Thank you for standing by. Welcome and thank you for joining the Equinor analysts Q2 call. Throughout today's presentation, all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may press star followed by one on your touch- tone telephone, phone to register for questions. Please press the star key followed by zero for operator assistance. I would now like to turn the conference over to Mads Holm, Senior Vice President. Please go ahead.
Thank you, operator. Ladies and gentlemen, welcome to the Equinor result call for the second quarter of 2022. Thank you for the participation. I'm Mads Holm, Head of Investor Relations. This call will be led by Ulrica Fearn, Chief Financial Officer. Ulrica will present the results, and then we'll open up for question as usual. We aim to complete the call within the hour. Also on the call today, we're joined by Svein Skeie, who's now SVP, New Value Chain, and also May-Kirsti Enger, who's the SVP Group Accounting. With that, let me pass straight over to Ulrica for the presentation. Thank you.
Thank you very much, Mads, and good morning, everyone. Today we present continued strong financial results against the dark backdrop of the war in Ukraine and an energy crisis in Europe. The war continues to influence an already tight energy market, and energy prices started to climb already last year, and European gas prices reached record levels. This was driven by demand coming back after the pandemic, lower than expected production of renewable energy, combined with a tight supply side in oil and gas. Energy market are also closely linked to the global economy. With energy prices at a high level, we see inflationary pressures, central banks are raising interest rates, and there's increased uncertainty for global economic development going forward. On the other hand, when Asia, and especially China, comes out of COVID, this is expected to drive growth in energy demand.
How these and other macroeconomic forces play out is uncharted territory. On the supply side, we do know that there is a limited free capacity of supply. OPEC has increased their quotas. However, several countries do not have the capacity to deliver on these. It underscores the importance of more investment in energy production and infrastructure to reestablish a balance between the cost of energy, security of supply while decarbonizing the energy sector. Right now, our most important contribution is to secure stable operations and delivery of energy while continuing to invest in energy security and the energy transition. We also need to prepare for high levels of uncertainty in the markets and ensure robustness and resilience and maintain cost and capital discipline. In the quarter, we continued to deliver strong financial results. Cash flow from operations after tax was $10 billion.
We have maintained high levels of gas production into the second quarter, a summer quarter in which we normally would have produced less compared to the winter months. Having taken several steps to increase gas deliveries to Europe, we achieved 18% more gas from the NCS compared to the same quarter last year. Only 4% down from the first quarter. The higher summer production has been an important contribution to help fill European storages. After extensive repairs, improvements and maintenance, Hammerfest LNG was safely back in production on the first of June and has been successfully ramped up since sending the first cargos to Europe. Recently, the Peregrino field was brought back on stream. It has been a challenging process due to COVID restrictions in Brazil. We've had good industrial progress this quarter, and we are delivering on our strategy.
We conducted several value-creating transactions, both on the Norwegian Continental Shelf and internationally. On the NCS, we completed the acquisition of interest in Statfjord, increasing our share in the field. As a result, we even received a payment at closing due to price developments since the effective date. The asset continued to deliver good cash flow. In the US, we took over all the equity in North Platte, then sold shares and transferred the operatorship to Shell. All in all, this leaves us with a higher interest in the project and a payment from Shell. We also completed the transfer of our assets in Russia as previously announced. Furthermore, we have progressed in developing new value chain for power supply. Together with SSE, we have acquired the U.K. power company, Triton Power.
The Saltend power station is a key part of this, and we will start to prepare it for future use of hydrogen in the power production. In the U.S., we have acquired East Point Energy, a battery storage developer. Energy storage is an important and necessary part for the transition to more renewable energy and other low carbon value chains. At the beginning of the quarter, we were awarded a CO₂ storage license for Smeaheia, a project with a CO₂ storage capacity of 20 million tons per year. Together with Belgian Fluxys, we are studying the opportunity for transporting captured CO₂ by pipeline from the continent to safe storage on the Norwegian continental shelf. We continue to deliver very strong results, which enable us to invest in the business and build resilience in our balance sheet.
The board has decided on a cash dividend of $0.20 per share for the second quarter. In addition to this, on the back of continued strong financial results, the extraordinary cash dividend is increased from $0.20- $0.50 per share for the second and the third quarter. Our share buyback program is conditional upon the Brent price, our net debt ratio, and as well as the commodity prices. On the back of continued supportive conditions, we increased the buyback program from $5 billion to a maximum of up to $6 billion for 2022. The third tranche will be around $1.8 billion with a market share of around $600 million. In total, we increased the capital distribution from $10 billion to up to $13 billion for 2022.
In total, this represents a balanced approach where we invest in our competitive portfolio in the energy transition while showing a commitment to offer attractive shareholder returns. On safety, the 12-month average serious incident frequency is 0.5, and the total recordable injury frequency for the past 12 months is 2.5 per million hours worked. We deliver solid operational performance for oil and gas and electricity. For NCS gas, we have delivered a substantially higher volume than normal in the second quarter. In the quarter, our equity production of hydrocarbons totaled 1,984,000 barrels of oil equivalent per day. Adjusted for the divestment of Bakken and the assets in Russia, this is slightly more than 1% higher than in the second quarter of last year.
Ramp-up of Martin Linge continued in the quarter, and the investment was paid back after tax after one year in operation. We expect Johan Sverdrup Phase 2, Njord Future, and Peregrino Phase two to start production later this year. For the full year, we expect the impact of turnarounds to be 40,000 barrels per day. For the third quarter, we expect a quarterly impact of less than 70,000 barrels per day. We have increased power production by 15% from the same quarter last year to 325 GWh. The progress on our offshore wind projects was good, but bottlenecks in global value chains affect the whole industry. For example, we had to adjust the plan for Hywind Tampen due to delays associated with the delivery of steel.
4 turbines are already installed on the field, and another 3 will be towed out and come on stream this year. The last 4 turbines will not make it for this year's weather window and must therefore be installed on the field next spring. However, even with just 7 turbines installed, Hywind Tampen will have 60 MW capacity and will be the world's largest floating offshore wind farm. This quarter, the average invoice liquids price was around $107, up around $10 from last quarter. The blended price of liquids and gas for Equinor was $117 per barrel of oil equivalent in the quarter. European gas prices have eased off slightly, but are still at high levels and have started to increase again as we entered the third quarter.
In Europe, we have seen an unprecedented divide between NBP and TTF. Continental Europe is more exposed to Russian gas supply, hence the TTF has reacted more to recent uncertainty. Our adjusted earnings totaled $7.6 billion and $5 billion after tax. Net operating income ended at $17.7 billion, and net income after tax was $6.8 billion. The global increase in prices and inflationary pressures also impact us. We see this combined with higher prices of electricity and CO₂ starting to impact our costs. We continue our improvement efforts to keep costs under control and to mitigate cost pressures. The tax rate on our adjusted earnings in the quarter was 71.6%. This is thanks to a large part to our earnings being generated on the Norwegian Continental Shelf.
Here, a high tax rate is a clear sign of having delivered strong results. Now on to the segments. Our Norwegian Upstream business has delivered its best second quarter ever with about $14 billion in adjusted earnings and about $3 billion after tax. Stable and good operational performance in addition to high gas production has enabled us to capture high values on the Norwegian Continental Shelf. In this segment, we see that both electricity prices and higher CO₂ prices in addition to new fields and turnarounds put an upward pressure on costs. This is partially offset by a stronger US dollar exchange rate. The performance of our international business is very good this quarter, delivering high earnings and good cost control. Overall, these are the best results ever delivered across our combined international business.
Our International Upstream business outside the U.S. had adjusted earnings of more than $1.1 billion before tax and $700 million after tax. The US Upstream business delivered record high results, and that's despite slightly lower production, due in part to lower production from Marcellus and the divestment of Bakken last year. Adjusted earnings were at almost $900 million, whereas the simplified cash flow was more than $1.1 billion. The Midstream & Marketing segment contributed strongly to the group with adjusted earnings of over $1.3 billion. In particular, optimized sales trading and trading of European gas and power strengthened these results. The price spreads within European gas markets have been record high during the quarter. Equinor's captured value from the optimization of physical flows towards markets with higher demand and prices.
There is a net positive impact from the timing effects from derivatives as mark to market has increased the value of the derivatives related to future European gas sales compared to last quarter. The tax rate for this segment is higher than usual due to the earnings composition with a dominant share of the profit coming from NCS. Our renewables business has, as expected, negative adjusted earnings of $42 million due to high level of activity progressing our portfolio. Adjusted earnings from our assets in operation was $32 million this quarter. So far this year, we've had cash flow from operations of $38 billion. We have paid $12 billion in taxes and ended up with a cash flow from operations of $26 billion after tax.
After proceeds and capital distribution, the net free cash flow is almost $20 billion so far this year, strengthening the balance sheet materially. For the second quarter, specifically, we had a cash flow of $18 billion and taxes paid of $8 billion. Our cash flow from operations after tax totals $10 billion. We had two tax installments on the Norwegian Continental Shelf in the quarter, totaling NOK 73 billion or $7.8 billion. The two last installments based on 2021 results. From the third quarter, tax installments will be based on 2022 results, as well as the new tax regime for NCS adopted by the parliament before the summer. Just to remind you that the new tax regime is a cash tax, removing the uplift on petroleum taxes.
However, as earnings are strong, the effect of the loss of uplift would be low. In the third quarter, we will pay the first of the three tax installments for the Norwegian Continental Shelf to be paid in 2022. The August payment is NOK 70 billion, around $7.4 billion. The capital distribution in the quarter was $1.6 billion. The buyback of shares from the Norwegian state is conducted on an annual basis, and last week we paid for the state's share buybacks made in 2021 and the first quarter, a total of more than NOK 13.5 billion or $1.4 billion. This will be part of the cash flow in the third quarter. After tax payments, investments, and capital distribution, net free cash flow for second quarter was $7 billion.
This further strengthens our balance sheet to an adjusted net debt capital employed of negative 38.6%. With the market movements and uncertainty in the energy markets, as well as our upcoming tax, cash tax, and capital distribution payments, resilience in the balance sheet is important. Our strategic direction remains firm. We keep investing and progressing on our strategy and make no changes to our guiding. So far this year, we have organic investments of $3.8 billion. We expect to invest around $10 billion on average this year and next. However, this will be back-end loaded. I will round off here and then hand it back to you, Mads Holm, and look forward to your questions.
Thank you, Ulrica. Let us pass back over to the operator to open up for questions. Please, please keep in mind that no more than two questions should be asked. Thank you.
Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you're using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. First question is from the line of Giacomo Romeo from Jefferies. Please go ahead.
Thank you and good morning. First question I have, it's obviously great to see you stepping up the shareholder remuneration. I just wanted to see how you're thinking about putting this in more of an on a financial frame, sort of consistent with some of your peers in terms of looking at it as a payout of CFFO or surplus cash. Is there a way you can help us out to understand how you're thinking about distribution, distributing the very high cash flow you're generating?
The second question is just wanting to see, get some of your thoughts about the EU proposal to cut demand by 15% and sort of if you can talk about sort of the evidence you're seeing at the moment in terms of demand destruction in continental Europe. If you can have any sort of empirical evidence you can bring into our attention, that would be great. Thank you.
Thank you very much, Giacomo Romeo. Let's start with your first question around whether we can put a more financial frame around our distributions. We have been very clear from last year as to how we reason around our capital distribution. First of all, we always say the best place for the money is back in the business on good returns in investments. We clearly have to have a strong balance sheet, and we are aiming for a 15%-30% net debt ratio still. Clearly we're outside of that at the moment.
We've also introduced the flexible part of our share of our capital distribution framework, which we've said we will enact to about the level of $1.2 billion around a share price of $50-$60, and a supportive macroeconomic environment and commodity prices. That's what sits to the basis of what we're doing, and we're continuing to execute against that. What you will have seen us doing since third quarter last year is utilizing that flexibility. When we continue to have supportive conditions beyond that, we have pushed our share buyback program beyond what the $1.2. Also we are interested in a balanced approach across cash dividends and share buybacks.
We've also tried to keep that fairly balanced between share buybacks and extraordinary dividends and that's what you see us continuing to do. If you go back over the quarters using this base framework, I think you will see the sort of additional support and the additional cash being distributed in a fairly straightforward way. I think then on the question around the 15% demand destruction. We didn't see much in the market. There was clearly Nord Stream 1 gas announcements yesterday overshadowed the news around the 15% reduction. There were also some exceptions to the 15% reduction.
Look, the gas market in Europe is gonna need all of the above to be able to get to a level where it's sustainable going forward. The market will continue to be tight. There are other factors clearly than how much LNG import they can get, how much of this 15 will actually realize, and then also, of course, the weather and the current storage levels and how well they can continue to drive that up. This is a complicated picture and you can't really see directly one factor from the other. The sort of Russian gas supply overshadows quite a lot of the others. That's what we keep on looking at.
What we say with the gas market is it's clearly gonna continue to be tight, and it's clearly gonna continue to be volatile going forward, and that's what we prepare for. Of course our part in that is to continue our supplies. As you heard, we've increased 18% of our gas supplies from NCS in the quarter. With the Hammerfest being back on stream, we are continuing to support that as much as we possibly can. Hard to say and see the individual factors in themselves, but it's gonna continue to be tight.
Next question is from the line of Oswald Clint from Bernstein. Please go ahead.
Ulrica, thank you. Curious, just on gas again, curious on the 15-year contract with Cheniere Energy, from the U.S. Do we, could we expect more of these? Is that a Henry Hub linked offtake agreement for you? Do you intend to bring that to Europe? And ultimately, are you receiving stronger commitments now from European governments or customers to underpin such, you know, things like 15-year, 20-year contracts? That's really the first question. Secondly, please, just on, in, cost inflation, I think you spoke about Hywind Tampen, you spoke about OpEx pressures, but you also have pretty robust CapEx guidance, as you said next year, and even looking out to 2025, despite having, as you say, a full program of 23 projects on the go.
Is this the better supplier arrangements that you've been working on these last couple of years is really mitigating some of that? Or could there be some cost pressures on the CapEx side of the equation as we look out to 2025? Thank you.
Yeah. Thank you, also for your questions. Yes, I mean, to your first question, if I talk about more longer-term demands out there are lots of conversations around gas demand and how industries, how companies, how countries will secure gas supplies. We need to find the right balance that fits, you know, the strategies that we've got and make sure that we maximize the supply and the price indications that we do get, knowing that clearly European gas is the priority. The gas contract we did in the U.S. is linked, as you said.
You know, when there is a good contract coming up that makes sense and fits into our portfolio and our production profile in the best way, we will pick that up as we go along. There is, of course, pressure to sort of how can we secure our gas supply is a very frequent question to us. On the comments you've made around Hywind Tampen and CapEx and how we were mitigating the cost pressures, I guess is underneath all of that. Hywind Tampen was actually not so much a cost pressure delay. It was more of a supply constraint around steel, and to answer your question, I think that's the biggest.
The inflation is a worry for us, and we could continue, as you say, to mitigate that with the strong procurement capabilities we've got. We're doing more with less suppliers. We're locking in contracts as early as we possibly can. We're utilizing relationships across different categories. All of that certainly helps in the short term. We had already started this, so it sort of carries us over in certain instances where we've been setting up long-term contracts already before this push on inflation is coming. I think the one that is kind of also a worry that is linked to inflation is the supply chain disruptions.
Again, some of the same solutions, working closely with the suppliers, being very much prioritizing the two sides of the supply chain is what we also need to do from that. There's more of that to come. In terms of our CapEx guidance, we have. What we see is in our sanctioned portfolio, we have got a lot of our contracts sort of locked in already. In our non-sanctioned portfolio is more exposed, and I guess most of our CapEx guidance as we have at the moment is linked to the sanctioned portfolio, and therefore, you see a little bit less of movements in that. We do see the pressures underneath. I hope that gives a little bit of color, also.
It does. Thank you.
Next question is from the line of Biraj Borkhataria from RBC. Please go ahead.
Hi, thanks for taking my questions. The first question's on LNG. You recently signed a long-term LNG contract from the U.S. That's an area where you've been sort of underweight relative to peers. I would say it hasn't been a huge focus in your kind of CMDs in the past. Can you talk about, you know, how your views have changed, I guess, given conflict and what you're thinking about over the next sort of 5-10 years and how you can address that underweight, if that's what you're looking to do? The second question's on your CapEx budget.
Just following on from the last question, you've obviously maintained the guidance over the medium term, but we're hearing about some very significant cost inflation numbers coming through across, you know, oil and gas, but also low carbon. So maybe if you could put some numbers to what you're seeing currently on the inflation side and where you're most concerned, that'd be helpful. You mentioned that you're using long-term contracts as part of the mitigation strategy, but, you know, how long is a long-term contract typically? So some details around that would be helpful. Thank you.
Thank you. Thank you, Biraj. I think the U.S. contract to start with that, I think it's we keep on understanding where the best opportunities are and where the biggest demand is and what the strongest price signals are, and then that's part of that portfolio, and it's what we keep doing. It's what we've been doing, and that's what we keep on doing now as well. Our primary focus has been, however, on Europe and will continue to be in the future. Having said that, the U.S. is an important market to us, and when we see that opportunity's there as well, we will continue to look for those opportunities as well in addition.
In a little bit more detail on the cost side, I mean, what we're seeing, and there's two sides to it, though. There's the operating costs of course, and then there's the CapEx. What we do see, we mentioned it a little bit here in earlier on in the presentation, is operating and maintenance activities increasing. We do see of course higher environmental cost and electricity prices. We're also not immune to that on the other side. Then you've got the CapEx side, which the issues have been more around.
As I said, there's been a tightening market around the rigs, sort of a pretty harsh environment and where demand I think is expected to increase towards 2023, and then peak after that. It should balance going forward. It's in engineering and construction where utilization rates are high and labor costs are increasing. We do see potential of constraint here going forward, but it's a global issue clearly and not specifically to the Northern Hemisphere here. We've seen steel and raw materials which have stabilized, and we are seeing them and they are expecting to decline.
Even though there isn't a big impact yet, we are seeing these developments. Inflation and volatility makes tendering difficult and as I said before, exposing the non-sanctioned projects to uncertainties. We are locking in terms of time horizons, very different. Per category we're locking in pretty much the as far as we can, the duration of the project. That's why the sanctioned portfolio is pretty stable at the moment for the environment we're in. You know, if you go beyond 2026, 2027, it gets more and more fluctuating as you go into the future because you've got a bigger portion of a non-sanctioned portfolio coming into the total.
I think that gives you a little bit of a flavor of what's driving it and what we're doing, but that difference between how it hits us and also the difference between the sanctioned and the non-sanctioned portfolio.
No, that is helpful. Are you able to say whether it's any worse on the low carbon side than in oil and gas? Are you just seeing kind of general inflation across the spectrum?
Sorry, you cut out a little bit in the beginning. I didn't get the beginning.
Sorry. Are you able to say whether the inflation you're seeing is worse within low carbon projects or the oil and gas?
No, I think, I mean, it's more.
Okay.
What we're seeing is general by category, and it's not directly related to the projects as such. As I said, of course, steel will have its category by category rather than per project by project. Also the constraints in the supply chain, so it's sort of also fairly widespread with the same actions as I talked about before to mitigate that.
Okay, understood. Thank you very much.
Thank you.
Next question is from the line of Teodor Sveen-Nilsen from SB1 Markets. Please go ahead.
Good morning, Ulrica. Thanks for taking my questions. Two questions from me. First, just on your 15%-30% net debt-to-capital employed ratio. Are you considering moving away from that ratio since it looks like it's less meaningful with a very small denominator when you have negative net debt? Second question is on just gas exposure. It looks like now you're selling most of the gas to TTF-linked prices versus NBP. I just wonder, could you give some guidance for second half this year, how much of your gas sales in Europe that you expect to be linked to the TTF price versus NBP and other pricing? Thanks.
Thank you very much, Teodor. Yes, it looks, if you look at the 15%-30% capital employed, you know, the negative numbers do look very different from what they did only a year ago. We have assessed our 15%-30% capital employed ratio as a long-term range, and we will stick with that. I think as much as it looks negative at the moment, we have got some very big payments coming along in the next quarter. I referred to some. We have got a big tax payable and we have got a business that is facing significant swings. The metric itself, we are still sticking to the metric itself.
That's what we are aiming for in the very long term. Meanwhile, it's way below, as you say, and it does look a little bit odd, but it wasn't that long ago we were above. The metric itself, I think serves us okay for where we are today and for the future. No, we're not really looking at changing the 15%-30%, neither the metric nor the range. In terms of gas exposure, yes, the TTF versus NBP market has clearly been, as you've seen, decoupling lately, driven by, you know, of course, who's most exposed to Russian gas supplies and storage levels, et cetera.
These geographic trading spreads are out there and have been out there and we will continue to trade around those and drive behind the pricing signals that give. It's the flexibility of our transport and that sort of limit us as to how much we will do that, but we will not share how much that will be. 'Cause one, we don't know at this point in time. We will look at the most optimal way of delivering and do that within the constraints that we've got. I can't give you an indication from that. What I can say is that we do see continued geographic spreads to stay high and volatile as well at the same time.
Okay.
I think if you asked about the proportion of TTF, you cut out a little bit. I can't share that with you 'cause, again, it will be dependent on market conditions as we get there.
Okay, sure. Understood. Thank you.
Next question is from the line of Peter Lowe from Redburn. Please go ahead.
Hi, thank you for taking my question. You're doing a great job maximizing your Norwegian gas production. How long do you think you can maintain gas output at current high levels? Are there any risks to infrastructure or reservoirs from operating at such high utilization for a sustained period of time? That would be my first question. The second was just related to MMP and derivative impacts. Obviously, they've kind of been swinging around quite a bit in recent quarters. Can you help us at all with kind of what you're expecting to see in the second half of the year there? Should we expect that some of the gains we've seen look to unwind? Thanks.
Very good. Thank you, Peter. On the sustained gas delivery, we will continue to try to sustain as much of the gas production as we can for our role as making sure that we got stable, secure supply of gas, certainly remains and will do. As you say, we've seen record gas production for the second quarter on the NCS and that is partly because we've postponed some turnaround plan for the second quarter for gas fields. We are continuing exporting gas from Gina Krog and that would otherwise be used for injection. There are other measures being taken that we've you know revised production permits and of course both for Troll and Oseberg.
As I said before, we've resumed production in LNG. Some of these are temporary, but some of these we could continue to push forward. The gas injection, if that's what you refer to, whether it's sustainable at this point in time, at these prices, we believe it could be sustainable for longer. Each asset, each decision needs to be business case based. We do have our geologists and assessing carefully if it's got any impact on the long-term viability of the overall asset. At these prices there's some headroom in terms of continuing to do so.
We will try to continue to keep the gas where it is, continue to search for gas, continue to keep the efficiency up on our gas assets and continue to see whether there's anything we can do to push, as I said, any permits, et cetera, for continuation should that be necessary. The derivatives and the future of those. I mean, we've taken some big gains. I mean, I would say I've said this before, there's sort of two parts to the MMP trading position here around gas in particular. Which is one is the underlying contracts where we've got fixed term, fixed contracts in the future where we've basically swapped back to floating and the value of that.
The value of the derivative itself gets mark to market on a quarterly basis, whereas the underlying only gets, if you like, mark to market, or the value of that versus the current market only gets recognized at delivery. There's that mismatch there. Therefore the positions of those will move with where the market is moving and will depend on the rate on pretty much the last day of the quarter. Very hard to predict what we've tried. The second part is more strategic positions, which are a small part of our portfolio, which, you know, again, depends on the position of course, and we can't predict.
On this more underlying to get back to our more floating position, that we have said we'll try to give an indication as we invite for consensus on a quarterly basis, given that it's so dependent on where the market is at that point in time. Hopefully that will help us to understand the results and volatility when it comes to that when we go through each quarter.
Thanks, Ulrica.
Thanks.
Next question is from the line of Amy Wong from Credit Suisse. Please go ahead.
Hi. Good morning. A quick question from me. Peregrino, good to see that project restarting and phase two also scheduled for later this year. Could you give us kind of how you think about this a project like this in terms of economic performance? It's, like, quite a heavy oil field as well. How about its CO₂ performance and how that fits into the overall Equinor strategy?
Great question. Yes, it's great news that Peregrino is back on and resumed production on the 16th of July. It will gradually build up to reach capacity plateau through 2023. Also we got Peregrino 2 coming on stream this year. You're right, it will have an impact on our CO₂, and we've got that. We have an energy transition plan which includes this. We are very clear on that we have got a very clear production profile that we need to deliver, and Peregrino is part of that. It's also part of the emission ambitions that we've got to reduce 50% by 2030 of our emissions of our oil and gas portfolio.
The way we think about it is it needs to fit into that. It needs to fit in our overall ambition in our energy transition plan. That's how we will then balance security of supply as well as, you know, investing in renewables as well as delivering on the emissions plans that we've got outlined. Reminding ourselves that actually on an emissions intensity point of view, we are probably about half of many of our peers already. This fits within the boundaries of what we've already committed to and is part of that, if that makes sense. We need to balance all of these to make sure that the supply, energy supply is there whilst we transition. We're very, very clear how it fits in.
It's stretching but confident that we can get there, and that 50% reduction by 2030. Thank you.
Thank you for that. Very clear.
Next question is from the line of Henri Patricot from UBS. Please go ahead.
Yes, everyone. Thank you for the presentation. A follow-up question on the question of distribution and the net debt. Just wanna get a you know, a better sense of how we should think about the potential additional shareholder returns. I'm conscious there's no particular formula, but you know, for instance, is there any particular level of net cash that you think would be too high and so we should be thinking about any additional cash flow that will bring you above that net cash level as potentially additional return to shareholders? Any indications you can share around that? Thank you.
Yeah, very good question. I think I'll come back to what I said before. I mean, we are clearly way outside of the 15-30 range at the moment. I think what you've seen today, and what you will have seen in Q3 and Q4 of last year, is that we are committing to use the flexibility in the shareholder distribution programs that we've got to take steps towards that ratio. When we do that, I mean, there are some criteria here to sort of plug into the spreadsheet, which is we'll get back to the 15-30, that's what we said in the long term. We have to take several factors into consideration. The volatility and the resilience that we need in the short term.
The pull on the cash in the short term and medium term also, given the delay in our cash payments, and you can just look at our tax payable on the balance sheet, which needs to be paid for. We also have commitments to big CapEx going forward. $10 billion now for the next two years, and then up to $12 billion. We've committed to big renewables investments. They need to be financed. You sort of, if you overlay that in and then plot a track towards 15-30, this is a long-term range. We don't need to get into that in each quarter. It's a long-term range where you need to balance all of those factors in.
It will give you some guidelines and some principles. If you look at what we've done in Q3, Q4, and now, you can see that that's the any additional sort of cash is considered to be. We need to look into investments of the company. We need to look into those criteria and then see if there's anything else above that. We are committed to competitive shareholder distributions, and we'll use the flexibility to give that back over the period of time if that makes sense. That's the formula rather than a sort of percentage of extra free cash flow.
What I'll also say is that we're very conscious of the payables as we've got, but also looking at history and seeing what we have earned so far rather than looking into the future and bank on the current energy prices staying where they are for the next five years. I think it's also important thing to draw a line where we are at the moment and understand what we've already generated versus assuming many sort of forecasts for the future. Hopefully that helps a little bit of the context at least.
Okay. That's helpful. Thank you.
Thanks.
Next question is from the line of Mehdi Ennebati from Bank of America . Please go ahead.
Hi. Good afternoon all, and thanks for taking my questions. Two questions. First one, a follow-up, you know, on your Norwegian gas production. Maybe you know some specification regarding the second half of this year and also the third quarter? You've announced, you know, hydrocarbon production maintenance impact roughly in line in the third quarter versus the second quarter, 65 kboe/d impact. You've also highlighted, you know, that Snøhvit production is back to normal. It seems that normally, with maintenance, let's say roughly in line and with much higher production from Snøhvit, it seems that you might be able to approach, you know, 800 kboe/d natural gas production from the third quarter.
Am I missing something here, such as maintenance impacting, especially, the gas fields, or anything else which, you know, could prevent you to significantly increase your gas production from the third quarter compared to the second one, at the time when, you know, the gas price, you know, is now back to record high, or no? If you can help us there, that would be very good. The second question is about, you know, the tax installment announcement that you've made for 2022 earnings. One installment, you know, is $7.4 billion. This is very, very low, much lower than I think what the street, you know, was expecting.
I wanted to understand if such low tax installment is due to the fact that most of your 2022 CapEx are related to the 2021 special tax regime. Is it thanks to the new oil and gas tax regime, which has been voted in June and which is now entered into force since July? Thank you.
Thank you very much. Let me go start on the production. Our guidance is 2% growth in 2022. Sorry, 2% growth in production. That sort of includes what we have already. I shared some with you earlier on what production is coming online for the rest of this year. Yes, Snøhvit is up and running. Peregrino One restart, as I said, started now. We got Peregrino Two coming in, Johan Sverdrup Phase 2, and Njord Future coming in. That will impact the rest of the year. The turnarounds we have indicated, as you mentioned.
I guess one thing I could add on top of that is that the turnarounds will be, as you heard, we've delayed some turnarounds from this quarter into next, and one of those is Oseberg. That has clearly got an impact on the gas forecast that you got. If you take those moving parts, I think you'll get to you know a reasonable place. On the tax, it. I don't think it looks low. That one installment is as big as two of the previous ones. It's just the number of installments that you need to look at there. The $7.4 is one instead of two, basically. It's double.
It's quite low. Well, double of the total anyway. It's got nothing to do directly. Well, it's got a little bit to do with this one is kind of six months in arrears. We got this is paying tax from six months ago. What we're coming into now on the NCS tax scheme is not got big significant shifts to our tax payables. We're losing an uplift. It's cash tax now, which is beneficial for us in terms of upfront deductions. What we are losing is the uplift on projects that we could deduct against the petroleum tax. Overall, that makes a fairly small impact, especially when we make so much high revenues on the NCS.
That number is very small in comparison with the big tax numbers, what we're paying. It's all in, it's one tax installment rather than two.
Yeah, yeah. That I understand. Okay, thanks. Thanks very much.
Thank you.
Next question is from the line of John Olaisen from ABG. Please go ahead.
Good morning. I have a couple of tax-related questions. First, I noticed that over the last couple of quarters, there has been some minus tax charges for the U.S. segment. I wonder, is this an indication that you're about to move into a tax-paying position in the U.S.? If you could update us on this, please. The second question is to the relatively high tax rate of 80% for MMP in the quarter. I think I seem to remember that the guide, the long-term tax rate for this segment is 40%-60%. If you could give an update on this, please. U.S. and MMP tax rate, please.
Thank you. Very clear. No, in the U.S., we are not paying any federal taxes. This is the state taxes that we pay, and so there's no indications to start paying the federal taxes in the U.S. So that's a very straightforward answer. On the MMP tax rate, yes, it's been very fluctuating. I think, of course, it's a complex entity in terms of many revenue streams. It's a very hard one to keep to sort of guide towards therefore.
The reason it's so high this time is because we've got a lot of earnings on the Norwegian Continental Shelf, and there are other offsetting back and forth within the PNL in other tax regimes that makes the net weighted average a bit confusing. I think we're gonna have to try to help in terms of indicating how that is when it's outside of the range, because that range is, as you say, very volatile going forward.
A follow-up to the first part of the question. In the U.S., when would you expect to start having to pay federal tax? Because I presume with higher oil and gas prices, that time is getting closer than it used to.
We are seeing, we clearly have got a lot of great performance in the U.S. and it's good to see. We've also got a long history of the other way around. We have got I won't give you an indication on how far, but it will be quite a while before we get there.
Okay. Thank you very much.
Thank you.
Next question is from the line of Kim Fustier from HSBC. Please go ahead.
Oh, hi Ulrica. Good morning. Two questions from me, please. Firstly, could you talk a little bit about the progress you've made on CCS and hydrogen in the second quarter, and how that fits with the broader U.K. and EU plans? Just on hydrogen, more specifically, I know you've been pursuing both green and blue hydrogen, but there seems to be a very clear preference in the EU for green hydrogen, and that preference seems to have been reinforced by the current European gas situation, whereby gas is expensive and scarce. I just wondered if that is making you lean more towards green hydrogen or has nothing really changed? Thank you.
Very good and interesting questions. What I'm gonna do, since we got Svein here in the room, I'll hand over to him to answer both, and I'll add after that.
Yeah.
Svein, over to you.
Thanks a lot, Ulrica, and thanks for the question. Yes, we are progressing also well within the low carbon solution part of the business during this quarter. As we also talked about in connection with the first quarter results, in the second quarter, we were awarded the Smeaheia licenses in Norway and also one further up in the north. Smeaheia has a capacity of 20 million tons per year for storage of CO₂. You also saw another announcement coming then towards the latter part of the quarter.
It's a project together with Fluxys in Belgium, where we are looking into building a pipeline from continental Europe up to the Norwegian Continental Shelf for storage of CO₂ CCS there. On the Northern Lights, we are progressing well on that one. Also started the FEED for phase two there, which could then bring the total capacity up to 5-6. We are now installing the first phase there of the 1.5 million ton. Also, we did the acquisition of the Triton in the quarter, which is the CCGT in the U.K.
What we are also starting now to work there together with our partner SSE is that we will also look into how to prepare that one for using hydrogen into the blend, and then providing the power to the market. Then coming down on the green versus blue, I think, yeah, into the future, yes, there will be green. But we also see that there are then more positive response then to also then utilizing the blue on the way, and then having the ability then to produce blue hydrogen as part of then the energy transition then needed for the EU. Good progress in total.
Actually, quite a lot of progress and quite exciting. You're absolutely right, Kim, in terms of the geography spread between preference for green versus blue is correct as well. You know, as Svein says, we see a mix being needed in the short term, given the capability, I guess, of the two is different short term and long term. Very good questions. I'll finish off with that.
Next question is from the line of Andrew Roselund from SEB. Please go ahead.
Thank you. When you answered Teodor's question on leverage earlier and the targeted leverage range of 15%-30%, you said that you were aiming, and I'm quoting you, for that in the very long term. What does that mean, very long term? Is that five years down the road, or 10 year-
Mm.
Ten years down the road, or should we disregard it altogether?
Yeah, it's actually a good question. I think what I meant with that is that we won't move. We've seen, if you go back in history, we've been outside of the range, the other side for I think maybe a couple of years. But that's the sort of ranges rather than we should disregard it, if I put it that way. But it's not months either. The one thing I will say is timing around this, it's hard to put a timing around it, 'cause I will say what's very, very important right now is that we are in a very volatile environment.
What we do need to think about is, you know, there is a macroeconomic overhang on all of this and what that does to demand and what that does to prices, et cetera, going forward is anyone's guess. It's a very complex picture that we're looking at in uncharted territory, as I said before a little bit. We are focusing back in time in terms of what has been generated rather what can be. No, you can't disregard it. That's not right. It's either. It's not a monthly, month-by-month movement that we're looking for either.
If I may follow up, is this a way of saying that if prices drop at a level which doesn't justify paying out as much as you're currently doing, you will continue to do so because you have leeway in the longer-term financial targets?
You can look at the support. Over time, we will try to get back to 15%-30% given market conditions, and that's what we will be looking at. We were looking at the strength of the balance sheet. We'll be looking at what's needed in the near term, and then we will over time try to get back to 15%-30%. That's what the aim is.
Okay, thanks.
Next question is from the line of Martijn Rats from Morgan Stanley. Please go ahead.
Okay. Well, I have two. I hope we can squeeze this in the last three minutes. I wanted to ask if you could make a little bit of a bridge between the comments in the last quarterly call versus well, what sort of consequently transpired. Because on the last call, we also collectively talked a lot about the very sharp drop in net debt into negative territory. Back then, there were a number of comments that this quarter actually the net debt ratio should go up, and I quote from the last call, "It will show.
Go up significantly and into positive territory." Now, if this has been a quarter where, you know, like oil prices have roofed or gas prices have roofed, I could sort of imagine you could say, "Well, we just generated more cash," but broadly the oil and gas prices we had this quarter, we also had last quarter. From the expectation in the 1Q call that the net debt ratio would go up versus the very significant decline in the net debt ratio that we've actually seen, where relative to your prior expectations, has there been a change? I'd be very sort of interested in that.
That is a.
Secondly-
Yeah, okay, continue. Sorry.
Yeah. Okay. Well, secondly, I wanted to ask about it. Clearly gas prices are very, very high. We need as much natural gas in Europe as we can, but there is no supply response from Equinor, right? The CapEx guidance has not come up. I haven't heard you talk about new gas production projects. The price signal isn't sort of quite working perhaps as it has in previous cycles, right? I mean, we've seen this for a while, but it gets to sort of quite unusual territory that even these gas prices is not making companies like Equinor drill more gas wells. I just wanna make sure I've got that correct.
Thank you very much, Martijn. Let's put the first comment into context. The comment was made that, I think, going back, is to if we had paid the tax that was due right there and then back at that point in time, which is clearly not what we are doing. That was a theoretical position that if we hadn't had six months delay on our tax payments on the Norwegian continental shelf, and we would've stopped here and paid them off, the net debt would've been in positive territory. That's what that was also referring to, not a forecast for the next quarter, which we wouldn't have done. On your price signals comment, there are many. This is a complex picture for an integrated energy company.
Yes, there is a strong price signal in terms of gas, but there is also strong signals in terms of continuing the energy transition and transforming into renewables and sticking to your emission plans and making sure that you're driving forward as hard as you can on that. Then on top of that, of course, what we're also very committed to is the right level of return across that whole portfolio as we're going through the energy transition. If you put all of that together, it needs to sort of tick all of those boxes to be invested in. I think that's what you're gonna find across the industry, that if it fits in, if you can optimize, if you can improve, sort of improve your portfolio within those parameters, you'll see investments.
You can't overweight one other side 'cause you will throw out your measure on emissions or you'll throw out your measure on how much you spend on renewables if you increase your oil and gas portfolio too much. Consequently, the other way around, if you you might throw out returns if you push it too much into the velocity into the future. That's the parameter that means that just increasing more because there's a higher price, investing more because there's a higher price will. The holistic picture doesn't work necessarily today.
Operator-
Okay. Yeah.
Operator, I think we can take one more question and then we end the call.
The last question is from Matt Lofting from JPMorgan. Please go ahead.
Hi. Thanks for taking the questions. Two quick ones if I could. First, I'll reiterate. I think you talked right at the top of the call about tight supply setup and the importance of underpinning industry investments to support energy security. So just sort of following up and extending on the previous comments. Whilst there may be a lag around this in the context of unchanged CapEx guidance and the balance sheet sitting wherever it is, can you talk about the extent to which Equinor is assessing additional project, and particularly gas-related opportunities, to build into the sort of the backdrop that we see today?
Within that, mindful of the sort of cost inflation comments that you made earlier, the extent to which leaning more into buy versus build is a consideration in this environment. Then secondly, on cash taxes, I think the guidance sort of very clear in terms of the sort of installment going into the third quarter. Historically, if I remember rightly in 2021 as well, the company has made accelerated payments in Q4 to sort of catch up on that sort of delay prior to year-end. Is that something that you're anticipating as a possibility this year and sort of factoring into the way that you're looking at the balance sheet position? Thanks.
Very, very good questions. Thank you, Matt. I do agree. We are investing more would be a good thing to do in this time. It would be good as long as it meets what I just talked about, our total portfolio velocity into the transition, as long as it meets the return criteria. To your question about are you assessing this, we are absolutely continuously assessing. I keep saying the best place for this money is to invest it in the business, but we also need to be very clear that we invest in long-term, sustainable, profitable projects.
As I said, we take the holistic picture as to what it does to our energy transition plan into consideration. What we will continue to do within all of this, we will continue to explore. We've said we're gonna continue to explore for oil and gas and, you know, gas around on the NCS. That wasn't always so popular. We said we will continue to do so. That is now much more accepted. We'll continue to do so with the way we've already communicated. We will continue to see what we can do to secure gas production and continue to invest in our current assets as well. I do think from a cost inflation point of view, we are...
Yes, there is a build capacity constraint and looking at clever ways, smart ways of buying capacity, of finding smarter solutions as to how to increase capacity is, and maybe buy in some capabilities is also something we're looking at. As I said, we will be doing that on an ongoing basis. It needs to fit into that overall financial framework and emissions framework at the same time. This is a big topic on our agenda as to how to invest more to get better faster and still remain to keep the returns or even improve them.
In terms of cash taxes and the accelerated payment then at the last this the same mechanism exists this year, and we will be clearly carefully looking into and seeing what we need to do, depending on where the prices are at that point in time to see how we can and if we should utilize that the same way as we did last year.
Great. Thanks for taking the time.
Thank you very much.
In the interest of time, we have to stop the Q&A session, and I would like to hand back to Mads Holm for any closing comments. Please go ahead.
Thank you, operator. Thank you to Ulrica, my
Svein, thank you all for your time this morning. As always, if there's any further question that you have, please contact Investor Relations team on the usual numbers and we will get back to you as soon as we can. Once again, thank you for your time this morning and have a great day.
The conference has now concluded, and you may disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.