6-K 1 eqnr3q20_6k.htm EQUINOR THIRD QUARTER 2020 REPORT
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON,
DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE
ISSUER
PURSUANT TO RULE 13a
-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT
OF 1934
29 October 2020
Commission File Number 1-
15200
Equinor ASA
(Translation of registrant’s
name into English)
FORUSBEEN 50, N-4035, STAVANGER,
NORWAY
(Address of principal executive offices)
Indicate by check mark whether the
registrant files or will file annual
reports under cover of Form 20
-F
or Form 40-F:
Form 20-F
X
Form 40-F
Indicate by check mark if the registrant
is submitting the Form 6-K in
paper as permitted by Regulation S
-T Rule 101(b)(1):_____
Indicate by check mark if the registrant
is submitting the Form 6-K in
paper as permitted by Regulation S
-T Rule 101(b)(7):_____
This Report on Form 6-K
contains a report of the third
quarter 2020 results of Equinor
ASA.
Equinor third quarter 2020
2
Equinor third quarter 2020
results
Equinor reports adjusted earnings of USD 0.78 billion and USD 0.27 billion after tax in the third
quarter of 2020. IFRS net operating income was negative USD 2.02 billion and the IFRS net
income was negative USD 2.12 billion, following net impairments of USD 2.93 billion mainly
due to reduced future price assumptions.
●
Solid results from operations
in a low-price environment
●
On track to deliver on
USD 3 billion action plan
to strengthen financial
resilience
●
Strong value creation
from renewables
●
Net debt ratio
(1)
increased to 31.6%, due
to net impairments
and payment for government
share of share buy-back
“Our financial results
are impacted by weak
prices as regions across
the world are still severely
affected by the pandemi
c.
We see the
results of our forceful
response to the market turmoil
,
with significant cost improvements
and strict financial discipline.
Net impairments
in the quarter are
mainly due to reduced price assumptions.
Significant uncertainty
remains around the future
commodity price
development underlining
the importance of increased
competitiveness and
financial resilience,
”
says Eldar Sætre, President
and CEO
of Equinor ASA.
“We deliver solid
operational results in the
quarter with an
underlying production
growth of nine percent. We
progress our competitive
project portfolio, supported
by the tax policy measures
in Norway,
with the delivery of
Plan for Development and
Operation of the
Breidablikk field.
Our specialised
organisation for late-life
production at the
Norwegian continental shelf
had a successful start
-up
showing improved production
efficiency and reduced
cost,“
says Sætre.
“We continue to
capture value from our renewable
energy portfolio and position
ourselves for profitable growth
in value chains for
carbon capture and
storage.
This quarter we announced
our partnership with
BP,
including the divestment
of half of our share
of
offshore wind projects
Empire Wind and Beacon
Wind in the US.
We are progressing
H2H Saltend,
a project for large-scale
production of hydrogen
in the UK, and in Norway
we are progressing the Northern
Lights project as part
of creating full value cha
ins
for carbon capture,
transportation and storage,
”
says Sætre.
Adjusted earnings [5]
were USD 0.78 billion in the
third quarter,
down from USD 2.59 billion
in the same period in
2019.
Adjusted
earnings after tax [5]
were USD 0.27 billion, down
from USD 1.08 billion
in the same period last year
.
Low prices for liquids and gas
impacted the earnings
for the quarter.
Equinor is on track
to deliver on the action plan
launched in March 2020
of USD 3 billion to strengthen
financial resilience,
including a
reduction of operating
costs of USD 0.70 billion
.
Unit production costs are
significantly reduced from
third quarter last year.
In the E&P Norway segment
,
Equinor saw weak
prices impacting the
results but took advantage
of the flexibility in gas
production as
gas prices in Europe
recovered through the
quarter.
Results in the E&P International
segment were impacted
by low prices,
partially offset by a substantial
reduction in costs. The E&P
USA segment was also
impacted by weak prices,
while continuing efforts
to reduce activity and costs.
The Marketing, midstream
and processing segment
captured value from
gas sales to Europe, offset
by slightly negative refinery
margins in the quarter.
New energy solutions
delivered a positive result
in the quarter, including
costs related to maturation
of new projects.
A capital gain of
around USD 1 billion
from the divestment of
a 50% non-operated interest
of the offshore wind
projects Empire Wind
and Beacon Wind
in the US is expected
to be booked in the
first quarter of 2021.
IFRS net operating
income was negative
USD 2.02 billion in the third
quarter, down from
negative USD 0.47 billion
in the same period
of 2019.
IFRS net income was negative
USD 2.12 billion in the third
quarter, down from
negative USD 1.11
billion in the third quarter
of 2019.
Net operating income
was impacted by net impairment
s
of USD 2.93 billion
mainly due to reduced future
price assumptions as
well as
1
This is a non-GAAP figure. Comparison
numbers and reconciliation to IFRS
are presented in the table Calculation
of capital employed and
net debt to capital employed ratio as
shown under the Supplementary
section in the report.
Equinor third quarter 2020
3
some reductions
in reserves estimates.
Net impairments
include USD 1.38 billion
in the E&P USA
segment, of which
USD 1.21 billion
is related to US onshore.
Impairments in the
E&P International segment were
USD 1.18 billion, while
impairments within the E&P
Norway segment was
USD 0.37 billion. In total,
USD 0.58
billion of the net impairment
was recognised as
exploration expenses.
Equinor delivered total
equity production of 1,994
mboe per day in the third quarter,
up from 1,909 mboe per
day in the same period in
2019,
with an increased share
of gas.
Adjusting for portfolio
transactions and government
-imposed curtailments, this
represents an
underlying production
growth of around 9% compared
to the third quarter of
2019.
At the end of the
third quarter Equinor has completed
26 exploration wells
with 13 commercial discoveries
and two wells under
evaluation. At the quarter
end,
16 wells were ongoing. Adjusted
exploration expenses
in the quarter were USD 0.30
billion, compared
to USD 0.26 billion
in the same quarter of 2019.
Cash flows provided
by operating activities
before taxes paid and changes
in working capital amounted
to USD 10.2 billion in
the first
nine months of 2020,
compared to USD 16.6 billion
in the first nine months of
2019.
Organic capital expenditure
[5] was USD 5.99
billion for the first nine
months of 2020.
At the closing of the quarter
net debt to capital employed
(2)
was 31.6%, up from 2
9.3%
at the
end of the second quarter
of 2020,
mainly impacted by the
net impairment in the
quarter,
as well as share buy-back
from the
Norwegian state.
Following the implementation
of IFRS 16, net debt to capital
employed
(2)
was 37.0%.
The board of directors
has decided a cash dividend
of USD 0.11 per
share for the third quarter 2020.
The twelve-month average
Serious Incident Frequency
(SIF) for the period
ending 30
September was 0.6 for 2020
,
similar to the
same period for 201
9.
The twelve-month average
Recordable Injury Frequency
(TRIF) for the period
ending 30
September was 2.3 for
2020,
compared to 2.5 in
2019.
Quarters
Change
First nine months
Q3 2020
Q2 2020
Q3 2019
Q3 on Q3
(in USD million, unless stated otherwise)
2020
2019
Change
(2,019)
(472)
(469)
>(100%)
Net operating income/(loss)
(2,434)
7,783
N/A
780
354
2,593
(70%)
Adjusted earnings [5]
3,181
9,934
(68%)
(2,124)
(251)
(1,107)
(92%)
Net income/(loss)
(3,080)
2,081
N/A
271
646
1,077
(75%)
Adjusted earnings after tax [5]
1,478
3,739
(60%)
1,994
2,011
1,909
4%
Total equity
liquids and gas production (mboe
per day) [4]
2,079
2,032
2%
38.3
22.9
52.5
(27%)
Group average liquids price (USD/bbl)
[1]
35.2
55.8
(37%)
2
This is a non-GAAP figure. Comparison
numbers and reconciliation to IFRS
are presented in the table Calculation
of capital employed and
net debt to capital employed ratio as
shown under the Supplementary
section in the report.
Equinor third quarter 2020
4
GROUP REVIEW
Third quarter 2020
Total equity
liquids and gas production
[4] was 1,994 mboe
per day in the third quarter
of 2020, up 4% compared
to 1,909 mboe
per day in the third
quarter of 2019 mainly due
to new fields on the NCS and
UKCS. Increased flexible
gas production added to the
increase,
partially offset by expected
natural decline mainly
on the NCS,
production halt
in Brazil and divestment
of the Eagle Ford
asset in the E&P USA segment
in the fourth quarter
of 2019.
Total entitlement
liquids and gas production
[3] was 1,865 mboe
per day in the third quarter
of 2020,
up 7%
compared to 1,745
mboe per day in the
third quarter of 2019.
In addition to the factors
mentioned above, production
was positively influenced
by lower
effects from production
sharing agreements (PSA) [4],
and lower US royalty
volumes.
The net effect of PSA and US royalties
was 129
mboe per day in total
in the third quarter of 2020
compared to 164 mboe
per day in the third quarter
of 2019.
Quarters
Change
Condensed income statement under IFRS
First nine months
Q3 2020
Q2 2020
Q3 2019
Q3 on Q3
(unaudited, in USD million)
2020
2019
Change
11,339
7,603
15,610
(27%)
Total revenues
and other income
34,073
49,189
(31%)
(5,307)
(2,750)
(7,667)
(31%)
Purchases [net of inventory variation]
(15,453)
(22,928)
(33%)
(2,368)
(2,411)
(2,922)
(19%)
Operating and administrative expenses
(7,382)
(8,063)
(8%)
(4,798)
(2,522)
(4,619)
4%
Depreciation, amortisation and net
impairment losses
(11,757)
(9,039)
30%
(886)
(393)
(871)
2%
Exploration expenses
(1,914)
(1,374)
39%
(2,019)
(472)
(469)
>(100%)
Net operating income/(loss)
(2,434)
7,783
N/A
(2,124)
(251)
(1,107)
(92%)
Net income/(loss)
(3,080)
2,081
N/A
Net operating income
was negative USD 2,019
million in the third quarter
of 2020, compared to
negative USD 469 million in
the third
quarter of 2019. The
decrease was mainly
due to lower liquids and
gas prices in addition
to net impairments
3
primarily related to
reduced price assumptions
4
and negative reserve
updates.
Strong results from liquids
trading in the MMP segment
in addition to lower
operational and administrative
expenses, especially in
the MMP segment, partially
offset the decrease.
In the third quarter of
2020, net operating income
was negatively impacted
by net impairments
3
of USD 2,928 million
and provisions of
USD 108 million.
Changes in fair value of derivatives
and inventory hedge contracts
of USD 352 million partially
offset the decrease.
In the third quarter of
2019, net operating income
was negatively impacted
mainly by net impairments
of USD 2,794 million,
provisions
of USD 560 million
and changes in fair value
of derivatives and inventory
hedge contracts of USD 444
million and positively affected
by gain from sale of
assets of USD 849 million.
3
For more information, see note 2 Segments
to the Condensed interim financial
statements.
4
For more information, see note 6
Property, plant
and equiptment and intangible assets
to the Condensed interim financial
statements.
Equinor third quarter 2020
5
Quarters
Change
Adjusted earnings
First nine months
Q3 2020
Q2 2020
Q3 2019
Q3 on Q3
(in USD million)
2020
2019
Change
10,909
8,044
15,352
(29%)
Adjusted total revenues and other
income
33,923
47,999
(29%)
(5,203)
(2,798)
(7,642)
(32%)
Adjusted purchases [6]
(15,856)
(22,977)
(31%)
(2,179)
(2,351)
(2,421)
(10%)
Adjusted operating and administrative
expenses
(6,975)
(7,354)
(5%)
(2,445)
(2,259)
(2,432)
1%
Adjusted depreciation, amortisation
and net impairment
losses
(7,025)
(6,969)
1%
(302)
(282)
(263)
15%
Adjusted exploration expenses
(886)
(766)
16%
780
354
2,593
(70%)
Adjusted earnings [5]
3,181
9,934
(68%)
271
646
1,077
(75%)
Adjusted earnings after tax [5]
1,478
3,739
(60%)
For items impacting net
operating income/(loss),
see Use and reconciliation
of non-GAAP financial
measures in the Supplementary
disclosures.
Adjusted total revenues
and other income
were USD 10,909
million in the third quarter
of 2020 compared to USD 15,352
million in
the third quarter of 2019
.
The decrease was mainly
due to lower average
prices for liquids and gas.
Adjusted purchases
[6] were USD 5,203 million
in the third quarter of 2020
,
compared to USD 7,642
million in the third quarter of
2019. The decrease
was mainly due to lower
average prices for liquids
and gas.
Adjusted operating and administrative
expenses
were USD 2,179 million
in the third quarter of
2020,
compared to USD 2,421
million in the third quarter
of 2019. The decrease
was mainly due to lower
activity level as a result
of the Covid-19 pandemic
and the
divestment of the
Eagle Ford asset in the fourth
quarter of 2019. Lower royalties
and production fees added
to the decrease. Higher
transportation costs
for liquids,
especially in the MMP segment
,
partially offset
the decrease.
Adjusted depreciation, amort
isation and net impairment
losses
were USD 2,445 million
in the third quarter of 2020,
compared to
USD 2,432 million in
the third quarter of 2019.
The slight increase was
mainly due to ramp-up of
new fields on the NCS and higher
investments especially
in the E&P segments.
Higher proved reserves
estimates especially in
the E&P International and
E&P USA
segments
in addition to lower depreciation
basis resulting from net
impairments in previous
periods mostly offset
the increase.
Adjusted exploration expenses
were USD 302 million
in the third quarter of 2020
,
compared to USD 263 million
in the third quarter
of 2019.
The increase was mainly due
to a lower portion of exploration
expenditures being capitalised
and a higher portion
of
exploration expenditure
capitalised in earlier yea
rs being expensed this quarter,
partially offset by lower
drilling costs. For more
information, see the
table titled Adjusted exploration
expenses in the Supplementary
disclosures.
After total adjustments
5
of USD 2,704 million to
net operating income,
Adjusted earnings
[5] were USD 780 million
in the third
quarter of 2020,
a 70% decrease from USD 2,593
million in the third quarter
of 2019.
Adjusted earnings after
tax
[5] were USD 271 million
in the third quarter of 2020
,
which reflects an effective
tax rate on adjusted
earnings of 65.3%, compared
to 58.5%
in the third quarter of 2019.
The increase in the effective
tax rate was mainly due
to decreased
adjusted earnings in
the third quarter of 2020
in entities with lower than
average tax rates, and
in entities without recognised
taxes,
partially offset by
the temporary changes
to Norway’s petroleum
tax system as described
in note 8 Impact of pandemic
and oil price
decline to the Condensed
interim financial statements.
Cash flows provided by operating
activities
decreased by USD 1,549 million
compared to the third
quarter of 2019. The decrease
was mainly due to lower
liquids and gas prices and
a change in working capital,
partially offset by decreased
tax payments.
Cash flows used in investing
activities
increased by USD 2,877 million
compared to the third
quarter of 2019. The increase
was
mainly due to increased
financial investments and
reduced proceeds from
sale of assets, partially
offset by lower cash
flow used for
business combinations
and capital expenditures.
5
For items impacting net operating income,
see Use and reconciliation of
non-GAAP financial measures in
the Supplementary disclosures.
Equinor third quarter 2020
6
Cash flows provided by financing
activities
increased by USD 820 million
compared to the third quarter
of 2019. The increase
was
mainly due to increased
short-term debt, increased
collateral received and decreased
dividend paid, partially
offset by increased
payments related
to the share buy-back
programme and repayment
of finance debt.
Total cash
flows
decreased by USD 3,606
million compared to the
third quarter of 2019.
Free cash flow
[5] in the third quarter of
2020 was USD 216 million
compared to negative
USD 672 million in the third
quarter of
2019. The increase
was mainly due to lower
cash flow used for business
combinations, decreased tax
payments and lower capital
expenditures, partially
offset by reduced
proceeds from sale
of assets, lower liquids
and gas prices and increased
payments related to
the share buy-back
programme.
First nine months 2020
Net operating income
was negative USD 2,434
million in the first nine
months of 2020 compared
to positive USD 7,783
million in the
first nine months
of 2019.
The decrease was ma
inly due to lower liquids
and gas prices in addition
to net impairments
6
primarily
related to reduced price
assumptions
7
and negative reserve
updates
.
In the first nine months
of 2020,
net operating income was
negatively impacted mainly
by net impairments
6
of USD 5,752 million
and
provisions of USD 290
million.
In the first nine months
of 2019, net operating income
was negatively affected
mainly by net impairments
of USD 2,678 million,
provisions of USD 557
million and positively impacted
by net gain of sale of assets
of USD 999 million and changes
in the fair value of
derivatives and inventory
hedge contracts of USD 267
million.
Adjusted total revenues
and other income
were USD 33,923
million in the first
nine months of 2020 compared
to USD 47,999
million in the first
nine months of 2019.
The decrease was mainly
due to lower average
prices for liquids and gas.
Adjusted purchases
[6]
were USD 15,856 million
in the first nine months of
2020 compared to USD 22,977
million in the first nine
months of 2019. The
decrease was mainly
due to lower average prices
for liquids and gas.
Adjusted operating and admi
nistrative expenses
were
USD 6,975 million in the first
nine months of 2020,
a decrease of USD 379
million compared to
the first nine months of 2019.
The decrease was mainly
due to the NOK/USD exchange
rate development in
addition to lower
royalties and production
fees driven by lower volumes
and prices.
The divestment of the
Eagle Ford asset in the E&P
USA segment in the
fourth quarter of 2019 and
reduced Gassled removal
costs added to the decrease.
Higher transportation
costs for
liquids in the MMP segment
partially offset the
decrease.
Adjusted depreciation, amortisation
and net impairment
losses
were
USD 7,025 million in the
first nine months of
2020, up
USD 56 million compared
to the first nine months of
2019. The slight increase
was mainly due to ramp-up
of new fields especially
on
the NCS and UKCS and
higher investments
mainly in the US.
Higher proved
reserves estimates for several
fields, lower depreciation
basis resulting from
net impairments in previous
periods and the NOK/USD exchange
rate development mostly
offset the increase.
Adjusted exploration expenses
increased by USD 120
million to USD 886
million in the first
nine months of 2020,
primarily due to a
higher portion of exploration
expenditure capitalised
in earlier years being expensed
this period and higher drilling
costs.
The increase
was partially offset
by a higher portion of
exploration expenses
being capitalised,
lower seismic costs and
other costs. For more
information, see table
titled Adjusted exploration
expenses in the Supplementary
disclosures.
After total adjustments
8
of USD 5,520 million to
net operating income,
Adjusted earnings
[5] were USD 3,181
million in the first nine
months of 2020,
down 68% from USD 9,934
million in the first nine months
of 2019.
Adjusted earnings after
tax
[5] were USD 1,478 million
in first nine months of 2020,
compared to USD 3,739
million in the first nine
months of 2019. The
effective tax rate on
adjusted earnings was
53.6%
in first nine months of
2020, compared to
an effective tax
rate
of 62.4%
in first nine months
of 2019. The decrease
in the effective tax rate
was mainly caused by the
temporary changes to
Norway’s
petroleum tax system
as described in note 8
Impact of pandemic and
oil price decline to the Condensed
interim financial statements,
in addition to changes
in provision for best estimat
es for uncertain tax
positions.
6
For more information, see note 2 Segments
to the Condensed interim
financial statements.
7
For more information, see note 6 Property,
plant and equiptment and intangible
assets to the Condensed interim
financial statements.
8
For items impacting net operating income,
see Use and reconciliation
of non-GAAP financial measures
in the Supplementary disclosures
Equinor third quarter 2020
7
Cash flows provided by operating
activities
decreased by USD 3,932 million
compared to the first nine
months of 2019. The
decrease was mainly
due to lower liquids and
gas prices and a change
in working capital, partially
offset by decreased
tax payments
and increased cash
flow from derivatives.
Cash flows used in investing
activities
increased by USD 920 million
compared to the first nine
months of 2019. The increase
was
mainly due to increased
financial investments and
reduced proceeds from
sale of assets, partially
offset by lower cash
flow used for
business combinations
and capital expenditures.
Cash flows provided by financing
activities
increased by USD 8,107 million
compared to the first
nine months of 2019.
The
increase was mainly
due to bond issues
in the second quarter of
2020, increased short-term
debt and decreased dividend
paid,
partially offset by
increased payments related
to the share buy-back
program and increased repayment
of finance debt.
Total cash
flows
increased by USD 3,255
million compared to the
first nine months of 2019.
Free cash flow
[5] for the first nine months
of 2020 was negative USD 1,
277 million including USD 332
million received from the
Lundin divestment included
in the line item (increase)/decrease
in financial investment in
the cash flow statement, comp
ared to USD
338 million in the
first nine months of
2019. The decrease was
mainly due to lower liquids
and gas prices, reduced
proceeds from sale
of assets and increased
payments related to the
share buy-back program
,
partially offset by decreased
tax payments, lower cash
flow
used for business combinations,
lower capital expenditures
and increased cash flow
from derivatives.
OUTLOOK
●
Organic capital expenditures
[5] are estimated
at around USD 8.5
billion for 2020
9
, around USD 10 billion
for 2021
9
, and
around USD 12 billion
annual average for 2022
-2023
●
Equinor intends to continue
to mature its attractive portfo
lio of exploration assets
and estimates a total
exploration activity
level
of around USD 1.1 billion
for 2020, excluding signature
bonuses,
accruals and field development
costs
●
Equinor’s ambition is
to keep the
unit of production cost
in the top quartile of
its peer group
●
For the period 2019
–2026,
production growth
[7] is expected
to come from new projects
resulting in around
3% CAGR
(Compound Annual
Growth Rate) based on
current forecast
●
Scheduled maintenance
activity
is estimated to reduce
equity production by around
30 mboe per day for the
full year of 2020
These forward-looking
statements reflect current
views about future events
and are, by their nature,
subject to significant risks
and uncertainties
because they relate to
events and depend on circumstances
that will occur in the future.
We continue to
monitor the
impact of Covid-19
on our operations. Deferral
of production to create
future value, production
cuts, gas off-take,
timing of new
capacity coming on
stream, operational regularity,
impact of Covid-19
and activity level in
the US onshore represent
the most
significant risks related
to the foregoing production
guidance. There has been
considerable uncertainty
created by the Covid-19
pandemic and we are
still unable to predict the
ultimate impact of this
event,
including impact on general
economic conditions
worldwide. Our future
financial performance,
including cash flow and
liquidity, will
be impacted by the
extent and duration
of the
current market conditions,
the development in realised
prices, including price
differentials and the
effectiveness of actions
taken in
response to the pandemic.
For further information,
see section Forward-looking
statements.
9
USD/NOK exchange rate assumption
of 9.5.
Equinor third quarter 2020
8
EXPLORATION & PRODUCTION NORWAY
Third quarter 2020 review
Average daily production
of liquids and gas
increased by 19% to
1,273 mboe per day
in the third quarter of 2020,
compared to
1,067 mboe per day
in the third quarter of 2019.
The increase was mainly
due to ramp-up of new fields.
Net operating income
was USD 431 million
in the third quarter of
2020 compared to USD 2,558
million in the third quarter of
2019.
The decrease was mainly
due to lower liquids price
and gas transfer price in
addition to impairments.
Higher volumes partially offset
the decrease.
In the third quarter of
2020, net operating income
was negatively impacted
by impairments
of USD 360 million, partially
offset by
overlifted volumes of
USD 23 million. In the third
quarter of 2019, net operating
income was positively
impacted by gain on sale of
assets of USD 840
million, partially offset by
a negative impact of USD
25 million related
to underlifted volumes.
Adjusted operating
and administrative expenses
decreased mainly due
to the NOK/USD exchange
rate development, lower
transportation cost
in addition to lower activity
and reduced cost level
as a result of the Covid
-19 restrictions.
Lower well maintenance
cost added to the
decrease.
Adjusted depreciation, amortisation
and net impairment
losses increased mainly
due to ramp-up of new
fields.
Adjusted exploration expenses
increased mainly due
to lower portion of exploration
expenditure being capitalised,
a higher
portion of exploration
expenditure capitalised
earlier years being expensed
this quarter and higher
field development costs.
Lower
drilling costs partially
offset the increase.
After total adjustments
of USD 342 million to
net operating income,
Adjusted
earnings/(loss)
[5] were USD 773 million
in the third
quarter of 2020, compared
to USD 1,735 million
in the third quarter of 2019.
Quarters
Change
Adjusted earnings
First nine months
Q3 2020
Q2 2020
Q3 2019
Q3 on Q3
(in USD million)
2020
2019
Change
2,763
1,715
3,680
(25%)
Adjusted total revenues and other
income
8,071
13,007
(38%)
(699)
(743)
(822)
(15%)
Adjusted operating and administrative
expenses
(2,097)
(2,422)
(13%)
(1,126)
(992)
(981)
15%
Adjusted depreciation, amortisation
and net impairment
losses
(3,099)
(2,945)
5%
(165)
(65)
(142)
16%
Adjusted exploration expenses
(325)
(335)
(3%)
773
(85)
1,735
(55%)
Adjusted earnings/(loss) [5]
2,551
7,305
(65%)
For comparable IFRS figures,
see note 2 Segments
to the Condensed interim financial
statements. For items
impacting net operating
income/(loss), see Use
and reconciliation of non
-GAAP financial measures
in the Supplementary
disclosures.
First nine months 2020
Net operating income
for E&P Norway was USD
1,294 million
in the first nine months of
2020 compared to USD 8,155
million in the
first nine months
of 2019. The decrease
was mainly due to lower
liquids price and gas
transfer price in addition to
impairments
in the
first nine months
of 2020.
Higher liquids volumes
partially offset the
decrease.
In the first nine months
of 2020, net operating income
was negatively impacted
by impairments
of USD 1,219 million
and underlifted
volumes of USD 26 million
.
In the first nine months of
2019, net operating income
was positively impacted
by a gain on sale of
assets
of USD 977 million,
partially offset by a negative
impact of USD 94 million
from underlifted volumes in
the period and an
Equinor third quarter 2020
9
implementation effect
of USD 42 million from a
change in accounting policy
for lifting imbalances.
Adjusted operating
and administrative expenses
decreased mainly due
to the NOK/USD exchange
rate development and
reduced
Gassled removal
costs. Adjusted depreciation,
amortisation and net impairment
losses increased mainly
due to ramp-up of new
fields.
The NOK/USD exchange
rate development and
higher proved reserves estimates
for several fields partially
offset the increase.
Adjusted exploration
expenses decreased mainly
due to lower drilling costs.
Lower portion of exploration
expenditure being
capitalised and a
higher portion of exploration
expenditure capitalised
earlier years being expensed
this period partially offset
the
decrease.
After total adjustments
of USD 1,256 million to net
operating income,
Adjusted earnings/(loss)
[5] were USD 2,551
million in the first
nine months of 2020,
a decrease of 65%
from USD 7,305 million
in the first nine months
of 2019.
Equinor third quarter 2020
10
EXPLORATION & PRODUCTION INTERNATIONAL
In the second quarter
of 2020, Equinor changed
its internal reporting to management,
impacting the composition
of Equinor's
operating and reporting
segments. Equinor’s
upstream activities
in the USA are now reported
separately to management,
and such
information is also considered
to be useful to the users
of the financial statements,
resulting in the exploration
and production activities
in the USA being considered
a separate operating-
and reporting segment as
of the second quarter
of 2020. Previously these
activities were included
in the DPI operating segment
and presented as part
of the E&P International
reporting segment.
Third quarter 2020 review
Average daily equity production
of liquids and gas
was 323 mboe per day
in the third quarter of
2020 compared to 410 mboe
per
day in the third quarter
of 2019. The decrease was
primarily due to repairs on
Peregrino (Brazil) resulting in
a production halt, lower
gas nominations,
natural decline in mature
fields, partially offset
by production ramp
-up of new fields in the UK.
Average daily entitlement
production of liquids
and gas
was 255 mboe per day
in the third quarter of 2020
compared to
312 mboe per day in
the third quarter of 2019. The
decrease was due to lower
equity production partially
offset by lower effects
from
production sharing a
greements (PSA). The net
effects from PSA were
68 mboe per day in
the third quarter of 2020
compared to
97 mboe per day
in the third quarter of 2019.
Net operating income
was negative USD 1,328
million in the third quarter
of 2020 compared to positive
USD 325 million in the third
quarter of 2019. The
decrease was mainly
due to higher impairment
s
in the third quarter of 2020
,
lower liquids and gas prices
in
addition to lower
entitlement production.
In the third quarter of
2020,
net operating income
was negatively impacted
by impairments of USD 1
,176 million. In the third
quarter of
2019,
net operating income
was negatively impacted
by net impairments
of USD 56 million.
Adjusted operating
and administrative expenses
decreased mainly due
to lower operation and
maintenance expenses
in addition to
lower royalties and
production fees, driven by
lower volumes and prices
.
Adjusted depreciation, amortisation
and net impairment
losses decreased mainly
due to higher proved reserves
estimates and lower production
from mature fields. Ramp
-up of new fields on
stream partially offset
the decrease. Adjusted explo
ration expenses increased
mainly due to a lower portion
of exploration expenditure
being capitalised
and a higher portion of
exploration expenditure
capitalised in earlier
years being expensed this
quarter. Lower
drilling
and field development
costs partially offset
the increase.
After total adjustments
of USD 1,224 million to net
operating income,
Adjusted earnings/(loss)
[5] were negative USD 104
million in
the third quarter of 2020,
down from positive
USD 451 million in the third
quarter of 2019.
Quarters
Change
Adjusted earnings
First nine months
Q3 2020
Q2 2020
Q3 2019
Q3 on Q3
(in USD million)
2020
2019
Change
820
622
1,477
(44%)
Adjusted total revenues and other
income
2,589
4,576
(43%)
12
(26)
16
(25%)
Adjusted purchases
(56)
(9)
>100%
(306)
(324)
(377)
(19%)
Adjusted operating and administrative
expenses
(996)
(1,226)
(19%)
(511)
(475)
(564)
(9%)
Adjusted depreciation, amortisation
and net impairment
losses
(1,529)
(1,551)
(1%)
(119)
(177)
(100)
18%
Adjusted exploration expenses
(488)
(367)
33%
(104)
(379)
451
N/A
Adjusted earnings/(loss) [5]
(479)
1,423
N/A
For comparable IFRS figures,
see note 2 Segments
to the Condensed interim
financial statements. For
items impacting net operating
Equinor third quarter 2020
11
income/(loss), see Use
and reconciliation of non
-GAAP financial measures
in the Supplementary
disclosures.
First nine months 2020
Net operating income
for E&P International
was negative USD 2,189
million in the first nine
months of 2020,
compared to positive
USD 1,418 million in
the first nine months of
2019. The decrease was
mainly due to higher net
impairments
in the first nine months of
2020 and lower liquids
and gas prices.
Equinor third quarter 2020
12
In the first nine months
of 2020, net operating income
was negatively impacted
by net impairments of
USD 1,705 million.
In the first
nine months of 2019,
net operating income
was positively impacted
by net impairment reversals
of USD 60 million and negatively
impacted by an imp
lementation effect of
USD 63 million from a change
in accounting policy for lifting
imbalances.
Adjusted operating
and administrative expenses
decreased mainly due
to lower royalties and
production fees driven
by lower volumes
and prices.
Lower operation and maintenance
expenses added to the
decrease.
Adjusted depreciation, amortisation
and net
impairment losses decreased
slightly due to higher proved
reserves estimates
and lower production
from mature fields. New field
s
on
stream partially offset
the decrease.
Adjusted exploration expenses
increased mainly due
to a higher portion of exploration
expenditure capitalised
in earlier years being expensed
this period and higher
drilling costs. Lower
field development costs
partially
offset the increase.
After total adjustments
of USD 1,709 million to net
operating income,
Adjusted
earnings/(loss)
[5] were negative USD 479
million in
the first nine months
of 2020, down from USD 1,423
million in the first
nine months of 2019.
Equinor third quarter 2020
13
EXPLORATION & PRODUCTION USA
In the second quarter
of 2020, Equinor changed
its internal reporting to management,
impacting the composition
of Equinor's
operating and reporting
segments. Equinor’s
upstream activities
in the USA are now reported
separately to management,
and such
information is also considered
to be useful to the users
of the financial statements,
resulting in the exploration
and production activities
in the USA being considered
a separate operating-
and reporting segment as
of the second quarter
of 2020. Previously these
activities were included
in the DPI operating segment
and presented as part
of the E&P International
reporting
segment.
Third quarter 2020 review
Average daily equity production
of liquids and gas
was 398 mboe per day
in the third quarter of
2020 compared to 432 mboe
per
day in the third quarter
of 2019. The divestment
of the Eagle Ford asset
in 2019 resulted in a decrease,
as well as planned
maintenance and
weather shutdowns in the
US offshore.
New wells in the US onshore
and additional ownership
in the Caesar Tonga
field acquired in the
third quarter of 2019 partially
offset the decrease.
Average daily entitlement
production of liquids
and gas
decreased slightly to
337 mboe per day in the
third quarter of 2020
compared to 366
mboe per day in the third quarter
of 2019. The decrease
was due to lower equity production
slightly offset by lower
effects from US onshore
royalty volumes after
the divestment of the
Eagle Ford asset.
The net effects from US royalties
were 61
mboe per day in the
third quarter of 2020 compared
to 67 mboe per day in the third
quarter of 2019.
Net operating income
was negative USD 1,606
million in the third quarter
of 2020 compared to negative
USD 2,587 million in the
third quarter of 2019.
The increase was mainly due
to lower depreciation,
net impairments
and lower operating costs
due to the
divestment of the
Eagle Ford asset. Lower commodity
prices partially offset
the increase.
In the third quarter o
f
2020,
net operating income
was negatively impacted
by net impairments
of USD 1,377 million,
with the largest
effect on unconventional
US onshore assets. In the
third quarter of 2019,
net operating income was
negatively impacted by net
impairments of USD 2,532
million.
Adjusted operating
and administrative expenses
decreased mainly due
to the divestment of the
Eagle Ford asset,
lower transportation
cost due to reduced
production volumes in addition
to lower production fees
driven by lower prices. Adjuste
d
depreciation,
amortisation and
net impairment losses
decreased mainly due to
lower depreciation basis
resulting from net impairments
in previous
periods and higher
proved reserves estimates
in US offshore. Increased
investments and acquired
interest in the Caesar
Tonga
field
during 2019 partially
offset the decrease
.
Adjusted exploration expenses
remain unchanged due to
higher drilling costs offset
by a
higher portion of exploration
expenditure being capitalised.
After total adjustments
of USD 1,413 million to net
operating income,
Adjusted earnings/(loss)
[5] were negative USD 193
million in
the third quarter of 2020,
down
from negative USD 16 million
in the third quarter of
2019.
Quarters
Change
Adjusted earnings
First nine months
Q3 2020
Q2 2020
Q3 2019
Q3 on Q3
(in USD million)
2020
2019
Change
611
475
986
(38%)
Adjusted total revenues and other
income
1,971
3,169
(38%)
(315)
(302)
(376)
(16%)
Adjusted operating and administrative
expenses
(977)
(1,143)
(15%)
(469)
(475)
(605)
(22%)
Adjusted depreciation, amortisation
and net impairment
losses
(1,444)
(1,634)
(12%)
(20)
(40)
(21)
(4%)
Adjusted exploration expenses
(74)
(64)
17%
(193)
(341)
(16)
>(100%)
Adjusted earnings/(loss) [5]
(524)
327
N/A
Equinor third quarter 2020
14
For comparable IFRS figures,
see note 2 Segments
to the Condensed interim financial
statements. For items
impacting net operating
income/(loss), see Use
and reconciliation of non
-GAAP financial measures
in the Supplementary
disclosures.
First nine months 2020
Net operating income
for E&P USA was negative
USD 2,953 million in the first
nine months of 2020,
compared to negative
USD 2,278 million in
the first nine months of
2019. The decrease was
mainly due to higher net
impairments
in the first nine months of
2020 in addition to lower
liquids and gas prices. Lower
operating and administrative
expenses in addition to lower
depreciation
expenses partially offset
the decrease.
In the first nine months
of 2020, net operating income
was negatively impacted
by net impairment losses
of USD 2,296 million, mainly
due to reduced price
assumptions with the
largest effect being on
an unconventional US onshore
asset. In the first nine months
of
2019, net operating income
was negatively impacted
by net impairments
of USD 2,532 million, with
the largest effect on
unconventional US onshore
assets.
Adjusted operating
and administrative expenses
decreased mainly due
to divestment of the Eagle
Ford asset in the fourth
quarter of
2019 in addition to lower
severance taxes due to
lower prices. Adjusted depreciation,
amortisation and net impairment
losses
decreased mainly due
to lower depreciation basis
resulting from net impairments
in previous periods and
higher proved reserves
estimates in US offshore.
Increased investments
and acquired interest
in the Caesar Tonga
field during 2019 parti
ally offset the
decrease. Adjusted
exploration expenses increased
mainly due to higher drilling and
field development costs
.
A higher portion of
exploration expenditure
being capitalised partially offset
the increase.
After total adjustments
of USD 2,429 million to net
operating income.
Adjusted
earnings/(loss)
[5] were negative USD 524
million in
the first nine months
of 2020, down from USD 327
million in the first
nine months of 2019.
Equinor third quarter 2020
15
MARKETING, MIDSTREAM &
PROCESSING
Third quarter 2020 review
Natural gas sales
volumes
amounted to 14.1
billion standard cubic
meters (bcm) in the third quarter
of 2020, an increase of
1.6 bcm
compared to the
third quarter of 2019. Of the
total gas sales in the third
quarter of 2020, entitlement
gas was 12.6 bcm, up 1.4
bcm
from the third quarter
of 2019. The increase
was mainly due to higher NCS entitlement
volumes.
Liquids sales volumes
amounted to 218.7
million barrels (mmbl) in the
third quarter of 2020,
up 14.2 mmbl compared
to the third
quarter of 2019
mainly due to increased
NCS volumes.
Average invoiced European
natural gas sales price
was 48%
lower in the third
quarter of 2020 compared
to the third quarter of
2019 mainly due
to drop in European gas
prices.
Average invoiced North American
piped gas sales
price
decreased by 23% in
the same period mainly
due to the decreased Henry
Hub price.
Net operating income
was positive
USD 551 million in the third quarter
of 2020 compared to negative
USD 757 million in
the third
quarter of 2019.
The increase was mainly due
to inventory hedging effects
and unrealised gain on
derivatives amounting of
USD 325 million
in the third quarter of 2020,
compared to a loss
on derivatives of
USD 453 million in the third
quarter of 2019. In
addition, provisions
and impairment related to
damage to the South
Riding Point oil terminal
in Bahamas negatively impacted
net
operating income in
the third quarter of 2019.
Adjusted purchases
[6] decreased mainly due to
lower prices for all products.
Adjusted operating and
administrative expenses
increased mainly
due to higher transportation
cost for liquids.
Adjusted depreciation,
amortisation and net impairment
losses
decreased slightly.
After total adjustments
of negative USD 289 million
to net operating income,
Adjusted earnings
[5] were USD 262 million
in the third
quarter of 2020, compared
to USD 448 million in
the third quarter of 2019.
The decrease was mainly
due to negative refinery
margins
partially offset by
strong piped gas result.
Quarters
Change
Adjusted earnings
First nine months
Q3 2020
Q2 2020
Q3 2019
Q3 on Q3
(in USD million)
2020
2019
Change
10,704
7,805
14,641
(27%)
Adjusted total revenues and other
income
33,293
46,223
(28%)
(9,174)
(5,272)
(13,016)
(30%)
Adjusted purchases [6]
(27,603)
(41,666)
(34%)
(1,167)
(1,274)
(1,072)
9%
Adjusted operating and administrative
expenses
(3,752)
(3,242)
16%
(102)
(98)
(105)
(3%)
Adjusted depreciation, amortisation
and net impairment
losses
(287)
(298)
(4%)
262
1,161
448
(42%)
Adjusted earnings [5]
1,652
1,017
62%
For comparable IFRS figures,
see note 2 Segments
to the Condensed interim financial
statements. For items
impacting net operating
income/(loss), see Use
and reconciliation of non
-GAAP financial measures
in the Supplementary
disclosures.
First nine months 2020
Net operating income
for MMP was USD 839
million in the first nine
months of 2020 compared
to USD 644 million in
the first nine
months of 2019. The
increase was mainly due to
strong results from liquids
trading and price review
settlement in addition
to lower
provisions of USD 246
million in the first nine months
of 2020 compared to USD 510
million in the first nine
months of 2019. Weaker
Equinor third quarter 2020
16
refinery results and
higher impairments relate
d
to refinery and infrastructure
assets in the third quarter
of 2020 partially offset
the
increase.
Adjusted total revenues
and other income and Adjusted
purchases decreased mainly
due to lower prices
for all products, partially
offset by settlement
of price revisions. Adjusted
operating and administrative
expenses increased mainly
due to higher transportation
cost for liquid volumes
.
Adjusted depreciation, amortisation
and net impairment losses
decreased slightly in the
first nine months of
2020.
After total net adjustments
of USD 813 million,
Adjusted earnings
[5] were USD 1,652 million
in the first nine months
of 2020, an
increase from USD 1,017
million in the first nine
months of 2019,
mainly due to increased
results from gas and liquids
trading.
Equinor third quarter 2020
17
CONDENSED INTERIM FINANCIAL
STATEMENTS
Third quarter 2020
CONSOLIDATED
STATEMENT
OF INCOME
Quarters
First nine months
Full year
Q3 2020
Q2 2020
Q3 2019
(unaudited, in USD million)
Note
2020
2019
2019*
11,250
7,563
14,704
Revenues
33,878
48,011
62,911
86
33
46
Net income/(loss) from equity accounted
investments
190
149
164
3
7
860
Other income
5
1,028
1,283
11,339
7,603
15,610
Total revenues
and other income
2
34,073
49,189
64,357
(5,307)
(2,750)
(7,667)
Purchases [net of inventory variation]
(15,453)
(22,928)
(29,532)
(2,187)
(2,234)
(2,732)
Operating expenses
(6,826)
(7,422)
(9,660)
(181)
(177)
(190)
Selling, general and administrative
expenses
(555)
(642)
(809)
(4,798)
(2,522)
(4,619)
Depreciation, amortisation and net
impairment losses
6
(11,757)
(9,039)
(13,204)
(886)
(393)
(871)
Exploration expenses
(1,914)
(1,374)
(1,854)
(13,359)
(8,075)
(16,079)
Total operating
expenses
2
(36,506)
(41,405)
(55,058)
(2,019)
(472)
(469)
Net operating income/(loss)
2
(2,434)
7,783
9,299
(343)
(379)
(343)
Interest expenses and other financial
expenses
(1,066)
(1,029)
(1,450)
142
130
683
Other financial items
640
1,517
1,443
(201)
(248)
340
Net financial items
4
(426)
489
(7)
(2,220)
(720)
(129)
Income/(loss) before tax
(2,859)
8,272
9,292
95
469
(978)
Income tax
5
(221)
(6,191)
(7,441)
(2,124)
(251)
(1,107)
Net income/(loss)
(3,080)
2,081
1,851
Equinor third quarter 2020
18
(2,127)
(254)
(1,107)
Attributable to equity holders of the company
(3,088)
2,079
1,843
3
3
1
Attributable to non-controlling interests
8
2
8
(0.65)
(0.08)
(0.33)
Basic earnings per share (in USD)
(0.94)
0.62
0.55
(0.65)
(0.08)
(0.33)
Diluted earnings per share (in USD)
(0.94)
0.62
0.55
3,248
3,276
3,329
Weighted average number of ordinary
shares outstanding (in millions)
3,276
3,330
3,326
3,257
3,284
3,337
Weighted average number of ordinary
shares outstanding diluted (in
millions)
3,284
3,338
3,334
* Audited
Equinor third quarter 2020
19
CONSOLIDATED
STATEMENT
OF COMPREHENSIVE INCOME
Quarters
First nine months
Full year
Q3 2020
Q2 2020
Q3 2019
(unaudited, in USD million)
2020
2019
2019*
(2,124)
(251)
(1,107)
Net income/(loss)
(3,080)
2,081
1,851
34
41
192
Actuarial gains/(losses) on defined
benefit pension plans
197
365
427
(6)
(8)
(49)
Income tax effect on income and
expenses recognised in OCI
1)
(56)
(86)
(98)
27
33
142
Items that will not be reclassified to
the Consolidated statement
of
income
141
279
330
888
1,560
(1,726)
Currency translation adjustments
(1,734)
(1,254)
(51)
0
0
57
Share of OCI from equity accounted
investments
0
44
44
888
1,560
(1,668)
Items that may be subsequently reclassified
to the Consolidated
statement of income
(1,734)
(1,210)
(7)
915
1,593
(1,526)
Other comprehensive income/(loss)
(1,593)
(930)
323
(1,209)
1,342
(2,633)
Total comprehensive
income/(loss)
(4,673)
1,151
2,174
(1,212)
1,340
(2,633)
Attributable to the equity holders of the
company
(4,682)
1,149
2,166
3
3
1
Attributable to non-controlling interests
8
2
8
* Audited
1) Other comprehensive income (OCI).
Equinor third quarter 2020
20
CONSOLIDATED
BALANCE SHEET
At 30 September
At 30 June
At 31 December
At 30 September
(unaudited, in USD million)
Note
2020
2020
2019*
2019
ASSETS
Property, plant and
equipment
6
62,988
63,941
69,953
69,954
Intangible assets
6
9,667
10,317
10,738
10,877
Equity accounted investments
1,650
1,599
1,442
1,421
Deferred tax assets
4,251
3,794
3,881
3,435
Pension assets
1,103
963
1,093
871
Derivative financial instruments
1,964
1,630
1,365
1,486
Financial investments
3,437
3,157
3,600
3,185
Prepayments and financial receivables
1,240
1,311
1,214
1,174
Total non-current
assets
86,300
86,711
93,285
92,403
Inventories
2,860
2,974
3,363
2,501
Trade and other receivables
6,108
5,489
8,233
6,917
Derivative financial instruments
570
589
578
949
Financial investments
10,563
9,319
7,426
7,203
Cash and cash equivalents
7,844
9,700
5,177
6,838
Total current
assets
27,944
28,072
24,778
24,408
Assets classified as held for sale
3
188
0
0
297
Total assets
114,432
114,783
118,063
117,108
EQUITY AND LIABILITIES
Shareholders' equity
34,084
35,587
41,139
40,983
Non-controlling interests
24
23
20
16
Total equity
34,108
35,610
41,159
40,999
Finance debt
4
32,193
31,647
24,945
24,401
Equinor third quarter 2020
21
Deferred tax liabilities
9,451
8,907
9,410
9,731
Pension liabilities
3,705
3,572
3,867
3,765
Provisions and other liabilities
7
19,191
18,097
17,951
18,269
Derivative financial instruments
787
967
1,173
1,409
Total non-current
liabilities
65,328
63,191
57,346
57,576
Trade, other payables
and provisions
8,118
8,620
10,450
8,663
Current tax payable
5
543
674
3,699
4,115
Finance debt
4
5,277
5,463
4,087
4,375
Dividends payable
292
297
859
864
Derivative financial instruments
765
928
462
516
Total current
liabilities
14,996
15,982
19,557
18,533
Total liabilities
80,324
79,173
76,904
76,109
Total equity
and liabilities
114,432
114,783
118,063
117,108
* Audited
Equinor third quarter 2020
22
CONSOLIDATED
STATEMENT
OF CHANGES IN EQUITY
(unaudited, in USD million)
Share
capital
Additional
paid-in
capital
Retained
earnings
Currency
translation
adjustments
OCI from
equity
accounted
investments
Share-
holders'
equity
Non-
controlling
interests
Total equity
At 31 December 2018*
1,185
8,247
38,790
(5,206)
(44)
42,970
19
42,990
Net income/(loss)
2,079
2,079
2
2,081
Other comprehensive income/(loss)
279
(1,254)
44
(930)
(930)
Total comprehensive
income/(loss)
1,151
Dividends
(2,596)
(2,596)
(2,596)
Share buy-back
1)
(500)
(500)
(500)
Other equity transactions
(12)
(29)
(40)
(5)
(45)
At 30 September 2019
1,185
7,735
38,523
(6,460)
0
40,983
16
40,999
At 31 December 2019*
1,185
7,732
37,481
(5,258)
0
41,139
20
41,159
Net income/(loss)
(3,088)
(3,088)
8
(3,080)
Other comprehensive income/(loss)
141
(1,734)
0
(1,593)
(1,593)
Total comprehensive
income/(loss)
(4,673)
Dividends
(1,476)
(1,476)
(1,476)
Share buy-back
1)
(21)
(869)
(890)
(890)
Other equity transactions
(8)
(0)
(8)
(4)
(12)
At 30 September 2020
1,164
6,855
33,056
(6,991)
0
34,084
24
34,108
* Audited
1) In September 2019
Equinor launched a USD 5
billion share buy-back programme,
where the first tranche of the
programme of around
USD 1.5 billion has been finalis
ed. A proportionate share of 67%
from the Norwegian State was
redeemed in accordance with an
agreement with the Ministry of Petroleum
and Energy for the Norwegian State
to maintain their ownership percentage
in Equinor.
The
redemption was
approved by the annual general
meeting held 14 May 2020.
The first tranche of USD 500 million
acquired in the market has been
recognised as a reduction in equity
as treasury shares in third
quarter 2019.
The State’s share including
interest and dividends has been
recognised as a short-term obligation
and as a reduction in
equity as treasury shares, subsequent
to the decision at the annual
general meeting held on 14 May
2020. The liability of USD 0.9
billion
(NOK 9.1 billion) was settled 23 July
2020. The corresponding shares
of the first tranche of the buyback
programme were cancelled
on 16 July 2020.
Equinor has suspended the remaining
share buy-back programme until
further notice. The announced
second tranche of around
USD 675 million, including the Norwegian
State share, will under the current
market conditions not be executed
as previously announced
and planned.
Equinor third quarter 2020
23
CONSOLIDATED
STATEMENT
OF CASH FLOWS
Quarters
First nine months
Full year
Q3 2020
Q2 2020
Q3 2019
(unaudited, in USD million)
Note
2020
2019
2019*
(2,220)
(720)
(129)
Income/(loss) before tax
(2,859)
8,272
9,292
4,798
2,522
4,619
Depreciation, amortisation and net
impairment losses
6
11,757
9,039
13,204
662
125
650
Exploration expenditures written
off
1,222
673
777
131
321
(295)
(Gains)/losses on foreign currency
transactions and balances
4
156
(201)
(224)
(1)
(15)
(851)
(Gains)/losses on sale of assets
and businesses
3
(2)
(994)
(1,187)
258
257
678
(Increase)/decrease in other items
related to operating
activities
750
1,159
1,016
(182)
25
141
(Increase)/decrease in net derivative
financial instruments
(446)
(988)
(595)
41
43
50
Interest received
150
166
215
(146)
(198)
(226)
Interest paid
(526)
(526)
(723)
3,342
2,360
4,637
Cash flows provided by operating activities
before taxes paid
and working capital items
10,201
16,600
21,776
(110)
(1,744)
(1,447)
Taxes paid
(2,742)
(5,636)
(8,286)
(600)
(248)
990
(Increase)/decrease in working capital
583
1,010
259
2,632
368
4,180
Cash flows provided by operating activities
8,043
11,975
13,749
0
(0)
(1,794)
Cash used in business combinations
1)
3
0
(2,274)
(2,274)
(1,723)
(1,899)
(2,637)
Capital expenditures and investments
(5,972)
(7,504)
(10,204)
(1,034)
(2,730)
2,584
(Increase)/decrease in financial investments
2)
(3,165)
(801)
(1,012)
(261)
(45)
182
(Increase)/decrease in derivatives financial
instruments
(332)
295
298
(18)
2
0
(Increase)/decrease in other interest-
bearing items
(16)
8
(10)
14
0
1,519
Proceeds from sale of assets and
businesses
3
16
1,726
2,608
(3,023)
(4,671)
(146)
Cash flows used in investing activities
(9,469)
(8,549)
(10,594)
0
8,347
0
New finance debt
8,347
0
984
Equinor third quarter 2020
24
(1,642)
(318)
(855)
Repayment of finance debt
(2,266)
(1,389)
(2,419)
(287)
(904)
(859)
Dividends paid
(2,037)
(2,492)
(3,342)
(1,001)
0
(91)
Share buy-back
3)
(1,059)
(91)
(442)
1,308
(150)
(639)
Net current finance debt and other
1,110
(41)
(277)
(1,623)
6,975
(2,443)
Cash flows provided by/(used in)
financing activities
4,095
(4,012)
(5,496)
(2,014)
2,672
1,590
Net increase/(decrease) in cash and
cash equivalents
2,669
(587)
(2,341)
158
162
(154)
Effect of exchange rate changes
on cash and cash
equivalents
(1)
(153)
(38)
9,700
6,866
5,379
Cash and cash equivalents at the beginning
of the period (net
of overdraft)
5,177
7,556
7,556
7,844
9,700
6,816
Cash and cash equivalents at the end
of the period (net of
overdraft)
4)
7,844
6,816
5,177
* Audited
1) Net after cash and
cash equivalents acquired.
2) Includes sale of Lundin
shares in the second quarter
of 2020.
For more information,
see note 3 Acquisition
and disposals.
3) For more information,
see Consolidated statement of
changes in equity.
4) At 30 September 2020
cash and cash equivalents
net overdraft
was zero. At 30 September
2019 net overdraft was USD
22
million and
at 31 December 2019 net over
draft was zero.
Equinor third quarter 2020
25
Notes to the Condensed interim
financial statements
1 Organisation and basis of preparation
Organisation and principal
activities
Equinor ASA, originally
Den Norske Stats Oljeselskap
AS,
was founded in 1972 and
is incorporated and domiciled
in Norway.
The
address of its registered
office is Forusbeen
50, N-4035 Stavanger,
Norway.
The Equinor group’s
(Equinor’s) business consists
principally of the exploration,
production, transportation,
refining and marketing of
petroleum and petroleum
-derived products, and
other forms of energy.
Equinor ASA is listed
on the Oslo Børs (Norway)
and the New
York
Stock Exchange (USA).
All of Equinor's oil and
gas activities and net
assets on the Norwegian continental
shelf (NCS) are owned by
Equinor Energy AS, a
100% owned operating
subsidiary of Equinor
ASA. Equinor Energy AS is co
-obligor or guarantor
of certain debt obligations
of Equinor
ASA.
Following changes
in Equinor's internal reporting
to management the
composition of Equinor's operating
and reporting segments
has
changed as of the second
quarter of 2020. Segment
information for p
rior periods has been
restated to align with the
new segment
presentation. For
further information see
note 2 Segments to
these Condensed interim
financial statements.
Equinor's Condensed
interim financial statements
for the third quarter
of 2020 were authorised
for issue by the board
of directors on
28 October 2020.
Basis of preparation
These Condensed interim
financial statements are
prepared in accordance
with International Accounting
Standard 34 Interim
Financial Reporting as
issued by the International
Accounting Standards
Board (IASB) and as adopted
by the European Union (EU).
The Condensed interim
financial
statements do not include
all the information and disclosures
required by International
Financial
Reporting Standards
(IFRS) for a complete
set of financial statements,
and these Condensed interim
financial statements should
be
read in conjunction
with the Consolidated
annual financial statements
for 2019.
IFRS as adopted by the
EU differs
in certain respects
from IFRS as issued
by the IASB, but the differences
do not impact Equinor's
financial statements for
the periods presented. A
description of the
significant accounting policies
applied in preparing these
Condensed interim financial
statements is included
in
Equinor`s Consolidated
annual financial statements
for 2019.
On 1 January 2020,
Equinor implemented amendments
to IFRS 3 Business Combinations,
which apply to relevant
transactions that
occur on or after
the implementation date. The
amendments introduce
clarification to the definition
of a business, and also
establish
an optional test to identify
a concentration of fair
value that, if applied and
met, will lead to the conclusion
that an acquired set of
activities and assets
is not a business.
There have been
no other changes to the
significant accounting policies
during the first nine months
of 2020 compared to the
Consolidated annual
financial statements for
2019.
The Condensed interim
financial statements reflect
all adjustments which
are, in the opinion of management,
necessary for a fair
presentation of the
financial position, results
of operations and cash
flows for the dates and inter
im periods presented.
Interim period
results are not necessarily
indicative of results of
operations or cash flows
for an annual period. Certain
amounts in the comparable
periods in the note disclosures
have been reclassified to
conform to current period
presentation. The subtotals
and totals in some of
the tables may not equal
the sum of the amounts
shown due to rounding.
The Condensed interim
financial statements are
unaudited.
Use of estimates
The preparation of financial
statements in conformity
with IFRS requires management
to make judgments, estimates
and assumptions
that affect the application
of policies and reported
amounts of assets,
liabilities, income and expenses.
The estimates and associated
assumptions are
based on historical
experience and various
other factors that
are believed to be reas
onable under the circumstances,
the results of which
form the basis for making the
judgments about carrying
values of assets and liabilities
that are not readily
apparent from other
sources. Actual results may
differ from these estimates.
The estimates and underlying
assumptions are reviewed
on an on-going basis,
considering current and
expected future market
conditions. A change in
an accounting estimate
is recognised in
the period in which
the estimate is revised if
the revision affects only
that period, or in the period
of the revision and future
periods if
the revision affects
both current and future periods.
The ongoing Covid-19
pandemic and the steep
oil price decline experienced
during 2020 create
additional estimation uncertainties
and impact key assumptions
applied by Equinor
in the valuation of our
assets
Equinor third quarter 2020
26
and the measurement
of our liabilities, and related
sensitivities. Reference
is made to note 8 Impact of
the Covid-19 pandemic
and oil
price decline for further
information.
Equinor third quarter 2020
27
2 Segments
Equinor’s operations
are managed through
the following operating segments
(business areas): Development
& Production Norway
(DPN), Development
& Production International
(DPI), Development & Production
Brazil (DPB), Development
& Production USA
(DPUSA), Marketing,
Midstream & Processing (MMP),
New Energy Solutions
(NES), Technology,
Projects & Drilling (TPD),
Exploration (EXP) and
Global Strategy & Business
Development (GSB).
The reporting segments
Exploration & Production Norway
(E&P Norway),
Exploration & Production
USA (E&P USA) and MMP consist
of the business areas
DPN,
DPUSA and MMP respectively.
The operating segments
DPI and DPB are aggregated
into the reporting
segment Exploration
& Production
International (E&P International).
The aggregation has its
basis in similar economic
characteristics,
such as similar long-term
average gross margins,
the assets’ long term and
capital-intensive nature
and exposure to volatile
oil and
gas commodity prices,
the nature of products, service
and production processes,
the type and class of customers,
the methods of
distribution and regulatory
environment. The operating
segments NES, GSB, TPD,
EXP and corporate
staffs and support
functions
are aggregated into
the reporting segment “Other”
due to the immateriality
of these operating segments.
The majority of the costs
within the operating segments
GSB, TPD and EXP are allocated
to the E&P Norway,
E&P USA, E&P International
and MMP reporting
segments.
In the second quarter
of 2020, Equinor changed
its internal reporting to management,
impacting the composition
of Equinor's
operating and reporting
segments. Equinor’s
upstream activities
in the USA is as from the
second quarter reported
separately to
management. The fact
that such information
is also considered to be
useful to the users of
the financial statements,
resulted in the
exploration and production
activities in the USA as of
the second quarter
of 2020 were considered
a separate operating-
and reporting
segment. Previously
these activities were included
in the DPI operating segment
and presented as part
of the E&P International
reporting segment.
The eliminations
section includes the
elimination of inter-segment
sales and related unrealised
profits, mainly from the
sale of crude oil
and natural gas. Inter-segment
revenues are based upon
estimated market prices.
Segment data for the
third quarter and the first
nine months of 2020 and
2019 is presented below.
The reported measure
of segment
profit is net operating
income/(loss)
.
Deferred tax assets, pension
assets and non-current
financial assets are not allocated
to the
segments.
The measurement basis
for segments is IFRS as applied
by the group with the exception
of IFRS 16 Leases
and the line item
Additions to PP&E, intangibles
and equity accounted
investments. All IFRS 16 leases
are presented within the
Other segment. The
lease costs for the period
are allocated to the
different segments
based on underlying lease
payments, with a corresponding
credit in
the Other segment.
Lease costs allocated to
licence partners are recognised
as other revenues
in the Other segment. Additions
to
PP&E, intangible assets
and equity accounted
investments in the E&P and
MMP segments include
the period’s allocated
lease costs
related to activity
being capitalised with
a corresponding negative addition
in the Other segment. The
line item Additions to PP&E,
intangibles and equity
accounted investments excludes
movements related to
changes in asset retirement
obligations.
Third quarter 2020
E&P
Norway
E&P
Internationa
l
E&P USA
MMP
Other
Eliminations
Total
(in USD million)
Revenues third party,
other revenues and other
income
15
91
76
11,000
71
0
11,253
Revenues inter-segment
2,806
731
535
47
1
(4,121)
0
Net income/(loss) from equity accounted
investments
0
18
0
8
60
0
86
Total revenues
and other income
2,822
840
611
11,055
132
(4,121)
11,339
Purchases [net of inventory variation]
0
12
0
(9,171)
1
3,851
(5,307)
Operating, selling, general and administrative
expenses
(735)
(373)
(344)
(1,231)
152
163
(2,368)
Depreciation, amortisation and net
impairment losses
(1,486)
(1,504)
(1,460)
(102)
(247)
0
(4,798)
Exploration expenses
(170)
(304)
(413)
0
1
0
(886)
Equinor third quarter 2020
28
Total operating
expenses
(2,391)
(2,168)
(2,217)
(10,504)
(93)
4,014
(13,359)
Net operating income/(loss)
431
(1,328)
(1,606)
551
39
(107)
(2,019)
Additions to PP&E, intangibles
and equity accounted
investments
1,103
357
252
35
278
0
2,025
Equinor third quarter 2020
29
Third quarter 2019
E&P
Norway
E&P
Internationa
l
E&P
USA
MMP
Other
Eliminations
Total
(in USD million)
(restated)
(restated)
Revenues third party,
other revenues and other
income
866
403
106
14,099
90
0
15,564
Revenues inter-segment
3,630
939
888
85
1
(5,543)
0
Net income/(loss) from equity accounted
investments
2
9
2
4
29
0
46
Total revenues
and other income
4,498
1,351
996
14,188
121
(5,543)
15,610
Purchases [net of inventory variation]
0
16
(1)
(13,048)
(0)
5,366
(7,667)
Operating, selling, general and administrative
expenses
(817)
(321)
(425)
(1,585)
41
185
(2,922)
Depreciation, amortisation and net
impairment losses
(981)
(620)
(2,529)
(311)
(177)
0
(4,619)
Exploration expenses
(142)
(100)
(629)
0
0
0
(871)
Total operating
expenses
(1,940)
(1,025)
(3,583)
(14,945)
(137)
5,551
(16,079)
Net operating income/(loss)
2,558
325
(2,587)
(757)
(16)
8
(469)
Additions to PP&E, intangibles
and equity accounted
investments
2,920
511
1,408
127
111
0
5,077
First nine months 2020
E&P
Norway
E&P
Internationa
l
E&P
USA
MMP
Other
Eliminations
Total
(in USD million)
Revenues third party,
other revenue and other income
33
308
285
33,087
169
0
33,882
Revenues inter-segment
7,985
2,412
1,686
232
3
(12,318)
0
Net income/(loss) from equity accounted
investments
0
22
0
26
142
0
190
Total revenues
and other income
8,018
2,742
1,971
33,344
315
(12,318)
34,073
Purchases [net of inventory variation]
0
(56)
0
(27,799)
1
12,400
(15,453)
Operating, selling, general and administrative
expenses
(2,076)
(1,152)
(1,008)
(3,998)
336
516
(7,382)
Depreciation, amortisation and net
impairment losses
(4,318)
(2,883)
(3,171)
(709)
(676)
0
(11,757)
Exploration expenses
(330)
(840)
(745)
0
1
0
(1,914)
Total operating
expenses
(6,724)
(4,931)
(4,924)
(32,505)
(338)
12,916
(36,506)
Equinor third quarter 2020
30
Net operating income/(loss)
1,294
(2,189)
(2,953)
839
(23)
599
(2,434)
Additions to PP&E, intangibles
and equity accounted
investments
3,511
1,582
945
142
768
0
6,948
Balance sheet information
Equity accounted investments
2
581
0
90
977
0
1,650
Non-current segment assets
31,442
18,710
14,113
4,427
3,964
0
72,655
Non-current assets not allocated to
segments
11,995
Total non-current
assets
86,300
Equinor third quarter 2020
31
First nine months 2019
E&P
Norway
E&P
Internationa
l
E&P
USA
MMP
Other
Eliminations
Total
(in USD million)
(restated)
(restated)
Revenues third party,
other revenue and other income
1,026
1,310
320
46,149
235
0
49,040
Revenues inter-segment
12,835
3,271
2,854
312
3
(19,275)
0
Net income/(loss) from equity accounted
investments
15
27
5
20
82
0
149
Total revenues
and other income
13,876
4,608
3,179
46,481
320
(19,275)
49,189
Purchases [net of inventory variation]
1
(9)
(1)
(41,581)
(0)
18,661
(22,928)
Operating, selling, general and administrative
expenses
(2,441)
(1,324)
(1,226)
(3,753)
103
578
(8,063)
Depreciation, amortisation and net
impairment losses
(2,945)
(1,491)
(3,558)
(504)
(541)
0
(9,039)
Exploration expenses
(335)
(367)
(672)
0
0
0
(1,374)
Total operating
expenses
(5,721)
(3,190)
(5,457)
(45,837)
(439)
19,239
(41,405)
Net operating income/(loss)
8,155
1,418
(2,278)
644
(120)
(36)
7,783
Additions to PP&E, intangibles
and equity accounted
investments
5,860
2,291
2,486
674
596
0
11,907
Balance sheet information
Equity accounted investments
2
306
81
88
943
0
1,421
Non-current segment assets
33,737
20,562
17,307
4,956
4,270
0
80,831
Non-current assets not allocated to
segments
10,151
Total non-current
assets
92,403
In the third quarter of
2020 Equinor recognised
net impairment of USD 2,928
million of which USD 575 million
was classified as
exploration expenses.
In the E&P Norway segment
the impairments were
USD 365 million of which USD 5
million related to
exploration assets.
The
impairments were mainly
due to price reductions
and reduced reserve estimates.
In the E&P International
segment the impairments
were USD 1,176 million
of which USD 183 million
related to exploration assets
.
The
impairments were caused
by reduced price assumptions
and reduction in reserve
estimates in the Europa
and Asia and the North
America - conventional
other areas.
In the E&P USA segment the
net impairment was USD 1,37
7
million of which USD 386
million was classified
as
exploration expenses.
Impairment losses of
USD 1,611
million were mainly caused
by reduced price
assumptions. USD 1,447
million related
to North
America non-conventional
assets and USD 164 million
related
to North America -
conventional offshore
Gulf of Mexico assets
.
Impairment reversals
of USD 234 million
related
to North America non
-conventional assets due
to performance trends and
accelerated production.
Equinor third quarter 2020
32
Most of the renewable
assets in Equinor Group
are accounted for using
equity method and the results
are presented in the Other
reporting segment.
The net income from the
equity accounted investments
within the operating segment
NES was USD 60 million in
the third quarter of 2020
and USD 142 million in
the first nine months of 2020,
which compares to USD 29 million
in the third quarter of
2019 and USD 82 million
in the first nine months
of 2019. Current quarter
result was materially impacted
by the reversal of losses in
the Dogger Bank projec
ts. This was partially offse
t
by lower income from other
equity accounted investments
including the effect
of
reduced ownership
share in Arkona wind
farm compared to 2019.
For information regarding
acquisition and disposal
of interests, see note
3 Acquisitions and disposals.
See also note 8 Impact
of the Covid-19 pandemic
and oil price decline.
Equinor third quarter 2020
33
Revenues from contract
s
with customers
by geographical areas
When attributing the
line item Revenues third party,
other revenues and other
income to the country of the
legal entity executing
the
sale for the third quarter
of 2020, Norway constitutes
82%
and the US constitutes
13%
of such revenues. For
the third quarter of 2019
,
Norway and the US constituted
73%
and 20%
of such revenues,
respectively.
For the first nine
months of 2020, Norway constitutes
81%
and the US constitutes
14%
of such revenues. For
the first nine months of
2019, Norway and the
US constituted 74%
and 19% of such revenues
,
respectively.
Non-current assets
by country
At 30 September
At 30 June
At 31 December
At 30 September
(in USD million)
2020
2020
2019
2019
Norway
37,327
36,383
40,292
39,994
USA
14,858
16,524
17,776
18,455
Brazil
8,752
8,796
8,724
8,669
UK
4,175
4,913
5,657
5,261
Azerbaijan
1,684
1,696
1,598
1,551
Canada
1,468
1,435
1,672
1,651
Angola
1,270
1,331
1,564
1,669
Tanzania
985
964
964
964
Denmark
911
887
984
958
Algeria
845
866
915
930
Other countries
2,030
2,064
1,986
2,149
Total non-current
assets
1)
74,305
75,858
82,133
82,252
1)
Excluding deferred tax assets,
pension assets and non
-current financial assets.
Revenues from contracts
with customers and other revenues
Quarters
Full Year
(in USD million)
Q3 2020
Q2 2020
Q3 2019
2019
Crude oil
6,635
4,018
8,667
33,505
Natural gas
1,351
1,188
2,236
11,281
- European gas
1,048
923
1,847
9,366
- North American gas
229
196
290
1,359
- Other incl. LNG
74
68
99
556
Refined products
1,560
1,258
2,404
10,652
Natural gas liquids
1,282
839
1,224
5,807
Transportation
295
286
205
967
Other sales
91
88
123
445
Revenues from contracts with customers
11,215
7,677
14,859
62,657
Taxes paid
in-kind
27
(9)
83
344
Physically settled commodity derivatives
(16)
152
(610)
(1,086)
Gain/(loss) on commodity derivatives
(44)
(318)
298
732
Other revenues
70
61
74
265
Total other
revenues
36
(114)
(155)
254
Revenues
11,250
7,563
14,704
62,911
Equinor third quarter 2020
34
3 Acquisitions and disposals
Divestment of non-operated
interest in the Empire
Wind and Beacon Wind assets
on the US east coast
On 10 September 2020
Equinor entered into an
agreement with BP to sell
50% non-operated interests
in the Empire Wind and
Beacon Wind assets
for a total consideration
before adjustments
of USD 1.1 billion. Through
this transaction, the two
companies are
also establishing a strategic
partnership for further growth
within offshore wind
in the US. Following the
transaction, Equinor will
remain the operator
with a 50% interest.
The 100% of interest share
has been reclassified
as held for sale. The transaction
has an
effective date of
1 January 2020 and
is expected to close in early
2021, subject to customary
conditions including purchase
price adjustments and
authority approval. Upon
transaction closing, the
gain will be presented in
the line item Other income
in the Consolidated statement
of
income in the Other
segment.
Divestment of remaining shares
in Lundin
On 8 May 2020
Equinor closed the divestment
of its remaining (4.9%) financial
shareholding in Lundin
Energy AB (formerly Lundin
Petroleum AB). The consideration
is SEK 3.3 billion (USD 0.3
billion). The impact on the
Consolidated statement
of income in the
second quarter was
a loss of USD 0.1 billion
and was recognised as
Interest income and other
financial items.
Investment in interest
onshore Argentina
On 30 January 2020
Equinor closed a transaction
to acquire a 50% ownership
share in SPM Argentina
S.A (SPM) from Schlumberger
Production Management
Holding Argentina B.V.
Shell acquired the remaining
50% ownership share
of SPM.
SPM holds a 49%
interest in the Bandurria
Sur onshore block in Argentina,
and the block is in the
pilot phase of development.
The consideration
including final adjustments
is USD 187 million. In
the second quarter
,
Equinor increased its shareholding
in the Bandurria Sur
by 5.5%
to 30% for a final
consideration of USD 44 million.
The investment in SPM was
accounted for as
a joint venture using the
equity
method and reported
in the E&P International
segment.
4 Financial items
Quarters
First nine months
Full year
Q3 2020
Q2 2020
Q3 2019
(in USD million)
2020
2019
2019
(131)
(321)
295
Gains/(losses) on net foreign exchange
(156)
201
224
235
262
180
Interest income and other financial
items
375
535
746
39
189
208
Gains/(losses) on derivative financial
instruments
421
781
473
(343)
(379)
(343)
Interest and other finance expenses
(1,066)
(1,029)
(1,450)
(201)
(248)
340
Net financial items
(426)
489
(7)
Gains on derivative
financial instruments for
the first nine months of 2020
of USD 421 million and
for the first nine months
of 2019 of
USD 781 million,
are mainly due to decreased
interest rates.
Equinor has a US Commercial
paper programme available
with a limit of USD 5 billion
of which USD 787 million
has been utilised as
of
30
September 2020.
In the first nine months
of 2020, Equinor recorded
total lease payments of
USD 1,054 million, of which
USD 93 million were payment
of interests and USD 961
million were down-payment
of lease liabilities. Lease
liabilities as at 30
September 2020 were USD 4,218
million, presented in
the balance sheet within
the line items Current
and Non-current finance
debt with USD 1,039 million
and USD
3,120 million,
respectively.
In the second quarter
of 2020 Equinor ASA issued
bonds with maturities
from 5 to 30 years for a
total amount of USD 8.3 billion.
The
bonds were issued
in USD and EUR, amounting
to USD 6.5 billion and
EUR 1.75 billion, and
are fully and unconditionally
guaranteed
by Equinor Energy AS.
Equinor third quarter 2020
35
5 Income taxes
Quarters
First nine months
Full year
Q3 2020
Q2 2020
Q3 2019
(in USD million)
2020
2019
2019
(2,220)
(720)
(129)
Income/(loss) before tax
(2,859)
8,272
9,292
95
469
(978)
Income tax
(221)
(6,191)
(7,441)
4.3%
65.2%
>(100%)
Effective tax rate
(7.7%)
74.8%
80.1%
The tax rate for the
third quarter 2020 and for the
first nine months of
2020 was primarily influenced
by losses including net
impairments recognised
in countries with unrecognised
deferred taxes or in countries
with lower than average tax
rates.
The tax rate
was also influenced
by currency effects in entities
that are taxable in other
currencies than the functional
currency,
partially offset by
the temporary changes
to Norway’s petroleum
tax system.
The tax rate for the
first nine months of 2020
was also influenced by changes
in best estimates for uncertain
tax positions.
The tax rate for the
third quarter of 2019 and
the first nine months of 2019
was primarily influenced by losses
recognised in countries
with unrecognised deferred
tax assets partially offset
by the tax exempted
divestment of shares in
Lundin.
The tax rate for the
full year 2019 was primarily
influenced by losses recognised
in countries with unrecognised
deferred tax assets or
in countries with lower
than average tax rates, p
artially offset by tax exempted
gains on divestments.
6 Property, plant and equipment and intangible assets
(in USD million)
Property, plant and
equipment
Intangible
assets
Balance at 31 December 2019
69,953
10,738
Additions
7,595
551
Transfers
67
(67)
Disposals and reclassifications
(15)
(6)
Transferred to assets classified
as held for sale
(10)
(177)
Expensed exploration expenditures
and net impairment losses
-
(1,222)
Depreciation, amortisation and net
impairment losses
(11,737)
(20)
Effect of foreign currency translation
adjustments
(2,864)
(130)
Balance at 30 September 2020
62,988
9,667
Right-of-use (RoU)
assets are included within
property,
plant and equipment with
a net book value of USD 3,944
million as at
30
September 2020. Additions
to RoU assets amount to
USD 1,001 million.
Gross depreciation and
impairment of RoU assets
amounts to USD 927
million in the first nine
months of 2020,
of which depreciation
costs of USD 278 million
have been allocated to
exploration and development
activities and are presented
net on the Depreciation,
amortisation and net impairment
losses and
Additions lines in
the table above.
Equinor’s Block 2 Exploration
License in Tanzania
was due to expire in June
2018 but based on indications
from the Tanzanian
authorities that the license
would be extended the asset
has remained capitalised
.
The license was formally
extended by 3.5 years in
and from the second
quarter of 2020. The capitalised
expenditures included
in intangible assets related
to the license are USD 962
million.
Equinor third quarter 2020
36
Impairments and impairment
reversals
For information on impairment
losses and reversals per
reporting segment, see note
2 Segments.
First nine months 2020
Property, plant and
equipment
Intangible
assets
Total
(in USD million)
Producing and development assets
4,732
589
5,321
Goodwill
-
1
1
Acquisition costs related to oil and gas
prospects
-
434
434
Total net
impairment losses/(reversals) recognised
4,732
1,023
5,755
The net impairments
have been recognised
in the Consolidated statement
of income as Depreciation,
amortisation and net
impairment losses and
Exploration expenses
based on the impaired
assets’ nature of property,
plant and equipment and
intangible
assets, respectively.
The recoverable
amounts in the third
quarter of 2020 were discounted
cash flows based on value
in use.
Value in
use estimates and discounted
cash flows used to determine
the recoverable amount
of assets tested for impairment
are
based on internal
forecasts on costs,
production profiles and
commodity prices.
Changes to accounting assumptions
Management’s
future commodity price assumptions
and currency assumptions
are used for value-in-use
impairment testing. The
same assumptions
are also used for evaluating
investment opportunities,
together with other relevant
criteria, including among others
robustness targets
(value creation in lower
commodity price scenarios).
While there are inherent
uncertainties in the assumptions,
the
commodity price
assumptions as well as
currency assumptions
reflect management’s
best estimate of the price
and currency
development over the
life
of the Group’s assets
based on its view of relevant
current circumstances and
the likely future development
of such circumstances,
including energy demand
development, energy
and climate change policies
as well as the speed of the
energy
transition, population
and economic growth,
geopolitical risks, technology
and cost development, and
other factors. Management’s
best estimate also takes
into consideration a range
of external forecasts.
During the third quarter,
Equinor has performed
a thorough and broad
analysis of the expected
development in drivers
for the different
commodity markets
and exchange rates,
following the recent and
ongoing Covid-19 situation
and management has gained
more
insight into the development
of the different markets
in which we operate. Significant
uncertainty continues to
exist regarding future
commodity price
development due to
the potential long-term impact
on demand resulting from
the ongoing Covid-19
pandemic and
the measures taken
to contain it, energy investments
in the transition to a
lower carbon economy and
future supply actions by
OPEC+
and other factors. Following
management’s analysis
of the expected development
in drivers for the different
commodity markets and
exchange rates, Equinor
has decided to revise
the assumptions. As a result,
both short-
and long-term prices have
been reduced,
some by more than
twenty percent. Management
will continue to monitor
these developments and
the impact they may have
on its
commodity price
assumptions.
For Brent-blend,
compared to current prices,
we expect a strengthening
of the prices through the
2020s.
In 2025,
the assumption is 65
USD/bbl (78 USD/bbl)
,
with a further increase towards
2030. Beyond 2030
,
we expect a gradual decline
with an estimate of 64
USD/bbl in 2040
(82 USD/bbl),
which approximates the
average price level for the
period 2021-2050. In 2050,
the oil prices are
expected to be below
60 USD/bbl. All commodity
prices are on a real
2020 basis, and comparables
as per fourth quarter 2019
are
given in brackets.
For natural gas in the
UK (NBP), we expect
some volatility,
where the trend is a gradual
increase in prices from today’s
current prices
up to 6.5 USD/mmBtu in
2030 (7.7 USD/mmBtu).
From 2030, we expect
prices at levels sufficient
to incentivise the next
LNG
investment cycle
and a flatter price-curve,
with the price gradually
increasing to 7.8
USD/mmBtu close to
2040 (7.7 USD/mmBtu).
Beyond 2040, a declining
price trend is foreseen
as the energy transition
is expected to impact the demand
side. For 2050, the price
has been set at the
pre-2035 level. Henry Hub
follows the same pattern,
gradually increasing from
today’s current prices
to 3.3
USD/mmBtu in 2030
(3.7 USD/mmBtu) and
gradually increasing to 3
.7 USD/mmBtu in 2040 (3.7
USD/mmBtu) before gradually
declining through the
2040s.
Equinor has performed
analyses of the NOK currency
exchange rates, which
suggests that a return
to a previously assumed
long-
term equilibrium is less
likely. This
conclusion is supported
by the historical 5-year average
and spot prices in the
currency market, as
Equinor third quarter 2020
37
well as an expected
lower oil price and increased
market uncertainty.
Equinor has therefore implemented
new long-term exchange
rates from 2023 onwards.
The NOK/USD rate has
been revised to 8.5
(previously 7.0), while
the NOK/EUR rate has
been revised to
10.0 (from previously
9.0).
In 2020 we have
continued to see a significant
drop in risk-free interest
rates. Long-term risk-free
interest rates (10 years)
have
decreased by approximately
1.3 percentage points
in the period from year
-end 2019 to 30 September
2020. The stock market
recovery after the initial
Covid-19 impact in March,
and despite lower expectations
of future cash flows, is
indicating a lower market
risk premium. The low
interest rates combined
with lack of good alternative
investment opportunities,
channels more funds
towards
the equity market resulting
in investors accepting lower
returns on investments,
and we see a downward
shift in the estimated equity
risk premium. Taking
this into account, Equinor
has adjusted the Weighted
Average Cost of Capital
(WACC) for accounting
purposes,
real post-tax, down
from 6% to 5% with effect
as of the third quarter
of 2020.
Please refer to note
8 Impact of the Covid-19
pandemic and oil price.
Sensitivities
Commodity prices have
historically been volatile. Significant
downward adjustments
of Equinor’s commodity price
assumptions would
result in impairment
losses on certain producing and
development assets
in Equinor’s portfolio, while
an opposite adjustment
could
lead to impairment
-reversals. If a decline
in commodity price
forecasts over the lifetime
of the assets were 30%,
considered to
represent a reasonably
possible change, the impairment
amount to be recognised
could illustratively be
in the region of USD 12 billion
before tax effects.
This illustrative impairment
sensitivity,
based on a simplified method,
assumes no changes
to input factors other
than prices; however,
a price reduction of 30%
is likely to result in changes
in business plans as well
as other factors used when
estimating an asset’s
recoverable amount. These
associated changes reduce
the stand-alone impact on
commodity price sensitivity.
Changes in such
input factors would
likely include a reduction in
the cost level in the oil and
gas industry as well as offsetting
currency
effects, both of which
have historically occurred
following significant changes
in commodity prices. The
illustrative sensitivity is
therefore not considered
to represent a best estimate
of an expected impairment
impact, nor an estimated impact
on revenues or
operating income in
such a scenario. In comparison,
following
the amended assumptions
and the decline in commodity
prices
presently disclosed
for this quarter,
the impairment impact recognised
is considerably lower.
A significant and prolonged
reduction in
oil and gas prices would
also result in mitigating
actions by Equinor and
its licence partners, as a
reduction of oil and gas
prices would
impact drilling plans
and production profiles for
new and existing assets.
Quantifying such impacts
is considered impracticable,
as it
requires detailed
technical, geological a
nd economical evaluations
based on hypothetical
scenarios and not based
on existing
business or development
plans.
7 Provisions, commitments, contingent liabilities and contingent
assets
Asset retirement obligation
Equinor’s estimated asset
retirement obligations
(ARO) have increased
by USD 928 million compared
to year-end 2019, mainly
due to
the decrease in discount
rate. Changes in ARO are
reflected within property,
plant and equipment and
provisions in the Consolida
ted
balance sheet.
Onerous contract
Due to significant
ly reduced expected use of
a transportation agreement
,
Equinor provided in the second
quarter USD 154 million
as
an onerous contract.
In third quarter the provision
has increased to USD 162
million. The provision
is recognised in the MMP segment
as an operating expense
in the Consolidated statement
of income and has been
included in the line item
Provisions and other
liabilities in the Consolidated
balance sheet.
Price review arbitration
Some long-term gas sales
agreements contain price
review clauses, which in
certain cases lead to claims
subject to arbitration.
The exposure related
to price reviews has been
reduced by approximately
USD 1.3 billion due to
settlements
in the second quarter.
The remaining exposure
for gas delivered prior to 30
September is immaterial. Price
review related changes
in the second quarter
represent an income
of approximately USD 150
million before tax and
USD 30 million after tax
.
The amounts have
been reflected in
the Consolidated
statement of income as
revenues
and income tax, respectively.
A dispute between the
Federal Government of Nigeria
and the Governments of Rivers,
Bayelsa and Akwa Ibom States
in
Nigera
In October 2018,
the Supreme Court
of Nigeria rendered
a judgement in a dispute
between the Federal Government
of Nigeria and
the Governments of
Rivers, Bayelsa and Akwa
Ibom States in favour
of the latter.
The Supreme Court judgement
provides for
potential retroactive
adjustment of certain production
sharing contracts in
favour of the Federal Government,
including OML 128
(Agbami). This case
has been withdrawn
by the plaintiff in the
second quarter of 2020
with no impact on Equinor’s
Interim financial
statements.
Equinor third quarter 2020
38
Dispute with Brazilian
tax authorities
Brazilian tax authorities
issued an updated tax assessment
for 2011
for Equinor’s Brazilian subsidiary
which was party to Equinor’s
divestment of 40%
of the Peregrino field to
Sinochem at that time. The
assessment disputed
Equinor’s allocation of the sale
proceeds
between entities and
assets involved, resulting
in a significantly higher assessed
taxable gain and related
taxes payable in Brazil.
Equinor disagreed with
the assessment and had
the case brought forward
to the second instance
of the Administrative Court
in Brazil
which decided the case
in Equinor’s favour.
Equinor has received confirmation
that the decision is considered
final and non-
appealable. The final
ruling did not have any
impact on Equinor’s Interim
Financial statement.
KKD Oil Sands Partnership
Canadian tax authorities
have issued a proposal
of re-assessment for
2014 for Equinor’s Canadian
subsidiary which was
party to
Equinor’s divestment
of 40% of the KKD Oil Sands
partnership at that
time. The proposal disputes
the partners allocation
between
entities and asse
ts involved. Maximum exposure
is estimated to be approximately
USD 360 million.
The ongoing process
of formal
communication with
the Canadian tax authorities,
as well as any subseque
nt litigation that may become
necessary,
may take several
years. No taxes will
become payable until the matter
has been finally settled.
Equinor is of the view that
all applicable tax regulations
have been applied in
the case and that Equinor
has a strong position.
No amounts have consequently
been provided for in
the
accounts.
Deviation notices from Norwegian
tax authorities
With reference to the
previously disclosed dispute
in Norway regarding the
level of Research & Development
cost to be allocated
to
the offshore tax
regime, a Norwegian supreme
court ruling announced
in second quarter and
Equinor’s subsequent correspondence
with the Norwegian
tax authorities in third quarter
has resulted in a reduced
maximum exposure in
this matter to approximately
USD
250 million. Equinor
provides for its best estimate
in the matter.
Suit for an annulment of Petrobras'
sale of the interest
in BM-S-8 to Equinor
In March 2017, the
Union of Workers of
Oil Tankers
of Sergipe (Sindipetro)
filed a class action suit against
Petrobras, Equinor and
ANP - the Brazilian
Regulatory Agency - to see
k
annulment of Petrobras'
sale of the interest and operatorship
in BM-S-8 to Equinor,
a
transaction which was
closed in November 2016.
There was also an injunction
request aiming to suspend
the assignment, which first
was granted in April
2017 by a federal judge,
but subsequently lifted
by the federal court. The
injunction request has now been
finally
dismissed by the
courts.
Claim from Petrofac regarding
multiple variation order
requests performed in Algeria
(In Salah)
Petrofac International
(UAE) LLC (PIUL) was awarded
the EPC Contract to execute
the ISSF Project (the In
Salah Southern
Fields Project which
has finalised the development
of four gas fields in
central Algeria). Following
suspension of activity
after the
terrorist attack at
another field in Algeria
(In Amenas) in 2013, PIUL issued
multiple Variation
Order Requests (VoRs)
related to the
costs incurred for stand
-by and remobilisation costs
after the evacuation
of expatriates. Several VoRs
have been paid, but
the
settlement of the
remaining has been
unsuccessful. PIUL initiated
arbitration on 7 August
2020 claiming an estimated
amount of USD
533 million, of which
Equinor In Salah AS holds
a 31,85%
share. Equinor's maximum
exposure amounts
to USD 170 million. Equinor
provides for its best
estimate in the matter.
During the normal course
of its business Equinor
is involved in legal and
other proceedings, and several
claims are unresolved and
currently outstanding.
The ultimate liability or
asset, respectively,
in respect of such litigation
and claims cannot be
determined now.
Equinor has provided
in its Condensed interim
financial statements for
probable liabilities related
to litigation and claims based
on the
company's best judgement.
Equinor does not expect
that its financial position,
results of operations or
cash flows will be materially
affected by the resolution
of these legal proceedings.
8 Impact of the Covid-19 pandemic and oil price decline
The COVID-19 pandemic
with global lockdowns
has slowed, and in
many countries, contracted
economic growth and
has had
dramatic consequences
for energy demand. As a result,
commodity prices collapsed
in the first half of 2020 before
a partial re-bounce
in the second half, impacting
the energy industry
and Equinor.
The full extent, duration
and consequences
of the Covid-19 pandemic
and the resulting operational
and economic impact
for Equinor cannot be
ascertained at this time.
However, resulting
changes in
market risk and economic
circumstances impact
Equinor’s assumptions about the
future and related sources
of
estimation uncertainty.
Updates of certain information
previously provided in
Equinor’s Annual financial statement
s
for 2019, as well as other
relevant
information, are consequently
included below.
The mitigation effects
from COVID-19 have
had a massive impact on oil
demand, particularly mobility
fuels. According to the
International Energy
Agency (IEA), Global energy
demand in 2020 is estimated
to drop by 5-6%, with
the largest uncertainty being
around the shake of
a second wave of lockdowns
in the last quarter this
year. Significant
Opec+ supply cuts and shut
-in production
around the world
following the announcement
at 1 May 2020, have so
far prevented another
price collapse and storages
running full.
Equinor third quarter 2020
39
In Norway,
where Equinor has production
on the NCS, the Norwegian
Government announced
unilateral oil production
cuts portioned
out to relevant fields
via their production
licenses. Equinor complies
with the revised production
permits issued by the
authorities, but
for the third quarter
of 2020 the production cuts
in Norway and internationally
did not have significant impact
on the total production.
An updated overview
of Equinor’s price assumptions
as of 30 September
2020 has been provided
in note 6 Property,
plant and
equipment and intangible
assets. Equinor has evaluated
the reasonable possible
changes in certain assumptions
as of 30 September
2020. For interest rate
and currency risk, the
reasonable possible change
remains unchanged from 31
December 2019.
As of 30 September
2020, the reasonable possible
change in prices is deemed
to be -50%/+50% for short-term
contracts, and -
30%/+30% for the long
-term derivatives, based
on their duration. The short
-term price contracts are
considered more volatile
compared to year-end
2019.
The table below contains
the price risk sensitivities
of Equinor's commodity-based
derivatives contracts.
Equinor enters into
commodity-based derivative
contracts mainly to
manage short-term commodity
risk. However,
since none of the derivative
financial
instruments included
in the table below are
part of formal hedging relationships,
any changes in their fair
values would be recognised
in the Consolidated
statement of income.
Commodity price sensitivity
30 September 2020
31 December 2019
(in USD million)
- 50%
+ 50%
- 30%
+ 30%
Crude oil and refined products net gain/(losses)
1,092
(1,092)
569
(563)
Natural gas and electricity net gains/(losses)
333
283
(33)
49
Due to market developments
and related consequences,
certain Equinor suppliers
and customers have indicated
that contractual
clauses such as those
involving force majeure
are being explored. The
potential impact for Equinor,
if any, is
currently uncertain.
As a measure to
maintain activity in the oil and
gas related industry,
the Norwegian Government
on 19 June 2020 enacted
temporary
targeted changes to
Norway’s petroleum tax
system for investments
incurred in 2020 and 2021
and for new projects with
final
investment decisions
submitted by end of 2022.
The changes are effective
from 1 January 2020 and
provide companies with
a direct
tax deduction in the
special petroleum tax (56%
tax rate) instead of tax depreciation
over 6 years. One of the
changes is that the tax
uplift benefit, which
has increased from 20.8%.
to 24% will be recognised
over one year instead of
four years. Tax
depreciation
towards the ordinary
corporate tax (22% tax
rate) will continue with a
six-year depreciation profile.
The totality of the petroleum
tax
changes will increase
the profitability for investments
and strengthen Equinor’s’
liquidity.
9 Subsequent events
On 28 October 2020,
the board of directors
resolved to declare a dividend
for the third quarter
of 2020 of USD 0.11
per share. The
Equinor shares will
trade ex-dividend 11
February 2021 on the Oslo
Børs and for ADR holders
on the New York
Stock Exchange.
Record date will be
12 February 2021 and payment
date will be 26 February
2021.
Equinor third quarter 2020
40
Supplementary disclosures
Operational data
Quarters
Change
First nine months
Q3 2020
Q2 2020
Q3 2019
Q3 on Q3
Operational data
2020
2019
Change
Prices
43.0
29.2
61.9
(31%)
Average Brent oil price (USD/bbl)
40.8
64.7
(37%)
39.6
23.5
52.6
(25%)
E&P Norway average liquids price (USD/bbl)
35.9
56.6
(37%)
39.1
24.4
58.1
(33%)
E&P International average liquids price
(USD/bbl)
37.3
60.3
(38%)
32.2
19.0
45.9
(30%)
E&P USA average liquids price (USD/bbl)
30.3
48.6
(38%)
38.3
22.9
52.5
(27%)
Group average liquids price (USD/bbl)
[1]
35.2
55.8
(37%)
349
229
465
(25%)
Group average liquids price (NOK/bbl)
[1]
335
486
(31%)
1.45
0.91
3.96
(63%)
E&P Norway average internal gas
price (USD/mmbtu) [9]
1.70
4.66
(64%)
1.13
1.26
1.74
(35%)
E&P USA average internal gas price (USD/mmbtu)
[9]
1.31
2.29
(43%)
2.72
2.24
5.19
(48%)
Average invoiced gas prices - Europe
(USD/mmbtu) [8]
3.06
5.95
(49%)
1.53
1.47
1.99
(23%)
Average invoiced gas prices - North
America (USD/mmbtu) [8]
1.63
2.51
(35%)
(0.1)
3.9
5.9
>(100%)
Refining reference margin (USD/bbl)
[2]
1.8
4.4
(58%)
Entitlement production (mboe per day)
619
637
497
25%
E&P Norway entitlement liquids production
635
507
25%
220
235
266
(17%)
E&P International entitlement liquids
production
240
272
(12%)
151
172
182
(17%)
E&P USA entitlement liquids production
170
172
(2%)
991
1,044
946
5%
Group entitlement liquids production
1,045
951
10%
654
644
570
15%
E&P Norway entitlement gas production
681
691
(1%)
35
31
47
(25%)
E&P International entitlement gas
production
41
39
4%
185
179
183
1%
E&P USA entitlement gas production
179
181
(1%)
874
854
799
9%
Group entitlement gas production
901
911
(1%)
1,865
1,897
1,745
7%
Total entitlement
liquids and gas production [3]
1,946
1,862
5%
Equity production (mboe per day)
619
637
497
25%
E&P Norway equity liquids production
635
507
25%
283
291
352
(20%)
E&P International equity liquids
production
309
355
(13%)
173
195
212
(18%)
E&P USA equity liquids production
194
209
(7%)
1,076
1,123
1,061
1%
Group equity liquids production
1,138
1,071
6%
654
644
570
15%
E&P Norway equity gas production
681
691
(1%)
Equinor third quarter 2020
41
40
34
58
(31%)
E&P International equity gas production
47
61
(22%)
224
210
220
2%
E&P USA equity gas production
213
210
2%
918
888
848
8%
Group equity gas production
941
961
(2%)
1,994
2,011
1,909
4%
Total equity
liquids and gas production [4]
2,079
2,032
2%
NES power production
319
305
342
(7%)
Power generation (GWh)
1,181
1,278
(8%)
Exchange rates
Quarters
Change
First nine months
Q3 2020
Q2 2020
Q3 2019
Q3 on Q3
Exchange rates
2020
2019
Change
0.1095
0.1000
0.1129
(3%)
NOK/USD average daily exchange rate
0.1050
0.1150
(9%)
0.1055
0.1026
0.1100
(4%)
NOK/USD period-end exchange
rate
0.1055
0.1100
(4%)
9.1321
10.0023
8.8573
3%
USD/NOK average daily exchange rate
9.5266
8.6979
10%
9.4814
9.7446
9.0874
4%
USD/NOK period-end exchange
rate
9.4814
9.0874
4%
1.1685
1.1008
1.1118
5%
EUR/USD average daily exchange
rate
1.1239
1.1234
0%
1.1708
1.1198
1.0889
8%
EUR/USD period-end exchange rate
1.1708
1.0889
8%
Equinor third quarter 2020
42
Health, safety and the
environment
Twelve months average per
First nine months
First nine months
Q3 2020
Q3 2019
Health, safety and the environment
2020
2019
Injury/incident frequency
2.3
2.5
Total recordable
injury frequency (TRIF)
2.3
2.5
0.6
0.6
Serious Incident Frequency (SIF)
0.5
0.6
Oil spills
165
226
Accidental oil spills (number of)
116
170
317
8,850
Accidental oil spills (cubic metres)
158
8,824
First nine months
Full year
Climate
2020
2019
Upstream CO2 intensity (kg CO2/boe)
1)
8.1
9.5
1) Total
scope 1 emissions
of CO2 (kg CO2) from exploration
and production, divided by
total production (boe).
Equinor third quarter 2020
43
Reconciliation of net operating income/(loss) to
adjusted earnings
The table specifies
the adjustments made to
each of the profit and loss
line item included in the
net operating income/(loss)
subtotal.
Items impacting net operating income/(loss) in the third
quarter of 2020
Equinor
group
Exploration
&
Production
Norway
Exploration
&
Production
Internationa
l
Exploration
&
Production
USA
Marketing,
Midstream
&
Processing
Other
(in USD million)
Net operating income/(loss)
(2,019)
431
(1,328)
(1,606)
551
(67)
Total revenues
and other income
(431)
(59)
(20)
-
(352)
0
Changes in fair value of derivatives
(37)
-
-
-
(37)
-
Periodisation of inventory hedging effect
(315)
-
-
-
(315)
-
Over-/underlift
(79)
(59)
(20)
-
-
-
Purchases [net of inventory variation]
104
-
-
-
(2)
107
Operational storage effects
(2)
-
-
-
(2)
-
Eliminations
107
-
-
-
-
107
Operating and administrative expenses
189
36
67
29
64
(7)
Over-/underlift
90
36
54
-
-
-
Gain/loss on sale of assets
(1)
-
-
(1)
-
-
Provisions
100
-
12
30
64
(7)
Depreciation, amortisation and net
impairment losses
2,353
360
992
990
-
10
Impairment
2,524
360
992
1,162
-
10
Reversal of Impairment
(171)
-
(0)
(171)
-
-
Exploration expenses
583
5
185
393
-
-
Impairment
638
5
183
449
-
-
Reversal of Impairment
(63)
-
-
(63)
-
-
Provisions
8
-
2
7
-
-
Sum of adjustments to net operating
income/(loss)
2,799
342
1,224
1,413
(289)
110
Adjusted earnings/(loss) [5]
780
773
(104)
(193)
262
43
Tax on adjusted
earnings
(509)
(358)
87
0
(240)
2
Adjusted earnings/(loss) after tax
[5]
271
414
(17)
(193)
22
45
Equinor third quarter 2020
44
Items impacting net operating income/(loss) in the third
quarter of 2019
Equinor
group
Exploration &
Production
Norway
Exploration &
Production
International
Exploration
& Production
USA
Marketing,
Midstream &
Processing
Other
(in USD million)
Net operating income/(loss)
(469)
2,558
325
(2,587)
(757)
(8)
Total revenues
and other income
(258)
(818)
126
(10)
453
(9)
Changes in fair value of derivatives
383
(8)
-
-
392
-
Periodisation of inventory hedging effect
61
-
-
-
61
-
Over-/underlift
147
30
126
(10)
-
-
Gain/loss on sale of assets
(849)
(840)
-
-
-
(9)
Purchases [net of inventory variation]
25
-
-
-
32
(7)
Operational storage effects
32
-
-
-
32
-
Eliminations
(7)
-
-
-
-
(7)
Operating and administrative expenses
501
(5)
(57)
49
514
-
Over-/underlift
(59)
(5)
(57)
3
-
-
Provisions
560
-
-
46
514
-
Depreciation, amortisation and net
impairment losses
2,186
-
56
1,924
206
-
Impairment
2,190
-
60
1,924
206
-
Reversal of Impairment
(4)
-
(4)
-
-
-
Exploration expenses
608
-
-
608
-
-
Impairment
608
-
-
608
-
-
Sum of adjustments to net operating
income/(loss)
3,062
(823)
125
2,571
1,205
(16)
Adjusted earnings/(loss) [5]
2,593
1,735
451
(16)
448
(25)
Tax on adjusted
earnings
(1,516)
(1,194)
(147)
0
(187)
13
Adjusted earnings/(loss) after tax
[5]
1,077
540
304
(16)
261
(13)
Equinor third quarter 2020
45
Items impacting net operating income/(loss) in the first
nine
months of 2020
Equinor
group
Exploration
&
Production
Norway
Exploration
&
Production
Internationa
l
Exploration
&
Production
USA
Marketing,
Midstream
&
Processing
Other
(in USD million)
Net operating income/(loss)
(2,434)
1,294
(2,189)
(2,953)
839
575
Total revenues
and other income
(149)
53
(153)
-
(51)
2
Changes in fair value of derivatives
52
6
-
-
46
-
Periodisation of inventory hedging effect
(91)
-
-
-
(91)
-
Impairment from associated companies
2
-
-
-
-
2
Over-/underlift
(106)
47
(153)
-
-
-
Gain/loss on sale of assets
(6)
-
-
-
(6)
-
Purchases [net of inventory variation]
(403)
-
-
-
196
(599)
Operational storage effects
196
-
-
-
196
-
Eliminations
(599)
-
-
-
-
(599)
Operating and administrative expenses
406
(21)
156
31
246
(7)
Over-/underlift
123
(21)
144
-
-
-
Gain/loss on sale of assets
2
-
-
2
-
-
Provisions
282
-
12
30
246
(7)
Depreciation, amortisation and net
impairment losses
4,733
1,219
1,354
1,727
422
10
Impairment
4,951
1,219
1,401
1,898
422
10
Reversal of impairment
(218)
-
(47)
(171)
-
-
Exploration expenses
1,028
5
352
671
-
-
Impairment
1,082
5
350
727
-
-
Reversal of impairment
(63)
-
-
(63)
-
-
Provisions
8
-
2
7
-
-
Sum of adjustments to net operating
income/(loss)
5,615
1,256
1,709
2,429
813
(593)
Adjusted earnings/(loss) [5]
3,181
2,551
(479)
(524)
1,652
(18)
Tax on adjusted
earnings
(1,704)
(1,264)
310
0
(972)
222
Adjusted earnings/(loss) after tax
[5]
1,478
1,287
(170)
(524)
680
204
Equinor third quarter 2020
46
Items impacting net operating income/(loss) in the first
nine months of 2019
Equinor
group
Exploration
&
Production
Norway
Exploration
&
Production
Internationa
l
Exploration
&
Production
USA
Marketing,
Midstream
&
Processing
Other
(in USD million)
Net operating income/(loss)
7,783
8,155
1,418
(2,278)
644
(156)
Total revenues
and other income
(1,190)
(869)
(32)
(10)
(258)
(20)
Changes in fair value of derivatives
(393)
(8)
-
-
(384)
-
Periodisation of inventory hedging effect
126
-
-
-
126
-
Over-/underlift
92
117
(15)
(10)
-
-
Gain/loss on sale of assets
(1,015)
(977)
(17)
-
-
(20)
Purchases [net of inventory variation]
(48)
-
-
-
(85)
37
Operational storage effects
(85)
-
-
-
(85)
-
Eliminations
37
-
-
-
-
37
Operating and administrative expenses
710
19
97
83
510
-
Over-/underlift
13
(23)
34
3
-
-
Change in accounting policy
1)
123
42
63
18
-
-
Gain/loss on sale of assets
16
-
-
16
-
-
Provisions
557
-
-
46
510
-
Depreciation, amortisation and net
impairment losses
2,070
-
(60)
1,924
206
-
Impairment
2,190
-
60
1,924
206
-
Reversal of impairment
(120)
-
(120)
-
-
-
Exploration expenses
608
-
-
608
-
-
Impairment
608
-
-
608
-
-
Sum of adjustments to net operating
income/(loss)
2,150
(850)
5
2,605
374
16
Adjusted earnings/(loss) [5]
9,934
7,305
1,423
327
1,017
(139)
Tax on adjusted
earnings
(6,195)
(5,221)
(521)
(0)
(496)
43
Adjusted earnings/(loss) after tax
[5]
3,739
2,085
903
327
521
(97)
1) Change in accounting policy for lifting
imbalances.
Equinor third quarter 2020
47
Items impacting net operating income/(loss) in the
second
quarter of 2020
Equinor
group
Exploration
&
Production
Norway
Exploration
&
Production
Internationa
l
Exploration
&
Production
USA
Marketing,
Midstream
&
Processing
Other
(in USD million)
Net operating income/(loss)
(472)
(104)
(548)
(332)
610
(98)
Total revenues
and other income
441
57
66
-
319
(1)
Changes in fair value of derivatives
36
-
-
-
36
-
Periodisation of inventory hedging effect
288
-
-
-
288
-
Impairment from associated companies
(1)
-
-
-
-
(1)
Over-/underlift
123
57
66
-
-
-
Gain/loss on sale of assets
(6)
-
-
-
(6)
-
Purchases [net of inventory variation]
(48)
-
-
-
(145)
97
Operational storage effects
(145)
-
-
-
(145)
-
Eliminations
97
-
-
-
-
97
Operating and administrative expenses
60
(38)
(43)
(9)
149
-
Over-/underlift
(81)
(38)
(43)
-
-
-
Gain/loss on sale of assets
(9)
-
-
(9)
-
-
Provisions
149
-
-
-
149
-
Depreciation, amortisation and net
impairment losses
263
-
35
-
228
-
Impairment
263
-
35
-
228
-
Exploration expenses
111
-
111
-
-
-
Impairment
111
-
111
-
-
-
Sum of adjustments to net operating
income/(loss)
827
19
169
(9)
551
96
Adjusted earnings/(loss) [5]
354
(85)
(379)
(341)
1,161
(2)
Tax on adjusted
earnings
291
408
144
0
(465)
205
Adjusted earnings/(loss) after tax
[5]
646
323
(236)
(341)
696
203
Equinor third quarter 2020
48
Adjusted earnings after
tax by reporting segment
Quarters
Q3 2020
Q2 2020
Q3 2019
(in USD million)
Adjusted
earnings
Tax on
adjusted
earnings
Adjusted
earnings
after tax
Adjusted
earnings
Tax on
adjusted
earnings
Adjusted
earnings
after tax
Adjusted
earnings
Tax on
adjusted
earnings
Adjusted
earnings
after tax
E&P Norway
773
(358)
414
(85)
408
323
1,735
(1,194)
540
E&P International
(104)
87
(17)
(379)
144
(236)
451
(147)
304
E&P USA
(193)
0
(193)
(341)
0
(341)
(16)
0
(16)
MMP
262
(240)
22
1,161
(465)
696
448
(187)
261
Other
43
2
45
(2)
205
203
(25)
12
(13)
Total Equinor
consolidation
780
(509)
271
354
291
646
2,593
(1,516)
1,077
Effective tax rates on adjusted
earnings
65.3%
-82.3%
58.5%
First nine months
2020
2019
(in USD million)
Adjusted
earnings
Tax on
adjusted
earnings
Adjusted
earnings
after tax
Adjusted
earnings
Tax on
adjusted
earnings
Adjusted
earnings
after tax
E&P Norway
2,551
(1,264)
1,287
7,305
(5,221)
2,085
E&P International
(479)
310
(170)
1,423
(521)
903
E&P USA
(524)
0
(524)
327
(0)
327
MMP
1,652
(972)
680
1,017
(496)
521
Other
(18)
222
204
(140)
43
(97)
Total Equinor
consolidation
3,181
(1,704)
1,478
9,934
(6,195)
3,739
Effective tax rates on adjusted
earnings
53.6%
62.4%
Reconciliation of adjusted
earnings after tax
to net income
Quarters
Reconciliation of adjusted earnings after tax to net income
First nine months
Q3 2020
Q2 2020
Q3 2019
(in USD million)
2020
2019
(2,019)
(472)
(469)
Net operating income/(loss)
A
(2,434)
7,783
(72)
(566)
1,174
Income tax less tax on net financial
items
B
707
6,353
(1,947)
93
(1,642)
Net operating income after tax
C = A-B
(3,141)
1,430
Equinor third quarter 2020
49
2,799
827
3,062
Items impacting net operating income
1)
D
5,615
2,150
582
274
342
Tax on items
impacting net operating income
E
996
(158)
271
646
1,077
Adjusted earnings after tax [5]
F = C+D-E
1,478
3,739
(201)
(248)
340
Net financial items
G
(426)
489
23
(96)
196
Tax on net
financial items
H
486
162
(2,124)
(251)
(1,107)
Net income/(loss)
I = C+G+H
(3,080)
2,081
1) Represents the total adjustments to
net operating income made to
arrive at adjusted earnings (i.e.
adjusted purchases, adjusted
operating
and administrative expenses, adjusted
depreciation, amortisation and
impairment expenses and adjusted
exploration expenses, each of
which
are presented and reconciled to the
relevant related IFRS figure for
the periods presented in this
report).
Equinor third quarter 2020
50
Adjusted earnings Marketing,
Midstream & Processing
(MMP) break down
Quarters
Change
Adjusted earnings break down
First nine months
Q3 2020
Q2 2020
Q3 2019
Q3 on Q3
(in USD million)
2020
2019
Change
292
366
194
50%
Natural Gas Europe
967
539
80%
7
(7)
(33)
N/A
Natural Gas US
(11)
(63)
82%
38
784
253
(85%)
Liquids
784
443
77%
(75)
19
33
N/A
Other
(88)
98
N/A
262
1,161
448
(42%)
Adjusted earnings MMP
1,652
1,017
62%
Adjusted exploration expenses
Quarters
Change
Adjusted exploration expenses
First nine months
Q3 2020
Q2 2020
Q3 2019
Q3 on Q3
(in USD million)
2020
2019
Change
142
97
179
(21%)
E&P Norway exploration expenditures
369
437
(16%)
143
234
219
(35%)
E&P International exploration expenditures
598
578
3%
65
76
24
>100%
E&P USA exploration expenditures
186
90
>100%
349
407
422
(17%)
1)
Group exploration expenditures
1,151
1,106
4%
2)
87
14
39
>100%
Expensed, previously capitalised
exploration expenditures
200
59
>100%
(125)
(140)
(201)
(38%)
Capitalised share of current period's
exploration activity
(459)
(405)
14%
575
111
611
(6%)
Impairment (reversal of impairment)
1,022
614
67%
886
393
871
2%
Exploration expenses according
to IFRS
1,914
1,374
39%
(583)
(111)
(608)
(4%)
Items impacting net operating income/(loss)
3)
(1,028)
(608)
69%
302
282
263
15%
Adjusted exploration expenses
886
766
16%
1) 27 wells with activity with 11
completed in the third quarter
of 2020 compared to 21 wells
with 11 completed
in the third quarter of 2019.
2) 42 wells with activity with 26 completed
the first nine months of 2020
compared to 42 wells
with 32 completed in the first
nine months of
2019.
3) For items impacting net operating
income/(loss), see Reconciliation
of net operating income/(loss)
to adjusted earnings in
the
Supplementary disclosures.
Equinor third quarter 2020
51
Calculation of capital employed
and net debt to capital
employed ratio
The table below reconciles
the net interest-bearing
debt adjusted, the capital
employed, the net debt to
capital employed ratio
adjusted including lease
liabilities and the net debt
to capital employed adjusted
ratio with the most directly
comparable financial
measure or measures
calculated in accordance
with IFRS.
Calculation of capital employed and net debt to capital employed
ratio
At 30
September
At 30 June
At 31
December
At 30
September
(in USD million)
2020
2020
2019
2019
Shareholders' equity
34,084
35,587
41,139
40,983
Non-controlling interests
24
23
20
16
Total equity
A
34,108
35,610
41,159
40,999
Current finance debt
5,277
5,463
4,087
4,375
Non-current finance debt
32,193
31,647
24,945
24,401
Gross interest-bearing debt
B
37,471
37,110
29,032
28,776
Cash and cash equivalents
7,844
9,700
5,177
6,838
Current financial investments
10,563
9,319
7,426
7,203
Cash and cash equivalents and financial
investment
C
18,407
19,020
12,604
14,041
Net interest-bearing debt [10]
B1 = B-C
19,064
18,091
16,429
14,735
Other interest-bearing elements
1)
669
832
791
878
Normalisation for cash-build up
before tax payment (50% of Tax
Payment)
2)
259
-
-
670
Net interest-bearing debt adjusted normalised
for tax payment, including
lease liabilities [5]
B2
19,992
18,923
17,219
16,283
Lease liabilities
4,218
4,154
4,339
4,383
Net interest-bearing debt adjusted [5]
B3
15,774
14,768
12,880
11,899
Calculation of capital employed [5]
Capital employed
A+B1
53,172
53,700
57,588
55,734
Equinor third quarter 2020
52
Capital employed adjusted, including
lease liabilities
A+B2
54,100
54,532
58,378
57,282
Capital employed adjusted
A+B3
49,883
50,378
54,039
52,898
Calculated net debt to capital employed
[5]
Net debt to capital employed
(B1)/(A+B1)
35.9%
33.7%
28.5%
26.4%
Net debt to capital employed adjusted,
including lease liabilities
(B2)/(A+B2)
37.0%
34.7%
29.5%
28.4%
Net debt to capital employed adjusted
(B3)/(A+B3)
31.6%
29.3%
23.8%
22.5%
1) Cash
and cash equivalents
adjustments regarding collateral
deposits classified as cash
and cash equivalents
in the Consolidated
balance sheet but considered
as non-cash in the non
-GAAP calculations as well
as financial investments
in Equinor Insurance
AS classified as current
financial investments.
2) Adjustment
to net interest-bearing debt
for cash build-up in the first
quarter and the third quarter
before tax payment on 1
April
and 1 October.
This is to exclude 50% of
the cash build-up to h
ave a more even allocation
of tax payments between
the four
quarters and hence
a more representative net
interest-bearing debt.
Equinor third quarter 2020
53
Net adjusted financial
items 2020
Interest
income
and other
financial
items
Net
foreign
exchange
gains
(losses)
Gains
(losses)
derivative
financial
instrument
s
Interest
and other
finance
expenses
Net before
tax
Estimated
tax effect
Net after
tax
Net adjusted financial items in the third quarter of 2020
(in USD million)
Financial items according to IFRS
235
(131)
39
(343)
(201)
23
(178)
Foreign exchange (FX) impacts (incl.
derivatives)
(1)
131
0
0
130
2
0
Interest rate (IR) derivatives
0
0
(39)
0
(39)
0
0
Fair value adjustment financial investments
and other
(97)
0
0
0
(97)
0
0
Subtotal
(99)
131
(39)
0
(6)
0
(6)
Adjusted financial items
136
0
0
(343)
(207)
23
(184)
Net adjusted financial
items 2019
Interest
income
and other
financial
items
Net
foreign
exchange
gains
(losses)
Gains
(losses)
derivative
financial
instrument
s
Interest
and other
finance
expenses
Net before
tax
Estimated
tax effect
Net after
tax
Net adjusted financial items in the third quarter of 2019
(in USD million)
Financial items according to IFRS
180
295
208
(343)
340
196
536
Foreign exchange (FX) impacts (incl.
derivatives)
2
(295)
0
0
(293)
0
0
Interest rate (IR) derivatives
0
0
(208)
0
(208)
0
0
Fair value adjustment financial investment
(20)
0
0
0
(20)
0
0
Adjusted financial items excluding FX
and IR derivatives
161
0
0
(343)
(182)
196
14
Equinor third quarter 2020
54
USE AND RECONCILIATION OF NON-GAAP FINANCIAL
MEASURES
Non-GAAP financial
measures are defined as numerical
measures that either exclude
or include amounts or
certain accounting items
that are not excluded
or included in the comparable
measures calculated and
presented in accordance with
GAAP (i.e. IFRS).
Management considers
adjusted earnings and adjusted
earnings after tax together
with other non-GAAP financial
measures as
defined below,
to provide a better indication
of the underlying operational
and financial performance
in the period (excluding
financing), and therefore
better facilitate comparison
s
between periods.
The following financial
measures may be considered
non-GAAP financial
measures:
●
Adjusted earnings
are based on net
operating income/(loss)
and adjusts for certain
items affecting the income
for the period in
order to separate
out effects that management
considers may
not be well correlated
to Equinor’s underlying operational
performance in the
individual reporting period.
Management considers
adjusted earnings to be
a supplemental measure
to
Equinor’s IFRS measures,
which provides an indication
of Equinor’s underlying
operational performance
in the period and
facilitates an alternative
understanding of operational
trends between the
periods. Adjusted earnings
include adjusted revenues
and other income, adjusted
purchases, adjusted operating
expenses and selling,
general and administrative
expenses, adjusted
depreciation expenses
and adjusted exploration
expenses
●
Adjusted earnings after
tax
– equals the sum of net
operating income/(loss)
less income tax in business
areas and adjustments
to operating income
taking the applicable marginal
tax into consideration.
Adjusted earnings after
tax excludes net financial
items
and the associated
tax effects on net financial
items. It is based on adjusted
earnings less the tax effects
on all elements included
in adjusted earnings
(or calculated tax on operating
income and on each
of the adjusting items using an
estimated marginal tax
rate). In addition,
tax effect related to
tax exposure items
not related to the
individual reporting period
is excluded from adjusted
earnings after tax. Management
considers adjusted earnings
after tax, which reflects
a normalised tax charge associated
with its
operational performance
excluding the impact of
financing, to be a supplemental
measure to Equinor’s net
income. Certain net
USD denominated financial
positions are held by group
companies that have
a USD functional currency
that is different from the
currency in which the
taxable income is measured.
As currency exchange rates
change between periods,
the basis for measuring
net financial items for
IFRS will change disproportionally
with taxable income which
includes exchange gains
and losses from
translating the net USD denominated
financial positions into
the currency of the applicable
tax return. Therefore,
the effective tax
rate may be significantly
higher or lower than
the statutory tax rate for
any given period.
Adjusted taxes included
in adjusted
earnings after tax should
not be considered indicative
of the amount of current
or total tax expense (or taxes
payable) for the
period
Adjusted earnings and
adjusted earnings after tax
should be considered
additional measures rather
than substitutes for net operating
income/(loss) and net
income/(loss),
which are the most directly
comparable IFRS measures.
There are material limitations
associated with the
use of adjusted earnings and
adjusted earnings after
tax compared with the IFRS measures
as such non-GAAP
measures do not
include all the items of
revenues/gains or expenses/losses
of Equinor that are needed
to evaluate its profitab
ility on
an overall basis.
Adjusted earnings and adjusted
earnings after tax are
only intended to be indicative
of the underlying developments
in trends of our on-going
operations for the production,
manufacturing and
marketing of our products
and exclude pre-and post-tax
impacts of net financial
items. Equinor reflects
such underlying development
in our operations by eliminating
the effects of certain
items that may not be
directly associated
with the period's operations
or financing. However,
for that reason, adjusted
earnings and
adjusted earnings after
tax are not complete measures
of profitability.
These measures should therefore
not be used in isolation.
●
Return on average capital
employed after tax
(ROACE)
– this measure
provides useful information
for both the group and
investors about performance
during the period under
evaluation. Equinor uses
ROACE to measure the return
on capital employed,
regardless of whether
the financing is through
equity or debt. The use
of ROACE should not
be viewed as an alternative
to income
before financial items,
income taxes and minority
interest, or to net income,
which are measures calculated
in accordance with
GAAP or ratios based
on these figures. For
a reconciliation for adjusted
earnings after tax, see Reconciliation
of net operating
income/(loss) to adjusted
earnings as presented
earlier in this report
●
Capital employed adjusted
–
this measure is defined
as Equinor's total equity (including
non-controlling interests)
and net
interest-bearing debt
adjusted
●
Net interest-bearing debt adjusted
– this measure 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 and balances
related to the SDFI
●
Net debt to capital employed
,
Net debt to capital
employed adjusted, including
lease liabilities
and
Net debt to capital
employed ratio adjusted
– Following implementation
of IFRS 16 Equinor present
s
a “net debt to capital employed
adjusted”
excluding lease liabilities
from the gross interest
-bearing debt.
Comparable numbers
are presented in
the table Calculation of
capital employed
and net debt to capita
l
employed ratio in the report
include Finance lease according
to IAS17, adjusted for
marketing instruction
agreement
●
Organic capital expenditures
– Capital expenditures,
defined as Additions to PP&E,
intangibles and
equity accounted
investments in note
2 Segments to the Condensed
financial interim statements,
amounted to USD 2.0
billion in the third quarter
of
2020. Organic capital
expenditures are capital
expenditures excluding acquisitions,
recognised lease assets
(RoU assets) and
other investments with
significant different cash
flow pattern. In the third quarter
of 2020, a total of USD 0.3
billion are excluded in
the organic capital expenditures.
Forward-looking organic capital
expenditures included
in this report are not reconcilable
to its
Equinor third quarter 2020
55
most directly comparable
IFRS measure without
unreasonable efforts,
because the amounts
excluded from such IFRS measure
to
determine organic capital
expenditures cann
ot be predicted with reasonable
certainty
●
Free cash flow for
the third quarter 2020
includes the following line
items in the Consolidated
statement of cash flows:
Cash
flows provided by operating
activities before taxes
paid and working capital
items (USD 3.3 billion),
taxes paid (negative USD 0.1
billion), cash used in
business combinations
(USD 0.0 billion), capital
expenditures and investments
(negative USD 1.7
billion),
(increase) decrease
in other items interest bearing
(USD 0.0 billion), proceeds
from sale of assets and
businesses (USD 0.0
billion), dividend paid
(negative USD 0.3
billion) and share buy
-back (negative USD 1.0 billion),
resulting in a free cash flow
of
USD 0.2 billion in the
third quarter of 2020
●
Free cash flow for
the first nine months of 2020
includes the following line
items in the Consolidated statement
of cash flows:
Cash flows provided
by operating activities
before taxes paid and working
capital items (USD 10.2
billion), taxes paid (negative
USD 2.7
billion), cash used in business
combinations (USD 0.0
billion), capital
expenditures and investments
(negative USD 6.0
billion), (increase) decrease
in other items interest bearing
(USD 0.0 billion), proceeds
from sale of assets
and businesses,
including USD 0.3 billion
received from the Lundin
divestment included in
(increase)/decrease in financial
investments (USD 0.3
billion), dividend paid
(negative USD 2.0 billion)
and share buy-back
(negative
USD 1.1 billion), resulting
in a free cash flow of
negative USD 1.3 billion
in the first nine months of
2020
Adjusted earnings
adjust for the following
items:
●
Changes in fair value of
derivatives:
Certain gas contracts
are, due to pricing or delivery
conditions, deemed to
contain
embedded derivatives,
required to be carried
at fair value. Also, certain
transactions related to
historical divestments
include
contingent consideration,
are carried at fair value.
The accounting impacts
of changes in fair value
of the aforementioned
are
excluded from adjusted
earnings. In addition,
adjustments are also made
for changes in the unrealised
fair value of derivatives
related to some natural
gas trading contracts. Due
to the nature of these
gas sales contracts, these
are classified as financial
derivatives to be
measured at fair value at the
balance sheet date. Unrealised
gains and losses on these
contracts reflect the
value of the difference
between current market
gas prices and the actual
prices to be realised under
the gas sales contracts.
Only
realised gains and losses
on these contracts are
reflected in adjusted
earnings. This presentation
best reflects the underlying
performance of the
business as it replaces the
effect of temporary timing
differences associated
with the re-measurements
of the
derivatives to fair value
at the balance sheet date
with actual realised gains and
losses for the period
●
Periodisation of inventory
hedging effect:
Commercial storage is hedged
in the paper market and
is accounted for using the
lower of cost or market
price. If market prices increase
above cost price, the inventory
will not reflect this increase
in value. There
will be a loss on the
derivative hedging the inventory
since the derivatives
always reflect changes
in the market price. An
adjustment is made
to reflect the unrealised
market increase of the commercial
storage. As a result, loss
on derivatives is
matched by a similar
adjustment for the exposure
being managed. If market
prices decrease below cost
price, the write-down of
the inventory and
the derivative effect
in the IFRS income statement
will offset each other
and no adjustment is
made
●
Over/underlift
: Over/underlift is
accounted for using the
sales method and therefore
revenues were reflected
in the period the
product was sold
rather than in the period
it was produced. The
over/underlift position
depended on a number
of factors related to
our lifting programme
and the way it corresponded
to our entitlement share
of production. The effect
on income for the period
is
therefore
adjusted, to show estimated
revenues and associated
costs based upon the
production for the period
to reflect
operational performance
and comparability with
peers. Following the first
quarter of 2019, Equinor
changed the accounting
policy
for lifting imbalances.
Adjusted earnings now include
the over/underlift adjustment
●
The
operational storage
is not hedged and
is not part of the trading portfolio.
Cost of goods sold
is measured based
on the
FIFO (first-in, first-out)
method, and includes
realised gains or losses
that arise due to changes in
market prices. These gains
or
losses will fluctuate
from one period to another
and are not considered part
of the underlying operations
for the period
●
Impairment and reversal
of impairment
are excluded from adjusted
earnings since they
affect the economics
of an asset for
the lifetime of that asset,
not only the period in
which it is impaired or
the impairment is reversed.
Impairment
and reversal of
impairment can impact
both the exploration expenses
and the depreciation,
amortisation and impairment
line items
●
Gain or loss from sales
of assets
is eliminated from the measure
since the gain or loss
does not give an indication
of future
performance or periodic
performance; such
a gain or loss is related
to the cumulative value creation
from the time the asset is
acquired until it is sold
●
Eliminations (Internal
unrealised profit on inventories)
:
Volumes derived
from equity oil inventory will
vary depending on
several factors and
inventory strategies, i.e.
level of crude oil in inventory,
equity oil used in the refining
process and level of in-
transit cargoes. Internal
profit related to volumes
sold between entities
within the group, and still
in inventory at period end,
is
eliminated according to
IFRS (write down to production
cost). The proportion
of realised versus unrealised
gain will fluctuate from
one period to another
due to inventory strategies
and consequently impact
net operating income
/(loss).
Write-down to production
cost is not assessed
to be a part of the underlying
operational performance,
and elimination of internal
profit related to equity
volumes is excluded
in adjusted earnings
●
Other items of income and
expense
are adjusted when the
impacts on income in the period
are not reflective of
Equinor’s
underlying operational
performance in the reporting
period. Such items
may be unusual or infrequent
transactions but they may
also include transactions
that are significant which
would not necessarily
qualify as either unusual
or infrequent. Other
items are
carefully assessed
and can include transactions
such as provisions related
to reorganisation, early retirement,
etc.
●
Change in accounting policy
are adjusted
when the impacts on income
in the period are unusual or
infrequent, and not
reflective of Equinor’s underlying
operational performance
in the reporting period
For more information
on our use of non-GAAP financial
measures, see section 5.2
Use and reconciliation
of non-GAAP financial
measures in Equinor's
2019 Annual Report and
Form 20-F.
Equinor third quarter 2020
56
FORWARD-LOOKING STATEMENTS
This report contains
certain forward-looking statements
that involve risks and
uncertainties. In some
cases, we use words
such as
"ambition", "continue",
"could", "estimate", “intend”,
"expect", "believe", "likely",
"may", "outlook", "plan", "strategy",
"will", "guidance",
“targets”, “in line
with”, “on track”, “consistent”
and similar expressions
to identify forward-looking
statements. Forward
-looking
statements include
all statements other than
statements of historical
fact, including, among others,
statements regarding Equinor’s
plans, intentions,
aims, ambitions and expectations
with respect to the Covid
-19 pandemic including
its impacts, consequences
and
risks; Equinor’s USD 3 billion
action plan for 2020 to
strengthen financial
resilience; Equinor’s response
to the Covid-19 pandemic,
including anticipated
measures to protect people,
operations and value creation,
operating costs and assumptions;
the commitment to
develop as a broad
energy company; future
financial performance, including
cash flow and liquidity;
the share buy-back programme,
including its suspension;
accounting policies;
production cuts, including
their impact on the level
and timing of Equinor’s production;
plans to develop
fields; changes to Norway
’s petroleum tax system;
market outlook and
future economic projections
and assumptions,
including commodity
price assumptions;
organic capital expenditures
through 2023; intention to mature
its portfolio; estimates
regarding exploration
activity levels; ambition
to keep unit of product
ion cost in the top quartile
of its peer group; scheduled
maintenance activity
and the effects on
equity production thereof;
completion and results
of acquisitions and disposals
;
expected
amount and timing of
dividend payments; and
provisions and contingent
liabilities.
You should
not place undue reliance
on these forward-looking
statements. Our actual
results could differ
materially from those
anticipated in the
forward-looking statements
for many reasons.
These forward-looking
statements reflect current
views about future events
and are, by their nature,
subject to significant risks
and
uncertainties because
they relate to events and
depend on circumstances
that will occur in the future.
There are a number of
factors
that could cause
actual results and developments
to differ materially
from those expressed or
implied by these forward-looking
statements, including
levels of industry product
supply, demand
and pricing, in particular
in light of recent significant
oil price volatility
triggered, among other
things, by the changing dynamic
among OPEC+ members
and the uncertainty regarding
demand created by
the Covid-19 pandemic;
the impact of Covid-19;
levels and calculations of
reserves and material
differences from reserves
estimates;
unsuccessful drilling;
operational problems;
health, safety and environmental
risks; natural disasters,
adverse weather conditions,
climate change, and
other changes to business
conditions; the effects
of climate change; regulations
on hydraulic fracturing; security
breaches, including brea
ches of our digital infrastructure
(cybersecurity); ineffectiveness
of crisis management systems;
the actions of
counterparties and
competitors; the development
and use of new technology,
particularly in the renewable
energy sector; inability
to
meet strategic objectives;
the difficulties involving
transportation infrastructure;
political and social stability
and economic growth
in
relevant areas of
the world; an inability
to attract and retain personnel;
inadequate insurance
coverage; changes or uncertainty
in or
non-compliance with
laws and governmental regulations;
the actions of the Norwegian
state as majority shareholder;
failure to meet
our ethical and social
standards; the political
and economic policies
of Norway and other oil-producing
countries; non-compliance
with
international trade sanctions;
the actions of field partners;
adverse changes in
tax regimes; exchange
rate and interest rate
fluctuations; factors
relating to trading, supply and
financial risk; general
economic conditions; and
other factors discussed
elsewhere
in this report. Additional
information, including information
on factors that may
affect Equinor’s business,
is contained in Equinor’s
Annual Report on Form
20-F for the year
ended December 31,
2019, filed with the U.S. Securities
and Exchange Commission
(including section 2.11
Risk review - Risk factors
thereof). Equinor’s 2019 Annua
l
Report and Form 20-F is available
at Equinor’s
website www.equinor.com.
Although we believe that
the expectations reflected
in the forward-looking statements
are reasonable, we
cannot assure you that
our future results, level of
activity, performance
or achievements will meet
these expectations. Moreover,
neither we nor any other
person assume responsibility
for the accuracy and completeness
of these forward-looking
statements. Any
forward-looking statement
speaks only as of the
date on which such
statement is made, and,
except as required
by applicable law, we
undertake no obligation
to update any of these statements
after the date of this report,
whether to make them either
conform to actual
results or changes in
our expectations or
otherwise.
We use certain
terms in this document,
such as “resource” and
“resources” that the SEC’s rules
prohibit us from including in
our filings
with the SEC. U.S. investors
are urged to closely co
nsider the disclosures in our
Form 20-F,
SEC File No. 1-15200. This
form is
available on our website
or by calling 1-800-SEC-0330
or logging on to www.sec.gov.
Although we believe
that the expectations reflected
in the forward-looking statements
are reasonable, we cannot
assure you that our
future results, level
of activity, performance
or achievements will meet
these expectations.
Moreover, neither
we nor any other person
assumes responsibility
for the accuracy and completeness
of the forward-looking statements.
Unless we are required
by law to update
these statements, we
will not necessarily update
any of these statements
after the date of this
report, either to make
them conform to
actual results or changes
in our expectations.
Equinor third quarter 2020
57
END NOTES
1. The group's
average liquids price
is a volume-weighted average of the
segment prices of crude oil, condensate
and natural gas liquids
(NGL).
2. The
refining reference margin
is a typical average gross
margin of our two refineries, Mongstad
and Kalundborg. The reference
margin
will differ from the actual margin,
due to variations in type of crude
and other feedstock, throughput,
product yields, freight cost, inventory,
etc.
3.
Liquids volumes
include oil, condensate and NGL,
exclusive of royalty oil.
4.
Equity volumes
represent produced volumes under
a
production sharing agreement
(PSA)
that correspond to Equinor’s ownership
share in a field.
Entitlement volumes
, on the other hand, represent
Equinor’s share of the volumes distributed
to the partners in the field,
which are subject to deductions for,
among other things, royalty and
the host government's share of
profit oil. Under the terms of a
PSA, the
amount of profit oil deducted from
equity volumes will normally increase
with the cumulative return on
investment to the partners and/or
production from the licence. Consequently,
the gap between entitlement
and equity volumes will likely
increase in times of high
liquids prices.
The distinction between equity
and entitlement is relevant to
most PSA regimes, whereas it
is not applicable in most concessionary
regimes
such as those in Norway,
the UK, the US, Canada and Brazil.
5. These are
non-GAAP figures.
See Use and reconciliation of
non-GAAP financial measures in
the Supplementary disclosures
for more
details.
6. Transactions with the
Norwegian State.
The Norwegian State, represented
by the Ministry of Petroleum
and Energy (MPE), is the majority
shareholder of Equinor and it also
holds major investments in other
entities. This ownership structure
means that Equinor participates in
transactions with many parties
that are under a common ownership
structure and therefore
meet the definition of a related party.
Equinor
purchases liquids and natural gas
from the Norwegian State, represented
by SDFI (the State's Direct Financial
Interest). In addition, Equinor
sells
the State's natural gas production
in its own name, but for the Norwegian
State's account and risk as well
as related expenditures are
refunded by the State. All transactions
are considered priced on an arm’s
-length basis.
7. The production guidance reflects
our estimates of
proved reserves
calculated in accordance with US
Securities and Exchange
Commission (SEC) guidelines and
additional production from
other reserves not included in
proved reserves estimates. The growth
percentage is based on historical
production numbers, adjusted
for portfolio measures.
8. The group's
average invoiced gas prices
include volumes sold by the MMP
segment.
9. The internal
transfer price
paid from the MMP segment to
the E&P Norway and E&P
USA segments.
10. Since different legal entities
in the group lend to projects and
others borrow from banks,
project financing through external
bank or similar
institutions is not netted in the balance
sheet and results
in over-reporting of the debt stated
in the balance sheet compared
to the underlying
exposure in the group. Similarly,
certain net interest-bearing
debt incurred from activities pursuant
to the Marketing Instruction
of the
Norwegian government are off-set
against receivables on the SDFI.
Some interest-bearing elements
are classified together with non-
interest
bearing elements, and are therefore
included when calculating the net
interest-bearing debt.
Signatures
Pursuant to the requirements of the
Securities Exchange Act of 1934,
the registrant has duly caused this
report to be signed on its behalf
by
the undersigned, thereunto duly authoris
ed.
EQUINOR ASA
(Registrant)
Dated: 29 October, 2020
By: ___/s/ Lars Christian Bacher
Equinor third quarter 2020
58
Name: Lars Christian Bacher
Title:
Chief Financial Officer