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Financial risk management | 12 Months Ended
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Dec. 31, 2019
Financial Risk Management [Abstract] |
Disclosure of financial risk management [text block] | 5 Financial risk and capital management General information relevant to financial risks Equinor's business activities naturally expose Equinor to financial risk. Equinor’s approach to risk management includes assessing and managing risk in all activities using a holistic risk approach. Equinor consider correlations between the most important market risks and the natural hedges inherent in Equinor’s portfolio. This approach allows Equinor to reduce the number of risk management transactions and avoid sub-optimisation. The corp orate risk committee, which is headed by the chief financial officer, is responsible for defining, developing and reviewing Equinor’s risk policies. The chief financial officer, assisted by the committee, is also responsible for overseeing and developing E quinor’s Enterprise Risk Management and proposing appropriate measures to adjust risk at the corporate level. Mandates in the trading organisations within crude oil, refined products, natural gas and electricity are relatively small compared to the total market risk of Equinor. Financial risks Equinor’s activities expose Equinor to m arket risk (including commodity price risk, curren cy risk, interest rate risk and equity price risk), l iquidity risk and c redit risk. Market risk Equinor operates in the worldwide crude oil, refined products, natural gas, and electricity markets and is exposed to market risks including fluctuations in hydrocarbon prices, foreign currency rates, interest rates, and electricity prices that can affect the rev enues and costs of operating, investing and financing. These risks are managed primarily on a short-term basis with a focus on achieving the highest risk-adjusted returns for Equinor within the given mandate. Long-term exposures are managed at the corporat e level, while short-term exposures are managed according to trading strategies and mandates. For more information on sensitivity ana lysis of market risk see note 2 6 Financial instruments: fair value measurement and sensitivity analysis of market risk. Commodity price risk Equinor’s most important long-term commodity risk (oil and natural gas) is related to future market prices as Equinor´s risk policy is to be exposed to both upside and downside price movements. To manage short-term commodity risk, Equi nor enters into commodity-based derivative contracts, including futures, options, over-the-counter (OTC) forward contracts, market swaps and contracts for differences related to crude oil, petroleum products, natural gas and electricity. Equinor’s bilateral gas sales portfolio is exposed to various price indices with a combination of gas price markers. The term of crude oil and refined oil products derivatives are usually less than one year, and they are traded mainly on the Inter Contin ental Exchange (ICE) in London, the New York Mercantile Exchange (NYMEX), the OTC Brent market, and crude and refined products swap markets. The term of natural gas and electricity derivatives is usually three years or less, and they are mainly OTC physica l forwards and options, NASDAQ OMX Oslo forwards and futures traded on the NYMEX and ICE. Currency risk Equinor’s cash flows from operating activities deriving from oil and gas sales, operating expenses and capital expenditures are mainly in USD, but taxe s, dividends to shareholders on the Oslo Børs and a share of our operating expenses and capital expenditures are in NOK. Accordingly, Equinor’s currency management is primarily linked to mitigate currency risk related to payments in NOK. This means that Eq uinor regularly purchases NOK, primarily spot, but also on a forward basis using conventional derivative instruments. Interest rate risk Bonds are normally issued at fixed rates in a variety of local currencies (among others USD, EUR and G BP). Bonds are n ormally converted to floating USD bonds by using interest rate and currency swaps. Equinor manages its interest rates exposure on its bond debt based on risk and reward considerations from an enterprise risk management perspective. This means that the fix e d/floating mix on interest rate exposure may vary from time to time. For more detailed information about Equinor’s long-term debt portfolio see note 18 Finance debt. Equity price risk Equinor’s captive insurance company holds listed equity securities as part of its portfolio. In addition, Equinor holds some other listed and non-listed equities mainly for long-term strategic purposes. By holding these assets Equinor is exposed to equity price risk, defined as the risk of declining equity prices, which can result in a decline in the carrying value of Equinor’s assets recognised in the balance sheet. The equity price risk in the portfolio held by Equinor’s captive insurance company is manag ed, with the aim of maintaining a moderate risk profile, through geographical diversification and the use of broad benchmark indexes. Liquidity risk Liquidity risk is the risk that Equinor will not be able to meet obligations of financial liabilities when they become due. The purpose of liquidity management is to ensure that Equinor has sufficient funds available at all times to cover its financial obl igations. The main cash outflows include the quarterly dividend payments and Norwegian petroleum tax payments paid six times per year. If the cash flow forecasts indicate that the liquid assets will fall below target levels, new long-term funding will be considered. Short-term funding needs will normally be covered by the USD 5.0 billion US Commercial p aper p rogramme (CP) which is backed by a revolving credit facility of USD 5.0 billion, supported by 21 core banks, maturing in 2022. The facility supports secure access to funding, supported by the best available short-term rating. As at 31 December 2019 the facility has not been drawn. Equinor raises debt in all major capital markets (US, Europe and Asia) for long-term funding purposes. The policy is to h ave a maturity profile with repay ments not exceeding 5% of capital employed in any year for the nearest five years. Equinor’s non-current financial liabilities have a weighted average maturity of approximately nine years. For more information about Equin or’s non-current financial liabilities see note 18 Finance debt. The table below shows a maturity profile, based on undiscounted contractual cash flows, for Equinor’s financial liabilities.
| At 31 December
| 2019 | 2018
(in USD million) | Non-derivative financial liabilities | Lease liabilities | Derivative financial liabilities | Non-derivative financial liabilities | Lease liabilities | Derivative financial liabilities
Year 1 | 13,388 | 1,210 | 204 | 11,958 | 61 | 271
Year 2 and 3 | 4,370 | 1,483 | 606 | 5,504 | 120 | 677
Year 4 and 5 | 6,238 | 673 | 175 | 4,919 | 123 | 203
Year 6 to 10 | 8,449 | 892 | 479 | 10,611 | 150 | 611
After 10 years | 10,567 | 349 | 370 | 9,570 | 48 | 725
Total specified | 43,012 | 4,607 | 1,835 | 42,562 | 502 | 2,488
The comparison numbers related to lease liabilities relates to finance leases according to IAS 17, for more information see note 23 Implementation of IFRS 16 Le ases to the Consolidated financial statements. Credit risk Credit risk is the risk that Equinor’s cust omers or counterparties will cause Equinor fi nancial loss by failing to hono r their obligations. Credit risk arises from credit exposures with customer accounts receivables as well as from financial investments, derivative financial instruments and deposit s with financial institutions. Prior to entering into transactions with new counterparties, Equinor’s credit policy requires all counterparties to be formally identified and assigned internal credit ratings. The internal credit ratings reflect Equinor’s a ssessment of the counterparties' credit risk and are based on a quantitative and qualitative analysis of recent financial statements and other relevant business. All counterparties are re-assessed regularly. Equinor uses risk mitigation tools to reduce or control credit risk both on a counterparty and portfolio level. The main tools include bank and parental guarantees, prepayments and cash collateral. Equinor has pre-defined limits for the absolute credit risk level allowed at any given time on Equinor’s portfolio as well as maximum credit exposures for individual counterparties. Equinor monitors the portfolio on a regular basis and individual exposures against limits on a daily basis. The total credit exposure of Equinor is geographically diversified am ong a number of counterparties within the oil and energy sector, as well as larger oil and gas consumers and financial counterparties. The majority of Equinor’s credit exposure is with investment grade counterparties. The following table contains the carrying amount of Equinor’s financial receivables and derivative financial instruments split by Equinor’s assessment of the counterparty's credit risk. Trade and other receivables include 2% overdue receivables for 30 days and more. The overdue receivables are mainly joint venture receivables pending the settlement of disputed working interest items payable from Equinor’s working interest partners within its US unconventional activities. Provisions have been made for expect ed losses utilising the expected credit loss model. Only non-exchange traded instruments are included in derivative financial instruments.
(in USD million) | Non-current financial receivables | Trade and other receivables | Non-current derivative financial instruments | Current derivative financial instruments
At 31 December 2019 |  |  |  |
Investment grade, rated A or above | 682 | 2,089 | 962 | 201
Other investment grade | 80 | 4,778 | 403 | 368
Non-investment grade or not rated | 296 | 508 | 0 | 9
Total financial asset | 1,057 | 7,374 | 1,365 | 578
At 31 December 2018 |  |  |  |
Investment grade, rated A or above | 460 | 1,811 | 682 | 100
Other investment grade | 150 | 5,412 | 350 | 183
Non-investment grade or not rated | 244 | 1,265 | 0 | 35
Total financial asset | 854 | 8,488 | 1,032 | 318
For more information about Trade and other receivables, see note 15 Trade and other receivables. At 31 December 2019, USD 585 million of cash was held as collateral to mitigate a portion of Equinor's credit exposure. At 31 December 2018, USD 213 m illion was held as collateral. The collateral cash is received as a security to mitigate credit exposure related to positive fair values on interest rate swaps, cross currency swaps and foreign exchang e swaps. Cash is called as collateral in accordance with the master agreements with the different counterparties when the positive fair values for the different swap agreements are above an agreed threshold. Under the terms of various master netting agre ements for derivative financial instruments as of 31 December 201 9, USD 2,187 million have been offset and USD 603 million presented as liabilities do not meet the criteria for offsetting. At 31 December 201 8, USD 1 19 million were offset and USD 655 m illio n was not offset. The collateral received and the amounts not offset from derivative financial instrument liabilities, reduce the credit exposure in the derivative financial instruments presented in the table above as they will offset each other in a poten tial default situation for the counterparty. Trade and other receivables subject to similar master netting agreements USD 1,309 million have been offset as of 31 December 2019, and respectively USD 557 million as of 31 December 2018. Capital management The main objectives of Equinor's capital management policy are to maintain a strong overall financial position and to ensure sufficient financial flexibility. Equinor’s primary focus is on maintaining its credit rating in the A category on a stand alone basis (ignoring uplifts for Norwegian Government ownership). In order to monitor financial robustness on a day to day basis, a key ratio utilized by Equinor is the non-GAAP metric of “adjusted net intere st-bearing debt (ND) to adjusted capital employed (CE)”.
| At 31 December
(in USD million) | 2019 | 2018
Net interest-bearing debt adjusted, including lease liabilities (ND1) | 17,219 |
Net interest-bearing debt adjusted (ND2) | 12,880 | 12,246
Capital employed adjusted, including lease liabilities (CE1) | 58,378 |
Capital employed adjusted (CE2) | 54,039 | 55,235
Net debt to capital employed adjusted, including lease liabilities (ND1/CE1) | 29.5% | -
Net debt to capital employed adjusted (ND2/CE2) | 23.8% | 22.2%
ND1 is defined as Equinor's interest bearing financial liabilities less cash and cash equivalents and current financial investments, adjusted for collateral deposits and balances held by Equinor's captive insurance company (amounting to USD 791 million and USD 1,261 million for 2019 and 2018, respectively) and balances related to the SDFI (amounting to USD 0 million and USD 146 million for 2019 and 2018, respectively. CE1 is defined as Equinor's total equity (including non-controlling interests) and ND1. ND 2 is defined as ND1 adjusted for lease liabilities (amounting to USD 4,339 million and USD 0 million for 2019 and 2018, respectively). CE2 is defined as Equinor's total equity (including non-controlling interests) and ND2.

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