Working towards its ambition to achieve net-zero emissions by 2050, Norway's Equinor ASA detailed energy transition goals that analysts said could be among the highest in the industry so far.
Equinor in a June 15 strategy update said it is aiming to slash net carbon intensity by 20% by 2030 and 40% by 2035, ramp up the share of gross capital expenditures set aside for renewables and low-carbon solutions from 4% in 2020 to over 50% by 2030, and develop the capacity to store 15 million tonnes per year of CO2 to 30 Mt/y by 2035.
Additionally, Equinor is aiming to achieve an installed capacity of 12 GW to 16 GW by 2030 and provide clean hydrogen in three to five industrial clusters by 2035. The company plans to invest around $23 billion in renewables from 2021 to 2026.
In a same-day note, analysts at Jefferies said most of these goals by Equinor currently represent the highest or one of the highest targets in the sector. For instance, Royal Dutch Shell PLC only targeted 25 Mt/y of CO2 capture and storage by 2035, the analysts said.
Equinor's updated strategy comes as the pressure from investors for more climate action continues to heat up for oil and gas majors. In January 2020, the company said it was aiming to become "near zero" by 2050 and only fully committed to being a net-zero energy company by 2050 in November 2020.
"This is a business strategy to ensure long-term competitiveness during a period with profound changes in the energy systems, as society moves towards net-zero," said Equinor President and CEO Anders Opedal. "We will continue to cut emissions, and in the longer term, Equinor expects to produce less oil and gas than today, recognizing reducing demand. Significant growth within renewables and low carbon solutions will increase the pace of change towards 2030 and 2035."
However, the Jefferies analysts noted a "disappointment" in the financial side of Equinor's strategy, which included a boost in quarterly cash dividend to 18 cents per share, an anticipated free cash flow of about $35 billion before capital distribution in 2021 to 2026 and a 12% return on capital employed in 2021 to 2030.
Equinor also unveiled a new $1.2 billion share buyback program starting 2022, canceling its previous $5 billion buyback program. Two tranches of the new program, each amounting to $300 million, will be launched during the year.
"Shareholder returns are lower than expected," the analysts said. "As expected, Equinor introduced a new capital return framework: Dividend is expected to grow inline with long-term earnings, and a new buyback program ... will start from after [second-quarter] results. [Second-quarter] dividend is also increased by 20% [quarter over quarter] to [18 cents]. This level of returns appears low (implying a 6% yield in 2021) compared to other sector peers."
Equinor estimates its organic capital expenditures at an average of $9 billion to $10 billion for 2021 to 2022 and at $12 billion for 2023 to 2024, while production growth from 2020 to 2021 is expected to be 2%.