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Can U.S. Oil Companies Follow Equinor’s Renewable Path?

Robert Rapier's picture
Proteum Energy

Robert Rapier is a chemical engineer who works in the energy industry. Robert has over 20 years of international engineering experience in the chemicals, oil and gas, and renewable energy...

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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.

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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

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Mark Silverstone's picture
Mark Silverstone on May 14, 2021

Thanks for this discussion Robert.  Equinor has indeed made very substantial progress toward decarbonization, at least relative to other large integrated oil companies.  They have a lot riding on their investments in offshore wind.  Having missed major opportunities in the fixed offshore wind space, they are embracing floating offshore wind very aggressively. Their offshore expertise will serve them well in those efforts.  Have no doubt, however, despite the figures that you cite, that cynics will denigrate their investments and successes such as with CCS and wind and, soon, green hydrogen as token nods to decarbonization.   But Equinor has shown itself to be serious and competent with renewables, more so than the other oil and gas majors. Unfortunately, though their investments in renewables are in the billion dollar range,

"Despite the growth in renewables, “big oil” only spent 1% of its combined budget on green energy schemes in 2018."

Perhaps that 1% has been improved upon since 2018.

On the other hand, Equinor is still exploring for oil, less so internationally, having been severely burned in their US and Africa oil and gas investments, but quite intensively on the Norwegian Continental Shelf.  And, as you indicate, their pre-tax earnings are still heavily on the oil and gas side.  And their legacy production platforms are likely to produce gas and oil in very substantial quantities well in to the 2070´s provided, of course, the Norwegian public allows it (as you say: "a function of the Norwegian government and the company having interests that are aligned"),  and if there is a market for it.

The competing "traditional" major oil and gas companies, Exxon, Total, Eni, Chevron, Shell, BP, etc. do have the advantage of many years of international experience, a factor that became evident with Equinor´s poor results on international projects. So, a lot is riding on Equinor´s performance on the US east coast offshore wind projects.

There are surely difficult, but interesting, challenges ahead. I look forward to seeing how it works out.

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