IFRS net operating income was negative US$0.47 billion in the second quarter, down from US$3.52 billion in the same period of 2019. IFRS net income was negative US$0.25 billion in the second quarter, down from US$1.48 billion in 2Q19. Net operating income was impacted by net impairment charges of US$0.37 billion, mainly related to a gas processing plant in Norway and exploration.
Equinor is on track to deliver on the announced plan for reducing costs for 2020 by around US$700 million compared to original estimates. Upstream operating costs and the unit production costs are significantly reduced from 2Q19.
For E&P Norway Equinor saw very low commodity prices and production was impacted by deferring significant gas volumes to later periods to capture higher expected value as well as government imposed oil production curtailments.
As from the second quarter, Equinor has established E&P USA as a separate reporting segment. Results in this segment were impacted by very low commodity prices, while significant cost reductions contributed positively. Results in the E&P International segment (excluding E&P USA) were also impacted by low prices, despite a reduction of operating costs.
The marketing, midstream and processing segment delivered a record high result in the quarter, particularly from crude oil and liquids trading where values were extracted from a market in contango and ability to utilise the asset portfolio. In addition, there was positive a contribution from renegotiations of gas contracts.
New energy solutions delivered an around neutral result in the quarter, including costs related to maturation of new projects.
Equinor delivered total equity production of 2 011 000 boe/d in the second quarter, at the same level as in the same period in 2019, with strong growth in liquids production on the NCS. Adjusting for portfolio transactions and government-imposed curtailments, this represents a production growth of more than 4% compared to 2Q19. The flexibility in some gas fields was used to defer significant production into periods with higher expected gas prices. Successful ramp-up of new fields, including Johan Sverdrup, as well as new well capacity, contributed to growth in production.
At the end of the second quarter Equinor has completed 15 exploration wells with 6 commercial discoveries and 2 wells under evaluation. 17 wells were ongoing at the quarter end. Adjusted exploration expenses in the quarter were US$0.28 billion, compared to US$0.24 billion in the same quarter of 2019.
Cash flows provided by operating activities before taxes paid and changes in working capital amounted to US$6.86 billion in the first half of 2020, compared to US$12 billion in the first half of 2019. Organic CAPEX was US$4.11 billion for the first six months of 2020. At the closing of the quarter net debt to capital employed was 29.3%, up from 25.8% at the end of the first quarter, mainly as a result of very low commodity prices and tax payments related to 2019 earnings. Following the implementation of IFRS 16, net debt to capital employed was 34.7%.
“Our financial results for the second quarter were impacted by very low realised oil and gas prices due to the Covid-19 pandemic, but also by a strong trading performance in volatile markets. We now see gradual reopening of society in some parts of the world, while other regions are still heavily impacted by the pandemic. Equinor has taken forceful actions to protect the safety of our people, and to contribute positively in society and mitigate the spread of the virus. We have also been able to maintain stable operations and implemented several measures to safeguard our financial strength,” said Eldar Sætre, President and CEO of Equinor ASA.
“We have reduced costs, maintained solid operational performance and continued to prioritise value over volume by deferring significant flexible gas production to periods with higher expected prices. We also continued to progress our highly competitive project portfolio, supported by active policy measures in Norway enabling the industry to continue to work on planned projects that will stimulate new investments and maintain activity in a challenging period. Since the start of the quarter, we have signed contracts and framework agreements for more than 10 billion kroner to competitive suppliers in Norway,” said Sætre.
“We expect market volatility to continue going forward. The long-term market implications from Covid-19, with possible lower demand and reduced investments in the industry, remain uncertain. However, Equinor’s strategic direction remains firm and we are committed to develop Equinor as a broad energy company to create value in a low carbon future. Together with our partners, we have taken positive investment decisions for transportation and storage of CO2 in the Northern Lights project and for the Sleipner field to be partly electrified with renewable energy from shore,” said Sætre.
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