Equinor pledges to continue meeting Europe's needs, warns on gas price cap

Norway's state-controlled Equinor on Oct. 28 said it would use the "machine" of its North Sea gas production to meet Europe's needs, adjusting output according to price and geographical need, while warning against suggestions of an EU gas price cap.

The company reported an 8% drop in its Norwegian oil production in the third quarter from a year earlier to 595,000 b/d, partly offset by higher overseas oil production, alongside a big jump in its Norwegian gas production.

CEO Anders Opedal said strong profits enabled continued energy transition investment, "while building resilience in uncertain times."

Chief financial officer Torgrim Reitan told investors the commodity market outlook carried "significant uncertainties, and we expect high volatility." The company is cooperating closely with Norwegian authorities on recent security threats, he added.

On production, Reitan noted the giant Oseberg oil and gas field is back up and running after September maintenance.

He said a slight delay starting up Phase 2 of the giant Johan Sverdrup oil field had necessitated a downgrade in the company's full-year production guidance. Sverdrup Phase 2 will still start up in the fourth quarter, but it will be "towards the end" of the quarter, Reitan said, with full capacity to be reached in 2023 and the capacity of the two phases together "around 750,000 b/d."

Sverdrup, on stream since 2019, already accounts for over a quarter of Norwegian oil output and has proved attractive in the context of curbs on Russian crude. Reitan said 96% of Equinor's Norwegian oil production had gone to Europe in the third quarter.

The company confirmed plans to bring on stream Njord Future, a 175 million barrel redevelopment project, in the current quarter.

Meanwhile Equinor's Norwegian gas output rose 11% on the year to 773,000 b/d of oil equivalent in the third quarter, helped by record-high production at the giant Troll field and the restart of the Hammerfest LNG facility following repairs necessitated by a major fire.

For the full year, Equinor expects its overall oil and gas production to rise by 1%, compared with previous guidance of 2%.

Equinor's worldwide oil and gas production rose 2% on the year to 1.89 million boe/d in the third quarter.

Overseas, it increased its US oil production by 21% on the year to 119,000 b/d and its oil production in other countries, notably Brazil, by 3% to 208,000 b/d.

Its Gulf of Mexico production, mainly operated by other companies, was supported by lower hurricane downtime than in 2021.

Elsewhere, it got a boost from the July restart of the Brazilian Peregrino heavy oil field following repairs, partly offset by the company's exit from Russia and decline at mature fields, it said.

Equinor's production has had a further boost from the mid-October startup of Phase 2 of Peregrino, with a new platform expected to help lift output to 110,000 b/d.

Capex, inflation

Equinor raised its 2025 oil and gas price assumptions, which Reitan said "if anything" might lead a shift in investment toward relatively short-cycle gas projects.

The company's Brent Blend oil price assumption for 2025 was raised from $70/b to $75/b and its European gas price assumption from $7.3/MMBtu to $20/MMBtu.

Equinor downgraded its capital expenditure guidance for this year to $8.5 billion while sticking to guidance that capex would average $10 billion/year in 2022-23, implying a significant increase in the year ahead.

The 2022 reduction stems from withdrawing from Russia as well as spending reductions at the Shell-operated Vito project in the Gulf of Mexico and in Brazil, along with the sale of a stake in the Gulf of Mexico North Platte project, Reitan said.

Reitan went on to warn of inflationary pressures, even as existing project costs are largely locked in. "This is a growing concern: we see bottlenecks and delays and risks of a drop in quality in the global supply chains," he said.

"We see it in many parts of the value chain, clearly within rigs, but we also see it within engineering and construction and particularly in yards in Asia. On rigs in particular... within harsh environment [rigs] and the same with submersible [rigs] is where we see probably the tightest [market]," he said, adding, "we will have to prioritize in our portfolio."

Price caps

On European gas supply, Reitan said recent price falls, for example in the UK, would enable greater use of flexibility in the company's production at fields such as Oseberg and Troll so as to increase output in times of higher prices, or need, in particular locations. Oseberg, which is a major oil producer, has only a limited number of days per year of permitted gas production and can be managed to target high-price periods, he said.

Reitan warned against proposals for an EU gas price cap, saying in a "very critical" energy situation "any adjustments to a well-functioning market mechanism need to be thought very well through."

"The problem is there's too little energy available to Europe. The best we can do is produce more gas to Europe so that's clearly what we want to do. Pricing and market prices is the best way to manage demand and supply. If we make changes to well-functioning market mechanisms we might end up in a situation where demand is too high and it won't be able to attract the sufficient volumes to supply Europe," he said.