Earnings Call: Q2 2019

Jul 25, 2019

Equinor 2Q 2019 Results Conference Call. I'm delighted to be joined by Lars Christian Wacker, CFO, who will run through the results and highlights presentation. Then we'll open up for Q and A over the phone, and we'll expect to finish the call inside the hour as I know this is a busy day for everybody. Also on the call, we have Svein Scheier, Head of Performance Management and Ojang Kjellwane, Head of Accounting. And with that, I pass over to Lars Christian to get us underway. Thank you, Peter. Good morning, everybody, and thank you for joining us. In the Q2 of 2019, Equinor delivered good overall operational performance in a quarter characterized by record high project activity and many planned turnarounds. In addition, our financial results were mainly impacted by lower realized oil and gas prices and the production mix in the quarter. We have said that we expect price volatility and therefore, it is important to sustain and build up on the structural improvements achieved during the past years. I'm pleased to see that we continue to demonstrate strong cost focus and capital discipline. Equinor is a stronger company than we were just a few years ago. We have a stronger balance sheet and more competitive projects and we are more resilient to lower prices as well as carbon impacts. With our net debt ratio below 20%, Equinor continues to be in a strong financial position and the Board has decided on a dividend of $0.26 per share for the Q2, up 13% compared to last year. Based on our strong capital discipline, continuous improvements and project execution, we are today lowering our CapEx guiding for 2019 from $11,000,000,000 to between $10,000,000,000 $11,000,000,000 Strong project execution is also why we are lowering the estimate for Johan Sverdrup Phase 1 by a further NOK3 1,000,000,000 from NOK86 to NOK 83,000,000,000 Since the PDO for Johan Sverdrup Phase 1 was approved back in 2015, recoverable resources have been increased from a range of 1.7000000000 to 3.0 €2,200,000,000 to 3,200,000,000 barrels. In addition, we have reduced operating cost by around 30% and CapEx by NOK 40,000,000,000 These are unprecedented deliveries from a dedicated project team together with our partners and suppliers. During the first half of twenty nineteen, the successful topside lifts at Johan Sverdrup reduced key schedule risks and we are on track to start production in November as planned. And we expect to reach Phase 1 production plateau of 440,000 barrels per day during the summer of 2020, which is earlier than previously communicated. Just before the summer, the Norwegian Parliament approved the Phase 2 field development plan, which will bring the plateau capacity to 660,000 barrels per day, with a unit production cost of around $2 per barrel, a breakeven oil price below $20 per barrel and the CO2 emissions well below 1 kilo per barrel. Johan Sverdrup is, in my view, the best development project in the world today. As announced earlier this month, we have agreed to sell 16% of our Lundin shares and increase our direct equity position in Johan Sverdrup from 40% to 42.6%. Our Lundin investment has been very profitable. Since 2016, we have more than doubled the value of our investment. We expect to receive around $1,500,000,000 in cash during the Q3, retain a 4.9% stake and book a gain of around $1,000,000,000 We expect to finalize the acquisition of the 2.6% equity in Johan Sverdrup following governmental approvals in Q4 of this year. Let me also remind you of a few other key developments achieved by Knud so far this year. We have made commercial discoveries on the NCS and secured new prospective acreage, including offshore Argentina. We have agreed with OMV that Equinor will take over as operator of the visiting field in the development phase. We doubled our equity interest in the Cesar Tonga field, the Forte Gulf of Mexico to 46%. And last week, we started production from the Tresdag field on the Norwegian continental shelf. And finally, we were awarded the right to develop the largest offshore wind project to date for Equinor. The Empire Wind Project Offshore New York is a breakthrough achievement for the development of our global renewables business. The project is twice the size of our developed offshore wind project to date. We expect to start the Empire Wind development in 2021 with 60 to 80 bottom fixed turbines and the output will generate sufficient power to serve more than 500,000 New York households with renewable energy. The safety of our people and the integrity of our operations are top priorities for Equinor. We worked very hard to maintain a strong safety culture and to deliver good safety results. Over the last 12 months, our serious incident frequency continued to be stable at 0.5 incidents per 1000000 hours worked. This is the best safety performance level achieved in Equinor's history. Our strong safety focus and drive to further improve continues with undiminished strengths. Management visibility and setting clear and setting clear expectations are top priorities to deliver on our always safe ambition. Now to the financial results. We delivered net operating income of $3,500,000,000 in the quarter. Adjusted earnings before tax in the quarter were $3,200,000,000 down from $4,300,000,000 in the same period last year. We delivered overall good operational performance and maintained a high production level. This quarter, we delivered a production mix on the NCS with 60% gas, a lower liquid share than usual. Lower oil production was mainly due to unplanned production losses on Snowbre Bravo and reduced production from partner operated fields. Higher gas production is mainly due to the start of our Oostachanstan contributing with around 60,000 barrels per day. As I mentioned, our financial results were negatively impacted by lower commodity prices. Our realized liquid prices in the quarter was down 10% to $59.3 per barrel. Within liquids, we had a relatively high NGL share of 24%, impacting realized prices. We expect the liquid share to increase as a result of higher production, especially with the start up of Johan Sverdrup. Also, our invoice gas prices were down 16% in Europe and 4% in U. S. The demand for gas in the EU increased by 15% from the same quarter last year. But new and increased LNG capacity combined with lower demand in Asia has resulted in temporarily lower gas prices. Still, the fall in our realized prices was less than half of the reduction in NBP prices. Market volatility shows the importance of our continued strong focus on costs. In accordance with our expectations and previously communicated, our costs were somewhat up compared to last year due to new fields on stream and preparation for start ups. As in the Q1, increased reserves on several fields reduced our overall depreciation costs. The group tax rate on adjusted earnings was 64% in the quarter. IFRS net operating income after tax in the 2nd quarter was $1,500,000,000 up from $1,200,000,000 in the same period last year and our quarterly adjusted earnings after tax of $1,100,000,000 was down from SEK 1,700,000,000. Now some comments on each of the segments. E&P Norway delivered adjusted earnings before tax of $2,400,000,000 in the quarter, down from $3,100,000,000 in the same period last year. This is mainly due to lower realized prices. In addition, we had 2% lower production with a mix more skewed to gas than usual. As normal in the Q2, we had several turnarounds which reduced production. These turnarounds mostly impacted our liquid volumes. In addition, we experienced some specific production challenges on Snowbre Bravo and Ostansden. Good cost control was maintained on the NCS in the quarter. Underlying OpEx and SGA cost were lower this quarter than in the same period last year. E and P International delivered adjusted earnings before tax of $649,000,000 down from around $1,000,000,000 in the same period last year. Adjusted earnings after tax were $442,000,000 down from $752,000,000 The after tax cash flow per barrel for E&P International in the quarter was strong at around $25 Including turnaround effects, we delivered a production rate of 820,000 barrels per day, the highest second quarter production ever achieved internationally. A strong cost focus in our international operations delivered stable cost quarter on quarter. Let me also mention, in Nigeria, due to lifting schedules, we sold less volume than produced in the quarter, income of around $70,000,000 will thus be booked in later quarters. Our MMP segment delivered adjusted earnings of $210,000,000 compared to $300,000,000 in the same period last year. Weak refining results affected M and P negatively this quarter. In addition, we also had a negative timing effect related to the valuation of gas in storage. According to accounting principles, we had a write down of the gas inventories due to the drop in the gas prices in the quarter. However, the gas inventory is sold forward at higher prices and expected delivery is during winter. Without this timing effect, M and P would have delivered adjusted earnings within the guided range. We maintained a high production rate. Equinor's production in the second quarter was 2,012,000 barrels per day on par with the same period last year. Expected natural decline on fields in production was offset by new fields and new wells brought on stream, especially on the NCS and in U. S. Onshore. During the 1st 6 months of 2019, we report a solid cash flow from operations and a net free cash flow of $1,000,000,000 We maintained a net debt ratio below 20% and our organic CapEx for the year to date is $4,800,000,000 In addition, we have closed several value generating transactions and we paid $1,600,000,000 in dividend and $4,200,000,000 in tax. Let me conclude with our updated guidance. Last year, we had a record high production and we expect to be around the same level this year. From cost control make it possible for us to lower our organic CapEx guidance from $11,000,000,000 to $10,000,000,000 to $11,000,000,000 and we maintain our 2019 exploration activity guidance of around $1,700,000,000 And with that, I'm pleased to open up for questions and hand it back to you, Peter. Thank you. Thank you, Lars Christian, and then I'll pass this through to Mirella, the operator, who can remind people of the process for polling questions, and then we'll start to take the first one. Thank you. Thank you. And the first question is from Oswald Clint from Bernstein. Please go ahead. Your line is now open. Thank you very much. Good morning. I wanted to ask about the gas. And I guess I wanted to ask why your gas production was up so much in Norway in the Q2. But you mentioned demand was up 15%. So could you perhaps break down that demand and tell us where it's coming from in terms of power, residential industry, please? But primarily on the topic, I wanted to know that you talked about 2020 moving to spot gas prices primarily. But if prices were to remain weak, could you delay that intention and continue to be selling forward in terms of natural gas sales? That's the first question. And then secondly, I was just curious about sustaining Norwegian volumes longer term. And I know you had that plan for extending 20 odd platforms through time. And I see this year you've had 8 of those approved by the government. Is that number in line with the plan so far? And when would you expect the other ones to get approval? Thank you. Thank you for a very good set of questions. On the latter, we feel that the 8 approvals so far is in line with our plan and the others are progressing nicely. So we don't expect any sort of surprises when it comes to that. It's just a lot of work that needs to be done and documents that needs to be provided. On the gas production in Norway, yesterday, it's up compared to previous year's quarter, mainly due to starting up Osterholmstein, bringing some 60,000 barrels of oil equivalents per day to Equinor. Then we have had some temporarily operational restrictions on Oseberg during the quarter related to gas reinjection. So that means that we have exported more gas from Ussebay than would have been normal during Q2 given the seasonal variances in the prices. Troll gas production were down in line with what we usually do for a second quarter. Then also the turnarounds for this quarter, the majority of them are hitting the oil production, the liquid production, whereas Q3 this year, the turnouts that are coming up will, to a larger degree, affect our or impact our gas production compared to what was the case for Q2. To the last piece of your question related to sort of the 15% increase in European gas demand. It's partly weather, colder April May. The residential demand was up some 5.5 Bcm. And then there is sort of quite an extensive switch from coal to gas of around 4 Bcm adding to it. So that explains those trends to put it like that. The good thing about in many ways the production mix is that this is temporarily and we expect the liquid share of the production mix to come up again over the next couple of quarters and even more so when Johan Sverdrup comes on stream during November. That's really helpful. Sorry, there's just a tiny bit at the end of 2020 onwards in terms of moving your natural gas to spot prices. Is that something that could be pushed back in time? Well, the shift that we're doing is that we want to expose more to the spot market and we see that we benefit from having entered into contract more on a season ahead than a year ahead, both for this quarter and we expect the same to happen for Q3 and then gradually that will fade out. And if their forward prices for gas are to stay low, then we will not sort of be able to achieve the same effect having running the business the old way of doing it. But the shift to more to the spot market does not limit us. On the contrary, we would like to take a more active role in placing sort of our gas volumes in the market. So if you see that the gas prices medium, long term comes up, we will go more for a seasonal head than a year ahead, of course, if we believe that that is favorable. Super. Thank you. Next question is from Viraj Bogtaria from Royal Bank of Canada. Please go ahead. Your line is open. Thanks for taking my questions. I have a couple, please. The first one on production. You mentioned a couple of things on unplanned downtime. Could you just talk about whether those issues are now behind you? And also how much contingency is built into the flat production target for 2019 at the group level? And the second question is on CapEx and the reduction. I remember asking this question of the CMU whether the target was challenging enough. And I'm wondering, on the one hand, are you setting the bar challenging enough for your businesses because you have a wave of improvement processes and digitization, all these things coming through. On the other hand, when you look at volume numbers particularly from the NCS, which are declining year on year and your spending levels are coming down, I guess investors might get a bit nervous about replenishment, particularly in Norway. Could you just sorry, it's a bit general, but could you just talk about the balance of those two factors? Just interested to get your thoughts. Thanks. First on the operational issues. Oseberg, reinjection is up and running again. So that is behind us. And we expect the Snowdra Braavo to come on stream during second half, that issue with the flexible rises to be sold. On CapEx guidance, we started out the year with CapEx guiding of around 11,000,000,000 and now we are saying between SEK 10,000,000,000 and SEK 11,000,000,000. This is due to capital discipline and very good project executions in addition to improvements in the business. And we are very happy to see that improvement because this is definitely a positive result, which brings us a lot of learnings definitely. And we have seen over the last couple of years and you have seen too in our numbers how we've been able to bring down the development cost and now having a portfolio that is extremely profitable and resilient in a sort of global perspective. So what we're doing in moving forward for every new project is that all our learnings we're trying to factor into the new developments. So this way of running a project is, in many ways, setting a new standard for ourselves and some might even argue for the industry, but for others to judge. But this is then for us to draw the maximum learnings on going forward. Then I yes, there were some other questions that I really sort of yes, well, a lot of them is fine. No, maybe then also on the NCS, a reminder of the IOR that we are doing. We said that we are going to drill around 100 production wells per year with a breakeven then below 20, a short payback period and we will continue to do that and we are on our plans also with that one, which is also something that will benefit the production going forward. Great. Thanks. Next question is from Thomas Adolff from Credit Suisse. Please go ahead. Your line is open. Johann Sverdrup ramp up. Previously, you've guided to within 12 months now you're saying plateau will be reached during the summer. What's driving that confidence via the faster ramp up? And then I guess secondly, if you look at M and A and compare that to buybacks, where do you see more value today? Thank you. 1st of all, on Johan Sverdrup, The sort of the faster or early ramp up targeting plateau coming summer, whereas we said 12 months ago or within 12 months, some months ago. And the reason is the progress of the drilling of the wells. There's a lot of work still remaining offshore. I worked offshore for 7 years. I've been starting up several platforms. And this is the first time we're going to start up beyond Zwadrup. A lot of nitty gritty details and kind of stuff and verified and people go through it and train and all that. So it's a lot of work still remaining, which makes us keep the start up to say during November. I see others are saying that they might be starting up earlier. I hope you can start up earlier. I'm a positive guy, I've always been, but I'm also realistic and I know how much work and hard work that still remains for us to deliver on that start up during November. But I'm also very happy to see that we can guide on a faster ramp up. Then we have never really produced this asset. And I get questions from time to time about where can you increase the reserves and all that kind of stuff. And I fully respect that those are valid questions and important questions. And we will ask them too internally. But now it's more about getting the job done, prepare for start up, getting it to start up and deliver on the plateau. And then we will start getting production experience and see how this reservoir is developing and responding to the different levers that we have to pull that we have in our toolbox when it comes to reaching and delivering on a high recovery factor. In many ways, you can say that I'm giving you a bigger sort of longer reply than your question merits. But I think it is important. I understand fully the big attention related to this asset is will pan out. On the M and A side, we see that there are some pockets around the world where the prices are If you were to use just around the capital framework, sorry to stop you there. If you had to compare M and A versus buyback, where do you see more value in your That's where I'm coming to. On M and A versus buybacks, we have said that we would like to strengthen our balance sheet. I think the last quarter is too very volatility in the commodity prices merits to keep a very strong balance sheet. We have said that cash dividend is the preferred means of returning cash to our shareholders. And then at this point of time going forward, we will look at the world and the outlook and that opportunity set. And if we can make good business deals like the Lundin recent transaction announced and the doubling of our equity in Sissatonga, that is for us very, very important to do. And then don't forget that we have an extremely profitable sanctioned portfolio of our projects, but also a very attractive unsanctioned portfolio project that we would like to pursue, which we believe overall will represent the best value proposition for our shareholders. And then payback sorry, buyback is still a part of the toolbox. Okay. Thank you. Next question is from Lydia Rainforth from Barclays. Please go ahead. Your line is open. Thanks and good morning. Two questions for me. Just coming back to that performance issues question from Biraj. What can you actually do in terms of because a lot of that seems to be from non operated assets. So just in terms of the what you can do about addressing that performance issues that you've had within the NCS? And then the second one, just in terms of cash flow, clearly, we do have weaker gas prices, I think, than were in the plan. Is that as we go through into the second half of the year, how much or how confident are you that, that puts up risk the cash flow forecast of the group? Well, on the performance issues related to our non operated assets on the NCS, As in every partnership where we are not the operator, we are supporting the operator and pushing the operator. And that is what we're doing in this case too to see if we can help out to the best of our ability for having good results also delivered from non operated assets. On the cash flow for the quarter, as you say yourself, it's highly impacted by the commodity prices and gas being one of them. But it's also impacted by the fact that we have 2 tax installments on the NCS for this quarter compared to just one previous quarter. I think we at the CMU guided you something about $1.5 in reduction in the gas prices. It represents sort of $1,100,000,000 in lower sort of cash flow or NOI per year. So that is kind of the range that we're talking about. And you can do the calculations as good as I can about the different scenarios going forward. But we believe that we will be cash flow positive at €50,000,000 for the full year 2019. And when it comes to sort of CapEx guiding for a period of time going forward, then the first opportunity for us to revert you on that will be in the Capital Markets Day coming up early next year. That's helpful. Thank you. Next question is from Peter van Milsen from SB1 Markets. Please go ahead. Your line is open. Good morning and thanks for taking my questions. Two questions. First one, a quick one on Sverdrup and the ramp up of your new profiles. Could you assume a linear ramp up from first oil until summer 2020? Or will it be back end loaded production growth? And my second question is related to Nuwaka. In Norwegian Media, we have seen a lot of discussions regarding Nuakon, the Development Solutions. So my question is, how does the recent Lija Torna discovery change your view on the Nuakaa situation and your preferred development solution? Thank you. When we start up wells, every well, we ramp up gradually and define what we call a sand free rate. We don't want to produce sand. And for that to happen, you have to use a test separator and some equipment to determine that flow rate, which is then kind of the maximum flow rate for that well. So starting off a totally new field like this, you will need to do that well by well and just add it on and stack it on top of it. So it's in many ways neither nor of the 2. It's more kind of like walking a staircase because you gradually ramp up on and then you will have determined what that plateau should be like flow rate wise. And then you add the next one and then the next one. So you see already in our guidance for this year, we believe that, that ramp up will be reflected in our numbers where we are saying it's going to be around the same level as we had last year, which was a record high. And then we will come back to how this is going to be factored into the 2020 production numbers in more detail because then we have at least a couple of months of 2 months of production history hopefully, close to when we get to that stage. On the Nuwaka and the Leotorn discovery. Nuwaka is a huge area on the Norwegian continental shelf. And it stretches from Oslo, Porchkirn, which is a small town to the west of far west of Oslo. For those interested, you can look it up in Google Maps, I guess. But we believe that this area will be best developed. If you look at it as one area solution to the north where Equinor is the operator and one to the south where Aker BP is the operator. This will bring best value to the companies involved, to the Norwegian government, which has interest in how this is being developed. And also from a resource development point of view. So then to the discovery that Aker BP just did recently on Lia Torna, we believe that that is just going to support their area solution to the south and bringing that into being better economics. And then I think it is important to look at the improvements that we have done in our proposed solution to the north. We have worked it like we did with Johan Sverdrup, like we did with Johan Castberg Bedinor and others and really been able to bring down the development cost. And that is what makes this a very good proposition seen from our point of view. And we would expect that the same way of thinking would add the same way of economics and maximizing the revenue for all parties involved if they did the same to the South. Thank you. Next question is from Christian Malek from JPMorgan. Please go ahead. Your line is 2, if I may. First, on the international strategy. Clearly, that's been sort of a source of underperformance for reasons which are sort of less conspicuous. But I want to understand more in terms of strategic perspective, what are you looking at internationally that you're effectively using your capital allocation towards? Is it Brazil? Is it shale? If not, I'm struggling to understand why we're not seeing more cash return on the horizon, particularly given your gearing ranges start to sort of come to continue to outperform you're moving your balance sheet in the right direction? And the second question is on Lundin. Why sell now the logic behind it? And you clearly go to the remaining stake of 4.9%. What are you planning to do with that? And ultimately, how do you think about that transaction in the context of the capital allocation and cash return? We have developed over decades as a company. We have been competing on the NCS with some of the biggest international companies for decades and learn to survive and thrive and compete at very good terms and results. We have seen when we moved internationally that we have nothing to be shy of. We have an excellent organization, excellent track record and people want to work with us. People invite us into partnerships and governments are inviting us to bid for opportunities because that we they see a company that has a lot to show for and not only sort of return wise, it's our toolbox, it's our way of thinking when it comes to taking care of the environment, being a prudent operator, how we treat our employees, all that kind of stuff adds up to the basket of being an attractive employer, but also an attractive partner and operator to have in your neck of the woods, depending on where you look around the world. And then you see that we are taking on more and more opportunities and also as an operator because that's when you really can make a difference and have an impact on the Development Solutions being brought forward. And we strongly believe that a lot of the deals that we have done over the last couple of years, the Carcara deal, the Bay du Nord discovery, BMC 33, the PAO taking on that operatorship based on stellar drilling performance. And all this makes sense for us because it's the best way of returning cash and value to our shareholders over time. We could choose to ride down the depreciation curve, as an accountant once said, by stop investing and return the cash to you guys. But that is not a sustainable business for a company like ours. So that's why we need to and want to gradually build our company. So yes, I'm buying shares in Equinor every month and I recommend everybody else to do the same. On the gearing range, we have said that 15% to 30%. This is before IFRS. You can add an 95%, 6% based on IFRS 16 effect, but 15% to 30% and we are comfortable by being below in periods of time and comfortable by being above. Now we are at 19.9%. Everything else being equal as far as what we see now, of course, the cash that we're getting from the Lundin transaction in the Q3 most likely will improve that net debt ratio somewhat. And then we're going to buy the 2.6 percent of equity in Johan Sahl, it will be in the 4th quarter and then it's somewhat back up again. So that I think is the most granularity I can give you on the gearing. And why sell now? Well, this was the opportunity we got. When we entered into this, we wanted to be exposed to Johan Sverdrup production. And now this opportunity came along where it could have an industrial solution where we take direct equity into this asset and could also monetize on a very good investment where we doubled the value and then we are left with some shares in that company and we are very happy to see that. That is part of the deal too. And could you just sort of push you on that, but you sort of your preference to build over cash return, if I'm clear on that response. I mean is that would you consider wholesale M and A in the context of your build strategy? Or is this more going to be through strategic asset sales transactions and so on? Just want to understand if there is a priority within that build strategy? There is only one priority and that is to maximize the shareholders' value. Right. Okay. Thank you very much. Next question is from Jon Rigby from UBS. Please go ahead. Your line is open. Lars, yes. Hi, thanks. Just on the NCS operating costs, they appear to be unit costs are rising again. They clearly came down very significantly post-twenty 14. And I just wonder whether you're able to sort of unpick the various elements of that, so sort of mix effects. I guess there is a sort of dollar kroner effect in there, although I think guidance has been to think about these in kroner. And then also whether there is any sort of underlying operational inflation starting to come back into it? The second question just on your gas trading business. Is it likely that even with the Danske acquisition that while price is in absolute terms remain as low as they are, which I guess could be for a couple of years, is that it's just will be very difficult to generate margin from that business, much higher than the lower end of the guided range until we see some sort of recovery and stabilization in gas markets. Thanks. When it comes to NCS and adjusted OpEx and SG and A per barrel, it is up 7% year on year in absolute cost. It's up 6% year on year. If we this is the total picture for the company, the group. So if you adjust then for Roncador coming in and Ozan's then and some changes related to divestments of Alba, gas lead removal costs, asset removal obligations adjustments, the absolute cost is flat year on year. So to your point on that, we see some cost inflation coming back into our business. I'm almost schizophrenic on this one because we're looking every day and in every corner and then every part of the business to see if we can see any cost inflation. We see a kind of a push for costs coming up. We've seen more from external market side of it. Globally, there are still good capacity, but there are some pockets, rigs in Norway, for example, even though it's part of a global market, it is it takes time to bring in another rig if you want to do something about capacity, the supply side. So we see some trends in some areas that might reflect or represent higher sort of supplier costs. But I mean we have secured contracts for procurement contracts for $100,000,000,000 as Ian told you around the Capital Markets Day. So we are quite sort of comfortable in the short term picture on this one. Then the medium, long term beyond 2, 3 years, it's for later contracts to determine what the contract terms will be. But 80% of the improvements is still by our design in combination with the improvements that the supplier industry have delivered. So that is what we're focusing on primarily to keep it and churn it to become even more competitive We expected when we bought it and that is reflected in the numbers too that there are usually during 3rd Q4 that they are making most money because that's when you have the really the spikes and the volatility to thrive on. And that we hope will be the case regardless of whether the gas prices are low, medium or high. Anything else to add to this, Jan or Svein? Just a comment on the absolute level on the gas price. Remember that it's a flow through of the price going into the DPN segment of that one and the M and P is more picking up the margin on it. So it's will be the price level will be more reflected in the DPN and the IN segment rather than in the MMB in itself. Then we have the trading advantage that you can do on top of it and as we are doing in the MMP. Next question is from Michel Della Vigna from Goldman Sachs. Please go ahead. Your line is now open. Thank you for the presentation and congratulations on winning the offshore wind project in New York State. I was wondering if you could give us a bit more detail on the economics there in terms of what IRR you expect on an unlevered basis and that what you expect on a levered basis and also if you plan some farm down of that large investment? Secondly, I was wondering on your gas realizations, they are quite difficult to model as you can expect. I was wondering if you could guide us for the second half of the year on how much of the volumes have effectively been pre sold in the previous 3 to 6 months versus how much we should expect to be broadly linked to spot prices? Thank you. Empire Wind, we are very happy that we won that auction. This segment of the business, you see from our Capital Markets update that the current project that we are having in our portfolio up and running, producing have returns around 10%, and that is on a project basis. It's not on an equity leverage basis. And then we have seen that there is a huge competition in this segment pushing down sort of the returns and we have not been willing to compromise on returns. We have seen looked at a lot of opportunities and chose not to bid. We have looked at some opportunities and chose to bid and we lost because we didn't want to compromise on the returns. And then we see a few opportunities that we really would like to pursue because those projects can create good value, and we believe Empire Wind is one such project. And then it is too early in the stage of that development to say something about the returns and the terms and all that kind of stuff. We need to move forward and start construction in 2021 and start delivering power to the grid during 2024. So we have ample time to discuss this going forward. On the gas side, Svein? Yes. And we have sold and benefiting them from the long term gas sales. As we said, this quarter and Q2, we had an invoice gas price of SEK5.49. We have SEK4.09 in the NBP price. We will also see benefits from the gas sales now in Q3 as Las Christian said earlier. Based on what we see in the current prices, it will be somewhat on, but still way above what we see in the current MBT market. And also of commercial reason, not disclosing exactly what kind of volumes we have on it. But it will be above the NBP prices. Thank you. Next question is from Christopher Kuplent from Bank of America. Please go ahead. Your line is now open. Thank you very much. I just have two questions remaining. The first one, I suppose you tried to answer in reverse earlier on Johan Sverdrup and Lundin and the transaction. I wonder whether you, in fact, are signaling that you are very excited about Johan with price you're willing to pay. And my question is, do you see more opportunities for increasing your exposure, your equity exposure to Johan Sverdrup? Have you had other discussions with shareholders within Johan Sverdrup? And are you keen on doing so? And the second question is, again, on wind. Just wonder whether you can tell us within 2019, 2020, whether there are contingencies in your CapEx plans because it looks like to me there isn't much actually going to be spent on wind in the near term. Just wondering whether you can confirm how much, if any, has been budgeted. Thank you. On Johan Sverdrup, if you have met a single Equinor employee that is not very excited about Johan Sverdrup, please give me his or her name, because I would like to know who he or she is. I mean, this is definitely a project that everybody is very excited about. This opportunity arose to take more of an industrial solution and get direct equity into this asset. And we are very happy that this turned out the way it turned out. And the way we read the comments in the market was that it looked like Lundin was making a good deal and it looked like Equinor was making a good deal. So in this case, I think we struck a price then or a package then that looked like something of a win win situation. Whether we have discussed discussions with others in Johan Sverdrup or discussions with others in other assets or not have had them or will going to have them or not. We are a company that do not give comments about that. You will read about it in the papers. On wind and capital spending going forward, Currently around 5% of our CapEx is related to the wind or the renewables segment. We have guided on 15% to 20% of our CapEx in 2,030 should be within an ambition to be within the Renewables segment, but back end loaded and not a linear curve. The Empire Wind is a very big building block in that to happen. And we have in our capital plans for 2019 to 2021, they're around $11,000,000,000 year on year that we have guided on average. We have also renewables projects as part of that. And then we have oil and gas projects too part of it. We are running a business today like we did during the downturn with a contingency plan. If the oil price were to drop or the commodity prices were to drop really rock bottom and stay for a long time and we need to free up some flexibility, we do have so the opportunity to do. But at the same time, we believe that this level is something that given the pricing and the balance sheet strength and so on, we would like to progress along these numbers and that gives room for both growth within oil and gas as well as renewables. Thank you. Next question is from Martin Ratz from Morgan Stanley. Please go ahead. Your line is open. Yes, I hand it back. My questions have been answered. Thank you. And next question is from Peter Low from Redburn. Please go ahead. Your line is now open. Hi, thanks. Just a clarification on CapEx in 2020 onwards. Do you see that €11,000,000,000 number as being adequate to deliver the production growth target you've outlined to 2025? Or is the expectation that, that will be supplemented by further opportunistic resource acquisitions going forward? I want to detail sort of comment to the CapEx spending organic so far this year. When you guide on 11, that's based on an exchange rate of SEK8.25 billion. So if you use SEK8.25 billion, you get SEK 4,900,000,000 CapEx spending so far this year compared to what you see in the numbers of SEK 4,800,000,000. That's just a detail, but something to be aware of. When we announced the production sort of numbers and the CapEx guiding at the CMU, the SEK11 billion for on average for 'nineteen, 'twenty and 'twenty one and the projects then being sanctioned is sufficient to bring us and give us the production growth that we told you about. And then of course, beyond 2021, we will also sanction new projects, but that is also turning into be a very attractive portfolio. Thank you. Next question is from Johan Charrington from Societe Generale. Please go ahead. Your line is open. Thank you for taking my questions. First set of question will be on Empire Wind. You referred to a €3,000,000,000 CapEx budget for developing that project. How much of this will show through organic CapEx, roughly speaking? And then second question that would be on your cash flow statement. You reported a very significant increase in financial investments in the first half of the year versus 2018. Could you please describe some of the underlying factors leading to such an increase? First of all, on Empire Wind, the $3,000,000,000 we are working going to work this project and start up construction then in 2021 for that project to be on stream in 2024. And the majority this is the organic spending that we expect to have on this project in that ballpark. On the financial investments, Julian, do you want to give some meat to the bone on this one? Yes. So this is important to look together with the cash element. So this is part of our liquidity management and it's about whether kind of our instruments are above or shorter than 90 days. So this is only kind of classification and then hits the cash flow based on that. Next question is from Anders Holte from Kepler Cheuvreux. Please go ahead. Your line is now open. Yeah. Thank you guys for taking my questions. Just one follow-up on the wind project, if I may. I know you say it's early days, but I guess if you look at material, they state that they target an unlevered IRR of 7.5% to 8.5% on new wind farms. Is that a level that you would be happy with in the recent wind projects? Are you looking for inherently higher IRRs on your offshore wind? Thank you. We are currently having a a couple of assets up and running on a project based return. We are talking about around 10%. It's a huge sort of mixed basket of numbers out there, some are leveraged on an equity basis and all that. But on this project, a lot of work needs to be done and some contracts that needs to be negotiated to find out what the terms will be for Empire Wind and we will revert when we have more details on that one. Okay. Thanks. And that was our final question for today. So I'll hand the call to the speakers. Please go ahead. Okay. Well, thank you, everybody. I'm pleased to say we've covered everybody's questions, and we're absolutely bang on time for the hour. So thanks to all for your participation. Thanks to the speakers here today. With that, good luck, and thanks very much indeed. Bye bye. Bye bye.