Norwegian state-owned energy company Equinor (EQNR) has been a direct beneficiary of the Russian gas embargo, becoming Europe’s top natural gas supplier amidst the continent’s energy crisis and enjoying record profits of nearly $75 billion in 2022. It is also expanding its renewables portfolio, making it an attractive investment, writes Kuen Chan, editor of The Complete Investor.
As a result of the windfall profits, some environmentalists accused Equinor of ‘profiteering’ from Europe’s energy crisis, but the fact is that Equinor did not cause the Russia/Ukraine conflict. The company was merely in perfect position to fill the void left by Russian gas. It also deserves credit for being able to ramp up production and expanding supply chains to transport the gas where it needs to go to take advantage of the supply-demand imbalance.
The longer Europe shuns Russian gas, the more opportunity Equinor has to deepen relations with its customers and cement itself as the continent’s top-choice gas supplier for the future. Oil and natural gas prices have fallen back from their peak levels last year, but the elevated price levels during the height of the energy crisis wasn’t sustainable anyway. More important is that Equinor is better positioned now than before.
Equinor is also optimizing its fossil fuels portfolio by selling off various non-core assets and focused on expanding its renewables business. Equinor says its fossil fuel business is cash-flow breakeven at just $35 oil. It has plans to grow its offshore windfarm installed capacity to at least 12 GW by 2030, from just 0.6 GW at the end of last year.
If achieved, this would represent at least a 20-fold increase in eight years. The company expects its renewables business to soak up half of annual capital spending by 2030. Equinor also plans to grow its carbon transportation and storage and clean hydrogen businesses.
The company actually has negative net debt of some $20 billion—this is how much cash would be left if Equinor were to pay off its entire debt load with the cash on hand at the end of the March quarter. The ample cash holding is a great safety net, and also bodes well for its dividend policy.
Currently, Equinor pays a $0.30 per-share semiannual base dividend, with a special variable performance-based payout on top of that. The last special payout was $0.60, making the last semiannual dividend $0.90, good for a yield of about 4% at the recent share price.
Recommended Action: Buy EQNR.
