Earnings Call: Q1 2019

May 3, 2019

Ladies and gentlemen, welcome to the Equinor Conference Call for the Q1 Results 2019. I know it's been a busy week for reporting, so we'll get straight to business. On the today, we've got Lars Christian Wacker, CFO, who will run through the quarter's results, and then we'll open up for Q and A. Also with us are Svein Scheier, Head of Performance Management and Ojeann Kewarne, Head of Accounting. With that, I pass straight away to Lars Christian. Thank you. Thank you, Peter, and good morning, everybody, and thank you for joining us on this Q1's earnings call. Today, Equinor presents solid results across all segments. Adjusted earnings after tax were up year on year despite lower commodity prices in the quarter. The oil price increased gradually through the quarter from below $55 per barrel at the end of 2018 to around $70 at the end of Q1, resulting in an average Brent oil price of $63 For the 1st 3 months of 2019, we report a strong cash flow from operating activities before tax of $6,500,000,000 and we reduced the net debt ratio to 19.4%. Continue to deliver strong results because we are realizing on the improvements we have made. Volatility in commodity prices is a clear confirmation of the need for continued cost and capital discipline for operators as well as suppliers. In Equinor, we continue to strive for efficiency in everything we do and use lean principles as our way of working. This is what we mean by an improvement culture. Given our improvements and solid results, the Equinor Board has decided a 1st quarter dividend of $0.26 per share, an increase of 13% from the same quarter of last year. Before I move on to the quarterly results in more detail, allow me to point out some of the good industrial progress we have achieved in the Q1. 1, we closed the transaction for Rosebank, Danske Commodities and the new wind license offshore East Coast U. S. 2, we secured new prospective exploration acreage in Norway, Gulf of Mexico and Argentina. 3, we formally opened Arkona, the German offshore wind park. And 4, we are steadily progressing the development on new projects on the NCS and internationally, which we expect to deliver around 3% average annual production growth from 2019 to 2025. Johan Sverdrup Phase 1 is well on track to start up in November this year and expecting to reach a plateau of 440,000 barrels a day within 12 months from starting up. The full field Johan Sverdrup can produce 660,000 barrels per day at plateau with a very low unit production cost of around $2 carbon emissions below 1 kilogram per barrel and a breakeven oil price below $20 per barrel. Equinor currently has 24 projects in execution and we are pleased with our overall progress. The safety of our people and the integrity of our operations are and will always be our top priority. The group maintained its serious incident frequency level over the last 12 months at 0.5 per 1000000 hours worked. Our strong safety focus continues with undiminished strength to further improve performance. Management visibility and setting clear expectations are key success factors. Now to the financial results. And as a reminder, this is the 1st quarter reporting on IFRS 16 leases, and we have chosen to include these changes in the segment other to provide clarity. That means that reporting of operating segments is not impacted and therefore fully comparable to previous quarters. Now let me walk you through the main effects of this change. Our reported lease liability of $4,200,000,000 is now reflected in the balance sheet with increased net debt. In addition, we continue to report on debt Operating cost has decreased by $100,000,000 depreciation increased by 150,000,000 dollars and free cash flow improved by $250,000,000 Moving on, we delivered adjusted earnings before tax $4,200,000,000 this quarter, down from $4,400,000,000 in the same period last year. The IFRS net operating income in the Q1 was $4,700,000,000 Our financial results were impacted by the low average prices. At the same time, we delivered solid operational performance across all segments and maintained higher production. Realized liquid price in the Q1 was $55.8 per barrel, a reduction of 7% from the Q1 of last year. Realized European gas prices were at the same level as in the Q1 last year, while U. S. Gas prices were down around 10%. In addition, refinery margins were down more than 20%. After tax adjusted earnings were $1,540,000,000 in the quarter, slightly up from $1,470,000,000 in the same quarter last year. For the group, tax on adjusted earnings in the quarter was 63%, and this is due to strong earnings in regimes with low taxes. Our international segment had a 25% tax rate, including solid results from our U. S. Activities. As expected, new fields brought on stream increased operating costs in the quarter, while increased reserves on several fields led to reduced depreciation rates. And now to a short review of each reporting segments. E&P Norway delivered adjusted earnings before tax of $3,200,000,000 down from $3,400,000,000 in the same period last year. The small reduction is mainly due to lower realized liquid prices and lower production. Production in the quarter was 3% lower than in the same period last year, largely due to expected natural decline and operational challenges on Osterholmsten, and some partner operated fields, partly offset by new production from new wells and new fields. Underlying OpEx and SG and A costs increased somewhat in the quarter, mainly due to start up costs for new fields. Depreciation per barrel was down 11% in the underlying currency due to increases in reserves and production with no depreciation effect. E and P International delivered strong adjusted earnings before tax of $700,000,000 an increase of 4% from $600,000,000 in the same period last year. International equity production came in at 841,000 barrels per day near a record high. This corresponds to 5% growth when compared to the same quarter of last year. OpEx and SG and A were somewhat up, mainly due to new fields and increased costs related to preparation for operations. The achieved cash flow per barrel after tax was around $25 which is higher than on the NCS. In the quarter, E and P International delivered $500,000,000 in adjusted earnings after tax. This is up 17%. Our MMP segment delivered adjusted earnings of $359,000,000 compared to $454,000,000 in the same period last year. In the quarter, MMP took a one off provision linked to historical pricing for third party volumes. Strong liquids trading and European gas sales contribute to an MFP result well within our guiding of $250,000,000 to $500,000,000 per quarter. Equinor's production in the first quarter was 2,178,000 barrels per day on par with the same period last year. Expected natural decline of 5% was offset by new fields, among them Roncador in Brazil fields offshore North America and new wells brought on stream on the NCS and in U. S. Onshore. For the 1st 3 months of 2019, we report a strong cash flow from operating activities before tax of $6,500,000,000 and the net free cash flow of $1,800,000,000 without any proceeds from divestments. The net debt ratio was reduced by 2.8 percentage points in the quarter to 19.4%. The results and the cash flow was a main driver for the reduced net debt ratio. Organic CapEx in the quarter was $2,200,000,000 and we expect higher activity level and spending for the next quarters. The net debt ratio was also positively impacted by not declaring dividend and thereby reducing equity as we do in 4th quarter. Including lease liabilities, the net debt ratio was 25.8%. In addition, we closed value generating transactions such as the Rosebank acquisition in the U. K, Danske Commodities and the new offshore wind license in the U. S. During the Q1, we paid around $800,000,000 in dividends and around $1,400,000,000 in tax, including the first of 6 NCS tax payments. To conclude, we are on track and we have no changes to our guiding for 2019. We maintain our organic CapEx of around $11,000,000,000 and our exploration activity of around $1,700,000,000 We expect 2019 production around the same level as in 2018 and an annual average production growth of around 3% from 2019 to 2025. And with that, I'm pleased to open up for questions and hand the word back to you, Peter. Thank you, Lars Christian. So with that, I'll ask the operator to remind people of the procedure for polling and then we'll go ahead. We have around 45 minutes for questions. Thank you. Thank you. We'll take our first question from the line of Oswald Clint from Bernstein. Your line is open. Please go back. Thank you very much, Peter. Hello, can you hear me? Yes, we can. Peter, thank you. Good morning, Lars Christian. Two questions, please. The first one just on international volumes up strongly. Obviously, Roncador is quite a bit of that. But I was zooming in on your unconventional business, which I think has just hit a kind of volume peak, whether I look at gas or liquid. So I guess with price realizations and pipeline capacity issues and some of the parent child issues you've said you've had yourself within Eagle Ford. What's happening to really drive that part of the volume pie up to these record highs? And is that tracking your plan? Or is it coming at a better than your production plan? That's the first question, please. And then secondly, I was curious looking at numbers in Q1 seeing around $400,000,000 of EBIT for offshore wind. And I mean I know they're 4 or 5 times bigger than with wind. But I was wondering, is there any positive contribution yet from your wind portfolio coming up in the corporate segment yet? Thank you. Well, thank you for your questions. First on the volumes and the international volumes. You are right, Roncador contributes this quarter. That was closed midway last year. And when it comes to onshore activities and production in U. S, it is mainly related to gas. And production in U. S, it is mainly related to gas. And what we see is in all these cases, it's more or less according to plan. On the Renewables side, there are contributions positive for the quarter, but not big numbers given the size of our business. We'll take our next question from the line of Jason Gammel from Jefferies. Please go ahead. Thanks very much, gentlemen. I appreciate the commentary around spare drip. I was hoping you could maybe just address what are the critical path items in front of you to be able to meet that November 1 production start? And then maybe also just a second one, have you seen any changes to the budget yet? Is everything going according to schedule? Or have you even possibly achieved any further cost savings? Thank you. Well, on Johan Sverdrup, I think perhaps the best way of answering your question is to rewind, go back in time a couple of months and say what is on critical line as a sort of what we need definitely to be able to achieve to create really comfort around that start up date beginning of November. And those activities were some of the heavy lift operations that we have finalized. So that was on the critical path. What is remaining then of work related to Johan Sverdrup is a lot of work still to be done, but not sort of really big activities that if not being sort of delivered according to schedule that could set that start up date. But still beginning of November is our best estimate. On the budget for Johan Sverdrup and the other projects, 24 projects in our project portfolio in execution, and we are happy with how that portfolio is progressing. As we said at the Capital Markets Day, we have placed contracts for SEK 100,000,000,000 that we are securing more or less a lot of what we need to do both on the project side and maintenance side over the next 3 years. We are guiding on SEK 11,000,000,000 for this full year. That is because despite some SEK 2,200,000,000 in CapEx first quarter, we see and expect higher activity level for over the next couple of quarters, including some onshore wells in the U. S. That will come in. So this is the best sort of bottom up estimate that we are having. And then just also to remind you that when we're saying around 11, it is around 11, and it has always been around 11, yes. Thanks very much. Thank you. We'll take our next question from the line of Thomas Adolff, Credit Suisse. Your line is open. Please go ahead. Good morning. Two questions for me, please. I think you mentioned Tanzania LNG earlier today, And I was just wondering whether what is going on there and whether this project has become a live project. And then you also secondly mentioned that you are also looking at other LNG opportunities aside from Tanzania LNG. So would you say LNG is a gap in your portfolio that you want to fill? And if so, is aside from Qatar, anything else you're looking for? Thank you. On Tanzania LNG, it is a very low burn rate related to that project. We matured it sufficiently so that we have a good understanding and overview of what that project will look like and some early cost estimates, even though that there is sort of a high case and a low case since this is very early in the project design phase. And the reason for that is that we needed that to have a solid basis for engaging and having the discussion around establishing the host government agreement. What we are seeing now is that there is progress and they're ready, they're our counterpart, meaning the Transatlantic government to engage and start the negotiations and we expect those to take time. And what I mean by time is that I don't have any better estimates and that is partly based on the learning so far operating in that country. On other LNG opportunities, first, we have a stellar quality project portfolio under execution and we have a very, very, very good non sanctioned project portfolio with very good economics, whether you look at it from a breakeven point of view or a returns point of view. So we have a resource base of 20,000,000,000 barrels and are not distressed. We don't have to buy stuff. Of course, as a company operating in oil and gas, you need to discover or add volumes to sustain that production and production growth. But we have time to be selective and work the different alternatives. LNG is 1 sort of alley that we are pursuing and looking at whether we can get more LNG operated volumes into our portfolio, whether that is operated by us or non operated. But it has to make sense from an economical returns point of view. And yes, we have looked at different alternatives and screened several projects, but so far have not been able to make it work from a returns point of view. And thereby, we are picky and saying that we wait and look for more alternatives and whether that is an LNG or other projects, that remains to be seen. But I think the key takeaway is that whatever we do of acquisitions, it has to make sense. And by that, I mean, it has to fit nicely into our projects from a returns point of view, create value for the shareholders. That's great. Thank you. We'll take our next question from the line of Lydia Rainforth from Barclays. Your line is open. Please go ahead. Thank you and good morning. Two questions from me as well. The first one on the gas market and the Equinor approach to contracting. At the gas seminar in February, we talked about the idea that over time Equinor would want to transition to shorter term contracts rather than the sort of base of long term and short term contracts that you currently have. Can you talk us through whether that is still the case given where the gas pricing is at the moment? And just any reflections on the gas pricing as a whole would be helpful. And then the second question was just to come back to Oswald's point on the renewables side. The amount that you are investing in renewables and whether it's from CapEx solar to the organic offshore wind side, there is a value to those, but it's actually very difficult for us to assess externally. So at what point do you think it becomes scalable enough to give us more disclosure on that? Thank you. Well, on the gas market, as you correctly point to, we have announced that the day ahead, month ahead, the season ahead and the year ahead, we are moving away from and it will take time to get more into sort of more of the volumes being short term pricing. And currently, we see this quarter then that volumes that were sold last year on season ahead, the year ahead prices and these prices have been higher than present. So they are in the money and that contributes nicely. And that's why we are saying that realized gas prices this quarter for European gas is at par with what we saw last year, but we are still transitioning into the new principal as we announced earlier this year. On the renewable side, in many ways, it's the same for oil and gas. I mean, it has to bring value. Some of our projects that are in operations, we have internal rate of return 9% to 10% on an asset base that is not on a leverage based, but on an asset based return. And we have also said that we expect the CapEx spending to increase going forward, but as it looks, it's going to be heavily back end loaded, given the limited opportunities of good enough projects from a return basis. So whether this when this will be scalable is highly dependent on us succeeding in finding projects that make sense from a returns point of view. We'll take our next question the line of Teodor Nilsen from SP1 Market. Your line is open. Please go ahead. Hi, good morning and thanks for taking my questions. First a question on net debt and capital employed ratio, which now has come significantly down over the past few quarters. I guess your guidance from previously is still valid that you're looking for keeping net debt to capital employed up ratio of both 15%. So my question is, when you reach that level, what would be the pecking order of use of cash flow, will it be increased dividend or increased investments? And my second question is related to another question that's been today on Zwadrup and the ramp up profile. How should we expect to ramp up to 440 in production to happen? Would that be your 1st month for production? Or should you expect it to take a year or so? Well, the ramp up for Phase 1 Johan Sverdrup, we are saying it will take 12 months from production start up to reach plateau. Then on net debt ratio, we are very happy to see that this has been reduced from 10% to 2.2% to 19.4% during the quarter. We have guided on we want the net debt ratio to be between 15% 30%. We can live with the net debt ratio above 30% for a period of time as well as below 15% for a period of time. Having that said, we are also very mindful of a very low net debt ratio. Then there's a question of how efficient your balance sheet is. So looking at the numbers before I go into how to prioritize free cash flow or the cash flow. Yes, we have seen a 2.8% reduction in the net debt ratio during the quarter. But then be mindful that we did not declare dividend this quarter as well as we had SEK2.2 billion in CapEx, organic CapEx booked for the quarter. And we expect in both cases, those will kick in with a higher spending over the next couple of quarters. So by that, trying to say that it's not automatic that you can take another 2.8% of the 19.4% and so on going forward. So we are trying to say that be a little bit cautious when it comes to how you look at the development on net debt ratio going forward. Can it go down? Yes, with good pricing commodity pricing, definitely. But there are elements that will mean that it's going to be around this level going forward. Then on how to prioritize your capital distribution. One, we still want to strengthen our balance sheet and we also are saying that we have a very healthy, profitable, strong project portfolio that we would like to invest in and with an internal rate of return of more than 25%, which is very, very good. And then cash dividend is our preferred means of distributing cash to our shareholders and be mindful of the 13% increase in dividend that has now been decided by the board yesterday for Q1 this year compared to Q1 last year. And then going forward, we have options like share buyback that is in the toolbox and we have options like doing M and A deals, but be mindful that, as I said, that it has to make sense from a returns point of view. And then thirdly, it is very dependent on the commodity prices at this point of time going forward. You have seen and we have seen and everybody has seen that there are still very volatile commodity prices and that is important to factor in when it comes to how you maneuver to ensure flexibility and robustness. So that I think is the way I would like to put it. On net debt ratio, anything else to add, Olejandra Svein? No, I can just add that we are also exposed to currency movements that can hit kind of the equity. So that can also impact either positive or negative going forward. Okay. Thank you. We'll take our next question from the line of Biraj Borkhataria from RBC. Your line is open. Please go ahead. Hi, thanks for taking my questions. Just one follow-up on European Gas. With prices being pretty weak recently, I was a bit surprised to see Troll running at full capacity. I was wondering if you could talk about whether you're considering lowering your production or taking gas your flex gas down a bit, especially into the summer months? And then second question is on Danske Commodities, which you consolidated in Q1 to the midstream MMP division. I'm assuming that has a positive EBIT contribution, but you didn't move your range in guidance. So could you just talk a bit about how you see that contribution going forward? Thank you. Yes. On European gas prices, it's been weak compared to strong prices for a period of time. And I think in a historical perspective, what MEP is telling me is that the current price level is, in historical perspective, perhaps a normal price level. So, I think that is just important to bear in mind. But what we have seen is a very some odd trends in many ways that there has been a strong demand for gas and driving up LNG prices during the summertime from China when they wanted to fill their storage to avoid ending up in a situation where they did the previous winter where they were kind of short. And then we have seen that during this time, it's been both a mild winter, but also a lower demand, meaning that more of the LNG is targeting Europe and then putting some downward pressure on the gas prices in Europe. And on to counter this, you could say that there has been also quite steep decline in indigenous production in Europe. Troll was down during 3Q in 3Q during due to plant maintenance. And I think, yes, Svein, anything to add on this? On Thorel, as you alluded to there, we have the production permit, it's 36 giga, which has increased significantly over the years. So that means that we are then also optimizing within the production permit. And then we have the Flex on Oseberg as well. And at all times, we are evaluating then how then to run it most efficiently, both based on what we see in the market. Then normally, when we go into the summer months in May and onwards, we often take down production somewhat. And then we have some turnarounds, as said, in the Q3 this year. So then it's about an optimizing within the production permit of 36 giga for the year. And then we had a question on Danske commodities, which came in and were completed. So we have 2 months in the quarter in our numbers. 1st, January was Danske Commodities still not part of the company in many ways. So but we see a positive contribution from Danske Commodities and are very hopeful that by this company coming in that we can strengthen the results for MMP. But it's too early to say anything about the guiding range that it should influence or impact the guiding range. Svein? Maybe you could also remind of what we said at the CMU, dollars 80,000,000 for the full year of 2018 was the contribution and then spread over that 4 quarters. We'll take our next question from the line of John Ricchiuti from UBS. Your line is open. Please go ahead. Thank you. I'm not wanting to labor appointment. First question is just is on gas again is that in the quarter, it looks to me that you probably traded a record level of volume. It looks also to me that I mean it goes up down a bit, but the gas results, gas trading result contribution to NMP was towards the lower end of the range you would expect for a Q1, which is generally a good quarter. So I just wanted to ask whether this is for Europe. So I just wanted to ask whether given if we assume TTF and NBP are lower or continue at these kind of levels up and down for the next 18 months, 24 months. Does that influence the profitability of MMP? Or is the flat price, the absolute price largely relevant to what you can make in trading and margin around gas optimization? And then the second question or request is, can you just do a quick review of highlights, etcetera, on your exploration activities in the Q1? Yes. So on Yes. So on exploration activity, we completed 11 wells, 8 on the NCS and 3 internationally. We had in total 4 discoveries, Carcara Northwest in Brazil and then Telesto, Rangin, Fridnur and Jasper South. And then after closing all the quarter, we also, as a partner, have a discovery in the Blacktip discovery in Gulf of Mexico. So spending, 1,700,000, percent, still our best estimate for the full year. And we are still hopeful for our exploration campaign that we have planned for the Barents Sea and some other exploration activities or wells around. On the gas volume trading side, it was 19.6 percent, 16.4 percent, Svein? Yes. As you said, Jon, it's high volumes in the gas sales from NCS than including the LNG as Norwit just about 11 Bcm that has been traded. What I also would like to remind you of is that normally what you see in the prices that we achieve is that the main results of that goes into the DPN segment. And of course, we will also take positions in the MMP, which impact the MMP results. But the gas prices and the invoiced gas prices is then mainly impacting the DPN segment. And so you see the impact there. And to a lesser extent in the on the absolute level in MMP, but trading then into the MMP segment. Can it make is where it sits within your guided range of results somewhat independent of what the external absolute flat gas price is? Or is it is the level of gas price going to be somewhat is that going to somewhat determine where results are going to sit while global gas price global gas markets remain well supplied? I think it's fair to say that, of course, you normally take advantage of the fluctuations in the gas trading. So and then realizing prices there into the MMP segment. But in a flat price environment, then most of it will be then going into the DPN segment. Yes, through the cycle, it will. Thank you. We'll take our next question from the line of John Olaisen from ABG. First, I could say, I'll squeeze down. Of all the 72 quarters that I've followed on, Statoil and Equinor, this was the shortest and most precise. So thanks for that. And I'll try to do the same in my question. One question only. You recently participated in exploration success in the Gulf of Mexico. Could you tell us about the upcoming wells in Gulf of Mexico? Just update us on Gulf of Mexico exploration, please, what's next? Well, thank you for the compliment. And then I will be very, very precise on Blacktip. It's a Palugene well in the Western Gulf of Mexico. And we are working closely with the operator on this and the assessment of what this might end up being when it comes to sort of the volumes. The drilling is still ongoing was still ongoing late April. Yes. Maybe another one coming up in the next with the monument. Well, that will come up expected and to be spudged towards year end this year. So second half. And then we also have one well in Canada, the Harp well in Canada That are best to watch in the North America segment. Thank you very much. We'll take our next question from the line of Rob Pulleyn from Morgan Stanley. Your line is open. Please go ahead. Thank you, gentlemen. Two quick follow ups on gas since it's in vogue. Firstly, to what extent will the weak gas prices year to date impact 2Q results given the lag? Or is there still enough of these longer term contracts from last year sort of smoothing the way? And the second question is, staying with gas prices, given the recent volatility, what does Equinor consider exports from the U. S? Thank you. On the first one, we expect a smoothing, as you say, when it comes to the effect of the contracts that are still in the money, the one we sold on long term last year. On the marginal cost of gas for Europe, Svein? Yes. What we believe is that, as I said, is that some of the volumes now coming into in the short term, But then seeing that in the longer term that more demand for gas is then coming. So what we have said in our economic planning assumption is that when we get into the 20s in 2024, around $80 ish on the NBP price is what we disclosed at around the CMU. Okay. And then obviously, that hasn't that thinking hasn't changed given trends so far? No. All right. Thank you. Our next question comes from the line of Alvin Thomas from Exane BNP. Your line is open. Please go ahead. Hi, guys. I'd like to ask on production guidance for this year. I know it's a lot of moving parts, but maybe you could tell us what you assume for net volumes from Sverdrup in your 2019 production guidance of flat year on year? And sort of in that context as well, maybe give can you give a little bit more detail on current operations at Aasta Hansteen, Mariner and Martellinger into next year would be helpful. And then just on DPI, pretty solid performance this quarter. Can you maybe just give a little bit more color on moving parts regarding the influence of Brazil and Roncador volumes in terms of cash margin and the U. S. Onshore as well for the quarter? Maybe help us try and explain the numbers. Thanks. Well, first of all, I mean, we delivered 2,111,000 barrels a day production last year. And the decline on the existing portfolio is still around 5%. So that is equal to just north of 100,000 barrels that you have to replace for 20 19 to stay flattish. The start up of this quarter was as planned. And Osaanstad, that started up just before the year end, has been ramping up and reached production plateau mid February and are currently producing at plateau and nicely with a good regularity. Mariner, we are guiding then that will start up second half and hopefully in the beginning of second half. And Martin Linge, we see a lot of comments in the from time to time at least that there is a delay in Martin Linge. When we looked at Martin Linge to take over the operatorship and increase our equity, it was assessed thoroughly and we expected that the production start up for Martilinje should be Q1 2020. And for us, that remains the same and there is no cost changes either to that project. So production guidance on Johan Sverdrup then coming on stream. And it will ramp up to a full plateau in 12 months' time from starting up. And yes, it's a good asset and it will contribute towards the end of the year. But based on all these moving parts, as you allude to yourself, we expect that the production for this year will be flattish compared to production last year and the 2,100,000 barrels per day last year was a record high production for us. So flattish is still on a record high level. We'll take our next question from the line of Peter Low from Redburn. Your line is open. Please go ahead. Hi. Thanks for taking my question. Just one on your non sanctioned project portfolio. Do you consider that, that is currently adequate to organically deliver the 2025 production guidance you've laid out? And then as a follow-up, can you provide any update on the progress towards FID of some of the larger projects in there as I'm thinking of things such as Bay du Nord, Carcara and North Platte? Thanks. Well, when it comes to the production guiding towards 2025, the sanctioned portfolio will come on stream by 2020 2 and then we have some other projects unsanctioned, as we say, that are progressing according to plan. So we are confident that the guiding of 3% compound annual growth rates from 2019 to 2025 will still hold and we have sufficient projects in the pipeline to deliver on that production growth and then also production beyond 2035. On Carcara, a final concept select, we expect sort of a for that to happen for the first FPSO during this quarter with the decision gate in Q3 for this year. Bay du Nord, we reached an agreement with the provincial government when it comes to the framework, the fiscal terms for that development. We reached that July last year. And the work is ongoing with the development application and benefit plan that we need to provide as part of that application. The benefit plan is there are some requirements in the agreement with the provincial government when it comes to local content. Concept studies are being conducted for the floating production, storage and offloading units as well as the subsea templates, risers, umbilicals and flow lines and the sort. So those projects are progressing nicely. But also bear in mind that one of our key learnings from the drop in oil price was that don't rush these projects. Take the time you need to deliver good projects, because if you rush, you might start up a couple of months earlier, but it will come at a very, very high cost. So take time to do it right and then plan, plan and stick to the plan. I think that is why you see that we are able to sustain a guiding when it comes to capital spending at around SEK11 billion for our total portfolio. Thanks. We'll take our next question from the line of Christopher Copeland from Bank of America. Your line is open. Please go ahead. Thank you very much. I hope I'm going to be quick too. Can you let us know whether you're actually downgrading your full year CapEx guidance or is the IFRS 16 impact so small on that €11,000,000,000 Quickly, wanted to also ask whether the recent M and A activity pickup we've seen in the U. S. You think is making it easier or more difficult to potentially sell assets out of your portfolio? And lastly, sorry, again, on European gas. If I'm assuming that spot prices in the second quarter stay at current levels of around 4.50, euros Are you saying that your pricing means you could actually see a premium in the Q2? Any more color for an idiot like myself would be welcome. Thanks. On the IFRS 16 and the effect on the CapEx, Ernie Yes. So the organic CapEx is not impacted by IFRS 16. So no impact on that. Yes, short answer. Yes. And then on the question of buying or selling assets in U. S, in many ways, you could say that the current commodity prices is among the worst we can have from the point of view that it's high enough for everybody to model through and it is not high enough for the M and A market to really kick off big time like it was before the drop in oil price back in time. Having that said, we see that there are pockets around the globe that the market is hot from a point of view that it is pricey and part of the U. S. Onshore, the Permian, to be more specific, is such a one. We have looked at the stuff in the Permian. Subsurface wise, it looks nice and it looks to work, but it still needs to make sense from a returns point of view. So it's too pricey. So and then you had a question on the 4.5 for European for Q2, whether there is an opportunity to for us given our where we sit when it comes to the contracts we entered into last year, whether that can sort of represent a premium like we saw in the Q1 and that is what we expect if the prices is around what we have seen. But bear in mind that we are smoothing out this change in how we are going to trade volumes going forward to more short term pricing. Understood. Thank you very much. Yes. Thank you. We'll take our next question from the line of Anders Holck from Kepler Cheuvreux. Your line is open. Please go ahead. Yes. Thank you. Congrats on the strong quarter. Just two questions, if I may. One of them is on CapEx. And now due to strong cash flow in Q1, you covered 50 sorry, 47% of your CapEx is already covered for 2019 from your operations. So my question on the CapEx front is how much of the remaining CapEx is contingencies of Johan Sverdrup? And to the second question, you talk about returns in the renewables segment as one of the key hurdles for you guys to launch your investments into the sector. What I'd like to know is to pick your brain on what exactly do you mean has to change in the renewable side for you to see more upside on the returns. So if you could just elaborate a bit more on the details behind your reasoning for holding back on the renewables investments. When we see companies like Enel, they're just saying they can't simply sanction enough and return for fantastic. This is the opportunity that I've been waiting for, for a generation. And this kind of it completes a bit of picture you're painting with the low returns and the pullback on investments. So what has to change in that sector for you guys to pick up the pace? That would be great. Thanks. First on Johan Sverdrup. I mean, now Phase 1 and Phase 2 being sanctioned at a total cost below what Johan Sverdrup Phase 1 alone, where it's supposed to cost a stellar project development execution and good collaboration and work by the supplier industry is helping out in making that happen. On the contingency, remaining contingency on the Onside DRIP Phase 1, it's not much left. I mean, you have more in the beginning and as the time go by and you get more and more clarity, that contingency level has been taken down and that is also partly why you have seen a reduction in estimates historically. So, there's not much left. In the renewable space, we have seen a lot of cheap capital seeking infrastructure like returns with an accepting then low returns. So that has been the way we look at it, pushing down the returns in this segment. Now that we see that the subsidies more or less is fading away and we are being as an industry being met with more emerging risk, we expect the returns to come somewhat up and also people that think that low risk is a low return, a high risk then should be also wanting high returns. So, this for this to be sustainable, the renewable space when it comes to offshore wind has to improve. Okay. Well, I mean, when you say it has to improve, what does that actually mean? It could be a little bit difficult. It just means that either you are in you go into this and have very, very low returns or no returns at all. And whether that is sustainable, it's up for you. Or in our case, we need to see better returns and work the projects to create better returns for us to be willing to invest. Okay. Thanks. We'll take our last question from the line of Stefan Foucaud from GMP. Your line is open. Please go ahead. Yes, morning. Thanks for taking my question. So, Kugno, you're quite busy CapEx program in exploration in 2019. And a specific question on what Equinor is doing in Turkey in the Thrace Basin. Looking at the Juno Pipeline, you talk about massive amount of gas, something like 20 Tcf of resources with ongoing drilling and testing. So I was wondering whether you see that as being as mature as that because that could move the needle even for Equinor. When you think you would know whether the volumes are there or not, whether it works or not? And how that would fit with the overall European gas strategy? Thank you. Well, the work program for the Banali and West Trace license in Turkey consists of several phases. Phase 1 is a drilling and testing of the Yamalik 1 well in the Banali license. The drilling has been completed and testing is ongoing, and it is way too early to conclude on the production potential of this license. We have also completed some 3 d seismic for other areas. So drilling and testing 1 more exploration well will be on or that was spud in Q4 actually 2018. But all in all, it's way too early to conclude on the production potential, the volume in this structure and both have to be in place for this to be of value. For us, it is still value over volume, but we still know that without volume, there will be no value. But for this to fly, it has to make sense from a returns point of view as for everything else. And it will compete with whatever we have else in the portfolio. Thank you. Thank you, Lars Christian. That's the last question. We always like to deliver our projects on time. And indeed, it is exactly 12:30 Norwegian time. So that's where that keeps that tradition. Thank you everybody for their interest. Of course, any further questions that you have during the course today or beyond, please feel free to contact Investor Relations and we will follow-up immediately. Thank you very much indeed. Thank you. Bye bye. Thank you.