Earnings Call Transcript - EQNR Q3 2024

Operator, Operator

Good day and welcome to the Equinor Analysts Call Q3 Conference Call. All lines have been muted to avoid background noise. After the speaker's remarks, there will be a question-and-answer session. I would also like to remind all participants that this call is being recorded. Thank you. I would now like to welcome Bard Glad Pedersen, Senior Vice President of Investor Relations, to begin the conference. Bard, the floor is yours.

Bard Glad Pedersen, Senior Vice President of Investor Relations

Thank you, operator. And good morning to all. I'm here together with Torgrim Reitan, our CFO. As usual, he will take us through the numbers and then we will open for questions-and-answers. So, with that, I hand it over to Torgrim.

Torgrim Reitan, CFO

Thank you, Bard. And good morning, everyone, and thank you for joining. Before we go into the results, take a look at the photo of Johan Sverdrup. It's a truly remarkable asset. After five years in production, it has now produced more than 1 billion barrels. It continues to create significant value and cash flow quarter-after-quarter, and total revenue is already higher than $80 billion. On the 21st of September, we set a new record with over 756,000 barrels of oil produced. We optimized water management and continue to drill new wells. And this has helped to extend the plateau into next year. Now, let me dive into the numbers. Today, we deliver solid financial results and operational performance in a quarter with extensive turnarounds. We report adjusted operating income of $6.9 billion before tax and an IFRS net income of $2.3 billion. Year-to-date, we have delivered cash flow from operations after tax of $14 billion. We are on track to deliver in line with what we said at our Capital Markets Update in February. Our adjusted earnings per share came in at $0.79. We saw an all-time high production from Troll in the gas year ending in September. We have done improvements and de-bottlenecking across the gas value chain for many years, ensuring reliable supply of natural gas to Europe. And this has created quite a bit of added value from increasing gas prices in this quarter. Johan Castberg, as you see on the slide, is on location in the Barents Sea, on track for production startup by the end of the year. In September, the Northern Light facility was completed on time and on cost and is now ready to receive CO2. We recently announced that we have acquired 9.8% in Ørsted. This is an important transaction. So, let me share a few thoughts. This is a good time for a transaction like this. The offshore wind industry is facing challenges, and this is also reflected in the market value of Ørsted. As an offshore wind developer ourselves, we understand this and what it takes to resolve it. As such, this is a counter-cyclical investment, and we do know how important it is to get the timing right. Offshore wind will play a crucial role in the energy transition, and we have a long-term industrial perspective. We see Ørsted as a leading developer with a high-quality portfolio of producing assets, and this complements our own ongoing offshore wind projects in the US, UK and Poland. These were accessed early at low cost and deliver competitive returns on equity. We continue to focus on value over volume, and our renewable strategy remains firm. We will not overbid in lease auctions; rather, we will be value-driven and flexible in our approach. This acquisition requires significantly lower CapEx than organic opportunities, and it supports our renewable ambitions towards 2030. So, this transaction is not in addition to our existing plans. Our near-term CapEx is defined by projects in development, but towards 2030, this transaction will help us progress towards our ambitions with lower CapEx spend. The Ørsted transaction is also done within our financial framework and has no implications for our communicated capital distribution program. Today, we are delivering on what we said at the CMU with competitive capital distribution. For the quarter, the Board approved an ordinary cash dividend of $0.35 per share and $0.35 in extraordinary dividend. And the fourth tranche of share buybacks of $1.6 billion is starting tomorrow. In total, we are delivering what we said, $14 billion in capital distribution for the year. Safety remains our top priority. This week, we had an incident on Sleipner B, an unmanned platform in the North Sea. We take an incident like this very seriously and are well prepared to handle it. Gas production was shut down and our emergency preparedness organization mobilized. This incident will also be investigated to understand root causes and to ensure learning. In the quarter, we had high activity with extensive turnarounds while maintaining strong safety results. We continue our efforts to ensure that all our people return safely home from work every day. So, over to production. On the NCS, we had strong operational performance and the planned high turnaround activity was well executed. Total NCS production was up 2% from the same quarter last year. The increase in gas production was 8%, driven by high gas production from Troll and good contributions from Aasta Hansteen and Oseberg. The ramp-up of new fields like Breidablikk and Hans also contributed. For E&P International, production was also impacted by turnarounds, mainly at Peregrino, partly offset by new wells in Angola. For E&P U.S., liquids production was impacted by shut-ins due to hurricanes in the Gulf of Mexico and well work over at the field Caesar Tonga. Renewables production is significantly higher than last year, mainly driven by onshore power plants in Brazil and Poland. For Dogger Bank A in the UK, the operator for the development phase now expects full commercial production during the second half of 2025. It impacts our production outlook this year and I will revert to this. Now to our financial results. Liquids prices declined during the quarter and were lower than last year. At the same time, European gas prices were up 14%, driven by increased gas demand from growing economies like China, higher political risk, and supply disruptions. As expected, storages in Europe are almost full, but the market remains fragile and small events can lead to large fluctuations. As we approach winter, European demand will again depend on weather and temperatures and with a normal or cold winter, there will be upward pressure on prices. LNG demand in Asia and Russian volumes through Ukraine will also impact prices, and in addition, there is significant uncertainty related to the timing of new LNG projects coming online. This quarter we had strong gas production on the NCS and captured high prices, delivering adjusted operating income of $5.9 billion and $1.3 billion after tax. Our international E&P segments combined delivered more than $600 million in adjusted operating income and almost $500 million after tax. Lower liquids production and exploration expenses impacted the results. Our MMP results were driven by strong LNG and power trading, and our ability to capture geographical arbitrage in LPG through our shipping fleet. Since third quarter last year, adjusted OpEx and SG&A is up by 3%. The underlying cost increase is somewhat higher due to currency effects and some one-offs, and we continue to maintain a strong focus on cost control and capital discipline. This quarter, our cash flow from operations was more than $6.2 billion after tax. We paid one NCS tax installment of $2.9 billion, but next quarter we will pay two installments. We distributed $6.5 billion to our shareholders in the third quarter, but remember this included the annual payment of the state's share buybacks of around $4 billion. Organic OpEx was $3.1 billion and $8.7 billion year-to-date. After tax, capital distribution and investments, our net cash flow was negative $3.4 billion as expected. So we have a solid financial position with over $30 billion in cash and cash equivalents, and our net debt ratio increased to negative 2% this quarter. As we indicated at CMU, we expect the net debt ratio to move into positive territory by year-end and the impact of the Ørsted acquisition will be around 5%. Finally, to our guiding. We guided on $13 billion in CapEx for 2024. We now expect to come in on the downside and are therefore adjusting our guidance to $12 billion to $13 billion. This is due to phasing of project spends towards the year-end, adjustments within onshore renewables, and currency effects on our NCS projects. There is no change to our guidance for oil and gas production, but as we have said previously, there is more risk to the downside related to curtailments from U.S. onshore operators. We have adjusted our renewables production guidance to grow by around 50% this year, mainly reflecting the progress on Dogger Bank A. So, now back to you, Bard, and then I look very much forward to your questions. So thanks.

Bard Glad Pedersen, Senior Vice President of Investor Relations

Thank you, Torgrim. We are then ready to start the Q&A. And many have registered already. Let me remind you that if you press star one, you will add your name to the list. First one on the list is Biraj Borkhataria from RBC. So please go ahead, Biraj.

Biraj Borkhataria, Analyst

Hi, thank you. And thanks for the comments on Ørsted in particular and the intentions there. I'm just wondering how we should think about the 12 to 16 gigawatt target that you've previously put out? Based on your comments around development costs going up and obviously your commitment to returns, it seems like it's going to be tougher to get to that amount and stick to the returns criteria, unless you were to use the other option, which is to buy more Ørsted. So, how should we think about that target in the context of the recent move? And then the second question is just on Empire Wind. Could you just update us on the progress on project financing and when that is expected to close? Thank you.

Torgrim Reitan, CFO

Thank you, Biraj, for your important questions. Let me provide some context regarding Ørsted and our energy transition efforts. We appreciate the company and support its strategy and management. We believe this is a strategic time to engage with Ørsted. Given our industry insights, acquiring Ørsted allows us access to offshore wind projects at a more favorable price compared to starting new projects from scratch. We are currently focused on three developments: Dogger Bank in the U.K., Empire in the U.S., and Bałtyk in Poland, which are key for our goals by 2030. This investment in Ørsted is replacing other organic investments we might have made. While we are not setting a firm target of 12 to 16 gigawatts, we do see it as a guiding expectation. It’s crucial to prioritize value creation over volume, and we are willing to defer or abandon projects if they do not meet our value creation criteria. We aim for the right timing in offshore wind investments, having entered early at low cost, divested when prices were favorable, and now acquiring 10% of Ørsted at a reasonable price. Regarding Ørsted, we've acquired 9.8% and are seeking foreign investment approval from the Danish government, after which we will increase our stake to around 10%. There are currently no plans to purchase more shares. Concerning Empire Wind, 2024 will focus on mitigating risks for that asset. We have secured a new contract price, which has risen from $118 to $155 per megawatt hour, completed permitting, and are on track for financial closure in a few weeks, likely before the year ends. This will help reduce the asset's risk. As mentioned during the Capital Market Update in February, we plan to reduce our stake in Empire Wind, which will significantly lower future capital expenditures related to the project. That was an extensive answer to your three significant questions.

Biraj Borkhataria, Analyst

I appreciate it. Thank you.

Bard Glad Pedersen, Senior Vice President of Investor Relations

Thank you, Biraj. The next one on the list is Teodor Sveen Nilsen from Sparebank 1 Markets. Teodor, your microphone is open.

Teodor Sveen Nilsen, Analyst

Thank you. And good morning to all of you. Yeah, I think regarding Ørsted, that was a very good answer. So, I don't want to ask more about that. But I'm wondering on the gas market now, we see pretty healthy long-term gas prices, or at least around $12 to $13 per mmbtu. I just wonder, are you tempted to hedge some of the gas sales or sell on fixed price contracts? So, that's the first question. Second question, that is risk on production guidance for the full year for oil and gas production. Torgrim, you said that there's some downside risk, and you said the same in the second quarter presentation. I just wonder how you view that risk now compared to three months ago. It looks like some of the production may have come up again. Any comments around that would be useful. Thanks.

Torgrim Reitan, CFO

All right. Thank you, Teodor. So, gas prices are currently around $13 per mmbtu, and sort of in line with what we have believed as the price for this year. Maybe a few reflections on the level, because it was a warm winter. We are working with very high gas storages. And still, the price is at $13 per mmbtu. So, it clearly tells a story about a vulnerable situation in the gas market. The moving parts to watch out for here are clearly Asian demand for LNG; remember, 50% of gas needed in Asia needs to come from imports, same as in Europe. So, Europe and Asia will compete for this. We see a growing demand, particularly from China this year, and we expect that to continue with around 3% per year all the way to 2030. So, that's clearly one thing to watch. The second is weather; we all know about that. A normal winter would actually leave gas storages around 40% full in April, compared to 60% this year. So, that will have an impact on prices during the winter. Then, of course, Ukrainian gas and operational issues will also play a role. On your specific question, no, we're not going to hedge. I want our owners and investors to get the exposure to European gas when they buy shares with us. We keep our exposure at 70% day ahead and 30% month ahead. So, if you see volatility in European gas prices, you can rest assured that it translates into earnings for us, and it's essential for us to keep the organization ready to manage this. We have increased production capacity in the Troll gas value chain. We have access to all the landing points. And we have a trading organization that's ready to take out any arbitrage opportunities that may arise. So, we are not planning to hedge; we want you and other investors to have the full exposure to the value creation opportunities that come from volatility. There was one more, sorry. So yeah, there are still some uncertainties about curtailment in the US. So that might have an impact on gas production in the US. I think it's fair to say that with the current gas prices in the US, they are up a little, but the earnings impact is less than gas production on the NCS for the time being. There is a little bit of downside compared to what we have guided, but we have decided to keep it stable production, as we call it.

Bard Glad Pedersen, Senior Vice President of Investor Relations

Thank you, Teodor.

Teodor Sveen Nilsen, Analyst

Okay. Thank you.

Bard Glad Pedersen, Senior Vice President of Investor Relations

Thank you, Teodor. Next one on my list is Martijn Rats from Morgan Stanley. Martijn, please go ahead.

Martijn Rats, Analyst

Good morning. I have two questions, if that's alright. First, could you provide an update on the Rosebank project? I understand there was a court case and I would also like to know your latest perspective on the tax treatment. A few words on that project would be appreciated. Second, regarding CapEx, I noticed a slight decrease for this year. I assume we will receive a more comprehensive update during the full year results announcement. In your comments, could you clarify if this downward adjustment for 2024 is expected to continue into future years, specifically 2025 and beyond? Any insight on that would be helpful.

Torgrim Reitan, CFO

Okay, Martijn, thank you very much. So on the Rosebank, it is, at the outset, a good and robust project. It is a very important project for the U.K., with 1600 jobs and actually GBP 24 billion sterling or pounds in economic impact. So, for the UK, this is a very, very important project, both from an energy security point of view and also for economic activity over there. But, clearly, there are uncertainties related to the project. Let me first talk about the tech side. As an investor, it is very important for us to have stable tax conditions and predictable conditions. So, what has happened lately, we see that clearly as negative and increases the risk of investing in the UK. When it comes to the EPL, Labor has announced that they want to increase the rate by 3 percentage points and also extend the time of the EPL a little bit. This is something that we are aware of. However, we see in their earlier statement that they are not going to change capital allowance, which is very important for investors in the UK. But we have to wait until the 30th of October when the budget is released for clarity around this. The decision and what comes through the budget will define the attractiveness of future investments in the UK. So that's on the tech side. On the legal case, there is a judicial review related to Scope 3 emissions related to the asset, and the permitting was decided to not be sufficiently taken care of. So, we are awaiting clarifications on that to proceed. We believe we will get that and that we will be able to continue with the project under the same assumption that we have done earlier. Expected startup of Rosebank is in 2027. Then your second question was on CapEx. Yeah, so we have taken the guidance from around $13 billion to $12 billion to $13 billion. There are three elements at play here: One is some phasing of the CapEx, but in reality, these are just payments that are coming in a little bit later in the life of the project than earlier; it is related to currency changes, currency impact because the Norwegian projects have a certain Norwegian kroner content, and as that has weakened, it reduces the CapEx. The third one is lower investments in onshore renewables. So, these are three elements that play into this. The phasing of investment is not a very significant part of it, and it is not unheard of or strange. We see that clearly from time to time, the phasing of payments differs. So, there's no drama around this at all. We will give an update, as you say, in February on the Capital Markets Day on how we see the coming years on investments.

Martijn Rats, Analyst

Thank you.

Bard Glad Pedersen, Senior Vice President of Investor Relations

Thank you, Martijn.

Operator, Operator

Next one is Henri Patricot from UBS. Henri, please, the mic is open.

Henri Patricot, Analyst

Yes, thank you. Hello, everyone. I have two questions, please. The first one just on results in the third quarter and cost, with the unit cost in E&P U.S. International moving higher, and you mentioned the impact of maintenance in the quarter. I wanted to get a sense of how much of the unit cost increase was driven by this kind of one-off cycle, if there is. And what's the share of the structural, let's say, cost increase? And then secondly, going back to the Johan Sverdrup comments, you mentioned the record production recently and the fuel coming off early next year. Can you share any more details on what you expect in terms of your ability to slow down the pace of the decline next year and beyond? Anything that you could tell there? Thank you.

Torgrim Reitan, CFO

All right, Henri. Thank you very much. So first on cost. Cost discipline and capital discipline are very important to us, and we work hard on that. But clearly, we are not immune to inflation. On a group level, we see growth in OpEx and SG&A of 3%. The underlying cost increase is somewhat higher due to some one-offs, such as underlift and also on the currency side, plus some removal costs. But it’s fairly stable, I would say. You had a specific question on the U.S. cost. We see that OpEx and SG&A there is down 6% compared to last year, which is due to lower transportation costs linked to lower volumes this quarter. Generally, cost levels this quarter, if you measure them per barrel, have been impacted by a massive turnaround program, 104,000 barrels per day in the quarter. This has attracted costs, impacting the cost this quarter. However, you can see stable unit production costs. So, we are working hard on this. Your second question, Henri, on Johan Sverdrup. Yeah, so far so good. We can confirm we are now in a position where we can say that the plateau will last until early 2025. It's quite important for me to say that we are not surprised at all that we will come off plateau in 2025. This is due to our investments in higher capacity at 755,000 barrels per day, driving cash flow and increasing net present value. That leads us to come off plateau earlier than expected. This is as anticipated, but we are able to extend it somewhat. A couple of things here: optimizing recovery rates and reservoir management is really the core competency of this company, something we have done for 50 years across the large assets on the shelf. This involves optimizing water management, drilling capabilities, reservoir management, and performing 4D seismic surveys to really understand how everything works. To give you a little status, we are actively drilling. By year-end, there will be 40 wells in production. Next year, we will start to retrofit some of these wells into multilaterals, which means taking one well bore and extending it to reach more. We are also working on Johan Sverdrup Phase 3, where we expect to reach DG2 toward the end of this year, aiming for a startup by the end of 2027. This aligns with our expectations, and we apply our competencies to this asset. It currently produces 756,000 barrels per day, which is nearly 1% of global supply on a daily basis from one asset on the NCS. This gives you a sense of the size of it, and you might detect a hint of pride in my tone.

Henri Patricot, Analyst

Thank you.

Operator, Operator

Thank you, Henri. Alastair Syme in Citi is next. Alistair, please go ahead.

Alastair Syme, Analyst

Yeah, thanks Bard. Hi Torgrim. Look, I'm sorry to come back on Ørsted, but it is just so important. As I understand it, you've gone through a strategic review of the renewables business. You followed the lead of what you did on FLX. You physically moved that business outside of HQ to force it to be more competitive. Can you talk about how the decision to invest in Ørsted has really come about from the strategic review? Acquisitions, in my experience, are normally done because companies feel they have a shortfall in portfolio or expertise. Kind of what is it? I'm just trying to connect the dots between where Equinor thought it was 12, 24 months ago and where the strategy seems to be now. Thank you.

Torgrim Reitan, CFO

Okay, well thanks Alistair. So we are very much driven by the investments and the strategy that we pursue needs to create value for our shareholders. That is where it all starts. Typically, the way we do that is that we operate, develop, and put into production assets like we are currently doing with E&Pire Wind, Dogger Bank, and Baltic. That is the main model of value creation, and all of these three are delivering attractive equity returns on the money that we invest. From time to time, we see that there are opportunities to do something differently, and that is what we also see here, where there is a way to build and deliver on the strategy in a more value-creating way. For the time being, we observe it is very expensive to acquire seabed leases. There is also substantial inflation within the renewable business and clear bottlenecks in the supply chains. So, comparing that with acquiring 10% in Ørsted, Ørsted presents a better way to deliver on the strategy and facilitate growth in the next few years. However, timing is also extremely important. We have the patience to wait for the investment climate to improve in some offshore wind opportunities—it will come. For now, we are making some organizational changes to focus on business development activities, reduce cost levels, and prepare ourselves for long-term success in this space.

Alastair Syme, Analyst

So Torgrim, can I just ask you, an alternative would have been not to make the investment in Ørsted at all, right? So I get the comparison versus organic seabed leases, but there could be an alternative, saying we're not going to make this acquisition, and we'll just pause our renewable strategy overall.

Torgrim Reitan, CFO

Thanks, Alistair. And then, clearly, when we see a good investment opportunity, we pursue it. The challenges that the offshore wind industry is currently experiencing have impacted the share price of Ørsted, and we see this as a good time to take a 10% share in the company. We have a long-term perspective on this investment, and we are confident it will deliver good value to our shareholders over time.

Bard Glad Pedersen, Senior Vice President of Investor Relations

Thank you, Alistair. Next one is Alejandro Vigil from Santander. Alej, please, the mic is open.

Alejandro Vigil, Analyst

Yes, thank you for taking my questions. The first one is, again, sorry about the Ørsted, but in your comments, you are talking about that the Ørsted investment, the optionality is cheaper than investments in greenfield projects. That's interesting. But are there any conversations or projects ongoing to develop together with Ørsted? Ørsted has a very big pipeline of projects that could be interesting as well. So that will be the first question. And the second question is about the general uncertainty on offshore wind, and the possibility of some delays in projects like Rosebank. All the roads lead to higher distributions next year. Can you elaborate on the outlook for ‘25 share buybacks, also looking at your strong balance sheet? That would be the questions. Thank you.

Torgrim Reitan, CFO

Okay, Alejandro, thanks. So, around 10% in Ørsted, that's what we have done, and there are no current plans for that, nor do we plan to develop projects together. We will operate as two separate companies. As for the outlook for capital distribution next year, we have stated that you should expect capital distribution to be between $8 billion and $10 billion, with a cash dividend of $0.35 per share. We said it would grow by $0.02 per year, and on top of that, a share buyback between $4 billion and $6 billion. This is something we've tested against all price scenarios. Therefore, you should see it as a strong commitment from our side. Beyond that, we are dedicated to providing our owners with an attractive capital distribution, but it's not the time or place to discuss it further today. For next year, you can expect between $8 and $10 billion.

Bard Glad Pedersen, Senior Vice President of Investor Relations

Thank you. Next on the list is from Bernstein, Yoann Charenton. Yoann, please go ahead.

Yoann Charenton, Analyst

Yes, good afternoon, Torgrim. It looks like the net debt ratio will not have turned positive by year end 2024, which is your guidance, without this Ørsted deal, which you said will have around a 5% impact on the net debt ratio. As such, can you comment on the implications this has from an M&A perspective, especially regarding the budget available for your M&A activity from a deep side perspective? Ultimately, was turning into a net debt position by year end your financial year's most important guidance item from your perspective as a CFO?

Torgrim Reitan, CFO

Okay. Thanks, Yoann. What we said at the beginning of the year was that we expect the net debt to move into positive territory by year end, and that was without considering the Ørsted acquisition, and this remains valid. The year is developing according to plan and what we said at the Capital Markets Day, both on cash flow from operations and net debt perspective. On top of this, the Ørsted acquisition will add around 5 percentage points to the net debt. I think it's crucial for me to emphasize that when your net debt ratio is around zero, it becomes very volatile; small changes can significantly affect the percentages. However, that's the best guidance I can provide for now—5% related to Ørsted. Going forward, it is essential for us to maintain a conservative balance sheet and financing to be prepared for volatility ahead. We have talked about higher prices, but we cannot exclude lower prices, and managing the balance sheet is vital for doing exactly that.

Yoann Charenton, Analyst

Thank you.

Bard Glad Pedersen, Senior Vice President of Investor Relations

Thank you. We then turn to Lydia Rainforth from Barclays. Lydia, please go ahead.

Lydia Rainforth, Analyst

Thanks and good morning. Two questions actually, follow-ups on what we have already had. But just going back to the balance sheet, and I see—I take your point that if you move into a slight net debt position towards the end of the year. But where is the balance sheet now versus where you thought it would be at the start of the year? Because clearly, I think prices of both oil and gas have been a little bit better than you thought, and the CapEx guidance has come down a bit. So, it’s just kind of where you are versus where you thought you would be at this stage. And then, if I come back to the Ørsted situation—and I'm sorry to drill on this point—but it doesn't actually translate to cash at this point because you don't have the dividend. So, when you are thinking about this investment, is this idea that you become a long-term shareholder and that this is something you want to hold for the next five, ten years? I'm just trying to understand kind of where, back to the point of there were probably other things you could have spent $2.5 billion on versus this. So, I'm thinking for something that doesn't give you cash near term. It's something I'm still a little bit confused around that capital allocation cycle. So sorry to belabor those two points again, but thank you.

Torgrim Reitan, CFO

Okay. No, thanks Lydia. So the balance sheet is developing according to what we believed at the beginning of the year. Prices have fluctuated a bit, with gas prices being a little lower and oil prices having slight ups and downs. However, we have also seen a reduction in working capital due to lower prices. In summary, we're pretty much on target with our initial expectations. Regarding your last question, yes, from Ørsted's perspective, they are currently in what you would call a dividend holiday. This is an area that Ørsted management needs to address. To be more precise on your question, yes, we view ourselves as long-term holders of shares in Ørsted. We understand the issues within the industry fairly well, and we trust that their management will handle these adeptly. We believe that Ørsted will emerge as a strong company once conditions in the industry normalize, and we're confident that our investment can create good value.

Lydia Rainforth, Analyst

Understood. Thank you.

Bard Glad Pedersen, Senior Vice President of Investor Relations

Thank you, Lydia. Next one is Giacomo Romeo from Jefferies. Giacomo, please go ahead.

Giacomo Romeo, Analyst

Yes, thank you. And apologies, I have to ask again about Ørsted. First, regarding your comment in the press release a few weeks back, you mentioned that you want to seek board representation. This is obviously a sizable investment. You talked about the importance of getting timing right in investing in projects. Ørsted doesn't have the best track record in terms of execution, and management has been volatile. I just wanted to understand why you think it wouldn't be helpful to seek board representation. Next question is, as you are aware, there are some concerns around Ørsted's ability to fund its growth portfolio. Will you consider injecting equity into Ørsted if needed at some point in the future? You talked about—you ruled out plans to do further investments in Ørsted, including doing projects together. But does that include the possibility for additional funding in the future?

Torgrim Reitan, CFO

Okay, thanks Giacomo. So, we are now shareholders of 9.8% and we intend to be around 10% once approvals have been granted. We have not actively pursued board representation as part of this, nor are there current plans to do so either. However, we know Ørsted well, and their management, and it’s natural to have dialogue around relevant topics as shareholders, just as others do. Regarding Ørsted's financing abilities, I recommend asking the Ørsted management for their outlook. That would be the appropriate channel for addressing those concerns.

Bard Glad Pedersen, Senior Vice President of Investor Relations

Thank you, Giacomo. Next one is Michele della Vigna from Goldman Sachs. Michele, please go.

Michele della Vigna, Analyst

Thank you very much, Torgrim. Congratulations on getting Northern Light on stream. I was wondering, in terms of your future carbon capture strategy, you are one of the leaders in the industry. Where do you see the most attractive returns from here? Is it in the U.S. with the IRA and the huge network of industrial plants, especially on the Gulf Coast, or do you see it in Europe with effectively further expansions in Norway? And then, if you forgive me, one more question on Ørsted. When I think back to the very successful investment you made in Lundin, you ultimately exchanged a big part of that stake for an asset, which was more ownership in Johan Sverdrup, which proved to be the right choice. I'm wondering, is there any plan here to farm in some of Ørsted's assets? Are some of those assets potentially interesting to you, or is it more about the value of the overall company as a long-term investor? Thank you.

Torgrim Reitan, CFO

Okay, thanks, Michele. First on Northern Light, yes, that is now ready to receive CO2, and we are pleased to see that, as it will be an important project for establishing CCS value chains. We see moving forward that our CCS strategy is progressing positively, and I would say the pace of development within CCS is quite different than in hydrogen—hydrogen development is slowing down, while CCS is advancing. Regarding your question on attractive returns, we see them in both the U.S. and Europe. In the U.S., there are many single emission points located close to reservoirs for storage, and we have a storage position there in Bayou Bend, which we believe offers attractive returns. On the European side, we have the Smeaheia reservoir with the euro capacity to inject around 20 million tonnes per year, along with plans to construct a pipeline from the continent that could transport 25 million to 30 million tonnes per year, which will be a 1,000-kilometer pipeline. This is progressing, and we expect it to be operational by around 2030. This value chain needs little support to commence, and we anticipate we will gain attractive returns. When such a chain is established, it will create numerous opportunities for further value creation. We're optimistic about this outlook. Different mechanisms will be at play in both Europe and the U.S., but we foresee appealing returns in both regions. Regarding your last question, I'm afraid I'm going to give you a rather dull response—we have acquired a 10% share in Ørsted, and there are no current plans for further actions.

Bard Glad Pedersen, Senior Vice President of Investor Relations

Thank you, Michele. We are fast approaching the hour, but we'd like to cover as many as possible. So, if I can ask you to limit yourself to only one question, please. Next one is Kim Fustier at HSBC. Kim, please.

Kim Fustier, Analyst

Yeah, hi. Thanks for taking my question. I just wanted to ask about the recent cancellation of the blue hydrogen project and hydrogen pipeline to Germany with RWE. Could you maybe talk about why the project wasn't viable? And what is next for your hydrogen plant? Thank you.

Torgrim Reitan, CFO

Okay, thanks Kim. Yeah, we do believe blue hydrogen is going to be very important for Europe. We also think that it needs to be significant before any green hydrogen can actually be viable. For a blue hydrogen value chain to work, there are three prerequisites: first, there needs to be an economic framework for investing in it; second, a significant customer base for lifting such an investment; and third, a well-functioning market. Sadly, none of these aspects were sufficiently in place to justify an investment like this. Therefore, things are progressing slower than we had hoped. We believe we will all be better off by perhaps rethinking our approaches to creating a blue hydrogen value chain in Europe.

Bard Glad Pedersen, Senior Vice President of Investor Relations

Thank you, Kim. Next one is Matt Lofting from JPMorgan. Matt, please, the microphone is open.

Matt Lofting, Analyst

Thanks, gents, for the update and for taking the question. Torgrim, I wonder whether you could just talk about the extent to which Ørsted marks a broader and structural shift in Equinor's strategy and capital allocation for buying versus building, and to what extent that could be applied more widely now across its low carbon and renewable growth. Thank you.

Torgrim Reitan, CFO

Thanks, Matt. So first of all, there are no current plans to take further action. We are a 10% shareholder. However, on your question, I can speak to that more generically. The energy transition, whether within renewables or low carbon solutions, will typically take a different approach to how we own, finance, and govern those businesses and assets. You have seen us acquiring companies like Rio Energy, Wento, Noriker, and a few others, including Danske commodities and BeGreen. So, the picture is becoming more complex in how we aim to own and govern these businesses.

Bard Glad Pedersen, Senior Vice President of Investor Relations

Thank you, Matt. Next one is Anders Rosenlund from SEB. Anders, please.

Anders Rosenlund, Analyst

Thank you. It's Anders here from SEB and thank you for taking my question. Torgrim, you are working for the company and the company is working for the shareholders. I was just curious if you could say something about the feedback the company has received from various stakeholders, preferably shareholders, after the acquisition of Ørsted. Whether it’s generally positive or whether you received questions that you didn't expect before making that investment. Thank you very much.

Torgrim Reitan, CFO

Thanks, Anders. I spend quite a bit of my time on the road meeting investors across Europe, the U.S., and elsewhere, and it would be inappropriate to provide too many details here. However, it’s fair to say there are varied opinions on this acquisition. Some believe they can purchase the stock themselves. Others are curious about our approach and some view this as a good opportunity to differentiate our delivery model for energy transition. But I won’t go further than that—it has indeed spurred significant interest and discussions.

Bard Glad Pedersen, Senior Vice President of Investor Relations

Thank you, Anders. We have passed the one-hour mark and I want to be respectful of everyone’s time. Let’s take one final short question, it’s Peter Low from Redburn and then we’ll conclude the call after that.

Peter Low, Analyst

Hi, thanks. Earlier this month, you announced some increases in CapEx for some of your projects—Johan Castberg, Oseberg, and some of it future—because your CapEx guidance for the year has actually come down. Can you just help explain kind of the moving parts there? I know you mentioned currency and phasing, but any extra color would help. Thanks.

Torgrim Reitan, CFO

Okay, thanks Peter. Yeah, you know, we give an update for all the Norwegian projects due in the national budget filing and aim for full transparency on that. Some projects—there are always slight increases in CapEx, while others have lower expenses. On the portfolio level, our sanctioned project portfolio remains stable, and that’s reflected in our CapEx guidance. So, there’s no trending or significant elements in that regard, as we see it.

Bard Glad Pedersen, Senior Vice President of Investor Relations

Thank you, Peter. Thanks Torgrim and thanks to everyone for calling in. I'm sorry we did not get through the full list. There were a lot of questions, but the IR team remains available. So if you have follow-up questions, please give us a call in the afternoon. Thank you all for calling in this morning, and have a good rest of the day!