting pressure on the oil price in the near term. For gas, the European market has seen cold weather and high draw on storage in late December and in January. Storage levels are now around 40%, significantly below average for the last five years and also lower than last year. We expect continued volatility ahead and more LNG coming into the market. In the U.S., low temperatures have driven up local demand and reduced exports of LNG. But before I progress any further, I will always start with safety. Despite fewer people being hurt and our safety numbers moving in the right direction, we still have serious incidents and need to improve. In September, our colleague was fatally injured during a lifting operation at Mongstad. This is a stark reminder that we cannot rest until everyone returns safely home from work every day. Our safety trend reflects years of good work from the people in our organization and our suppliers. Safety remains our first priority. Throughout 2025, we have delivered strong performance despite geopolitical uncertainty, high inflation in the supply chain, and lower commodity prices. This resulted in all-time high record production, thanks to good operational performance and new fields coming online. We have matured a competitive project portfolio across the Norwegian continental shelf and internationally. With Johan Castberg online, we opened a new region in the Barents Sea. In Brazil, we started production from Bacalhau, the first pre-salt operatorship awarded to an international company. We continue high-grading our portfolio and maintained cost and capital discipline. All this has enabled us to deliver an industry-leading return on average capital employed of 14.5% and $18 billion in cash flow from operations after tax. We have delivered $9 billion in capital distribution to our shareholders, as we stated at the start of the year. Last year, we received two stop-work orders for Empire Wind. In our view, both are unlawful. The first one was lifted by the UN administration in May. The second stop-work order came just before Christmas. This cited national security reasons, already a central part of an extensive approval process where we have complied with all requirements. In January, we were granted a preliminary injunction allowing us to resume construction. There will be a continued legal process, and we remain in dialogue with U.S. authorities to resolve any issues. Despite the significant challenges caused by the stop-work orders, the project execution is according to plan. The project is now over 60% complete. We have successfully installed all monopiles, the offshore substation, and almost 300 kilometers of subsea cables. The total CapEx for Empire Wind is now expected to be around $7.5 billion. Around $3 billion is remaining, and we, like other companies, remain exposed to uncertainty regarding possible future tariffs. The project qualifies for tax credits as decided by the U.S. Congress. The cash effect of these is expected to be around $2.5 billion. So far, we have drawn $2.7 billion from project financing. We expect to draw the remaining $400 million this year. For 2027 and 2028 combined, we expect around $600 million in cash flow from operations. Combined with the ITC, this covers the remaining CapEx in the period. We have continued high-grading our portfolio. We announced the latest move earlier this week, divesting onshore assets in Argentina for a total consideration of $1.1 billion, unlocking capital for high-value creation opportunities. The establishment of Adura was a major milestone last year. Our joint venture with Shell has created a leading operator on the U.K. continental shelf, fully self-funded, covering all Rosebank CapEx and well positioned for growth. The JV company expects to distribute more than 50% of cash flow from operations to its shareholders, starting from the first half of 2026. Based on Adura's plans, we expect total dividends of more than $1 billion for 2026 and 2027 combined, with growth from 2026 to 2027. This moves our U.K. portfolio from being cash negative due to CapEx to cash positive from dividends. These two transactions build on previous high-grading of the portfolio, divesting mature assets and investing more in long-term gas production onshore in the U.S. Through this, we have created a more future-proof international portfolio, focusing on prospective core areas, increasing free cash flow, strong production, lowering cost, and a portfolio with low carbon intensity. Now on to our strategic priorities for 2026 and 2027 and how they guide our capital allocation. The world is changing, but one thing remains firm. Energy demand continues to grow. We are well positioned to contribute to energy security, affordability, and sustainability. So first, after more than 50 years of developing the Norwegian continental shelf, we are uniquely positioned for value creation here, and we continue to invest. The Norwegian continental shelf remains the backbone of the company. In 2026, the NCS will contribute to our production growth, and we are working to maintain strong production well into the next decade. In the future, as you know, we expect to make more but smaller discoveries. To ensure commerciality, we will work with partners, suppliers, authorities, and unions to change the way we operate on the Norwegian continental shelf. We will develop future discoveries faster, become more efficient, and increase returns while improving safety further. Next, we are set to deliver strong production and cash flow growth from our high-graded international oil and gas portfolio. We are progressing project execution and exploration across key geographies, adding new volumes and opportunities for longevity in the portfolio. On power, we combine our renewable portfolio with flexible power to build an integrated power business and strengthen our competitiveness. We are value-driven in all we do and disciplined in execution and capital allocation. The main focus for 2026 and 2027 is to deliver safe operations and strong project execution of our already sanctioned portfolio. All this—Norwegian oil and gas, international oil and gas, and power—is tied together by our marketing and trading capabilities, creating value uplift across our business. We are positioned to create value within low-carbon solutions like carbon capture and storage, but markets are developing at a slower pace than anticipated. In addition to the execution of Northern Lights and Northern Endurance, we will continue to mature a few selected options and markets at low cost. We will be positioned to invest as markets develop, customers are in place, and returns are robust. We grow our production to even higher levels in 2026 from a record high production level in 2025. For the year, we expect a production growth of around 3%. We are ramping up new fields, which more than offset divestment and natural decline. We are replenishing our portfolio and have a three-year average reserve replacement ratio of 100%. On the NCS, we made 14 commercial discoveries last year, mainly close to existing infrastructure, adding to longevity. And we continue to explore. We have added attractive acreage in Norway, Brazil, and Angola, where we expect to drill around 30 exploration wells in 2026. We expect to reduce our unit production cost to $6 per barrel. We continue to focus on delivering a carbon-efficient portfolio with a CO2 upstream intensity of 6.3 kilos per barrel. We take firm actions to strengthen our cash flow and further increase resilience facing higher market uncertainty. In 2026, we expect around $16 billion in cash flow from operations after tax. This reflects a lower price outlook and is also impacted by the tax lag effect in Norway. A flat price assumption is growing to around $18 billion in 2027. We have strengthened our investment program for 2026 and 2027, reflecting market realities. We have reduced our CapEx outlook for these two years by around $4 billion, mainly within power and low carbon. This also influenced our net carbon intensity reduction for 2030 and 2035, with no change to 5% to 15% and 15% to 30%, respectively. We maintain stable investments of around $10 billion annually in oil and gas. Our CapEx guiding for 2026 is around $13 billion. This includes Empire Wind, where we, in 2027, expect to monetize investment tax credits for around $2 billion. With this, we indicate CapEx of $9 billion for 2027. In the current situation for the offshore wind industry, we are focusing on projects in execution and have a high bar for committing capital towards new offshore wind projects. This includes our ownership in Ørsted. We will continue driving cost improvements, including the portfolio high-grading we have done. We aim for a 10% OpEx reduction in 2026, even while growing production. We continue with strategic portfolio optimization to strengthen future cash flow. Proceeds from the divestment of Peregrino and onshore Argentina assets are expected to contribute more than $1.1 billion this year. The actions we take to strengthen our cash flow and robustness support sustainable, competitive capital distribution. This is important to me and a priority for the Board of Directors. The starting point is the cash dividend. We have set an ambition to grow the quarterly cash dividend by $0.02 per share on an annual basis. We continue to deliver on this. It represents an industry-leading increase of more than 5%. We also continue to use share buybacks to deliver competitive total distribution. For 2026, we announced a share buyback program of $1.5 billion, including the state share. The first tranche of $375 million starts tomorrow. As previously communicated, we see timing effects like the tax lag in Norway and the phasing of Empire Wind, and lean on the balance sheet to deliver competitive capital distribution in 2026. In 2027, we have taken action to deliver stronger free cash flow. This is important to ensure that we can deliver competitive capital distribution in a long-term sustainable manner. So with our guidance in the background, I will give the floor to Torgrim that will take you further through the details. And then I look forward to questions together with Torgrim when he is finished. So Torgrim, please.
Torgrim Reitan, CFO
So thank you, Anders, and good morning and good afternoon, and thank you for joining us here today. So 2025 was a good year for Equinor. We delivered strong performance and record high production. But before we dive into the financial results, I want to expand on how we will manage through a period of volatility. So we are prepared for lower prices with a strong balance sheet, lower cost and CapEx, and an attractive project portfolio. Our financial framework sets the boundary conditions for how we manage our company and allocate capital. So to start, our highest priority will be to deliver a robust and a growing cash dividend, in line with our dividend policy, and this reflects growth in our long-term underlying earnings. Then we will continue to invest in an attractive and high-graded investment portfolio with low breakevens and strong returns in line with the following priorities. First, our unique position on the Norwegian continental shelf gives us competitive advantages. This is why we will continue to prioritize developing this area and allocating almost 60% of our investments to an area we know better than anyone. In '26, we have 16 projects in execution in Norway. Many of these are tie-ins to existing infrastructure with low cost and very low breakevens. Then we will allocate 30% of our capital to our international oil and gas business. This is mainly for sanctioned projects, and we expect to increase production to more than 900,000 barrels per day in 2030. And then around 10% of our capital will be allocated to building an integrated power business where the main focus is on delivering our offshore wind projects in execution safely, on time and on cost. Outside these three areas, we expect limited investments over the next two years. As you know, we will prioritize having a strong balance sheet and liquidity necessary at all times. This is important to manage risk and continue to deliver value. Over the next two years, we will see through timing effects such as the NCS tax lag and the tax credit on Empire Wind impacting our cash flow from operations, and we will lean on the balance sheet. We will lean on the balance sheet in 2026 to cover CapEx and distribution. Next year, in 2027, cash flow from operations is stronger and we have lowered CapEx, significantly improving the free cash flow. So we will manage the balance sheet through this period and continue to deliver competitive capital distribution, including share buybacks. For more than a decade, we have consistently delivered an industry-leading return on capital employed. If you ask me, that is a premium KPI that we hold very high in our company. With this financial framework, we expect to deliver around 13% over the next two years, now using a lower price deck than what we have used earlier. So that is comparable to what we have said earlier. We are used to managing volatility and deliver value through cycles. First, to manage cycles, we have to run with a strong balance sheet and a robust credit rating, and we have that. We have that. Having liquidity available is key. We have close to $20 billion for the time being. Second, a low cost base is important to ensure that we make money at low prices, and we continue to reduce our costs. We have a low unit production cost. In 2026, we will further reduce it by around 10% to $6 per barrel. We are the lowest cost supplier of pipe gas to Europe with our all-in costs of less than $2 per MBtu, and we are sure that we will create significant value in any price scenario in Europe. Through strong cost performance and portfolio high-grading, we aim to reduce OpEx and SG&A by 10% in 2026. This corresponds to flat underlying cost development, overcoming inflation while growing production. We are addressing costs in all parts of the organization. I want to highlight that in 2025, we brought down OpEx and SG&A in renewables by 27%, mainly due to reductions in early-phase costs. And then thirdly, it is key to have a competitive project portfolio that makes sense at lower prices. We operate a majority of our projects, giving us the flexibility needed to adjust when we want to do that. Through portfolio flexibility and high-grading, we have reduced CapEx over the next two years by $4 billion, made divestments totaling more than $6 billion since 2024, and strengthened the quality of our portfolio. Our average breakeven is around $40, and we see an internal rate of return of 25% in the portfolio at $65 oil. We remain a leader on CO2 efficiency and an average payback of 2.5 years. Therefore, I will call this a robust, low-risk and high-value project portfolio that will create value also at low prices. In periods of volatility, our NCS position and our international portfolio complement each other. In Norway, we are more robust to lower prices while international, particularly in the U.S., where we have strengthened our gas position, we have a large exposure to upside in prices. So Norway first. We have immediate deductions for CapEx against the special petroleum tax. With full consolidation between fields and no asset ring-fencing, our pretax CapEx of around $6 billion translates into after-tax investments of less than $1.5 billion. When prices change, 78% of the effect on revenue is absorbed by reduced taxes. This makes the NCS less exposed to lower prices than other basins. What happens if prices change? With a $10 move in oil prices, the cash flow is only impacted by $1.2 billion across the global portfolio adjusted for tax lag. For European gas, a $2 change equals $800 million. What is particularly interesting is the U.S. gas, where the production is now one-third of our Norwegian gas position. But still, a $2 movement in gas price has a similar effect on cash flow after tax as in Norway. So let me elaborate more on the U.S. gas as that has become even more important to us. In 2025, we delivered around $1 billion in cash flow from operations from that asset. Production increased by 45% on the back of well-timed acquisitions to around 300,000 barrels per day, capturing gas prices that were more than 50% higher than in 2024. We have a low unit production cost for U.S. gas of around $1 per barrel, and we are well positioned to benefit from robust power load growth and increased demand in the Northeast. We are marketing our gas ourselves and are able to add value through trading, pipeline capacity, and access to premium markets such as New York City and Toronto. In January this year, gas prices in the Northeast reached very high levels driven by winter storms, and we used our infrastructure and trading to capture quite a bit of value from that volatility. Okay. Now to our fourth quarter and full-year results. These slides sum up the key numbers you heard from Anders. Safety is our first priority. We see strong safety results, but we need to continue improving with force. Return on average capital employed in '25 was 14.5%. Cash flow from operations after tax came in at $18 billion, and earnings per share was strong at $0.81. For the year, we produced 2,137,000 barrels per day. This is record high and up 3.4% from last year, driven by the ramp-up on Johan Castberg and Halten East on the NCS, U.S. onshore gas, and new wells coming online. In the quarter, production was up 6% despite some operational issues in Norway and Brazil. On the NCS, Johan Sverdrup had another strong year. For power, we produced 5.65 terawatt hours and renewable power generation was up by 25%. So then to financials. Adjusted operating income from E&P Norway totaled $5 billion, driven by increased production at lower prices. Depreciation was up compared to last year due to new fields coming online. Our E&P International results were impacted by portfolio changes and an underlift situation in the quarter. In the U.S., results were driven by significantly higher gas production, capturing higher prices. In our MMP segment, results were driven by gas trading and optimization and a favorable price review result in January. The result of this price review explains the difference from the MMP guidance. This is a one-off; however, it is important enough, and the cash flow impact will be somewhat higher than the accounting effect, and it will come in 2026. On a group level, we had net impairments of $626 million and losses on sale of assets of $282 million. These do not impact adjusted numbers. A significant part of this relates to the Peregrino and the Adura transactions, mainly driven by accounting treatment of these transactions, more of a technical nature. Adjusted OpEx and SG&A was up 7% compared to the same quarter last year and up 9% for the year. These are driven by transportation costs, insurance claims, and currency. For the year, underlying OpEx and SG&A was up 1%. If you adjust for currency headwinds, it was actually slightly down. For the year, our cash flow from operations came in at $18 billion after tax, in line with our guidance when we adjust for changes in prices. Organic CapEx for the year was $13.1 billion, also in line with what we said. Our net debt to capital employed ended at 17.8%. This increase from last quarter is mainly driven by NCS tax payments and Ørsted rights issue participation, along with somewhat increasing working capital. So let me conclude with our guiding. For 2026, we expect $13 billion in organic CapEx and a 3% growth in oil and gas production. We have increased our quarterly cash dividend by more than 5% now at $0.39 per share and announced a share buyback of up to $1.5 billion for the year, starting with the first tranche tomorrow. Thank you very much for your attention. And now I will leave the word back to you, Bård, for the Q&A session. So thanks.
Bård Pedersen, Head of Investor Relations
Thank you, Anders and Torgrim. We will now begin the Q&A session. The first question comes from Teodor Sveen-Nilsen from Sparebank.
Teodor Nilsen, Analyst
Congrats on strong results. So 2 questions. First on CapEx. You obviously reduced the guidance for 2027. I just wonder how we should interpret the run rate into 2028. Should we also assume that 2028 CapEx will be well below the $13 billion you previously announced? Or is that too early to say anything about? And second question, that is on MMP. Could you just explain what's behind the price review that boosted the results?
Anders Opedal, CEO
Thank you very much. So you can think about the price review, Torgrim, while I'm talking about the CapEx. Yes, you're right. We have reduced the CapEx. We have—when we are looking into the CapEx profile over the last years, we have had consistency. You have seen that we have consistently invested in Norwegian oil and gas and in international oil and gas. Last year and this year, we are reducing the CapEx outlook for our renewables and low-carbon solutions. This is because two to three years ago, we had a different market view than we have today. We don't expect that this market will change dramatically over the next years. We intend to continue focusing, investing consistently in our attractive oil and gas portfolio that Torgrim demonstrated, and be market-driven and invest in low-carbon solutions and power when the time is right, the profitability is right, and the market comes. So I cannot give you the guidance for 2028 already. But with this consistency in investments in oil and gas and this change we have made in the CapEx for renewables and low-carbon solutions, and the market will probably not change very much over the next years, I think you will see some consistency in our CapEx guidance going forward, and we will come back to more details about this in June.
Torgrim Reitan, CFO
And thanks, Teodor. On the price review, that is a normal mechanism in many of the gas contracts where if the contract price dislocates from what the market should have been, we have a mechanism to renegotiate or open up that. We often disagree with customers in these processes. Often, we take such matters to arbitration, as we have done in this case. So that has gone on for a while, and we won that arbitration. Over the year, we have accrued revenue related to that because we considered that we had a strong case. We had an even better outcome than what we accrued. This will be a one-off payment during the year, and from now on, there's a new mechanism in place in that contract.
Bård Pedersen, Head of Investor Relations
Sorry, Teodor, I need to stick to the two questions because we want to cover as many as possible. And the next one is on my list is John Olaisen, ABG Sundal Collier.
John Olaisen, Analyst
First question is regarding Johan Sverdrup...
Bård Pedersen, Head of Investor Relations
John, please use the microphone so people can hear you online.
John Olaisen, Analyst
Okay. Sorry. It's John Olaisen from ABG. My first question is regarding Johan Sverdrup. Anders, you quoted in the media today saying that you expect it to decline by more than 10% this year. I wanted to elaborate a little bit more on that. How much more? And do we expect the same for the next few years? So that's my first question on Johan Sverdrup production profile. The second question is regarding M&A. You've sold a lot of assets internationally. So I wonder, do you still have assets on the sales list internationally? And also, it's been a long time since you bought assets internationally. Are you looking at potential acquisitions internationally? Those are the two questions, Sverdrup and M&A.
Anders Opedal, CEO
Thank you. First of all, when it comes to Sverdrup, I think we have demonstrated over many, many years how we've been able to keep up the production, even increase it due to the fantastic work that is done by the people working with Johan Sverdrup. A field like this, like all other fields, will eventually decline, and we see that now. We see a decline in Johan Sverdrup for 2026, which is more than 10%, but well below 20%, and that is what we put into our numbers. Still, we will have a growth in Equinor of 3% for 2026 and actually also a growth both on the Norwegian continental shelf and internationally. Of course, based on all the good work, drilling new wells, placing the wells better, retrofitting the wells, and having high production efficiency, the team is working to make sure that this decline is as low as possible. But above 10%, well below 20% is what we see and is what we are planning for in 2026. Well, we don't have a specific list of M&A sales candidates and targets that we disclose. But I think what you have seen, what we have done in the past, we have been active both in divestment where we think the timing is right to create value and where we see that future investment can be used better elsewhere, we have monetized those assets. When we have seen opportunistic opportunities to invest, we have done it, like twice in the U.S. gas in the Marcellus. You can expect us to be active going forward. We have had a strategy of optimizing the international business, and we have optimized it now and set it up clearly for growth. Now the focus is to deliver on that growth by finding more attractive exploration opportunities within those selected areas while being open for value-accretive opportunities in the market.
Bård Pedersen, Head of Investor Relations
Thank you. Next on my list is Henri Patricot from UBS.
Henri Patricot, Analyst
Two questions from me. The first one on the cash flow guidance for '26 and '27, you do show this meaningful improvement in '27 to $18 billion. Could you give us a bit more of a breakdown behind this improvement? I think you mentioned Empire Wind starting up, some tax lag effect. What else is contributing to this sharp increase? And then secondly, I was wondering, there's uncertainty still around Empire Wind 1. What would be the impact on the financial framework you presented today if the project does not complete, or what are the implications for the broader CapEx and shareholder returns?
Anders Opedal, CEO
So if you, Torgrim start with Empire Wind, then I can take on the CapEx reduction for '27 afterwards.
Torgrim Reitan, CFO
Okay. So thanks, Henri. On the Empire Wind, clearly, we are steered by sort of forward-looking economics and forward-looking cash flows when we make our decisions. So from now on, the remainder of investments will be covered by the ITC and cash flow from operations over the next two years in a way. The threshold for not moving forward with it is extremely high. The total economics of that project lifecycle is something else. The decision that we have to make is actually how it looks going forward. From our perspective, it’s pretty solid, so the threshold for stopping it is very high. Our job is to deliver this on time and on schedule. I must say, I am extremely proud of what that project organization has been able to do through all this volatility this year to keep it steady on track. We are on track to deliver, and we have no other plans than that.
Anders Opedal, CEO
Yes. And then the cash flow from operations that is increasing from $16 billion to $18 billion towards '27. This is based on flat price assumptions of $65 on the oil price and $9 and $3.5 for Europe and U.S., respectively. The reason here is that this is the tax lag. We are this year paying a higher tax based on higher prices last year on the Norwegian continental shelf. There's also a 3% production increase in 2026 that will also contribute to higher cash flow.
Bård Pedersen, Head of Investor Relations
Good. I have a long list also online. So let's take a few from there. The first one to raise his hand was Biraj Borkhataria from RBC.
Biraj Borkhataria, Analyst
Just the first one is a follow-up on Johan Sverdrup. You mentioned the decline for 2026. What is in your base case for 2027 and beyond? Because obviously, it's quite a big part of your portfolio. It'd be good to get some clarity there on the decline rates. And then the second question is just on the Empire Wind budget has obviously gone up a little bit. How should we think about how much contingency you have in that new $7.5 billion budget?
Anders Opedal, CEO
Well, when it comes to—we are guiding now on Johan Sverdrup for 2026. To say what it will be in '27 is too early. As I said, we have a fantastic team there that will do everything they can to reduce this decline. We will drill new wells. I also remind you that by the end of '27, we will have Johan Sverdrup Phase 3 coming online. We have ramp-up of other fields on the Norwegian continental shelf, meaning that despite this reduction in '26 decline in Johan Sverdrup, we will still have production growth. We will see how Johan Sverdrup behaves during the first part of the decline and how we are mitigating it, and then we will come back to it. So it's too early to say. As for the increases on Empire Wind, it's very much related to two elements. One is tariffs that have been imposed on the project, and the other is the effect of the first stop-work order. The second stop-work order, we were able to execute part of the project, most of the project in the beginning of the stop-work order. The most important parts of the progress were achieved after the preliminary injunction. So there was very little effect of the project. So the execution part of it is going well in terms of CapEx—use of CapEx in this project, but there remains uncertainty on tariffs. You might remember a couple of weeks ago, a 10% tariff due to Greenland was removed a few days later, and that creates some of the uncertainties that we are facing with this project.
Bård Pedersen, Head of Investor Relations
The next one on the list is Alastair Syme from Citi.
Alastair Syme, Analyst
Just one question really to Anders. I just wanted to reflect on the journey that Equinor has been on in recent years with respect to the transition because you are signaling today a further scaling back in ambitions with a lower CapEx. I know you're not alone in doing this in the industry. But if I go back a few years ago, you outlined a competitive position where Equinor could be differentiated in the transition space. So I guess my question is, what are your reflections on this journey? And what do you think has happened that is different from what you anticipated several years ago?
Anders Opedal, CEO
Thank you. It's a really good question. I think this is where we are saying today that we are signaling consistency. We have been extremely consistent in our communication around oil and gas and how we will develop the oil and gas portfolio, optimize it, and we have delivered on that. But we also had a different market view on offshore wind and the transportation and storage of CO2 in particular. This is where we have experience. We saw a market growing for transportation and storage of CO2 going faster than we actually have seen. For instance, a couple of years ago, we actually had head of terms contracts with customers. Those have been canceled, meaning that we have not been able to progress a lot of these projects within that area. But keeping in mind, we have been able to do Northern Lights, Northern Lights Phase 2, and Northern Endurance. We see now that the licensing for support regimes and applications for capturing CO2 is developing slower despite that the framework and the laws are much more in favor of CO2 now than it was before. To summarize very quickly, we had a different market view some years ago based on real discussions with governments and potential customers than we have today. Three, four years ago, customers called us to buy natural gas and were also asking for potential hydrogen and transportation and storage of CO2. Today, they continue to buy natural gas, but they have postponed their own targets for reducing emissions beyond 2030. Some years ago, when everyone had a 2030 target, there was much more focus from customers to have this market up and running very fast. Now with different targets beyond 2030 to collect enough CO2 to have long-term contracts, we have found it very difficult. That's why we are allocating no more CapEx into that area due to the market conditions.
Bård Pedersen, Head of Investor Relations
Next question is from Irene Himona from Bernstein.
Irene Himona, Analyst
My first question is one of clarification really. You referred to your objective to build an integrated power portfolio. Typically, when your peers refer to integrated power, they mean essentially adding gas-fired power generation to renewables. So I wanted to ask what does integrated power mean for you? And how does Ørsted fit in that? My second question, just going back to the share buyback. Previously, in the past, you had guided to a long-term sustainable through-the-cycle share buyback of around about $2 billion. Today, you lowered that to $1.5 billion. I'm just trying to understand what has changed between then and now essentially.
Anders Opedal, CEO
You can start with that, Torgrim, and I'll do the integrated power.
Torgrim Reitan, CFO
Okay. Thanks, Irene. So well, we have said at earlier years, $1.2 billion as the sustainable level in a way. So $1.5 billion is actually above that. We retired the $1.2 billion a bit back. To give a little bit more context, Irene, the concept of having a stable share buyback through a cycle comes a little bit theoretical. We're just coming out of a super-cycle, and we have returned $54 billion over the last three years based on that. Where we are now, we are actually the first year where the balance sheet is normalized, and we aim to manage within our means. The number that we put forward today is $1.5 billion. We are leaning on the balance sheet this year, but you have seen in 2027. We want to give you an outlook for over a couple of years here. The way you should think about share buyback is that it is a natural part of the capital distribution. It is something that is regular and is on top of the cash dividend. The cash dividend, you should see—consider as bankable. Share buyback clearly will be more dependent on the macro environment as we move forward.
Anders Opedal, CEO
When it comes to integrated power, for us, that means both intermittent power like offshore wind, onshore wind, solar, in addition to flexible power, batteries, and CCGTs. We do have exposure in all of this. We have gas to power in the U.K. We have battery in Poland, and onshore and offshore and solar. This was divided in different business areas. Now everything is integrated into one business area—power. Danske Commodities will be able to integrate this totality and add additional value to this. Having said that, the priority within Integrated Power over the next year is to deliver on the already sanctioned projects. From that, we are able, if we have the right investment opportunity, to expand further on the integrated power. But of course, with our gas position in Europe and the U.S., we are well-positioned also for gas to power if we see the right opportunities in the future. The collaboration with Ørsted, as we have said, fits into this type of integrated power. We can be exposed in offshore wind in different ways, and working together with Ørsted will fit into an integrated power in different types of potential structures.
Bård Pedersen, Head of Investor Relations
Thank you, Irene, for that. I'll take one more on the phone and then return to the room here. The next one is Paul Redman from BNP Paribas.
Paul Redman, Analyst
My first question is just how do you think about growth at Equinor? The reason I asked that question is that at the Capital Markets Day last year, you highlighted a flat to decline in production in 2026 plus. And I'm assuming that included some Vaca Muerta production as well. You're heavily cutting the renewable portfolio spend. So just how do we think about growth going forward from here? And then secondly, when I look at MMP, I guess the long-term—well, the annual guidance was $1.6 billion, $400 million a quarter. You generated about $1.25 billion to $1.3 billion for the quarter if I take out the long-term gas contract review from this quarter. Is there any reason the guidance isn't updated? How should we think about MMP going forward?
Anders Opedal, CEO
I'll start with the growth, and we divide it so you can take the MMP. Well, let's start with the renewables. We have said that we don't want to invest more than what we have already sanctioned, but that will create growth. We had a 45% growth quarter-to-quarter on the renewable business this year, 25% in 2025. There will still be growth in Integrated Power over the next year. As I said, we will have to think about how we can create further profitable and disciplined growth in that area. When it comes to the international business, we have repositioned that portfolio. You can expect from today's level towards 2030, growing this production towards 900 million barrels a day. So there's clearly growth there, growth in production, growth in free cash flow. On the Norwegian continental shelf, we will continue to explore. It will be difficult to create further growth on the Norwegian continental shelf, but we have received attractive acreage. We will drill 26 exploration wells on the Norwegian continental shelf next year. We're working on reducing the time from exploration to production from 5 to 7 years to 2 to 3 years, enabling more efficiency to keep production at the highest possible level on the Norwegian continental shelf and grow free cash flow from that portfolio. That is what we're aiming for, for the Norwegian continental shelf internationally and integrated power.
Torgrim Reitan, CFO
Thanks, Paul. On MMP. If you strip away the price review, you get to around $400 million in the fourth quarter, which is very much around sort of what we guide at. So that's what you should expect on a quarterly basis. However, there will be fluctuations as you very well know. What typically drives results are volatility in commodity markets and also contango versus backwardation. I can give you one example actually from January, where there has been a lot of volatility in the gas market. In Europe, we have a 70% day-ahead exposure and a 30% month-ahead exposure. You can rest assured that the spikes you have seen in January find their way to our P&L in Europe. In the U.S., we don't have a firm exposure that we want, but clearly, the traders keep a certain part open. Going into January, our traders left 30% exposed to the prompt or cash prices. At the most extreme, for instance, the in-basin price for Marcellus gas was $60 per MBtu, and we took that. We then have a transportation capacity into New York, actually coming up at Penn Station, and we achieved more than $100 per MBtu in that weekend. These are just examples of when you see volatility, and you should expect us to be able to capture it.
Bård Pedersen, Head of Investor Relations
Thank you, Paul. Vidar Lyngvær from Danske Bank.
Vidar Lyngvær, Analyst
First, just another clarification on the renewable spending in 2027. You're reducing CapEx by $4 billion. I get the tax credit part. Could you add some more color on where the remaining cut comes from? Second, Johan Sverdrup, you mentioned the decline rates there. Are those exit to exit, so exit '25 to exit '26? Or is it average production decline in '26 versus average in '25?
Torgrim Reitan, CFO
Johan Sverdrup exit to exit or—let's come back to the specifics on that. But I do think it is when you compare sort of the last year production with next year production as such. And just yes, and the team is nodding there. So that is the way it works, yes.
Anders Opedal, CEO
Yes. Yes, a little more color to this. As I answered earlier, we had a different market view. For instance, we had potential hydrogen projects, transportation of CCS projects in the CapEx outlook that we showed last year, and those projects are not materializing. Additionally, we have reduced our onshore renewable CapEx as well. In total, this adds up to those $4 billion and together with the ITC as you have seen.
Bård Pedersen, Head of Investor Relations
Good. Steffen Evjen from DNB Carnegie.
Steffen Evjen, Analyst
On the ITC, just could you please remind me of the milestones they are required for that payment to come in, in terms of first power and any other things that have to be fulfilled? My second question is just a clarification on Adura. I think you said $1 billion in dividends. Is that your share? Or is that the total share to both shareholders?
Torgrim Reitan, CFO
It's our share and then the ITC. ITC is recognized when you start production. That is scaled as you continue to start up the various turbines. What we have assumed is that we recognize all of this in 2027 because that's the plan. There is an upside that there could be some ITCs recognized in 2026. We haven't based our analysis on it. There is a cash flow impact, and it will take some time from when we recognize it to the cash flow being in our account. So what you see on the slide is that we have assumed a $2 billion impact of the ITC in '27, while the total number, the absolute number is $2.5 billion. This provides a little perspective around this. It is a significant financial operation to manage all of this, as you would know, but there is a large and growing market for ITCs in a well-functioning market in the U.S. for this.
Bård Pedersen, Head of Investor Relations
Next one is Martijn Rats from Morgan Stanley.
Martijn Rats, Analyst
I've got two, if I may. I wanted to ask you again about the CapEx reductions. I know there have been a few questions about it already. But when Equinor took the initial 10% stake in Ørsted, very soon thereafter, we also had a reduction in the CapEx outlook for offshore wind and renewables in general. In many ways, when you put these two things together, it seems like we are doing less organically and more inorganically. It was sort of not a total reduction, but it had an element of we’re swapping one type of spending for another type of spending. I was wondering how we should interpret this reduction in CapEx on this occasion. If power and low carbon CapEx goes down, how should we interpret that move? Should we anticipate that this also turns out to be a swap, less organic, but more inorganic? I was hoping you could say a few things about that. My other question is about the 10% OpEx and SG&A reduction target. Like 10% in a single year is quite a significant amount, especially because Equinor has already been very focused on that for some time. I was positively surprised that there’s still that type of opportunity available. Could you talk a little bit about the key levers, where that spending can be reduced? Also, for clarity, 10%—how does that translate into absolute dollar amounts?
Anders Opedal, CEO
Let's start with that question first, and Torgrim.
Torgrim Reitan, CFO
Okay. Thanks, Martijn. So on the 10% reduction. Over the last years, we have been able to maintain OpEx and SG&A flat even if we have grown our production despite inflation. Our people and organization are doing a good job. Next year, we expect that number to come down by 10%. That is a very big number. However, it is significantly impacted by the divestment of Peregrino and the establishment of Adura that will be equity accounted. The reported numbers will be down 10%. But when you adjust for structural changes, we expect to maintain OpEx and SG&A flat, growing by 3% and still facing inflation. So this comes from many sources. First of all, the activity level. Clearly, we have taken down and prioritized that very hard, which has a direct impact on it. We have taken down early-phase costs significantly in the portfolio, which is also a significant contributor. Staff are also continuing to high-grade and take out efficiencies. The business areas are clearly working on this. But on your question, is there more to come? The answer is yes, we are never satisfied with where we are on this. I can give you two examples of what to come. One is the work around NCS 2035. We see a significant cost impact of that. We hope to show more on that in June. The other one is actually artificial intelligence. We have already seen that in our numbers, NOK 1 billion or so, which is good. However, these are early days. We believe that with our large operations and our ability to take out effect across assets, AI can be a significant contributor to further cost improvements. We will continue to fight and work on this, but the 10% is clearly colored by the inorganic moves we have done as well.
Anders Opedal, CEO
So when it comes to CapEx reductions, you probably see now that several times we have taken down the renewables and low-carbon solution CapEx. It’s not necessarily because we have done any inorganic moves. It’s also because we have not been successful in some of the bidding because we have raised the bar for winning future CFDs. A couple of years ago, we had several projects inside our CapEx outlook that are now not included, due to deliberately not being successful in those auctions. A more positive view some years ago, as we said during the Ørsted acquisition of 10%, we found it more value-creating at that point in time to do an inorganic move than do an organic move. We are further taking down the CapEx for offshore wind, but also on onshore renewables. A couple of years ago and last year, we had a much more positive market view and direct discussions with customers for CO2 highway and hydrogen project in Eemshaven, which are now pushed further out in time. To sum up, we don’t think there are many inorganic moves to be made that will create value in this area, so you should not expect us to work much on this. We will focus on being a leading company in terms of transportation and storage of CO2, building on Northern Lights 1, 2, and Endurance, but we will not make investments before we see long-term contracts, we have seen costs coming down, and we see profitable projects.
Bård Pedersen, Head of Investor Relations
Thank you, Martijn. Next one is Nash Cui from Barclays.
Naisheng Cui, Analyst
Two questions, please. The first one is on your upstream reserve life. I wonder how you think about a reasonable level of upstream reserve life in the medium to long run. Could better technologies like AI help extend that base? Then my second question is on Ørsted. I think earlier, you mentioned that you could collaborate more with Ørsted in different types of potential structures. I wonder if you could elaborate on what you mean by the potential structures.
Anders Opedal, CEO
Well, you have seen what we have done, just an example with Shell in the U.K. There's always a way to work together to create value for both shareholders. There is no discussion at the moment, but we see that further collaboration with Ørsted could benefit both companies; however, nothing new to elaborate on today. When it comes to reserve life, I think the ROP will be affected in the years to come with many more exploration wells and smaller discoveries, and a faster time from discoveries to production, meaning that the ROP will be lower than traditionally when we had the big elephants on the Norwegian continental shelf. At the same time, we are comfortable with our ROP where we see it today, around 7, because of the numerous exploration wells and discoveries we have. Last year, we had 14 discoveries, adding in total 125 million barrels in new resources. Lofn and Langemann, which is in the Sleipner area, is in an area where we thought there was nothing more to be found, but new technology, new seismic, use of AI has enabled us to make more discoveries. We have seen the same in the Ringvei Vest area. We will continue to implement AI in exploration to ensure that we can discover new resources that were overlooked in the past, which we can now drill and bring to market in a quicker way. Moreover, by using AI, not only in exploration, but also in operations, we saved $130 million last year, and this is accelerating.
Bård Pedersen, Head of Investor Relations
Next is Jason Gabelman from TD Cowen.
Jason Gabelman, Analyst
I wanted to first go back to the Empire Wind guidance. I’m wondering if the $600 million of cash flow is what Equinor expects to receive, or are there going to be some repayments on the project financing that are going to minimize that in the earlier years? I wonder if you have a similar number for the Dogger projects. My follow-up is just on broader exploration opportunities beyond what you've discussed. We've seen companies go back into regions where fiscal terms have improved, like the Middle East and West Africa. I wonder if you look at those regions as potential opportunities for the company to exploit or, given the lack of footprint in those regions, I suspect it is not a core focus.
Anders Opedal, CEO
Yes. I'll start with that question, and you can do the $600 million and the synergy effects there. We have worked very hard to focus on building an attractive exploration portfolio in core areas like in Angola, Brazil, and the U.S. offshore. Bidenor East Canada is another area where we are working actively. We will always be open to ideas in value-adding exploration activity outside this core, but the bar is high. We will not have a global exploration strategy moving around in all parts of the world. We have areas where we have learned the basin, have experience, and believe we can expand significantly. In Brazil, Bacalhau is an example with attractive exploration opportunities around it. We have a block close to Raya, and we are maturing up to see our exploration program. And this year, we will also drill exploration wells in Angola.
Torgrim Reitan, CFO
And then Jason, on the $600 million in cash flow related to Empire Wind, that is related to our equity. There's no money of that that goes to the lenders. Couple of things: there is a portfolio effect in addition to the cash flow within the project, and that is related to the depreciation factored in with Empire Wind, which goes into the IFRS results, and the minimum tax in the U.S. is based on IFRS results. This reduces the minimum tax payments in the states. There’s a portfolio effect coming on top of the direct cash flow in the project.
Bård Pedersen, Head of Investor Relations
Just to clarify in the CFFO, the interest payment is included, but not the payment to the lenders, as you said. Thank you, Jason. Kim Fustier from HSBC is next on my list.
Kim Fustier, Analyst
I had a couple on the NCS, please. Firstly, I believe that back in November, you announced a reorganization of your NCS business along centralized functional lines like subsea drilling, etc. Could you give a bit more color on this? And how does that move help to set you up for a future on the NCS with fewer big developments but more small developments? Then secondly, could you give an update on a couple of pre-FID projects, Wisting and then Bay du Nord in Canada, where there seems to have been some technical progress lately?
Anders Opedal, CEO
Yes. Thank you. The Norwegian continental shelf is changing. After Johan Sverdrup and Bacalhau, we have many more smaller discoveries. Most of the developments will now be subsea tie-in projects. We have 75 of those in our portfolio over the next 10 years. It's about making sure that we're able to execute on these projects faster. We can drill more exploration wells faster and can create more value. We are looking into how we work, how we work together with partners, and we have streamlined work processes. We have simplified these work processes, looking at 70 work processes. I will make lump decisions of several projects bi-annually, enabling faster decision-making processes and ensuring that we're able to move these projects faster. Based on changing the way we work, we are reorganizing both the project organization, drilling organization, and operation units on the Norwegian continental shelf, not offshore, but all the onshore functions, enabling us to work according to the new simplified work processes. This is actually one of the largest changes we have made on the Norwegian continental shelf since we established StatoilHydro and merged in 2007, 2008. Our goal is to reduce the time from discovery to production from 5 to 7 years to 2 to 3 years, improving efficiency gains. On the Wisting project, we are working hard to simplify it and have made a lot of progress. We expect to conclude on the concept this year, with a potential DG3 by 2027. Let me underline—we're not schedule-driven. This is a challenging project and we will only proceed if it's the right project with the right financial metrics. As for Bay du Nord, we are approaching a concept selection at Decision Gate 2. We are engaging with the local authorities and the government of Canada. This is a very good project, and we have worked well with suppliers to reduce costs and breakeven. If successful in the coming months, we can bring it toward investment decisions over the next few years. Both of these projects, if successful, will contribute to high production beyond 2030.
Bård Pedersen, Head of Investor Relations
Thank you, Kim. I have a few left on my list, and I want to cover as many as possible. So I ask that you limit yourself to one question to give as many as possible the opportunity. Next one is Chris Kuplent from Bank of America.
Christopher Kuplent, Analyst
I'll keep it to one question for Torgrim, and please forgive me for some quick mental math. When you set your $1.5 billion buyback, are you effectively arguing over the course of '26 and '27, considering the lumps and bumps in your CFFO as well as CapEx, you're targeting to be free cash flow neutral after dividends and buybacks? Am I putting too many words in your mouth? Or is that a fair characterization of what you're trying to do over the next two years?
Torgrim Reitan, CFO
Well, Chris, I think I need to be very precise here. You’re on to it. You should look across those two years when thinking about our free cash flow generation available for cash dividend and share buyback. We aim to run with a solid balance sheet. However, we are going to lean on the balance sheet in '26, well aware that next year is a larger free cash flow. It makes sense to look across those two years. We have managed to set the share buyback level for '26 this way.
Bård Pedersen, Head of Investor Relations
Thank you, Chris. Matt Lofting, JPMorgan.
Matthew Lofting, Analyst
Just one on Empire Wind and read-throughs from it. It seems Equinor has done a good job keeping the project execution on track amid the past hold orders. I just wonder how the company reflects on implications from this and having retained 100% equity stake for best assessing risk management and risk-adjusted returns on future capital allocations. Are there learnings that are emerging from Empire Wind for optimal sizing, taking into account above and below-ground factors?
Anders Opedal, CEO
Thank you. That’s a really good question. Yes, this is definitely something to reflect on. We normally don't take 100% in any license, not on oil and gas and not in offshore wind. But due to a deal with BP, they took some and we took this. We derisked somewhat with higher strike prices with a financing package. The political risk with the new administration was higher than anticipated, which is a trend we see now in several countries. Energy investments are becoming increasingly politicized and polarized. That is a trend we need to pay attention to and possibly adapt our decision-making processes accordingly. We continue with the reflection on the above-ground risks and strengths as we progress through projects like Empire Wind.
Bård Pedersen, Head of Investor Relations
Thank you. We are on the hour, but let's take one more and hope it's short, and that is you, James Carmichael from Berenberg.
James Carmichael, Analyst
Just one last quick one, again on Empire Wind. I was just wondering if you could clarify your best-case estimate on the timing of the underlying court case and when we might be able to sort of put any uncertainty to be around future hold orders, etc.
Anders Opedal, CEO
Yes. It's a little early to say because it is a judge in the U.S. to decide that timing. There have been indications that this will happen fairly quickly in the coming couple of months, which gives us the opportunity to elaborate on the case in a good way. I want to remind you that all four other operators are doing the same, challenging this in court and all of them were granted a preliminary injunction. We believe that this stop-work order was unlawful, and this consistency of preliminary injunctions points to a strong case moving forward. But I'm an engineer and not a lawyer. So yes, we are moving forward with a strong belief that we will have a good case in court, a strong case.
Bård Pedersen, Head of Investor Relations
Thank you. I would like to thank you all for participating and for asking your questions. We didn't manage to get through the entire list, but I want to be respectful of everybody's time. As always, the Investor Relations team remains available for any follow-up questions during today or later in the week. Have a good afternoon, everybody, and thank you for joining.