Earnings Call: Q3 2018

Oct 25, 2018

Ladies and gentlemen, and welcome to Equinor's 3Q 2018 Analyst Call. I'm Peter Hutton, Head of Investor Relations at Equinor. I'm delighted to welcome Lars Christian Bakker, our CFO. He's also joined by Saenz Scheier, Head of Performance Management and Mohsen Halkos, Chief Accountant. Lars Christian will run through the presentation for around 12 to 15 minutes and then we will open up for questions. And we'll expect the call to finish within the hour. So with that, let me pass the word over to Lars Christian. Thank you. Thank you, Peter, and good morning, everybody. I've been looking forward to talking to you in my new capacity as CFO. It's good to start by presenting Equinor's strong 3rd quarter result. Three things to highlight. 1, our adjusted earnings before tax this quarter more than doubled compared to the same period last year to $4,800,000,000 The after tax adjusted earnings were strong, dollars 2,000,000,000 which is up more than 140%. You have to go all the way back to Q1 2014 to find a stronger result and then remember the oil prices are well above $100 Our Q3 IFRS net operating income was $4,600,000,000 2, we have the best ever after tax adjusted earnings for our international segment of 774,000,000 dollars And 3, we are lowering our CapEx guidance from around $11,000,000,000 to around $10,000,000,000 This is strong deliveries. Higher oil and gas prices have, of course, contributed to the good result, but it is not the only explanation. We create material value because we use the downturn to reduce costs and to transform Equinor into a more competitive company being more agile and resilient. With the E and P industry seeing higher oil and gas prices, now is the time we must show discipline and protect the structural improvements we have achieved over the last 4 years. Together with our suppliers and partners, we have a joint responsibility to continue to improve and further strengthen our competitive position. This is how we can create the basis for a stable activity level, new projects and value creation for all. We are continuing to progress our next generation portfolio. In Q3, we delivered field development plans for Johan Sajdur Phase 2 and Troll Phase 3. These two projects, both with very low breakevens, are excellent examples of our ability to deliver on our always safe, high value and low carbon strategy. Phase 1 of Johan Sverdrup is more than 80% complete and expected to start producing in November next year. But it's not only the largest project that generate value. On October 14, we started producing oil from Oseberg West Flanken 2, the first unmanned wellhead platform on the Norwegian continental shelf. We delivered this field with a CapEx of NOK 6,500,000,000 around 20% below forecast at the investment decision. The breakeven for the field has been reduced from $34 at FID to less than $20 per barrel now, further improving an already robust field development. The Malini field in the UK is progressing with hookup and commissioning ongoing offshore. Due to challenging weather conditions, very challenging weather conditions and other factors, the estimated first oil date is delayed to first half twenty nineteen with CapEx unchanged. I repeat, CapEx unchanged. Meanwhile, the Mariner reserves have been increased by around 50,000,000 barrels, a 20% increase. This comes as a result of improved reservoir understanding and a more optimized drainage strategy. We also continue to strengthen and sharpen our asset portfolio to create value. The acquisition of Rospank Operatorship in the UK gives us the opportunity to leverage our experience gained from Johan Castberg to realize a new exciting deepwater project with a considerable value creation potential. At the same time, we have recently divested the undeveloped and for us low priority discoveries, King Lear and Tomlietnalfa on Norwegian continental shelf. With these transactions, we deliver on our strategy to create value through the cycle. In the quarter, we also continued to strengthen our industrial position in renewables. We are on track with the Apodi solar project in Brazil, and we have started the delivery of power from our Kona offshore wind project in Germany. Equinor is now in projects with the capacity to supply around 1,000,000 European households with power from offshore wind. The 3rd quarter is characterized by strong cash flow generation, strong earnings across all business segments and high production capturing higher realized prices. We reduced our net debt ratio from 27.2% in the second quarter to 25.7%. Combined with strict capital discipline and continued strong project execution, we are able to reduce our CapEx guiding for 2018 from around 11 to around $10,000,000,000 We maintain our commitment to capital distribution and the Board of Directors has decided to maintain the dividend for Q3 at €0.23 per share. The safety of our employees and the integrity of our facilities and installations is and will always be our top priority. Our series incident frequency in the last 12 months was 0.5 per 1000000 hours worked. This is the same level we achieved in the 2 previous quarters and it is the lowest level ever achieved by Equinor. In the same quarter last year, our score was 0.7. Now let's have a look at the key financial takeaways for this quarter. Adjusted earnings before tax were strong at $4,800,000,000 an increase of 2,500,000,000 This is more than a doubling when compared to the same period last year. The IFRS net operating income was $4,600,000,000 There are 3 key drivers behind the strong quarterly results: higher realized oil and gas prices, high production due to new fields and new wells and continued strong cost focus. I'm very pleased to see that all segments delivered strong results this quarter. We realized on average liquid price $67.6 per barrel, an increase of 44% compared to the Q3 last year. Realized European gas prices were up 33%, while North American gas prices were up 15% year on year. Adjusted earnings after tax came in at $2,000,000,000 up from $0,800,000,000 in the same period last year, an increase of 143%. The tax rate in the quarter was a low 59%. At higher oil prices, we are seeing sustained profits being generated internationally in areas with low effective tax rate. Let's now have a look at each of the segments. E and P Norway. E and P Norway delivered adjusted earnings before tax of $3,400,000,000 This is an increase of 68% year on year. The main adjusted earnings driver were higher realized prices combined with lower DD and A. Production was down 6% due to an increased number of turnarounds and expected field declines, partially offset by contributions from new wells and ramp up on new fields. Underlying OpEx and SG and A costs per barrel increased somewhat mainly due to plant turnarounds, new fields and preparation for operations. E and P International. E and P International delivered strong adjusted earnings of $1,000,000,000 before tax, up from negative $27,000,000 in the same quarter last year. After tax adjusted earnings in the quarter from E&P International is the strongest ever. We recorded the highest quarterly production of 831,000 barrels per day, a 14% growth year on year. And I must say, it's kind of a bit of annoying that the record was achieved just after I left DPI. But Torikim and Anders and their organization have done a great job. And as CFO, of course, I'm obviously very pleased with these results. The underlying OpEx and SG and A cost per barrel was stable international adjusted for royalty and asset retirement obligations. The net cash margin sorry, the net the cash margin per barrel after tax in E&P International is a strong $30 per barrel, which is higher than the contribution per barrel from the NCS. Our MMP segment delivered strong pretax adjusted earnings of $481,000,000 compared to $423,000,000 in the same period last year. A good delivery is mainly due to strong products trading and strong results from European Gas. During the quarter, Equinor's total average equity liquids and gas production was 2,066,000 barrels of oil equivalent per day. This is an increase of 21,000 barrels per day, current spending to a 1% increase compared to the same period last year. The production growth is due to start up and ramp up on new fields, portfolio changes among them the acquisition of the Roncador field in Brazil and new wells put on production, especially onshore U. S. This is partly offset by high planned turnaround activity on the Norwegian continental shelf. Year to date, we report strong cash flow from operations of more than $20,000,000,000 before tax. After investments, dividends, proceeds and transactions, the net free cash flow year to date is $2,500,000,000 Without the value enhancing transactions on Roncador, and new prospective acreage in Brazil, North Platte in U. S. Gulf of Mexico and MAPE Ningen on NCS, we would have more than doubled the year to date free cash flow. Our net debt ratio was further reduced by 1.5 percent to points during the quarter to 25.7 percent. In the 1st 9 months of the year, our organic CapEx is $7,200,000,000 and proceeds from portfolio transactions add up to $1,200,000,000 year to date. Let me close with a few comments about our guiding. We have been able to lower our 2018 CapEx guiding from around $11,000,000,000 to around $10,000,000,000 and we maintain our 2018 exploration spend at $1,500,000,000 This is due to good project execution, efficiency improvements and cost reductions on several projects like Randstadrupp and strict capital discipline. Expected 2017 to 2018 production growth is unchanged at 1% to 2% and 3% to 4% per year for the period 2017 to 2020. We are on track to deliver on our ambitious ambitions communicated at the Capital Markets Day last February. As Peter said, I'm here with Martin and Svein and we are looking forward to your questions and Peter will guide us through the Q and A session. So thank you for your attention. Thank you, Lars Christian. And in fact, what I'll do is I'll pass the word straight over through to the operator so that she can remind you of the process to poll for questions. Thank you. Thank We will take our first question from Oswald Clint from Bernstein. Please go ahead. Good morning. Thank you. Yes, I'd like to ask just on the CapEx reduction that you've released this morning. The $1,000,000,000 maybe could you just break it down a little bit more in terms of is this pricing reductions? Is this kind of redesigned and cost savings? Or is it some rephrasing of spend into 2019, please? That would be my first question. And then secondly, obviously, some very strong cash flow, some decent improvement in the balance sheet position here again. We didn't really hear any language around the increased shareholder returns. I think you spoke about earlier in the year that scope for buybacks emerging back in February. I just wonder if you could update us on that comment that you made at the beginning of the year given how good the cash flow has been through 2018, please? Thank you. Thank you. And let me start with the first question on the CapEx guiding for this year. So we have taken the guiding down from around 1,000,000,000 dollars sorry, from around $11,000,000,000 to around $10,000,000,000 for the full year. And I must say that I'm impressed, Perhaps I should stop being impressed, but because they deliver year on year. But I'm still impressed by the quality of execution of our project portfolio that the projects deliver. So the ability for us to take on the guiding is based on 2 fold. 1 is capital discipline because we have a lot of sort of small capital projects too. So this is about capital discipline and making the right priorities. And then combined with all the field developments and the projects, the majority of the contribution is related to project execution. So this is not sort of a redesign at this stage. So it's more about project execution. So that's why we take down the guidance. On the element of share buybacks, so let me then and you refer to the beginning of the year And let me then remind you of what you said at our Capital Markets Day. We concluded the Lescreen program as planned. We increased the dividend and said an emerging scope for share buybacks dependent on macro outlook and portfolio developments. He also said that short term priority was to strengthen our balance sheet, meaning reducing the net debt ratio. So since then, in my view, we have delivered on this guiding and we have reduced our net debt ratio from 27.2 percent to 25.7 percent. We have delivered strong cash flow versus the after tax at 2 point €5,000,000,000 which would have been more than double if you hadn't done any inorganic investments during the year so far. And we have taken positions like North Platte in Gulf of Mexico, Martin Linden on the Norwegian Continental Shelf and Roncador in Brazil, to mention a few. All these good value propositions for the company and thereby also the shareholders. So you will see us going forward reducing our net debt ratio is a priority and catering for flexibility and strong balance sheet given the different market outlooks going forward and the opportunity space we see for making good deals. Okay. Very good. Thank you. We will now move to Thomas Adol from Credit Suisse. Please go ahead. Good morning. My first question is also on CapEx and capital efficiency. I wonder if you've done an amazing job over the past 4 years, whether there's actually more you can do from here on or whether it's kind of getting pretty difficult. And given the update on the on capital efficiency with these results, I also wondered what it meant for CapEx for the period beyond 2018. And secondly, on kind of capital allocation, I'm just wondering if you are more actively engaged in buying more assets or companies than selling assets at this stage. Thank you. On I'm just writing down the question, so I remember it correctly. On CapEx, if there are more to do from now on going forward on projects deliveries, I mean, the better you get, it's kind of harder to improve even further. So that's obvious. But what we look at currently within the area of digitalization, we believe that there might be opportunities to improve even further. But that is something that we're working on and too early to conclude as sort of how that will influence our different projects going forward. On the CapEx guiding for the period towards 20 20, there is no change in the guidance. We said around SEK 11,000,000,000 in CapEx for 20 18 and then on average SEK 11,000,000,000 for the period 2018 to 2020, and that guiding remains. On capital allocation, whether we buy more than we divest currently, The proceeds from sales at SEK 1,200,000,000 and SEK 2,500,000,000 after tax in free cash flow. And as I said, that number would have been more than doubled if it hadn't been for our And we will always look for business opportunities. We see some areas around the world perhaps more of a hotspots, and it's more difficult to make really good business deals. And whereas other places, we still believe that there might be room for doing good business deals. And that is what we will seek for. Perfect. Thank you very much. We will take our next question from Lydia Rainforth from Barclays. Please go ahead. Thank you and good morning. Two questions if I could. One was just on the cost side. You did see a slight uptick in terms of the OpEx numbers. Is that something you're disappointed by? Or is that sort of as you would have expected at this given where the macro side is? And then the second one, just to come back to the cash flow allocation side. In terms of the we talked a little bit about the buybacks, but can you just talk about how you see the dividend policy evolving as we go through the next 2, 3 years? Thank you for your questions. On the OpEx and SG and A is up 10% year on year. And then I think it's important to be aware of some of the underlying behind this. If we take international first, the increase international is primarily due to new fields like Roncador, but also the fact that last year, we had reversal related to a positive asset removal obligation. Then we have higher royalty driven by higher prices. And if you adjust for these items, then the underlying cost per barrel basis is flattish or even sort of slightly down actually. On the Norwegian continental shelf, you see also some there's one technicality perhaps, I should call it, that you should be aware of. Internally, the company, we have said that the Nuhan Norman Lange, the ownership of that asset is to belong to MMP, not DPN. So that means that the DPN kind of have to pay for that service internally in the company, but the net effect for the totality of the company is 0. So that explains some of the cost increase in DPN. Then we have new fields and in preparation for operations. If we then in addition, adjust for the differences in turnaround effects on this, then the production in sort of the OpEx and SG and A per barrel basis from the Wichita Continental Shelf is up slightly below 3 percentage. And then cost per barrel this quarter is then down compared to cost per barrel Q2. Then on dividend. Obviously, going forward, we have said that the dividend will increase in accordance with underlying earnings, and that is still our guiding. Great. Thank you. We will now move to Mehdi Enabati from Societe Generale. Please go ahead. Hi. So good morning all. I will ask 2 questions, please. The first one regarding the flexibility of your natural gas production. So you've highlighted in the past that thanks to your compressors and some key gas fields like trough for example, Asgard, you might be able to boost the natural gas production to create value. So I wanted to know if you currently consider that the European gas price and European gas demand is allowing you to boost your gas production in the short term, meaning during the Q4 and maybe during the Q1? So that's the first question. 2nd question regarding your production trend in Angola. So I've noticed it has been down 12% year on year during the 1st 9 months of this year. And I wanted to know the reasons of such a decline and what will be the production trend in the following year for that country, particularly as it looks like, sorry, it is a highly profitable production for you? Thank you. Let me start with your second question on production trend Angola. We see obviously the same numbers as you do looking at the country and the different assets. But we also believe that there might be room for actually fighting this decline, but that is highly dependent on achieving PSA extensions. And then on to your first question. I felt it was kind of 2 fold, 1 on gas prices and demand in Europe and then on our flexibility on the Norwegian continental shelf. We have seen strong demand in Europe and thereby higher prices over the last months quarters, we expect that to continue in the short term. Why? Well, 1, the indigenous production in Europe is declining and declining more sharply than historically, mainly related to the Netherlands. 2nd, we see on storage capacity in Europe, there is good storage capacity, but the storage levels are quite low. So we would expect that approaching winter that there should be sort of a buildup of storage volumes. And then thirdly, Europe is and gas prices in Europe is exposed to the LNG global LNG market. We see the more or less all LNG sort of bypassing Europe and heading for Asia. But that also means that there is a kind of a surge then for gas prices to rise in Europe. On our gas machine in Norway and the flexibility, we have a couple of assets that represents such flexibility. Troll is 1 and Uusseberg is 1. In the case of Oseberg, currently producing at minimum due to the lower prices now compared to what we will expect getting closer to year end and winter period. So this is well within what we're allowed to produce per year. So we try to use that flexibility to maximize our revenue. Thanks very much. We will now take our next question from Jason Gammel from Jefferies. Please go ahead. Thank you very much. Two questions from me as well. First on just another one on capital allocation. Is there any particular trigger that you would need to see on some of the leverage ratios on the balance sheet before you would move forward with share repurchases? Or do you see those as linked but independent decisions? And then my second question involves Rosebank, an asset that you had decided to exit previously. What drove your decision to come back into the project? And what's the path forward from here? I know that the previous operator had put quite a bit of effort into pulling down the costs, but you also referenced your experience at Casper. So will there be another iteration of project redesign? Thanks. Well, on Rosebank, as you correctly point to, we exited Rosebank back in time. That was a non operated position, 30%. We sold it in 2013. The oil prices back then were higher than today. And also the CapEx estimates back then was higher than what we currently see. And then this opportunity arose then for us to take 40% on the operatorship. And then we looked at that opportunity given our experience and given what we believe that we can create a value of this, we saw this as an attractive opportunity. Going forward, we have to wait for government approval and partner approval for this deal to go through. And then, of course, the development of this will be an FPSO with subsea tiebacks. And as you correctly point to, we have, among others, a new one cost peg to draw upon when it comes to learnings. On capital allocation and trigger points, and this is also a question I get quite frequently even out on the road, whether we have trigger points or not. And we do not have any trigger points. Why? Because we feel that, that would not be sort of prudent sort of management given the leverages or the elements that I pointed to. This is a combination of trying to strengthen our balance sheet, reducing the net debt ratio. We would like to maintain capital discipline and flexibility and to better off whatever macro developments we will be facing. And then there's the opportunity space to build a strong portfolio. As an oil and gas company, we need to replenish, which we have been good at both during sort of the downturn as well as when we have seen an uptick in oil price. And we will do continue to look for good value opportunities. But then remember a couple of points. 1, it has to be good value opportunities because that's the best way to create value for our shareholders. And 2, no projects will be sanctioned until it is good enough. Very clear. Thank you. We will take our next question from Alastair Syme from Citi. Couple of questions. Turnarounds are normally pretty high in the summer months. So can you just explain what was special about this year that caused Norwegian production to be down 6%? I guess, put it another way, if you remove the effect of the turnarounds, what would the underlying production trend have been? And then secondly, can I just come back to the Capital Markets Day? You presented that chart of the sort of the cash flow from operations guidance 2018 2019 average. Obviously, 2018 is seeing a benefit from significant tax tailwinds. Can you just sort of come back to that chart and remind us, is that how you see the average play out in 2018 2019? Or how should we think about adjusting the tax in that chart versus what you're seeing year to date? Yes. If you then start with your turnaround, I mean, you guided for the Q3, a turnaround expected turnaround effect of 80,000 barrels a day. And I'm not sure, Sain, if you want to add some granularity to this one. No, I think you're lucky, Jonathan. And the turnaround at 2018, most of that came from Norwegian Continental Shelf. If you also compare it the Q3 last year, we also saw that the turnaround was approximately, yes, 30,000 more this quarter compared to last quarter. So if you adjust for that one, then you see the production on the Norwegian continental shelf. And then on the cash flow and the guidance, we indicated that we would deliver free cash flow of USD 12,000,000,000 in the period 2018 to 2020, accumulated USD 12,000,000,000 euros and at an oil price of $70 a barrel. If you look at the 1st 9 months of this year, we feel comfortable that we will be able to deliver on that guiding. I was actually also referring to there was a specific chart that sort of showed the cash flow from operations 2018 2019. It was a bit of a fuzzy bar chart, but sort of indicated numbers in the high teens for cash flow and clearly you're going to hit that this year in a $70 oil world. But you've had significant tailwind from tax. So how do we think about 2019 in that context? Zain? Okay. I'll just take that one. As we said, we gave the scenarios for different personnel, 50, 70 for on average for 2018 2019. What we indicated and then took into account the tax effect that we had coming in from 2017. So but what could also then be looked at is when we look at the tax rate and the taxes payable as we have then taken out and showed in the accounts now for 2018, that could also then kind of be an kind of indications for also then to what to expect going forward. But definitely taking into account the taxes from 2017 for the first half of the year. No, we are into a situation where we pay taxes on the results from 2018, and we had one tax payment in this quarter. And sorry, just delay the void. And your expectations for 4th quarter on tax? We will add 2 tax payments on the Norwegian continental shelf in the cash flow. One was paid on 1st October, which half of it was then adjusted for in the net debt pressure. And the second one will come 1st December, both of them are then EUR 14,000,000,000 of which you've gone. We will take our next question from Anders Holzer from Kepler Cheuvreux. Please go ahead. Good afternoon, guys. Thanks for taking my questions. I just have 2 quite short ones. First of all, it's related to your guest list of priorities for next year. As your cash flow improves and as your position improves? It seems that the balance sheet is probably at the top of your list of priorities. If you take us through what then follow in terms of priorities, would you priorities purchase those buybacks or would you continue to look for more value adding opportunities through M and A? And also while we're on to the M and A, what does the opportunity set look like from where you're sitting at the moment? I mean, previously, you have said that the opportunity set in Industry is as good as you have ever seen it. I just wonder if that's still the case right now. Thank you. On the opportunity set, it is still very good at on an aggregated level. But there are some hotspots around the world where the competition is higher, you could say. And the possibility to really make good value on our propositions based on the deal is somewhat tougher or more limited. But there are still plenty of opportunities, and we will continue search for them and hunt for them and see if we can strengthen and high grade our portfolio as part of this. And the M and A is both in a combination of acquiring assets, but also high grading by farming down or divesting assets. And we have a tradition for not announcing neither sort of amounts of dollars part of our program or any sort of possible deal prior to you read about them in the news. On the priorities on capital distribution, there is no change in our guiding on this topic. Script has ended, dividend has increased. And going forward, we have said emerging share buybacks dependent on market outlook and portfolio opportunities in combination with strengthening our balance sheet, meaning reducing the net debt ratio. And that is the guidance I can provide you. Okay. Thanks. We will take our next question from John Rigby from UBS. Hi. Yes, thank you. A couple of questions. Firstly, on the tax. You made some comments around the international tax rate looking lower at these oil prices. I just wonder whether you could give me some sort of further color around how long you would see that and to what sort of sensitivity there is to oil price assumptions? And then sort of as an aside, is that effect carried forward into the cash flow? Or is this effectively an accounting effect in the P and L? The second question is about your U. S. Onshore. I mean, the key advantage of U. S. Onshore, it seems to me, one of the key advantages is flexibility. I know that you're cutting CapEx this year. But isn't there a case to say that voluntarily you start to raise CapEx, particularly in the U. S. Onshore where you can take advantage of the short cycle aspects of that element of your upstream portfolio? Thanks. Very good. On tax first, on tax international, we elaborated around this during the Q2 where we had an internationally and tax rate of 27%. This quarter, it's lower. But we said then at 27% that, that could be seen as a representative level at these commodity price levels that we currently are seeing. That means that this low tax rate that we are earning good money in countries with low tax rate or no tax rate. And this is why we can report highest earnings after tax ever internationally. The but I also think that 27% compared to an even lower tax rate this quarter, I think you should remember that this quarter, there were no expansion activities in the countries with the low or no tax rate. And you count sort of as you that for granted going forward. So still our best guidance given the current commodity prices is around what you saw of international tax rate for a Q2. And yes, you see this carry through into the cash flow numbers. On U. S. Onshore and the flexibility and activity level, I think I'll let that to Martin or Svein to comment on. But before I do that, to your comment on cutting CapEx this year. That is one way of looking at it, but it is not cutting from the point of view that we just slashed the budget because you want to take down the activity level. The result of around €11,000,000,000 this sort of going down from around €11,000,000,000 to around €10,000,000,000 in guidance is as a result of being more efficient in the execution of project deliveries and strong capital discipline, but mainly the first one. So yes. On the onshore activity in U. S, we are also then then following closely what's going on. And as we have said, that we have flexibility here in the operations. When you compare it to the production 1 year ago, it has then increased. We are now producing around 275. While a year ago, we have approximately 2.25. So then increasing it in line with prices. We are in the operations. As we end the quarter, we have 3 rigs in the place there. And also on the non OPT, there are more rigs now than earlier. So it's about then utilizing the flexibility. But what is also important is then the completion of the wells that we and as Slotkisten said also in his presentation, that production is going up also due to the fact that we have completed more wells. So it's a combination of both drilling as well as doing completion on the rails on the wells already drilled. Can I just follow-up? Do you have the capacity or capability or the acreage to lift activity rates should you choose to? That is on various flexibility in the onshore to adjust activity. We will now take our next question from Christian Malek from JPMorgan. Hi, good morning. Thanks for taking my questions. 2, please. First, I mean, sorry to come back on this tax. Just can you give us visibility in terms of how long this is going to last in terms of these little sort of effective subsidies through the unrecognized or deferred tax assets that you have in the U. S? I mean, is this sort of an opportunity for the next few years? Or do we draw to a close of this year? Understand the relationship with the oil price and the fact that it's been generated through U. S. But just to what extent can you provide a quantum and sort of an expiry in terms of when it sort of rolls over to help us model sort of the numbers better through the U. S. In terms of tax rate? The second question regarding understand the capital allocation philosophy that you have, and there are no triggers. But just to flip it around perhaps, what is the incentive to take the advantage of more opportunities when you have fantastic assets as it stands? Or in another way, do you have to keep delivering production growth through the medium term as opposed to just consolidating your assets and giving us giving the market the cash back through whatever means that you have. I just want to understand the debate that you're having at the board. What is it that leans you seems to lean you more into M and A and taking advantage through a lower balance sheet or gearing over and above cash allocation, cash for cash returns. I just want to understand the debates you're having. And then if I can ask sort of a subpart of that question. In Energy Transition, you talk about the CapEx potential to rise to €500,000,000 to €750,000,000 per year to 15% to 20% of group spend by 2,030, so quite a big uplift. Would it be perhaps that this is where you're looking to save your dollars and keep your powder dry in terms of putting it into energy transition again over and above returning it back to shareholders? Thank you. Let me start with your second question and then this question of tax rate and deferral, Per Smoten can give you some more granularity. On as an oil and gas company, we need to replenish our volumes unless we will decline. And we have a very strong healthy next generation portfolio to come on stream by 2022, bringing 3,200,000,000 barrels of equity to the company and shareholders. The 3,200,000,000 barrels is of the lifetime of those assets that we start up by 2022. Average breakeven, 2021, I mean, with an internal rate of return of more than 30%. I think that is a very, very attractive value proposition also for shareholders. And then when we look at the unsanctioned portfolio and the opportunity space, we see to take on more. We would like to take on more good projects so that we can keep giving a healthy return to the shareholders as it evolves value propositions and those activities. And Martin, on the tax rate and deferred taxes, especially in U. S? Yes. Thank you, Christian. I would also like to refer back to the 2017 annual accounts note now in regards to the unrecognized deferred tax assets. And then there is quite some thresholds that need to pass before we can start recognizing the surtax assets. So before and we should be really confident before doing that, we will not go out with estimates. So we can say that so far we have not recognized significant parts relating to our U. S. Operations. But that will come in when we pass these high thresholds given by the accounting standards. So this is also driven by the technical requirements from the accounting standards. Before we go to the next question, can I just ask that we keep the questions tight? In fact, we're taking the questions in the order in which they are poll. We want to try and keep this call within the hour or only shortly. After that. We still have around half a dozen to go. So can I ask, keep it to 1 maximum 2 definitely not 3 and we'll try and get through this for the benefit of everybody? Thank you. We will now move to our next question from Rob West from Redburn. Please go ahead. Thank you very much. I'll keep them really quick, per Peter's suggestion. One, just with Oresberg, West Blank and online, could you update us on your reflections from doing that project? And any future unmanned wellhead platforms that you feel are now more likely to go ahead now that you've learned the lessons from that one? And second question is back on shale. Just the Marcellus and the ramp up that you've had there. Is that growth rate going in line with what you would have expected around the start of the year? Or has something changed to unlock some extra growth, particularly from the Marcellus part of the Shell portfolio? Thank you. Well, on Ousberg, Westfalcon, a very profitable project and well executed, delivered at a cost more than 20% below the FID or operation estimate. And we'd love to look for sort of a copy paste opportunity for that kind of thinking and development. On Marcellus and the Appalachian sign? I think at the CMU, we indicated the total production then for U. S. Here, including the operations, which is both non op and the operated part that we're having. And we are in line with what we said at the CMU. So things are going then according to plans. Great. Thank you. We will take our next question from Alwyn Thomas from Axon. Please go ahead. Good morning. Just a couple of quick questions for me. Firstly, can I refer back to the Norwegian production question? We have seen some issues this year, some reported issues in May and also September by the MPD. Could you comment on the sort of reservoir across your portfolio and whether you're seeing decline rates higher than expected and perhaps whether it should lead to higher drilling or maintenance CapEx into next year? And if I may just ask the CapEx question in a slightly different way. If you say €10,000,000,000 is your base from this year, what makes it more expensive into next year and future years bridging the gap? Thank you. Well, on Norwegian production and the decline rate is as expected, meaning in accordance with the guidance of a 5% decline. The quality of assets on the Norwegian Central Shelf is still very good and still some tieback opportunities that we're looking at and infill wells and drilling. We do not see any sort of much more maintenance to sort of maintain the production level. This is more about infill drilling and tiebacks to fight this decline rate than anything else. The regularity of the assets in Q3 were up compared to Q2 and very, very good results. On the CapEx and the €10,000,000,000 or around €10,000,000,000 in guidance for this year compared to then around €11,000,000,000 going forward. So on the 11%, this is currently very healthy, steady represents a healthy, steady activity level given the size and the capacity of other organization. I think that is key to take in. 1 of our key learnings through the downturn was that you never sanction a project before it is as good as it can get. So then it's very important now that the prices comes up that we are not tempted to sanction projects because they're almost as good as they get. I mean, if we feel that it's the right thing to do to send it back and have them to go through it one more time, We will continue doing so because ultimately, that is what really brings cash to the company and value creation. The second learning is you don't overstretch your organization because if you do, then that will influence the whole sort of quality and execution machine as such as an organization. So if you want to sort of increase your activity level substantially, then you have to do mining side so that you maintain sort of a good enough sort of capacity. I'm not saying that we will have slack in that organization because that's far from the case, but always stretching is not good either and that was part of the learning from downturn. So then bridging it from currently guidance of 10 around 10 for this year and back to an average of 11 over the next couple of years. And that is just to say that, that is the healthy, steady activity level. And we need to replicate over achievements in many ways on the execution level that we have done this year. And I fingers crossed, I hope for that to happen, but we need to be prudent in our guidance externally as well as our planning internally. And this is sort of a P50 as a matter of what we believe then the ultimate spending will be given what we have our project portfolio for 2019 2020. Okay. Thank you. We will take our next question from John Oleson from ABG. Thank you for taking my question. First question on the CapEx. Does the lower CapEx guidance for 2018 alter the guidance that you provided earlier this year of an average CapEx of $11,000,000,000 for the period 2018, 2019, 2020? That was my first question. On the second question, Lars Christian, you have experience now from both Norway, onshore North America and also offshore internationally. Where do you think Equinor has the best competitive advantage in these three over these three areas? Thank you. Well, on CapEx guiding, we have said SEK 11,000,000,000 for the period average then, SEK 18,000,000 to SEK 20,000,000,000, and that remains our guiding independent on us guiding around SEK 10,000,000,000 for this year. If I look at to your second question, onshore, offshore, whether it's international or in Norway. This is many ways you can slice this, I think, an answer to this. But if I look at an oil and gas development, it is about 4 levers that you have to pull to make it work. 1, it is about reservoir understanding, and we are among the best when it comes to that. 2, it is about drilling wells and being good at it. And if you look at the external benchmark for the time being over the last couple of years, well, we've been ahead of the pack. 3, it is about building good, strong organizations. And I think both the Canadian development and Brazil and whatever we have in Norway, to mention a few, we are good at attracting talent, local talent and combine that with experience of the mother ship. And then fourthly, it is about deploying technology. Technology development and technology is in our DNA, and this is about deploying it. So then, for me, it's not whether it's offshore or onshore or one basin or the other. What we need to continue looking for is the best assets regardless of whether it's onshore or offshore or wherever. The only thing that we need to comply to, of course, is sanctions and the no gold zones that are put in place around the world and the other herd of that definitely. No difference whether it's onshore in Argentina or offshore in the Barents Sea in Norway. You are just as successful just as successful. If it's a good asset in Barents Sea, endgame. If it's a good asset in R and D and Onshore, endgame. Sounds great. Thank you. We will now move to our next question from Rafael Cossage from Bank of America Merrill Lynch. Good morning. Thanks for taking my question. Just drilling down back onto the CapEx guidance and apologies for this. So in the last 3 months, what has specifically led to $1,000,000,000 saving in your CapEx budget? Is it actually just release of contingency on things like your Hans Hedrick Phase 1, which you updated in August? Or is it actually deferring sanction decisions, for example, perhaps Noaca this year? Or is it indeed a bit of rounding in there because it looks like it's to the nearest $1,000,000,000 correct me if I'm wrong? And then secondly, just on exploration, given that you've done all these acquisitions this year, spending $1,500,000,000 on exploration this year, should we expect intensity on exploration to be consistent over the coming years? Or should we perhaps expect a pullback as you digest your acquisitions? Thank you. Well, first of all, going from around SEK 11,000,000,000 to around SEK 10,000,000,000 is not necessarily equal to us reducing it by exactly €1,000,000,000 On there was a part 2 to that question, wasn't it? Was it CapEx side of it? Contingency, deferring project sanctions. I just wanted to know what the split was on that, please, driving SEK 2,000,000,000 again? Yes. As I said, it's not exactly SEK 1,000,000,000 in reduction since it's around SEK 11,000,000,000 to around SEK 10,000,000,000 On those improvements, we do internally twice a year a full run through of all our projects, and that was done recently. And when we look at it, we see that across the board, regardless of whether it's a large project, big project or a small one, we see contributions, positive contributions in bringing down the overall CapEx spending for this year. And it's impossible to pinpoint one explanation, but the big bucket that contributes the most is stellar execution project execution. So that's that part of it. On exploration, we have taken exploration acreage over the last couple of years and tried to high grade drilling targets to feed the exploration machine to put it like that. And we maintain the guidance for this year at $1,500,000,000 And we haven't given any indication of what to expect over the next couple of years, except that we have said on the drilling number of drilling of wells that we should expect a level between 30 to 40 wells year on year. All right. Thank you for the color. We will now take our next question from Rob Pulleyn from Morgan Stanley. Please go ahead. Thank you, gentlemen. I have one question. So following on from your explanation of your disciplined approach and your operational success, May I ask a little bit around the opportunity set of future projects beyond Greater Natara? Because at some point, obviously, the geology matters in terms of your opportunity set as to what IRRs and breakevens can be achieved. So does the opportunity set of what you have in the next 5 to 10 years, Hopper, support this view that you can maintain this capital discipline and deliver similar breakevens in IRS? Thank you very much. This is a very key question and a very good one, too. I think the industry for many years has said that the easy barrels have gone. From that aspect of it, it's more and more demanding to produce. And usually, that means that they will also be somewhat more expensive compared to the easy barrels. Then of course, there is another factor that counters this, and that is technology development. And we have seen huge contributions in the area of technology development. And I have brought down the cost per barrel, both when it comes to exploring, developing and producing. And we expect that to continue. And digitalization is one area that will contribute in all these elements or part of the value chain for oil and gas development. The opportunity set around the world, yes, there is a fierce competition for good assets. But I think that we have been able to demonstrate over the last couple of years an ability to be quite successful in taking on good assets and going forward. And that is our ambition. And we will only take on projects that we are sure that can represent good value propositions and not erode value. Taking us back to the Capital Markets Day, we also said when we looked at the unsanctioned portfolio that our average breakeven were down 30% over the last 12 months leading up to February and giving us comfort that as we work in going forward, that we can still improve that portfolio somewhat more. Thank you very much. I'm sure this topic will be revisited, but in the interest of giving it time, I'll hand it over. Thank you. We will now take our next question from Thomas Kline from RBC. Please go ahead. Hi. Thank you for taking my question. We've been hearing about capital allocation this morning. I just wanted to ask one question on another potential aspect of this on offshore wind and how you're seeing opportunities there. I know you recently signed an MOU with Petrobras in a deal in Poland before that. So any more color on this side would be helpful. Thank you. Okay. Thank you. On the offshore wind, as you said, we signed an agreement earlier in Poland this year. So we're looking into that one and working with that one. We also then secure positions then in U. S. That we also are working on maturing outside New York. And then in U. K, we have the Dogger Bank area. That is also what we are looking at. And then we are then looking if there are other opportunities that could fit us well. But currently, those are the areas that we currently have in our portfolio. Okay. Thank you. We will take our next question from question. Very one only one very quick question for me. Just looking at the Rojerdorf field, this is one of the fastest declining assets in the Campos Basin and in Brazil in general. Just wondering if you can provide a bit more details on the opportunity set there for you. You discussed the improved recovery rates in the past, but when do you think we could start seeing improvement in decline rates? And then attached to that, whether you see a greater opportunity from doing more work on mature assets in Brazil alongside Petrobras? We have a very strong and good relationship with Petrobras In the current environment in Brazil, we are able to progress our business and get the approvals. So we have also a very good relationship with the authorities. In the case of Roncador, it's not that many months since we finalized that deal and started the bookings. But that also means that, that was the opportunity for us to really be able to look into the books from the point you to start looking at IOR opportunities, and we are in a very early phase of looking at those. But we still believe that there is an opportunity and should be an opportunity to improve the recovery factor for that asset. Thank you. We will take our next question from Jason Kenney from Santander. Please go ahead. Hi, good afternoon. Thanks for the question. So I'm going to hop back over a decade to when your company indeed many oil companies were happy to talk about return on capital employed. And I'm just thinking if you would be feeling more confident about setting return on capital employed targets in your Capital Markets Day in February. Obviously, you're enjoying the oil price right at the moment, but your underlying capital discipline, everything we've heard about capital allocation just through this call and through this year. What do you think is an acceptable through cycle return on capital for a company of your size today? Well, if I take you back to the CMU, we had a larger of 8% in 2017. And we guided up to 12% in 2020 based on our oil price of $70 a barrel. And on path to deliver 12% in 2020, we sort of guided at 10% in 2018. And we are on good path and comfortable as our ability to deliver on the 12% in 2020. Percent in 2020. With that one, that's the final question that we're able to take today. Last one that we've had. Thank you to everybody. Always appreciate the calls and questions. And as ever, please contact IR if there's any further questions or follow ups. I'd like to thank all the all my colleagues for joining us today. And I remind you that the Q4 is on the 6th February and will be accompanied by our Capital Markets Day in London. And we look forward to seeing you then. Thanks, everybody. Goodbye.