2020 was the year that really saw the beginning of a green wave among investors. There was a lot of interest in putting their money into green projects.
Prices of relatively few green companies rose sharply, companies
Who had not yet earned a single krone – was suddenly worth billions.
But after a few years, the tide turned. Billions in green stock market values have evaporated.
Green waste also weighed on Equinor when the company presented its annual results and plans to 2035 in London on Wednesday.
The numbers show a clear dilemma that both Equinor and other traditional oil and gas companies face right now: On the one hand, the world will need more oil and gas until 2030. On the other hand, large amounts of oil and gas are needed. Investing in renewable energy to achieve the green transition.
But the problem is that investments in green energy are expensive. Low profitability. The return on oil and gas investments typically ranges between 15% and 20%, while renewables are much lower – closer to 6% to 7%.
Oil and gas companies have raised huge sums of money in recent years, due to the rise in energy prices following the war in Ukraine. Big profits have accumulated, and companies have deep pockets of money.
What will you use all this money for?
If you wear green glasses, the answer may seem obvious: green energy must be built on the shoulders of fossil energy.
Shareholders must be responded to
However, it's not that simple. Most major energy companies are publicly traded and have shareholders who expect a return on their investment. Therefore, shareholders expect companies to do what is right Value Added In a financial and economic sense, within the company's ethical guidelines.
For example, you can buy other companies that fit your strategy, you can invest in an existing business or you can distribute money to the owners of the company. There are also combinations of these.
Equinor is also sitting on a huge bag of money. “Money is burning holes in the pockets” at Equinor, ABG analyst John Olaison Sundal Collier wrote, among other things, in an analysis last week.
Therefore, several Norwegian analysts, among others to DN, have called for the fact that instead of investing in renewable energy projects with low profitability, Equinor should instead invest its money in oil and gas. It creates much greater financial values.
Instead, they must return the money to shareholders in the form of dividends or stock buybacks (which increase the value of the shares).
Equinor has opened offshore wind farms, including Dugeon off the UK. The challenge for shareholders is that oil and gas have been much more profitable.
Photo: Equinor
Other companies are rewarded
On Tuesday, British energy company BP was rewarded with a sharp price rise on stock markets when the company did just that: increase its dividend and buybacks. This strategy can be seen in light of the fact that BP has recently come under pressure from activist shareholder Bluebell Capital Partners.Who wants the company to increase its investments in oil and gas – and reduce spending on renewable energy sources.
The Financial Times obtained access to a letter addressed to BP Chairman Helge LundBP's goal of cutting oil and gas production by 25 percent by 2030 is “destroying shareholder values,” Bluebell, the former Equinor boss, wrote.
“This irrational strategy has understandably depressed BP’s share price,” she says.
Shell also increased buybacks and dividends.
The stock market probably thinks Equinor should too today. In 2023, the company distributed $17 billion to its shareholders, in the form of direct dividends and share repurchases. In 2024, the figure is reduced to NOK 14 billion.
The company's share price fell by about 7 percent on Wednesday. It's the worst trading day in four years. The fear, that we're seeing from the market, is that Equinor will probably do that “Throw away money» After the least profitable green projects. In this case, shareholders prefer to receive part of the funds.
High expectations for the new coach
When Anders Opedal took over as CEO of Equinor at the end of 2020, many believed he was chosen specifically because of his green energy ambitions. In 2021, the company launched a plan under which at least half of investments until 2030 will be in renewable and low-carbon solutions. This target is fixed, and in 2023, 20% of investments will be in renewable energy sources.
However, oil and gas will remain the largest contributor to Equinor's coffers over the next ten years or so. The company expects to make as much money from oil and gas in 2035 as it did in 2023.
“There was nothing in Equinor's presentation in London on Wednesday to suggest that the company would not maintain a strong investment in oil and gas production,” he said. Clear message in today's DN.
– Oil and gas are needed where they are needed, Obedal said in today's presentation. He notes that demand for oil and gas will eventually decline, but will continue to rise until 2030.
Request to travel
However, he stresses that if Equinor wants to be relevant and competitive in the future as well, it cannot survive on oil and gas alone. However, he admits the journey is tough at the moment, partly because of the very high costs of offshore wind.
Offshore wind construction costs have risen dramatically, partly due to bottleneck problems at producers. This has led many companies, including those operating solely in renewables, to reduce their presence in offshore wind. Many of them also took significant write-downs on their offshore wind projects.
Danish renewable energy company Ørsted announced earlier Wednesday that it will stop its investments in offshore wind energy in Norway, Spain and Portugal. In the past, they have also withdrawn from projects in the USA.
Building, at what cost?
“We will develop this coast,” Prime Minister Jonas Gahr Sture said at the NHO's annual conference a few weeks ago.
The state is Equinor's largest shareholder, and it might be easy to think there is some sort of social contract on the table as Equinor is expected to be a bigger contributor to the green transition than other companies. However, Equinor is a listed company, and must meet stock market expectations.
So the sharp decline in the stock market's value on Wednesday highlights the critical challenge that defines our era: everyone for a better environment and climate – but who will pay for it?
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