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Equinor ASA (NYSE:EQNR)
Q3 2020 Earnings Call
Oct 29, 2020, 6:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Peter Hutton -- Senior Vice President, Investor relations

Ladies and gentlemen, thank you. Welcome to the Third Quarter 2020 Equinor Results Call, on what I know is an especially busy day. Lars Christian Bacher, CFO, will run through the results and then open up for questions. Also on the line, we have Svein Skeie, Head of Performance and from the 1st of November, acting CFO; Oerjan Kvelvane, Head of Accounting; and Mads Holm, Head of Finance. The operator will run through the mechanics of the polling for question, but I would also note that given the timing of the call and along with others reporting today, we request that people keep to one question with a maximum of two parts and those parts should be connected. So, this allows us to get through the call fairly and effectively.

With that, I am very pleased to pass the word through to Lars Christian. Thanks very much.

Lars Christian Bacher -- Executive Vice President and Chief Financial Office

Thank you, Peter, and good morning, everybody. I hope you are all doing well and thank you for joining the call. Equinor delivered solid overall operational performance in the quarter. Prices have recovered somewhat from the very low levels in the second quarter, and we have seen less volatility, but concerns about second COVID wave in many countries and muted further demand and corresponding price upticks. Despite this challenging price environment, Equinor delivered a positive cash flow in the quarter. We acted early and forcefully into the effects of the pandemic and its impact on commodity prices. Now, six months later, you can see the benefits. We have materially reduced our costs and we have maintained strong financial flexibility.

We were significantly helped by the strong measures taken over last years to improve our competitiveness. This has made us more robust and equipped to handle this situation. Capex spending has been tightly controlled and strictly prioritized. Costs are significantly down with opex and SG&A per barrel for the upstream segments down 20% since third quarter 2019. And we are on track on our plan to save $700 million in 2020. In the quarter, we had demonstrated that we're able to create value and grow our renewables business. We formed a strategic offshore partnership with BP in the U.S. and divested 50% of our East Coast offshore wind projects, Beacon Wind and Empire Wind. Equinor continues as the operator of both projects, and we now benefit from complementary competencies, experience and skill sets.

This is totally in line with our strategy to secure our maturity renewable projects for large scale development and to capture the value creation by taking in strong partners when the timing is right. Our net capital gain of around $1 billion is expected to be booked early next year. We used a similar model for the Equinor project in Germany where we look to gain of more than $200 million in 2019. Equinor is making good progress in our low-carbon projects, which will contribute toward the development of full value chains of capturing, transporting and storing CO2. This includes H2H Saltend in UK, a project for large scale hydrogen production with carbon capture. In addition, the Northern Lights project in Norway will contribute to the transport and storage of CO2 from industrial discharge [Indecipherable].

We continue to develop our competitive oil and gas portfolio. And in September, we submitted a PDO for the Breidablikk field in Norway. This is one of the largest undeveloped discoveries on the MPFs and it will be developed as a subsea tieback to the Grane field with 23 wells from four subsea templates. Breidablikk is one of several projects that will benefit from the temporary changes to the tax regime [Indecipherable] with an average reduction in breakeven of $10 per barrel. We have discovered hydrocarbons in the Cappahayden and Cambriol prospects off the east coast of Canada and they are currently being evaluated. Continued technology development and digitalization provides opportunities for increased value creation and risk reduction. At the [Indecipherable], we just celebrated its first year anniversary. Digital solutions have yielded more than $2 billion of e-commerce in additional earnings. And the field has achieved a unit production cost below $1 in the quarter. You can see below $1 in the quarter.

This quarter as at a growing insights and maturing other market units through a deep analysis, we have reduced both our short- and long-term price assumptions. Our focus has been, as always, on a long term and fundamental trends, [Indecipherable] volatility and market reactions. Based on our analysis, including supply as well as demand impacts, we expect average oil prices to gradually increase to $65 per barrel in 2025, with a continued modest uptick toward 2030. After 2030, we expect a gradual decline to $64 in 2040 and below $60 in 2050. Clearly, oil price estimates that far out in time and are associated with great uncertainty. But remember, we require sanctioned projects to be robust at much lower prices than these long term levels.

At our Capital Markets updates in February, we presented our project portfolio on new deals to be put in production by 2026 representing around 6 billion barrels of oil equivalents [Indecipherable] with an average break even oil price below $35 per barrel. Since February, this has been improved further. In April, the unprecedented market conditions we said deciding on future dividend payments, the board of directors will take into consideration factors such as expected cash flow, capital expenditure plans, financing requirements, and financial flexibility. We have seen some signals of recovery in the commodity markets. We have also demonstrated an ability to react swiftly and effectively during the difficult conditions, and this gives the board confidence to raise the dividend to $0.09 for third quarter.

This affirms the statements made in April that a cut was a reaction to extraordinary conditions and that the dividend policy was unchanged. Now on to the results and let me start with our safety performance in the quarter. The safety of our people and conducting safe operations is the bedrock of what we do. The recent fire at our LNG plant at Melkoeya, not serious but most importantly, it was without any personnel injuries. The plant is expected to be shut in for up to 12 months for repairs. For the last 12 months, we reported serious incident frequency of 0.6 and a total recordable incident frequency of 2.3 per million hours worked. Year-to-date, serious incident frequency is 0.5 and the total recordable incident frequency is improved when compared to the levels achieved in 2019.

And now to the financial results, which again, were impacted by lower prices. Our realized liquids price in the quarter was $38.3 per barrel, down 27% from the same period last year. Average invoiced gas prices of $2.72 per million Btu for Europe and $1.53 for North America are down 48% and 23% respectively. The IFRS result is negative $3 billion, while adjusted earnings in the quarter is positive, $780 million, down from $2.6 billion in the same period last year. We have further reduced our costs this quarter and the unit production cost has been reduced by more than 20% year-on-year. We are also well on track to reduce our operating costs by $700 million as announced as part of our action plan in March. The overpriced assumptions and reduced reserve estimates for some fields resulted in a net impairment this quarter of $2.9 billion.

Most of the net impairments are related to the U.S. onshore field Bakken and the Mariner field offshore UK. In Norway, total net impairments are $360 million on producing fields. The group tax rate in the quarter was 65%. A lower tax rate in Norway was offset by higher than guided rate in E&P International and MMP due to the earnings composition. Then some comments to each of the reporting segments.

E&P Norway delivered adjusted earnings before tax of $773 million, underlying opex and SG&A was reduced by much per barrel year-on-year in Norwegian kroner, increased production from new fields with very low cost and further efficiencies on mature fields. Our new organizational units focusing on improved value creation on late-life fields on the NCS is off to a strong start with a visible cost improvement already. The tax rate in the quarter is lower than previously due to the temporary changes in the NCS petroleum tax regime.

E&P International delivered adjusted earnings before tax of negative $104 million. The result is impacted by the low prices and reduced production from the Peregrino field in Brazil. Peregrino is temporarily shut in for repairs and is expected to start production in the first quarter of 2021. We see strong progress on cost reductions in the segment with the opex and SG&A down 19% year-on-year. Cash flow from operations is $381 million for the quarter. The tax rate of 84% is higher than normal guidance mainly due to uplift on carryforward losses in the UK.

E&P USA third quarter results are of course also impacted by the weak prices. Costs have been partially reduced and we have stopped drilling onshore due to the current price environment. Adjusted earnings before tax came in at negative $193 million. Cash flow from operations was $276 million with a positive contribution from our onshore business. Our US business delivers a positive cash flow also after investments in the quarter. Our MMP segment was impacted by weak refinery margins offset by strong contribution from European gas sales and trading. MMP delivered adjusted earnings before tax of $262 million. In our Other segment we also report activity in our New Energy Solutions business area. And we had good availability across our offshore wind portfolio in the quarter. Our equity accounted investments delivered a net income of $60 million in the quarter and the NES business segment as a whole delivered a positive contribution.

We delivered stable field operations in the quarter, without any negative COVID-19 effects. Equinor's total oil and gas equity production in the quarter was 1,994,000 barrels per day.

Compared to the third quarter last year we grew our Group equity production by 9% when allowing for portfolio changes and production curtailments. We adhere to the production curtailments imposed by Norwegian authorities on the NCS, but we use this opportunity to perform modifications and upgrades without further production impact. New fields and new wells put on stream contribute to the production growth. We also took the opportunity to increase our NCS gas production as the European gas prices recovered throughout the third quarter.

In the quarter exploration activities resulted in seven commercial discoveries while two wells results are still being evaluated. Year to date we have delivered 13 value-creating discoveries globally. This is a strong 50% success rate. Our renewable electricity production in the quarter has been in line with expectations.

In the third quarter we delivered a net positive cash flow of $216 million. This is after capital distribution which in third quarter included a payment of around $1 billion for the Norwegian State's portion of the share buyback program. We received a tax payment of $160 million in the quarter, reflecting the temporary changes in the NCS tax regime in addition to the low prices assumed and the tax installments for 2020 reverse estimated in June.

Based on increased prices for the second half, we expect taxes payable in the second half of 2020 at around NOK2 billion. Year-to-date we have had organic investments of almost $6 billion and we are on track to deliver on the full-year $8.5 billion organic capex guiding for 2020. The net debt ratio at the end of the quarter was 31.6%, up from 29.3%. 1.3 percentage points is due to the impairments while the 1.5 percentage points is due to the share buyback program payment to the Norwegian State. Without these, the net debt ratio would have been slightly reduced in the quarter.

So let me conclude with our guiding. For 2020, we expect a production growth between 1.5% and 2%. This outlook depends on how European gas market develops where we use our gas production flexibility to boost value creation. The production impact from the strike on the NCS was marginal and we expect a full recovery of the volumes by year-end. The impact from maintenance in 2020 is expected to be around 30,000 barrels per day. We expect around 3% compound annual growth rate in equity production from 2019 to 2026. We also maintain our expected exploration expenditure level for the year of around $1.1 billion. The guided organic capex levels for 2020 and 2021 are unchanged at around $8.5 billion and $10 billion respectively.

And then to the closing. As you are aware this will be my last analyst call as the CFO of Equinor and I would like to pass on my thanks to all of you for the engagement and the dialog we have had over the last few years. It has always been a pleasure and I know you will be in very safe hands when Svein takes on the role as Acting CFO. And by that, Peter, I'll pass the word back to you as you open up for questions. Thank you very much.

Peter Hutton -- Senior Vice President, Investor relations

Thank you [Indecipherable] number of people as well, I'll take this opportunity to do that. Many thanks. And with that, can I pass the word to, Emalena, the operator to run you through how you may poll for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] We have a question from Oswald Clint from Bernstein. Please go ahead. Your line is open.

Oswald Clint -- Sanford C. Bernstein -- Analyst

Thank you very much, everyone. Good morning. And thank you very much Lars Christian as well for all your help. Just to keep it to one question and one follow-up, gas business, the European gas business, price is down substantially but the Natural Gas Europe result was particularly strong and the volumes were up. And I actually see that Oseberg was pretty much pumping at winter levels even in the third quarter when it's normally the lowest level each year. So -- and I know you have quotas around that particular field. So I just wonder if gas prices stay high here in the fourth quarter, can you still take advantage of those or are there -- could there be some restrictions against that?

And then my -- a small related follow-up is, do you have any business interruption insurance for the Hammerfest issues? Thank you.

Lars Christian Bacher -- Executive Vice President and Chief Financial Office

Thank you. To the last part of your question, the answer is yes. And to the first part of your question, the answer is yes. If the prices -- the gas prices in the fourth quarter is good and hopefully even better then we have capacity both from a production point of view, but also from a quota point of view to take advantage of that situation to create superior value.And then just sort of an additional remark from me and that is that when it comes to production curtailments, those quotas have been imposed for the liquid-rich assets and not gas producing fields like [Indecipherable], for example. Okay, got it. Thank you.

Operator

Our next question comes from the line of Alwyn Thomas from Exane BNP Paribas. Please go ahead. Your line is open.

Alwyn Thomas -- Exane BNP Paribas -- Analyst

Hi, Lars. Sorry to hear you're leaving Equinor. Just one main question for me then. On the dividend and the increase at this point, I was just going to ask really what gives you the confidence to increase it at this time given what is a pretty uncertain macro outlook at the moment. Is this is partly due to the tax incentives in Norway that will help? And perhaps if I could sort of follow on the question and say what should we infer from this for the company's free cash flow generation going forward, and does it indicate that you think gearing has potentially peaked at the end of that quarter? Thank you.

Lars Christian Bacher -- Executive Vice President and Chief Financial Office

Thank you for that question. I think the best way to answer your first part is actually to go back to March-April. We were really impacted by the drop in the commodity prices due to uncertainty in many dimensions, one being of course we didn't really know whether we were able to secure flow assurance, meaning that we were able to sell the products. We were not alone in that. A lot of companies have that challenge. We took some extra positions to secure transportation capacity and storage capacity to weather that off. We have benefited from that since then. We have also taken many measures to reduce our spending and secure sort of the cash flow generation capacity. And we have good progress on the $3 billion program of which $700 million is in area -- expenses, costs that is. So, that adds to it. And then, with a positive cash flow in the quarter, $360 million after-tax, after capital spending, and after a capital distribution of $1.3 billion, we feel that the discussion in the board such that -- now we have more visibility and confidence on a forward-going basis. So, that's why we increased the dividend by $0.02 per share. And the second part of that question was?

Alwyn Thomas -- Exane BNP Paribas -- Analyst

Oh, sorry. I was just wondering.

Lars Christian Bacher -- Executive Vice President and Chief Financial Office

Yeah, on the cash flow.

Alwyn Thomas -- Exane BNP Paribas -- Analyst

Yeah. That's it and gearing, yeah.

Lars Christian Bacher -- Executive Vice President and Chief Financial Office

Yeah. On the cash flow, I mean, the gearing for this quarter if you adjust for the impairments on the $1 billion in share buyback, then the gearing would have been slightly down. And I think, as the CFO, and this is my last call and looking at that we've been able to deliver and contributing then together with the rest of the organization over the last -- through all the years. I think that the cash flow positive number for this quarter given sort of the commodity prices given everything. I feel that this has strong sort of position to be in quite resilience. And also, if you look at -- unit production cost level, reduction of 20%. And so I want to -- that's why, we are quite sort of confident that this increase in the dividend is OK without me -- guiding a lot there and the cash flow will be for coming quarters. But I think that's how far I'm willing to push it. But I'm going to warn your guys too, because I said tables earlier, I'm also not saying that since this is my last earnings call. I'm going to hand back more questions to them than I normally do. So, yeah, that's so far -- I'm hanging in there, yes.

Alwyn Thomas -- Exane BNP Paribas -- Analyst

Okay. Thanks a lot and all the best for the future.

Lars Christian Bacher -- Executive Vice President and Chief Financial Office

Thank you.

Operator

Our next question comes from the line of Lydia Rainforth from Barclays. Please go ahead. Your line is open.

Lydia Rainforth -- Barclays Investment Bank -- Analyst

Thanks and good morning. So, I was just thinking about the -- you talked about Equinor being very resilient, yet there have been things that operationally haven't seemed to have worked by far, things like the operational bit and higher [Indecipherable] on capex side. So, just as you think about leaving Equinor, why do you think you're leaving in terms of operational performance? How much more risk there's really to go for until they're getting the operational side completely right? And partly linked to that, I'm sorry, on the New Energy business, you talked about Dogger Bank in both the new press release about reserve level. Is that helping to the earnings contribution? I'm just wondering what that's related to? Thanks.

Lars Christian Bacher -- Executive Vice President and Chief Financial Office

Could you repeat that last part of the question, please, about the Dogger Bank?

Lydia Rainforth -- Barclays Investment Bank -- Analyst

So, I think, just in the press release, you did talk about Dogger Bank, the profit and earnings performance in New Energy is related to Dogger Bank, so reversal of losses at Dogger Bank and I was just wondering what that related to [Indecipherable] operational perspective?

Lars Christian Bacher -- Executive Vice President and Chief Financial Office

Yes. That's it, very good. Now on the operational side of it, I mean, the Peregrino, the change of the devices, replacing them, it's taking way longer time than what we expected and that is due to the COVID, corona situation in Brazil. Brazil is a country that is being more severely hit than many others. So that is why that is dragging us. On the Snohvit fire, we are investigating it together with the Norwegian Safety Authority and the Norwegian Police so there are three investigations ongoing on this one. So, I'm sure we're going to jointly get a good -- a really good picture on what's happened and what have you and to avoid this from happening again the reason for this and to be put out for up to five months.

And the reason why we're kind of a little bit soft-toned and that's very firm on how long -- is that we used saltwater to both pull out the fire -- put out the fire and also cool down the adjacent equipment. So, we used the [Indecipherable] so it's actually -- to do this. And of course, saltwater into a plant like this and all the electrical wiring and such takes time to get a good overview of the -- what needs to be done and what needs to be replaced. Other than that, I would argue that we have very good operational performance in the quarter and I'm a strong believer in continuous improvement and with all the small ideas. And in this case, I would like to address more the -- I mentioned the smaller incremental improvements.

So that's where we really can get sort of the further improvement in this area. So wide set of ideas that comes up from the organization is just up to 30 years and working for seven of the mine, I'm still immensely impressed by the ideas that comes up. Everything related to sort of digitalization and operating from onshore centers, all that contributes to -- on top of this. So I'm a strong believer that there is still more to come, some incremental, some more of a step-up. On the Dogger question, this current quarter, the result was materially impacted by the revenues or the losses in the Dogger Bank project which was partially offset by lower income from other equity accounted investments and including the effect of reduced ownership share in that [Indecipherable] compared to the 2019. I'm not sure, Oerjan, if you want to add to this or?

Anders Holte -- Kepler Cheuvreux -- Analyst

Yeah. I can add couple of comments to that. So, we have provided a loan to Dogger Bank in the early phase, and that is treated as part of the net investment that we then move on and then we have another set up, then we reverse kind of the cost toward this net investment. So it's fairly technical. It's part of the $60 million from the equity accounted investments in the New Energy Solution.

Lydia Rainforth -- Barclays Investment Bank -- Analyst

That's very clear. Thank you.

Operator

Our next question comes from the line of Yoann Charenton from Societe Generale. Please go ahead. Your line is open.

Yoann Charenton -- Societe Generale -- Analyst

First, thanks Lars Christian for your engagement with [Indecipherable]. And secondly, if I may, turning back to dividend and as for the company delivered free cash flow in the third quarter this morning [Indecipherable] regardless of the renewed COVID-19 threat. And, Svein, you indicated the four factors that are taken into account by the board to decide on dividend levels. Where does the bulk play in the line of sight? That's the key question mark. And I will add in relation to this, how much of the renewed COVID-19 threats fed into the 3Q decision for dividends?

Svein Skeie -- Senior Vice President

Yes. Thank you for the questions on the dividend. As Lars presented in his introduction, I mean he's responsible. It's about what we said when we cut the dividend in the first half. He said that we did that based on the extraordinary market conditions that we were in at that point in time as [Indecipherable] to potential flow assurance and extremely low prices that we saw both for [Indecipherable] as well for that period. What we now have seen -- we have seen that there's a positive recovery that we haven't seen especially in the gas prices and currently quite [Indecipherable] than we have seen in the beginning of the year -- the beginning of the crisis. So in totality, the board has done -- taken all this into consideration also [Indecipherable] all the improvements that we have done in Norway with the improvement program and the action plans that we clearly get it so that was the basis then for them to come up with the dividend and expecting that at $0.11 per share.

Lars Christian Bacher -- Executive Vice President and Chief Financial Office

So this is not only to do with quarterly results. This is also about visibility and confidence in the long-term earnings that we maybe expect.

Yoann Charenton -- Societe Generale -- Analyst

Thank you.

Lars Christian Bacher -- Executive Vice President and Chief Financial Office

Okay. Thanks. You're welcome.

Operator

Our next question comes from the line of Michele DellaVigna from Goldman Sachs. Please go ahead. Your line is open.

Michele DellaVigna -- Goldman Sachs -- Analyst

Thank you. Thank you so much, Lars Christian, for your help over the years and all the best for the future. One question from me; when I look at your tax page, you're saying that in the second half, you have NOK2 billion. You received a refund of NOK160 million in Q3. So am I correct that I should expect a payment of $400 million in the fourth quarter? And then secondly, could you please help me unpick the impact of the temporary tax regime on the third quarter cash flow? Thank you.

Lars Christian Bacher -- Executive Vice President and Chief Financial Office

Yeah. We got NOK1.5 billion in refund from the Norwegian state, and that was partly as a consequence of the changes in the fiscal regime, the tax changes but also what we looked at as commodity prices until the second half. And then we have had an uptake in the prices. So we expect actually next then for the total second half, third and fourth quarter a tax payment from us to the government or NOK2 billion. And so, I'm not sure Svein if you want to add to this?

Svein Skeie -- Senior Vice President

No. I think you explained most of it as we communicated in connection with the second quarter. We then received the NOK1.5 billion in payments for 1st of August but also then being clear on -- that we are doing recalculations for the second installment that we are doing 1st of October. So based on what we are now seeing on the totality, including the prices and those things, we see that we are in a position that for totality, we would pay them NOK2 billion. So we paid more in October, and then we will have a refund also in the December payments. That's the technicality of how the Norwegian tax system is working. And of course this can be positive to our earnings but also [Indecipherable] both halves by improving the opex side and the prioritizations that we -- that [Indecipherable] also of course supporting the cash flow for the quarter.

Michele DellaVigna -- Goldman Sachs -- Analyst

Thank you.

Operator

[Operator Instructions] Our next question comes from the line of Thomas Adolff from Credit Suisse. Please go ahead. Your line is open.

Thomas Adolff -- Credit Suisse -- Analyst

Good morning and thanks for taking my question and all the best. Two questions for me, please. Just on shareholder distributions. And obviously gearing is now slightly above 30%, ex-leases in the past year. You've mentioned that 30% is your threshold and you like it to be below that. And when you look at 4Q and 1Q, you have potentially strong free cash flow generation assuming the oil prices and the collapse. I'm just wondering if there's a willingness or rather a discussion internally that once you come out of the uncertain winter corona season, whether you could launch or relaunch Phase 2 of the buyback? And then secondly, just looking at your production forecast for 2020, and if we look at the second half of this year at the time of the 2Q results, is it fair to say that nothing since has changed because of the flexibility you have in your portfolio? For example, Snohvit may be out for a while, but this can be fully offset by Troll also producing more than originally planned. Thank you.

Lars Christian Bacher -- Executive Vice President and Chief Financial Office

So on the gearing efficiency [Indecipherable] guiding range, but we are comfortable by being lower than 15%, but also higher than 30% at present. And then, there's a disclaimer you can't interpret what I'm about to say in one direction or the other, whether we are going to do it or not going to do it. But we have said that when you consider share buyback program that that is temporarily at paused. We are committed to go through with a full $5 billion program eventually. And then it's just a question of when and how much in different installments going forward. And what you know, I don't know now on the dividend side is -- the tariffs change compared to what we landed on after we cut the dividend by two-thirds. And we have also said that, we are willing to have a competitive sort of shareholder value creation so we will also honor that -- increase the capital distribution to the shareholders. We have one and/or the other on a forward going basis. But I can't tell you what that looks like. That's going to be around the next quarter but -- and secondly we don't guide on that. But and then Svein any comments from you?

Svein Skeie -- Senior Vice President

Just on the production question that you had for the full year, that's been remarkable as expected and more than [Indecipherable] but of course it will depend on the gas prices and outlook there and we are utilizing the flexibility. Currently, the outlook for gas is more than $5 on MVP [Phonetic] which has recovered quite a lot since the summer time. Then just a reminder also on the fourth quarter is that we have moved quite a bit of the turnaround from second and third quarter that we normally do on the NPS. We haven't really seen any turnaround out in time but we will also then give more turnarounds in fourth quarter on the NCS than what we normally do. So, that is also taking it to consideration when we do the outlook for the full year.

Thomas Adolff -- Credit Suisse -- Analyst

Okay. Can I just quickly ask you on dividend versus buyback; obviously your plan is to get the dividend back to pre-COVID levels eventually. But the buyback doesn't have to wait for that, right? I mean you can be quite dynamic and opportunistic depending on the environment. And sometimes when prices have checkpoints, more buyback makes more sense, right?

Lars Christian Bacher -- Executive Vice President and Chief Financial Office

We are not allowed to think like that. For us, share buyback is all about capital distribution. But you are correct that share buyback might be a more flexible tool compared to a kind of a steady dividend. Unless you want to sort of pull out of the tool box ex from dividend. But for us, share buybacks makes more sense than makes of no dividend because it secures sort of future value creation and shareholder distribution by reducing the number of shares and increasing the value per share in the Company.

Operator

Thank you. Our next question comes from the line of Jon Rigby from UBS. Please go ahead. Your line is open.

Jonathon Rigby -- UBS -- Analyst

Thank you. Hi, Lars. Can I ask a question sort of linked to the reports about North America investments and obviously there are some further impairment charges coming through this quarter. I'm obviously hindsight tends to be 2020 and so we are all experts looking backwards, but is there some lessons to be learned here looking forward because it seems to me that analogous to, let's say, North American shale is the movement by the industry into investing into renewables and particularly wind. So I just wonder whether you are able to sort of walk me through the rigor that you apply to thinking about investments into wind. I particularly say that because it does feel to me that it's starting to get that flavor of a sort of gold rush where everybody wants to invest in the same thing at the same time. Thanks.

Lars Christian Bacher -- Executive Vice President and Chief Financial Office

Yeah, another really good question. On the impairments, the majority of it is related to assets that we have mentioned, Bakken and Mariner. Bakken more on the pricing and Mariner price, but also on the reserves. But another way to slice this is actually to say that the majority of the impairments for this quarter has to do with assets that we either acquired or sanctioned way back in time. And whatever we have sanctioned since then is much, much more robust and that should not come as a surprise to you. You have seen year in, year out we report on the improvement of the sanction -- unsanctioned portfolio of projects when it comes to breakeven and such. But I think that is something just to be mindful of that and some sort of history here that as long as those assets are part of your portfolio this is what we are facing.

But we are also quite proud and I must say I mean very proud of the job that the US onshore organization and support from our technical base organization here in Norway, the huge improvements they have been able to deliver on not only on the HSE side of it and flaring top notch in many ways compared to the industry, but also on the operational performance and the costs, whether that is operations or drilling. So huge improvements that have helped us to make it more robust but still challenging in the current price environment. But as I said in the quarter, positive free cash flow also from the onshore business. So that is also important to bear in mind.

Then to the really core of your question, onshore being something that I think in the beginning was partly a game for flipping assets. It was more of a real estate gain than necessarily oil and gas business, you bought land, you proved, increased the value by drilling and proving up oil and gas and then you hope that someone would come and buy your land in many ways.

We have seen that behavior that you're describing in renewable side for a while. I think it's going to be fueled even more going forward. And that is why we have been very, very cautious on what we have been willing to bid for and that is why we have been very restrictive also when we have first putting a bid that is not going to be the way all the value creation because this -- we do this because we want to build the business, we do this because we want to create value. And of course this is, if you are an NGO and think of this as saving the planet on reducing CO2 emissions, of course, this is part of their toolbox that the world in totality needs to turn to to make that happen. But as a commercial company with responsibility in many dimensions among one being the shareholders, we need to create value and that's why we do this. But only entering to assets where we can believe we can create value.

I think we said this in a couple of investor calls some weeks back and months back, going forward I think it's going to be buyers' market in oil and gas segment and sellers' market in the renewable segment when you look at the appetite and also look at the plans that many companies do you have. But I'm very happy walking out of the door on tomorrow afternoon, my last day in the office, is that we have a 3% compound annual growth rate in the oil and gas business toward 2026. That's a healthy good growth just based on what we have. And we have a 30% annual growth in the renewable segment in that time frame annual growth just based on what we have. So we are in a very good position to take the time to make this right. And not to jeopardize value or erode value or do some moves that in hindsight resembles what we now see for in many cases for many companies, many assets when it comes to the unconventionals.

So I'm not sure Svein do you have any additional comments? It was perhaps a long answer, yeah.

Svein Skeie -- Senior Vice President

I agree with you. It's about -- as we also said, at the CMU, it's about value driven growth, it's about creating value and creating profitability in the next business as we're moving along and that's what we have based on our strategy on. And I guess we also have been able them to demonstrate good value creation also lately with the divestments that we did. And as Lars Christian said expect to look again in since 2021 of around $1 billion on that transaction.

Jonathon Rigby -- UBS -- Analyst

Thank you for that. Appreciate it.

Operator

Our next question comes from the line of Biraj Borkhataria from RBC. Please go ahead. Your line is open.

Biraj Borkhataria -- RBC Capital Markets -- Analyst

Hi. Thanks for taking my question. I just had a couple of follow-ups. Just on the renewables business, you are starting to build a track record of securing assets starting to develop them and monetizing them. And I suspect the capital employed in that business is now quite small on a net basis. Could you just clarify what is the current capital employed on new energies? And then the second question, going back to the dividend, you mentioned as part of the initial commentary you have good visibility on cash flow. Can you just -- are you able to provide any color around expected cash tax payments for 2021, only for first half of 2021? Any color on that would be helpful. Thank you.

Lars Christian Bacher -- Executive Vice President and Chief Financial Office

Sure. Oerjan or Svein.

Anders Holte -- Kepler Cheuvreux -- Analyst

I can on and start with the latest one is for the first half of the quarter and cash taxes on NCS. It's all we are now seeing is then related to the tax payments on the Norwegian continental shelf. You pay half of the taxes in the year it happens and half of the tax in the year after. So in a way that means that what we have said now that is that we are then going to have NOK2 billion in payments for the second half and everything else equal, if, if the prices are as we projected, and we worked with it, then we should expect that we get the sale done for the first half of the 2021. So that's the way it works. If prices are lower and higher and those things, then there will be adjustment when we do the final calculations based on the results that we are generating also in fourth quarter.

You take the --

Svein Skeie -- Senior Vice President

Yeah. So what we have on our books, of course this is equity accounted investments. So you need to put that into account, so approximately between $1.2 billion and $1.5 billion in our books right now.

Lars Christian Bacher -- Executive Vice President and Chief Financial Office

As equity.

Svein Skeie -- Senior Vice President

Equity accounting.

Operator

Our next question comes from the line of Anders Holte [Phonetic], Kepler Cheuvreux. Please go ahead, your line is open.

Anders Holte -- Kepler Cheuvreux -- Analyst

Thank you for taking my questions. Let me first congratulate Lars Christian on a very well-handled tenure and I'm sure [Indecipherable] are happy when it comes the share price especially giving a performance to peers so far this year. So job well done and thank you for that. And also my question is more a take on actually [Indecipherable]. Now previously I have heard from Equinor that you have at least you were in the process of securing the project financing [Indecipherable] got the impression that [Indecipherable] is not going to [Indecipherable] but more in terms of straightforward project financing. So I am just curious to know if you have any updates on the actual financing of Dogger Bank and it's looking to be project financed or if you [Indecipherable] and fund it through the bank property as you have in the past? Thank you.

Lars Christian Bacher -- Executive Vice President and Chief Financial Office

Yes, perhaps [Indecipherable] you want to give it a go on this one?

Svein Skeie -- Senior Vice President

Yes, thank you very much Lars Christian. Very good question. So the way we do things here is that we always took from a totality when we look on how we finance things. And we are searching toward what makes most things from a liquidity and a price perspective. We will consider project financing together with BP once they are fully on board on the project. So I think that's -- I leave it with there.

Lars Christian Bacher -- Executive Vice President and Chief Financial Office

Just what's related then to the Dogger Bank. And in the Dogger Bank we are in the process then for [Indecipherable] project financing on that asset together with our partner SSC.

Anders Holte -- Kepler Cheuvreux -- Analyst

Okay. Thank you.

Operator

Our next question comes from the line of Alastair Syme from Citi. Please go ahead, your line is open.

Alastair Syme -- Citigroup -- Analyst

Hi. thanks for taking my question. Last question, I remember this call quite clearly last year and I remember it because you ended up asking me to send the oil price [Indecipherable] people sort of criticized you for being too aggressive. [Indecipherable] I don't really want to get into a discussion what the right price is. But I'm intrigued about what stops you from simply using the [Indecipherable] analysis. Is it simply the [Indecipherable] potential pressure on the balance sheet? [Indecipherable] sanctioning projects on this crisis, but my observation is that in a way you're creating an impression for investors that they bring us to back a view that oil prices to go back up.

Lars Christian Bacher -- Executive Vice President and Chief Financial Office

Yes, and we believe the oil prices will go up again. This is a reoccurring topic and I talked a lot of different sort of from communities whether that is investors, analyst, journalists or peers or what have you. And what I see is that discussion is somewhat skewed toward a huge focus on the demand side and the weak demand which we see now in the market. But that's for more of the short-term but very little focus on the supply side and what has been taken out of new capacity over the last year by projects being not sanctioned or postponed or our stopped even in halfway into the project sort of development in a few cases.

So for us this is a huge and very thorough analysis, everything from population growth to GDP growth in different countries, we have supply demand for not oil and gas, but for other energy sources and what have you. And then you do the interactions on simulations and we do sensitivities and robustness around it and that's why we have ended up with a revised set of prices taking them down $13 for the 2020 prices for example. And that's why I tend to use the word that it's growing insight because whatever we saw in March-April in the drop in the commodity prices, including the forward prices that you referred to there was not any fundamentals behind it. It was just sort of the market reaction there and then and the assessment there on that. But one really sort of fundamental factor impacting the medium, long-term supply demand factors would be, if you have a breakthrough technology tomorrow that green or blue hydrogen works and it's profitable and can compete with whatever and we have CCS on top of it. That would be sort of a really game changers that will impact the medium, long-term prices. And I also get this question about is this in line, well below 2 degrees Paris and all that and who knows what the prices is for well below 2 degree scenarios in '20, '30, '40, '50 [Phonetic] will like.

Lower oil and gas prices stimulate increased demand, high prices stimulate a drag in the direction of other sources. So what's the truth. And no one knows until we are there out there out in time. But what we are -- what is acquired of us from the regulator and auditor is that we have a personal view on what prices should be like out in time. This is our best assessment and this is what we believe in to be the most likely scenario and the prices we will have until we deem them to be different and that's a technicality part of it. The way that we then run the business when it comes to sanctioning projects is that we have a much tighter set of criteria. Internally I have this six pack of KPIs that my colleagues in the CC have to sort of adhere to and deliver on when it comes to sort of sanctioning and exploring and buying and driving the business forward.

So, yeah, that's the short answer to your question.

Alastair Syme -- Citigroup -- Analyst

Absolutely. Thank you. And I wish you all the best for what the world brings you next.

Lars Christian Bacher -- Executive Vice President and Chief Financial Office

Thank you. I guess I will know my market value hopefully in a couple of months time. Yeah, I don't know.

Operator

Our next question comes from the line of Christyan Malek from JPMorgan. Please go ahead.

Christyan Malek -- JPMorgan -- Analyst

Hi. Well, first of all I wanted to say good luck and well done for an amazing 10 years in terms of managing capex efficiencies and I think what you've done has been quite extraordinary on the capex efficiency. Just coming back to the point around the [Indecipherable] what strikes me is I'm quite perplexed as to how you have managed the dividend through the last six,12 months. Because I remember six months ago you're saying that the [Indecipherable] was to prioritize project investment and since then we have seen project delays. And yet still have the cost of your new project. So [Indecipherable] your buying back stock and raising capex given you have got such a great portfolio, particularly in Brazil. So I just want to sort of square out your constructive view versus capital allocation, the priority of the allocation. While I welcome dividend, I'm just not quite clear to the sort of the logic in terms of how it's being prioritized to the capital. Thank you.

Lars Christian Bacher -- Executive Vice President and Chief Financial Office

Yeah. This is another sort of a big question, but very sort of -- very much to the core of what an Executive Committee needs to relate to and factor in when they make decisions on privatizations. Given the growth that I just mentioned both in renewables and in oil and gas portfolio and this is then value over volume, but still you need to sometimes talk about the volumes because there will be no value without volumes. So this is about growth in oil and gas and growth in the renewables side profitable. And one of the learnings is never run a business just based on KPI, because that will drive the business in a direction you don't want to. So we need a balancing act. But you don't -- in our case you don't want to either get the cost deflation back into our company. And the best way to get cost inflation back into your business is to stop running. And we don't want to do that because one of the key learnings has been to just work around the assets and the project diligently, walk one day to the next and make it work. And this is also about our capacity. Of course we could -- we have a huge sort of list of projects that we can tap into and speed up even more in a short term. But that would stretch the organizational capacity that we are having and I'm afraid it will lead to more cost inefficiencies being brought in. So then you start eroding value again. And then that erosion leads to that you are not as robust as you would alternatively have been.

So then on the -- on this question then on prioritizing capital distribution versus capex, I mean it's kind of a balancing act. We would like the shareholders and the market to see that this is a gross share price and also a dividend sort of share buyback sort of yield sort of share that you are buying into. And that's what you are trying to balance in this. And then you need to safeguard also your balance sheet of course from a gearing point of view and make this robust. The more than -- around $8.5 billion that we took on debt earlier this year was also at that point of time we didn't know what the financial market would look like, and response and the pricing and robustness given the early days of the COVID-19 of coronavirus situation. Now we know more. But at the same time, we've taken them on with a very low interest rates compared to the average that we have had. So yeah I'm quite proud of the balance act that we've been able to deliver.

Christyan Malek -- JPMorgan -- Analyst

So just a quick follow-up. So should we expect any major change in terms of following your sort of transition or should we assume that it's [Indecipherable] broadly consistent, just to manage our expectations in terms of the new management team?

Lars Christian Bacher -- Executive Vice President and Chief Financial Office

Well, then you need to ask the new management team, I guess. I don't want dare to go into that if this is a forward-looking one. Yeah.

Christyan Malek -- JPMorgan -- Analyst

Thank you.

Operator

Our next question comes from the line of Jason Kenney from Santander. Please go ahead, your line is open.

Jason Kenney -- Santander -- Analyst

Well, thanks. Maybe just to ask a question about the renewals ambitions in a slightly different say. So if I am modeling oil, gas and renewables on a total energy basis I am thinking Equinor will be around 6% renewable energy supplied by [Indecipherable] which doesn't sound a great deal when you compare that to the European peer group which could be 15% renewable energy by 2035 and even a couple of peers are targeting 20% to 25% renewable energy. So, I'm adding all of your renewable power adding on top of your hydrocarbons.

So I suppose the question really is, is that 12 to 16-gigawatt of renewable power ambitious enough to kind of say that you are going to be a renewable driven energy entity within the next decade?

Lars Christian Bacher -- Executive Vice President and Chief Financial Office

On this one what I think at least we are able to show you is a visible path toward that number in 2035 based on existing projects, which I think is good than on what you have on ambitions of top of it. I mean we could have that we too. But I think what really makes sense for us is that path back it with concrete projects, specific projects and then it's a balancing act too. We don't know what the future of renewables will look like neither from a competition point of view or from a revenues or income point of view.

So where do you place your bets in this in respect to Jon's question of is it it sort of a bubble in the making, he didn't use that word, but that's what implicit in his question. And if so, you want to tiptoe and walk this with the cautiousness but also robust portfolio and I call it the assets. So that's the balancing act we want to take because we want to create a business, we want to create value creation for you guys and then safeguard the Company. Yeah. Then we are off to the -- is it the last question? Okay.

Jason Kenney -- Santander -- Analyst

Thanks for that. Cheers.

Operator

Our final question comes from the line of Martijn Rats of Morgan Stanley. Please go ahead.

Martijn Rats -- Morgan Stanley -- Analyst

Yeah, hi. Hello. I have a very short and practical one. So the capex guidance for this year, I just wanted to check the math, it seems to imply given the nine-month sort of total so far year-to-date that it implies $2.5 billion of capex in the fourth quarter. But then looking at the capex guidance for next year also implies $2.5 billion a quarter. I just wanted to check if this is the correct interpretation. Are we now just looking at $2.5 billion of capex per quarter? Is that basically what it is?

Lars Christian Bacher -- Executive Vice President and Chief Financial Office

Svein?

Svein Skeie -- Senior Vice President

Yes, thank you for the question. What we have now said is that for this year we stick to our capex guiding of around $8.5 billion. We are now just, yeah, almost $6 billion in organic capex so far. So that's the math. And for next year we have also then said that or guiding is then $10 billion for 2021 in organic capex. So that's the outlook.

Lars Christian Bacher -- Executive Vice President and Chief Financial Office

Thank you, Svein. Then if I could have some closing remarks from me since this is my last analyst call as CFO for this great company, a company that I have worked for close to 30 years and I have been privileged with all the tasks that -- and challenges that have been thrown at me in many ways of opportunities, but even more so I'm really humbled but also appreciative of all the trust that my fellow coworkers have put in me.

And then to you guys that have called in, and by guys I mean both boys and girls, I really appreciate the time that I have had with you guys to all your questions. We learn a lot from you, perhaps more than you think of sometimes. I understand that some of the questions are specifically related to us and sometimes the questions are you want hear our answer because you want to compare with someone else. So I learn what you ask other companies but their questions you ask us too and you are helping us to improve and become gradually a stronger and stronger company. So by that I wish also you all the best in your endeavors and whatever you have all jobs and now and the future holds for you. And then I will just encourage you to be cautious and remember to stay safe. Thank you.

Operator

[Operator Closing Remarks]

Duration: 69 minutes

Call participants:

Peter Hutton -- Senior Vice President, Investor relations

Lars Christian Bacher -- Executive Vice President and Chief Financial Office

Svein Skeie -- Senior Vice President

Oswald Clint -- Sanford C. Bernstein -- Analyst

Alwyn Thomas -- Exane BNP Paribas -- Analyst

Lydia Rainforth -- Barclays Investment Bank -- Analyst

Anders Holte -- Kepler Cheuvreux -- Analyst

Yoann Charenton -- Societe Generale -- Analyst

Michele DellaVigna -- Goldman Sachs -- Analyst

Thomas Adolff -- Credit Suisse -- Analyst

Jonathon Rigby -- UBS -- Analyst

Biraj Borkhataria -- RBC Capital Markets -- Analyst

Alastair Syme -- Citigroup -- Analyst

Christyan Malek -- JPMorgan -- Analyst

Jason Kenney -- Santander -- Analyst

Martijn Rats -- Morgan Stanley -- Analyst

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