EUR 850.00 For Business Accounts Only

Morningstar | Equinor’s Earnings Double on Higher Prices; Reduced Capex Guidance Supports Free Cash Flow Outlook

Equinor reported a sharp increase in third-quarter earnings from the prior year with adjusted net earnings more than doubling to $2.0 billion from $819 million, thanks to higher oil and gas prices and production growth that offset slightly higher expenses and weaker refining and trading results. Equity production increased 1% from a year ago, thanks to the startup of new fields and new wells, in line with full-year guidance of 1%-2%. Management’s production growth guidance for 2017-20 is intact at 3%-4%. Operating cash flow followed suit, growing to $5.4 billion from $3.3 billion a year ago. Free cash flow for the quarter improved by $1.5 billion from a year ago, but free cash flow for the year to date is $1.3 billion lower than the year-ago period, largely due to greater acquisition activity, but also higher capital spending. However, Equinor was still able to comfortably cover its dividend payments. Furthermore, we still expect free cash flow generation to improve over time as new production adds higher-margin barrels at lower capital intensity. In fact, Equinor lowered full-year capital expenditure guidance to $10 billion from $11 billion, demonstrating the company’s ability to do more with less and its continued focus on cost reduction even as commodity prices recover. The updated guidance, along with higher oil prices since our last update, should result in a modest increase in our fair value estimate. We retain our no-moat rating.

For greater detail on our thesis surrounding integrated oil’s improving free cash flow profile, see our September report “Integrated Oils: A Free Cash Flow Story”.