Equinor loses on stock market due to heavy investment in renewable energy

Equinor’s share price has been weaker than all its rivals so far this year, driven by fears that management will waste money on unprofitable renewable energy projects.

Equinor CEO Anders Oppedal has received a lot of criticism from environmentalists for not investing enough in solar and wind power.

On the other hand, the general mood in the stock market is quite the opposite.

The 120,000 shareholders of Norway's Equinor have lost a lot this year. Equinor's share is doing worse than all its competitors.

Down 5 percent this year

– Equinor says that by 2030 they will invest around NOK 400 billion in renewable energy. These are huge numbers.

That's according to equity analyst John Oleisen at brokerage ABG Sundal Collier. He's followed Equinor for a number of years.

– There are two negative effects of this. In the short term, this means that there will be only a small amount of free cash flow that can be distributed to shareholders. The second is that the market is uncertain about the profitability of these investments.

Olaisen sees no other explanation for the stock's poor performance this year than heavy investment in renewables.

– Gas prices fell a bit earlier this year, but have now gone back up. So I think the weak development in the stock price is almost exclusively due to renewable investments.

The stake fell sharply in February after Equinor’s management spoke about the company’s plans through 2035 (see Factbox). While shares of rivals Exxon Mobil and Shell are up 15 percent and 11 percent so far this year, Equinor’s is down 5 percent.

Only Italy's Eni performed as badly.

– Ambitions should be reduced.

Many competitors such as baby And coincidenceThey’ve hit the brakes. They’ve scaled back their ambitions for growth in renewables. Even state-owned Statkraft has done that recently. Statkraft is now slowing down, especially in offshore wind and hydrogen, because of rising costs.

Norwegian analysts who follow Equinor believe the stock market giant will do the same sooner or later.

– With the renewed ambitions that Equinor now has, they either have to buy more projects or reduce their ambitions. Because what is in the project portfolio today is not enough to reach the goals they have set for themselves, says Theodor Sven Nielsen of Sparebank 1 Markets.

-But unless they are willing to compromise on profitability, it is only a matter of time before they have to adjust their ambitions.

You can reach the rewards

It's not just the 120,000 shareholders who are losing out because of Equinor's poor stock performance this year.

Equinor's management remuneration is closely tied to how the stock performs compared to its competitors.

Bonuses can be cut by up to 50 percent of what they would otherwise be, if the stock price and return on capital make it significantly worse than competitors.

Chief executive Opedal is under pressure from private shareholders. But Equinor directors, who see their pay hit, may also try to persuade Opedal to scale back its growth ambitions.

But it can be difficult.

Oppedal got the top job largely because he was clearly the most aggressive about what Equinor would do in terms of growth in this area. At the same time, the Norwegian state, which holds the majority of shares, is unlikely to be as concerned about short-term developments in the share price as some private shareholders.

Applies to Ørsted or Statkraft

Today, Equinor has its oil and gas and renewable investment businesses in the same group. So do its competitors. However, analysts hope that Equinor will eventually separate the two.

“By separating renewables, we will gain a better view of the profitability of this area,” says Olaisen.

– It will become a fairly large listed company. According to my assessment, we are now talking about a company worth NOK 60 billion, says Sven Nielsen.

There could be two preferred alternatives to extracting only renewable energy sources:

• He tried to buy Danish renewable energy giant Orsted.
• Equinor's renewable investment combined with Statkraft's wind and solar businesses.

But there is little belief that either of these options will be realistic in the coming years.

ABG Sundal Collier's Olaisen hopes, however, that Equinor will prioritise quality over volume in renewables.

– Equinor wants to be involved in everything related to renewable energy. This applies to solar, onshore and offshore wind, hydrogen and batteries. There is now a fear in the stock market that they will waste money on bad projects just to achieve their goals.