Morningstar | Equinor's 1Q Earnings Slip on Lower Oil Prices and Weaker Processing Margins
Equinor reported adjusted earnings of $1.54 billion in the first quarter of 2019, an increase of 4% from the first quarter of 2018 on a lower tax rate. However, adjusted operating earnings fell 5% to $4.19 billion as a result of lower oil prices. E&P Norway's adjusted earnings fell 5% to $3.22 billion on lower prices and volumes, offsetting 4% growth to $666 million in E&P international's adjusted earnings, which benefited from an increase in production. Equinor’s total equity production of 2,178 thousand barrels of oil equivalent per day in the first quarter was on par with the 2,180 mboe/d produced in the first quarter of 2018. Production is expected to remain at the 2018 level throughout 2019, as maintenance will reduce volumes by 40 mboe/d until year-end. For 2019-25, Equinor maintains its production growth target of a 3% compound annual growth rate.Marketing, midstream, and processing segment results damped Equinor’s overall earnings due to narrower margins and lower gas results, leading to a 21% year-over-year decline in adjusted earnings to $359 million.
Based on $70/barrel oil, Equinor expects to generate free cash flow of $14 billion over the next three years and achieve a return on average capital employed of over 14% by 2021. However, that is a higher price than current market expectations and our long-term price assumption of $60/barrel. We expect free cash flow of about $5 billion and ROACE of nearly 8% in 2021 using our lower price deck.
Management maintains that dividend growth will track earnings growth while share buybacks remain an integral part of Equinor’s return policy, although it did not complete any in 2018 or the first quarter of 2019. However, it increased the quarterly cash dividend by 13% to $0.26 per share. Our fair value estimate remains NOK 215 per share and our moat rating is unchanged.
Overall, Equinor has successfully implemented the necessary cost reductions to surpass its 2018 targets. With the shares trading just under our fair value estimate, however, we prefer other global integrated companies that are trading at wider valuation discounts and are more aggressive in returning capital to shareholders.
Equinor is engaged in oil and gas exploration and production activities. Co. is primarily focused on exploration, development and production of oil and gas on the Norwegian continental shelf (NCS). Co.'s operations are organized into four segments. The Development and Production Norway and Development and Production International segments explore, develop, produce and extract crude oil, natural gas and natural gas liquids. The Marketing, Processing and Renewable Energy segment markets, trades, transports and processes oil and natural gas and renewable energy. The Other segment consists of global well and project delivery, research and develpoment, and business development.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.