Equinor (NYSE: EQNR), the Norwegian energy giant, has spent considerable time discussing about gas and oil this year, which might seem unusual given how much time is spent talking about renewable power last year. The oil and gas industry is booming, and Equinor is reaping the benefits. However, investors concerned about the corporation’s transition from fossil fuels to wind energy may be concerned that the company is losing sight of its long-term goals.
With that in mind, let’s look at the company’s second-quarter profits and Capital Markets Day presentation to see if its renewable ambitions are genuine or simply for the press.
Transcripts of earnings calls are helpful, but they often leave out critical details. Listening to quarterly conference calls allows investors to judge management’s perspective better and read between the lines. The second-quarter earnings conference from Equinor was a perfect example of hidden nuances.
The soundness of the core oil and gas business was discussed extensively by management. Equinor’s company has recovered admirably from last year’s setback to its credit. It is on course to have its biggest free cash flow (FCF) ever. Its balance sheet is now in better shape than it has been in five years, with a five-year low in net long-term debt. And it appears that the corporation will enjoy a five-year period of low spending and excellent efficiency.
That’s fine and good, but Equinor’s large utility-scale wind projects drew little notice. The absence of coverage was quickly pointed up by three different analysts. The conversation was unpleasant, to say the least, and management immediately realized it needed to disclose renewable energy data better.
In answer to queries regarding the renewables sector, Equinor said there is a lot of unpredictability in the space, which low-carbon investments are just something Equinor appears to believe in, that renewable energy investments will take a long time to pay off, and that the early-stage data aren’t very useful.
Despite Equinor’s large backlog of wind power projects, its renewable power division’s capacity and profits remain insignificant. Because the renewables industry is in growth mode, CFO Ulrica Fearn stated that investors should “anticipate production costs to exceed earnings from the operating assets.” In other words, it appears that the firm believes it is more helpful to concentrate on the big picture in contexts of how much money it is spending and how initiatives are progressing.
Equinor’s perspective, project progress is arguably more essential than these early-stage renewable energy quarterly results. However, if the firm wants to be deemed a credible renewable energy stock, it needs to start releasing quarterly numbers. Meanwhile, it has presented investors with frequent updates on its medium- and long-term renewable energy spending plans.
This post was originally published on Downey Magazine