Equinor swings to record profit in Q4 on high gas price

Norway's Equinor generated a record $15bn in adjusted earnings before tax in the fourth quarter, on the back of higher gas prices and increased production, the company reported on February 9. The result outperformed the consensus among analysts by $1.8bn, and compared with $756mn a year earlier.

Net operating income came to $13.6bn in the fourth quarter, up from a loss of $3.4bn a year earlier, while net income meanwhile came to $3.37bn, versus a loss of $2.42bn.

The strong numbers were achieved thanks to a 11% climb in gas production to 1.08mn barrels of oil equivalent/day, which supported a growth in overall hydrocarbon output of 6% to 2.16mn boe/d. But more significantly, Equinor fetched a much higher price of $28.76/mn Btu in Europe, versus only $5.04 in the final quarter of 2020.

Equinor benefited from its large exposure to the spot market in Europe, which saw prices surge to record heights late last year on the back of Russian supply constraints and rebounding demand.

"The key driver of the beat was in Norway where gas volumes were up sharply as the company tried to take advantage of the strong environment, while it also benefited from a higher tax shield on its marketing, midstream and processing losses," analysts at RBC Capital Markets commented in a research note.

The investment bank noted that Equinor's gearing approached zero in the fourth quarter, but was impacted by a $3.2bn working capital build.

Free cash flow soared to nearly $25bn for the whole of the year, up from $85mn in 2020, supported by not only higher prices and production but also asset sales and reduced dividends and share buybacks. The board has proposed increasing the fourth-quarter dividend to $0.20/share, up from $0.18 previously, and announced a special dividend of $0.20/share per quarter for 2021. It has also expanded its buyback programme for this year to $5bn from $4bn.

RBC said Equinor was outperforming its share price, explaining that "as the European integrateds embark on energy transition strategies, our analysis suggests Equinor has multiple structural advantages versus its peers, and we expect these advantages to be more widely recognised over time."

"Over the medium term, the combination of oil and gas leverage, a small downstream footprint and a clear renewables strategy could help drive outperformance," it said.

ODDO BHF analyst Ahmed Ben Salem estimated that Equinor's shares were underperforming those of its peers by 7% year to date.