EQNR - Equinor ASA: A Lot To Like About
2023-06-10 05:27:40 ET
Summary
- Revenues and others were $29.22 billion in 1Q23, down from $36.39 billion in the same quarter a year ago and down 13.6% sequentially.
- The first quarter production was 2,130K Boep/d, up from 2,106K Boep/d in the same period in 2022 and up 4.1% sequentially. Gas production was 1,059 Boep/d.
- I recommend buying EQNR between $25.7 and $25 with possible lower support at $24.2.
Introduction
The Norwegian-based Equinor ASA (EQNR) reported its first quarter 2023 results on May 4, 2023.
Note: This article updates my article published on March 27, 2023. I have followed EQNR on Seeking Alpha since January 2017.
This article discusses the company's recent history, including the first-quarter earnings, and speculates what to expect in 2023 and how to navigate the industry successfully.
Equinor had an outstanding year in 2022 but now faces lower commodities prices retreating significantly from their highs, especially natural gas prices and NGL, representing a significant segment of Equinor's revenue.
1 - 1Q23 Results Snapshot and Commentary
Equinor reported solid first-quarter results. Earnings easily beat analysts' expectations. Equinor generated $12.57 billion in generic free cash flow this quarter, and revenues were $29.22 billion, down 18.9% from the 1Q22 revenues of $36.05 billion.
CEO Torgrim Reitan said in the conference call:
We continue to be a stable supplier of energy to Europe and the world. Therefore, I'm happy to see solid operational performance and we are on track to deliver 3% production growth in 2023. We are still in uncertain times, and we need to ensure that we steer safely through volatility. And our strategy remains firm, and we aim to be a leading company in the energy transition, while offering energy security and delivering strong cash flow
The integrated company is primarily an oil and gas producer with a robust crude oil segment, as we can see below:
EQNR Quarterly Revenue per segment 4Q22 versus 1Q23 (Fun Trading)
As shown above, the Natural Gas segment is down significantly sequentially.
The oil and natural gas prices are now significantly below what they were a year ago.
EQNR 1-Year chart oil and gas prices (Fun Trading StockCharts)
2 - Stock Performance
Equinor's stock has underperformed its peers, with a 23% loss on a one-year basis. It is one of the worst performers amongst its peer due to its exposure to the natural gas sector, which has helped the company in 2022 but is now a negative component.
Balance Sheet And Production History Ending in 1Q23: The Raw Numbers
| Equinor |
| 1Q22 |
| 2Q22 |
| 3Q22 |
| 4Q22 |
| 1Q23 |
| Revenues in $ billion |
| 36.05 |
| 36.39 |
| 42.73 |
| 33.84 |
| 28.52 |
| Total Revenues and others in $ billion |
| 36.39 |
| 36.46 |
| 43.63 |
| 34.32 |
| 29.22 |
| Net Income in $ million |
| 4,710 |
| 6,757 |
| 9,384 |
| 7,897 |
| 4,962 |
| EBITDA $ billion |
| 19.51 |
| 22.22 |
| 28.54 |
| 15.65 |
| 16.16* |
| EPS diluted in $/share |
| 1.46 |
| 2.11 |
| 2.97 |
| 2.51 |
| 1.59 |
| Cash from operating activities in $ billion |
| 15.77 |
| 8.52 |
| 6.58 |
| 4.27 |
| 14.87 |
| Capital Expenditure in $ billion |
| 2.18 |
| 1.71 |
| 2.05 |
| 2.66 |
| 2.30 |
| Free Cash Flow in $ billion |
| 13.59 |
| 6.81 |
| 4.53 |
| 1.60 |
| 12.57* |
| Total cash $ billion |
| 44.57 |
| 45.69 |
| 44.34 |
| 39.31 |
| 50.04 |
| Long-term debt (+liabilities) in $ billion |
| 30.47 |
| 29.84 |
| 28.55 |
| 28.50 |
| 27.40 |
| Dividend per share in $ per share |
| 0.20 (+0.20) |
| 0.20 (+0.50) |
| 0.20 (+0.70) |
| 0.30 (+0.60) |
| 0.30 (+0.60) |
| Shares outstanding (diluted) in billion |
| 3.237 |
| 3.197 |
| 3.157 |
| 3.144 |
| 3.124 |
| Oil Production |
| 1Q22 |
| 2Q22 |
| 3Q22 |
| 4Q22 |
| 1Q23 |
| Oil Equivalent Production in K Boepd |
| 2,106 |
| 1,984 |
| 2,021 |
| 2,046 |
| 2,130 |
| Group average liquid price ($/b) |
| 97.1 |
| 106.9 |
| 92.9 |
| 80.4 |
| 73.8 |
Courtesy: Press release
* Estimated by Fun Trading
Note: The board of directors declared an ordinary cash dividend of $0.30 per share for the first quarter of 2023. In addition, an extraordinary dividend of $0.60 has been declared.
The board has decided to continue the share buy-back program of $1.2 billion annually , introduced in 2021 as an integrated part of capital distribution.
The board has also decided to increase the $1.2 billion share buy-back program by up to $4.8 billion, resulting in a program of up to $6.0 billion in 2023.
On 7 February 2023, Equinor launched the first tranche of USD 1 billion. USD 330 million order has been acquired in the open market and the full amount has been settled, while USD 670 million of shares from the Norwegian State will be redeemed at the annual general meeting in May 2023.
Financials: Revenues, Free Cash Flow, Debt, And Production
1 - Revenues and others were $29.22 billion in 1Q23
EQNR Quarterly Revenue History (Fun Trading) Revenues and others were $29.22 billion in 1Q23, down from $36.39 billion in the same quarter a year ago and down 13.6% sequentially (please see the graph above). Note: Most preceding quarters have been restated, but the chart indicates the original amount.
Net Income was $4,962 million, or $1.59 per diluted share, up from $1.46 per diluted share in the same quarter last year.
In the first quarter, the Norway average invoiced gas price was $17.36 per million Btu for Europe ($29.77 last year) and $2.80 for North America. The group average oil price was $73.8 per Boe.
EQNR Liquid Price History (Fun Trading) EQNR Quarterly US NG price History (Fun Trading)
1.1 - Cash from Operating Activities was $14.87 Billion in 1Q23.
The cash flow provided by operating activities jumped this quarter to $14,871 million, and the cash flow provided by operating activities after tax paid was $9,716 million.
EQNR Quarterly CFO History (Fun Trading)
2 - 2023 Guidance and Beyond
Organic CapEx is expected to be $10-$11 billion in 2023 and will increase to ~13 billion in 2024-2025, with production growth of ~3% in 2023.
EQNR 2023 Guidance (EQNR Presentation)
3 - Free Cash Flow was estimated at $12,568 million in 1Q23
EQNR Quarterly Free Cash Flow History (Fun Trading) Note: I use the generic free cash flow, not including divestitures. It is the cash flow from operations minus CapEx. The company has a different way of calculating the free cash flow.
The company's free cash flow was $12,568 million in the first quarter of 2023, with a trailing 12-month free cash flow of $25,504 million.
4 - No Net Debt in 1Q23. Excellent profile.
EQNR Quarterly Cash versus Debt History (Fun Trading)
Note: The above debt in the graph is the gross interest-bearing debt plus liabilities.
As of March 31, 2023, Equinor reported $50,041 million in cash, cash equivalents, and securities. The company's long-term debt amounted to $27.40 billion at the quarter-end. The company has no net debt.
5 - Production Upstream and Investment in Renewables
EQNR Quarterly Oil Production History (Fun Trading)
- The first quarter production was 2,130K Boep/d, up from 2,106K Boep/d in the same period in 2022 and up 4.1% sequentially. Gas production was 1,059 Boep/d or about 49.7% of the total output.
- Equinor share for power generation was 524 GWh this quarter, up from 511 GWh last year. The company is advancing its shift to renewables.
CEO Torgrim Reitan said in the conference call:
This quarter production growth is driven by Johan Sverdrup Phase 2 and Peregrino coming on stream and Snohvit and Caesar Tonga coming back in operations. In the US Gulf of Mexico, the Shell-operated Vito field was put on stream and will contribute to future production growth. We saw high deliveries of natural gas to Europe with gas up almost 2% from last quarter. And Coast Cluster our processing plants delivering 99% production efficiency.
Technical Analysis And Commentary
EQNR TA Chart Short-term (Fun Trading StockCharts)
Note: The chart is adjusted for the dividend.
EQNR forms a Descending Channel pattern, with resistance at $29.35 and support at $25.5. RSI is 63, indicating that EQNR is now on its way to being overbought.
Descending channel patterns are short-term bearish in that a stock moves lower within a descending channel, but they often form within longer-term uptrends as continuation patterns. The descending channel pattern is often followed by higher prices, but only after an upside penetration of the upper trend line.
Thus, the overall strategy I usually promote in my marketplace, "The Gold and Oil Corner," is to keep a core long-term position and use about 35%-40% to trade LIFO while waiting for a higher final price target to sell your core position at a significant profit.
The trading strategy is to sell about 35%-40% at between $29.3 and $30.8 with possible higher resistance at $32.5 and accumulate between $25.7 and $25 with possible lower support at $24.2. Assuming no drastic new news, of course.
As a reminder, EQNR depends highly on oil and gas prices, and your selling or buying strategy must factor in these critical components. The Norwegian company operated as Europe's largest natural gas supplier in 2021-2022, when Russia's Gazprom cut deliveries over the West's support for Ukraine. However, 2023 seems weaker, and investors must be cautious.
CEO Torgrim Reitan said in the conference call:
We continue to have high gas production from the Norwegian Continental Shelf to Europe with no deferral of gas volumes this quarter. We experienced cost pressure as an industry -- as any industry or consumer. And, therefore, we are carefully prioritizing our activities and driving cost control.
Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.
For further details see:
Equinor ASA: A Lot To Like About