This is how Equinor will use its $500 billion-plus fund of funds – E24

Equinor is sitting on more than NOK 500 billion in cash after strong earnings. Much needs to be returned to the owners and cover upcoming tax bills, but the company can also smell new acquisitions.

Over six consecutive quarters, Equinor has delivered adjusted operating results of more than $10 billion — well above what was typical in prior years.

The highest point was in the third quarter, when gas prices peaked and adjusted earnings were $24.3 billion (249 billion kroner at the exchange rate at the time).

Good results will also benefit their owners. The state is the largest owner with direct ownership at 67 percent, while Volketrigdfondit (Norway’s state pension fund) is the second largest owner at 3.3 percent.

According to the plan, Equinor will pay dividends and buy back shares from the owners for $17 billion (about NOK 180 billion) during 2023.

– There’s an increase from a very high level last year as well, which was $13.6 billion, says Equinor’s CFO Torgrim Reitan to E24.

A very special year

Reitan asserts that the expected payments to owners in 2023 are the highest ever.

– comes as a result A very unusual year last year. He says that everything that goes into extraordinary dividends and extraordinary buybacks is related to the money we’ve already earned.

In the first quarter, Equinor pays out $0.9 per share in dividends, of which $0.3 per share is an ordinary dividend and the remainder is an extraordinary dividend. In addition, the company will buy back $6 billion worth of shares this year.

– What could threaten these 17 billion – We saw in 2020 that the buyback program terminated?

– The 17 billion, it’s been fixed, says Retan.

– We have a very strong balance sheet, we have a debt ratio that is very far to the downside and a very large cash balance, he says.

The debt ratio is the debt as a percentage of the company’s working capital. Equinor’s debt ratio was minus 52 percent at the end of the first quarter, while it was minus 23.9 percent at the end of last year. Equinor aims to keep the debt ratio at 15-30 percent over time, and current levels are very unusual.

Lots of money in the safes

– How much money do you have now?

Our cash holdings are more than $50 billion. It’s a lot, Raytan says.

according to Quarterly report Equinor had a total of $52.5 billion (NOK 561 billion) in cash and what the company refers to as financial investments at the end of the first quarter.

– Then we have to remind ourselves and remember that we had the best result ever last year, but then it wasn’t more than two years before that when we had the worst result ever. And then we had a debt ratio that was above our guidance, it was more than 30 percent at the time, Reitan says.

– So we have huge fluctuations that we have to deal with in the future. It is very important for us to be prepared for high volatility and a lot of turbulence in the market. And that’s why we’re going to go with a conservative, robust balance, he says.

Taxes, dividends, and buybacks

Theoretically, Equinor has enough cash to buy both DNB (market cap of about 288 billion) and Telenor (market cap of about 178 billion) and still has money left over.

But a large portion of Equinor’s money is earmarked for dividends, share buybacks and taxes to be paid in the second quarter, Reitan notes. Equinor made only one tax payment in Norway in the first quarter.

– Next quarter, cash flow will look very different. Then we will have two tax payments, plus we will pay the authorities for last year’s buybacks. That’s nearly four billion dollars. Then there are stock buybacks and cash dividends, says the CFO.

– So we expect to pay $17 billion in the next quarter, related to taxes and capital distribution, Reitan adds.

– What will be the debt ratio then?

– We’ll see it depends on prices and so on, says Retan.

– We’re obviously going to pay a lot more in the next quarter. What we’re saying is we plan for negative cash flow over the course of the year as a whole. And that’s because we’re entering the year with a very, very, very strong balance sheet, he says.

Equinor Report Thursday that the company must make two payments of taxes totaling NOK 108 billion in the second quarter. These two remaining payments are for fiscal year 2022.

More can be purchased

Equinor’s fund leaves room for more acquisitions. In the first quarter, the company bought Suncor Energy UK for about NOK nine billion, increasing the company’s stake in the British Buzzard field and in Rosebank, which is not yet developed.

Last year, Equinor bought Danish BeGreen Solar and British Triton Power Holdings Ltd, which owns the Saltend gas-fired power station.

Are there more acquisitions on the horizon?

– Acquisitions and sales are an integral part of our strategy, so we will continue to do so, says Reitan.

– We will make some sales in areas that are less strategically important to us. And then we’ll make acquisitions in areas that will be important in the future, both in renewable energy and low carbon, but also in some of the most important oil and gas geographies. We have the Norwegian continental shelf, Great Britain, the USA and Brazil as the main geographic areas that we focus on, says the CFO.