Up until 2018, the Norwegian oil company Statoil was one of the world’s integrated supermajor oil companies. While not quite on the level of ExxonMobil or Chevron, the company was one of the world’s major oil producers.
In fact, that remains the case today, although Statoil is now Equinor. The company changed its name in 2018, which also coincides with the timing of a shift of direction in company strategy.
Equinor aims to become a net-zero carbon company by 2050. In other words, they are striving to supply energy with an overall net zero contribution of carbon to the atmosphere.
It would seem to make sense, with the world seeking to reduce the use of carbon-intensive energy sources, that oil companies would use today’s revenues to invest in lower-carbon energy sources, which will undoubtedly grow in importance in the decades ahead.
Although most of the integrated supermajors have been making some investments into renewables, none of them have reached the milestone Equinor reported this week when it released its earnings.
For the first quarter of 2021, Equinor reported after tax earnings of $2.66 billion. But an astounding $1.34 billion — right at 50% of the total — came from the company’s renewable segment. No other major oil and gas company has come close to meeting a measure like this, so let’s take a look at how Equinor achieved this.
One of the most important factors enabling Equinor’s shift is that the Norwegian government is the majority shareholder of the company. That means that the company goals will be aligned with the goals of the government, which isn’t always the case with oil and gas companies.
In recent years, Equinor has made major investments in wind and solar power, and the company is developing low-carbon solutions such as hydrogen and carbon capture and storage (CCS) on an industrial scale. The company’s intends to grow its renewable energy capacity tenfold by 2026.
Norway is blessed with abundant resources of wind (and hydropower), but Equinor has also made renewable investments in the U.S., UK, Germany, Poland, Brazil, and Argentina. So its renewable investments are diversified by both type and geography.
To be clear, Equinor is still primarily an oil and gas company. Although Equinor’s renewable contribution to earnings has gotten a lot of positive coverage, some perspective is in order.
Equinor still produced 2.2 million barrels of oil equivalent per day (mboe/d) in the first quarter of this year. That’s a level consistent with the company’s daily production in recent years. (For perspective, ExxonMobil’s daily production is about 3.8 million mboe/d).
In fact, a deeper dive into the company’s earnings show that the exploration and production (E&P) segments generated $4.1 billion of pretax earnings, versus $1.3 billion for renewables. But the E&P segment is heavily taxed. The $4.1 billion of pretax earnings only resulted in $1.3 billion of after-tax earnings. The renewable segment, by contrast, paid almost no taxes on its earnings.
So, Equinor’s experience may not be directly transferrable to a U.S. oil or gas company. Equinor’s success in growing its renewable earnings is largely a function of the Norwegian government and the company having interests that are aligned. That’s not the case everywhere, so other oil and gas companies will have a more challenging time replicating Equinor’s results