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Equinor ASA (NYSE:EQNR)
Q4 2020 Earnings Call
Feb 10, 2021, 4:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome and thank you for joining the Equinor Q4 Analyst Call. [Operator Instructions]

And I would now like to turn the conference over to Mr. Peter Hutton, Senior Vice President. Please go ahead.

Peter Hutton -- Senior Vice President, Investor Relations

Thanks Anne and you are very welcome to the conference call for Equinor's fourth quarter and full year 2020 results. Welcome to those analysts and investors joining us either on the call, or those watching on the webcast and media also joining us on Zoom. I'm delighted this morning to introduce Anders Opedal, Chief Executive Officer; and Svein Skeie, CFO. They will present the results and outlook for around 20 minutes each, and then we will move into a Q&A session for analysts and investors, which we hope to finish around 11:30 Norwegian Time. And at that point the media will have an opportunity to move into their own Q&A session on Zoom.

So with that brief introduction, let me pass the word over to Anders. Thank you very much.

Anders Opedal -- President and Chief Executive Officer

Thank you very much, Peter, and good morning to all of you. I hope you and your families are safe and well. We are all used to digital events by now. But I really hope progress on vaccination will allow us to meet sometime soon. Today, we are presenting our fourth quarter and full year results for 2020. We are also announcing the sale of our Bakken asset today, and I will revert to that too in my presentation. In addition, we will take the opportunity to provide some direction on the strategy process, leading toward the Capital Markets Day in June. This is the first time Svein and I present to you as CFO and CEO, and we look forward to a good and open dialog with you all.

2020 was a year like no other and the pandemic continues to impact people and society across the world. For the global energy markets, the unprecedented volatility was illustrated by fluctuation in the Brent. From almost $70 at the start of the year, to even below $20 at the bottom in April. Now, it's showing signs of recovery, but we should still be prepared for volatility.

It is in times of challenge that we see the true strength of the company and the quality of our people. Equinor kept operations running and responded forcefully. This was important, not only to protect our financial resilience in 2020, but also to be in a strong position for value creation going forward. In addition to meeting and beating action plans, to reduce costs and improve resilience near term, we took significant steps to transform our company. We have set a clear ambition to be a net zero energy company, and to create value as a leader in the energy transition.

Our first priority, is to make sure all our people can return safely home from work every day. In 2020, we have implemented measures to keep our people safe and well during the pandemic. For many, this has been a tough year, and I am impressed to see how colleagues have looked after and supported each other.

During the year, we experienced serious incidents in our operation and with the fires at the onshore plants at Melkoeya and Tjeldbergodden, it is clear that we are not where we want to be. We will take learnings from investigations and avoid future incidents.

For 2020 as a whole, we had an increase from 10 to 11 hydrocarbon leaks. But we see from the reduction of serious incidents and personal injuries, that we are moving in the right direction. In fact, with a Serious Incident Frequency of 0.5 and injury frequency of 2.3. We achieved our best safety results. This gives inspiration to improve further in close co-operation with authorities, partners, suppliers, safety delegates and union representatives.

Shortly after our capital markets update last year, the pandemic hit and our established contingency plans proved their true value. We launched a $3 billion action plan to strengthen our financial resilience. Hard efforts throughout the entire organization succeeded and we have delivered above and beyond our ambitions. In fact, we have achieved savings of more than $3.7 billion. We have reduced the organic capex to $7.8 billion, almost all of it in our international portfolio. The temporary tax adjustment at the Norwegian Continental Shelf made it possible and profitable to maintain activity and progress projects. In addition, we realized improvements and reduced our operating cost with around $1 billion from original estimates, well above the $700 million target.

Still, our financial results were of course impacted by the low prices during the year. Our net income for 2020 ended at negative $5.5 billion and the adjusted earnings came in just below $1 billion after tax. We will continue to take steps to strengthen our robustness toward periods with lower prices, particularly in our international business. And due to savings and capital discipline in 2020, we delivered a strong cash flow from operation at around $11 billion after tax, and a positive net cash flow at an average oil price below $42 per barrel for the year.

Last year, we reduced our dividend from $0.27 per share in fourth quarter 2019 to $0.09 per share for the first quarter 2020, as a part of our forceful response to protect our financial resilience. Through the year, we have balanced capital discipline, investing in profitable portfolio and return of value to our shareholders. We continue with this balanced and cautious approach and the Board proposed a modest increase in the quarterly cash dividend to the Annual General Meeting from $0.11 per share in third quarter to $0.12 per share for the fourth quarter.

We also continued to cut emissions and deliver on our low carbon ambitions. We have reduced our CO2 intensity from 9.5 kilo per barrel in 2019 to 8 kilos in 2020, below half of the global industry average. We will experience variances from year to year, but the long-term direction toward lower emission intensity is clear. At the end of 2020, we had an equity installed capacity of 0.5 gigawatt renewable energy in production and we are on track for profitable growth with 3.3 gigawatt in development projects.

Our agility in the market turmoil safeguarded our financial resilience last year, but even more important, we strengthened our competitiveness for strong value creation and cash flow in 2021 and the years to come. We have improved our unit production cost, achieving the 2021 ambition already in 2020 with a 5% reduction. Strict capital discipline and strong improvement have significantly reduced expected capex from the indications we have previously given. For 2021 and 2022, we expect our capex levels of $9 billion to $10 billion annually. Cost reductions and capital discipline will significantly improve our capacity to deliver strong free cash flow. In 2021 we expect to deliver a free cash flow of $6 billion after tax and before capital distribution at an oil price of $50. In addition, we will get the proceeds from the Bakken divestment.

This demonstrates the true value of our improvements over the last year. We have initiated our strategy process toward the Capital Markets Day in June. Our clear ambition is to continue creating long-term value as a leader in the energy transition and become a net zero energy company by 2050. To us, this is a sound business strategy, creating long-term value for shareholders. We have a strong portfolio within oil and gas and by optimizing it further, we will strengthen our competitiveness and value creation while reducing emissions. Building on our competitive advantage from oil and gas, we will accelerate profitable growth within renewables, leveraging our leading position in offshore win. Our capabilities from oil and gas also position us for developing low carbon technologies and value chains.

Let me be a bit more specific on each of these areas. In 2020, we delivered an underlying production growth of more than 2%. Johan Sverdrup officially opened at the start of the year and continues to deliver beyond high expectations. The field reached plateau production sooner than expected and at the higher level, capturing value from the use of new technology and digital solutions. In the middle of this year, we expect the third production increase, taking the capacity to around 535,000 barrels a day, around 100,000 barrels above the estimate at start-up. Johan Sverdrup Phase 1 investment was NOK83 billion. Today, we can announce that for Equinor this investment will be paid back after tax this month or to be precise, actually this week. That is 16 months after start-up; in my view, quite impressive.

Snorre Expansion came on-stream toward the end of last year, ahead of schedule and below cost estimates, adding 200 million barrels of recoverable oil reserves. Last year, we also established a new unit focusing on improved value creation from late-life fields. In fourth quarter, this unit delivered solid production efficiency at 98% and updated the plans for [Indecipherable], increasing the recovery rate from 56% to 62%. In the other end of the life cycle, we keep developing high value projects and delivered the development plan for Breidablikk with a break-even well below $25 per barrel.

Our international business is significant, but it's not sufficiently robust in low prices period. It is clear that we have to improve our operations and our portfolio to increase resilience. This also means taking actions where we don't see the profitability and robustness we seek. This is the basis for the decision that led to the impairment of our asset in Tanzania. It is also the basis for the steps we are taking to shape our portfolio to be more robust and competitive.

We are today announcing the divestment of our Bakken asset. By doing this, we are focusing our effort, and capital toward more competitive projects in our portfolio, enabling us to deliver higher value creation for our shareholders. In the results we are presenting today, the Bakken asset is reclassified as held for sale, leading to an impairment of around $300 million for the quarter. The Bakken investments was done at the time with high and increasing oil prices and based on price assumption that proved to be way too optimistic. We have taken impairment and we are realizing a significant loss. But I would also like to thank the organization for impressive improvement efforts in recent years, make it possible for the Bakken asset to actually deliver positive cash flow in the period from 2016 to 2020 and to realize this transaction at a competitive terms in today's market.

Last summer, our temporary tax regime was put in place in Norway. To maintain the activity level in the industry true-up period with lower prices. Equinor has delivered on this ambitions and we are on track with the projects to be sanctioned for the Norwegian Continental Shelf in 2021 and 2022. The temporary tax regime combined with our improvement efforts lowered the breakeven price for these projects with around $10. We have reduced costs and improved our projects to be sanctioned in 2021 and 2022.

For the total portfolio in this period, the breakeven price is around $30 and the net present value is $3.9 billion and at an oil price of $50 per barrel. This portfolio includes several electrification projects reducing CO2 emissions from production and in total, making this project portfolio carbon-neutral in operations.

We kept progressing our renewable portfolio last year with the final investment decision for Dogger Bank in the UK. This is in fact now the largest project in our portfolio and the largest project development ongoing in the North Sea. For Dogger Bank A and B, we will leverage the toolbox to increase equity returns with project financing and a farm down of 10% equity interest.

In the US, we have entered a strategic partnership with BP to create a platform for growth. In January, we were selected to provide New York State with offshore wind power from the Empire Wind 2 and Beacon Wind 1 projects. In total, our capital gain from sales of renewable assets was around $1.2 billion. This gain will be booked in 2020 and is clearly demonstrating our ability to create value. The construction of Hywind Tampen is ongoing, the world largest floating wind farm to-date. Floating wind farms will provide new market opportunities in deepwaters.

For 2020, the equity accounted net operating income from our renewable business was $163 million and gross production of electricity was 1,662 gigawatt hours. Going forward, we see increased investments in profitable renewable assets. In 2020, we made investment decision for $3.2 billion with low carbon projects with the gross capex of Dogger Bank as the biggest investment. Equinor will become the operator of Dogger Bank at production start-up and by the end of the year, we will start construction of the operations and maintenance base in UK.

Our capabilities from oil and gas position position us for developing low carbon technologies and new value change within handling of CO2. Northern Lights is a groundbreaking project to build new and commercial value chains to capture transport and store CO2 from industrial sources in Europe. In May, we took the final investment decision together with our partner, Shell and Total and with government support construction has started.

Let me end with our guiding. We expect an annual average production growth of around 3% from 2020 to 2026 from our highly competitive project portfolio within oil and gas. From 2021, we expect to deliver around 2% production growth. We are reducing expected exploration spend to around $0.9 billion. For 2021 and 2022, we expect organic capex levels at between $9 billion and $10 billion, significantly below our previous indications.

2020 was a year like no other. And the world is not yet back to normal, but we spent the year improving and with our strict capital discipline, we can deliver strong value creation and cash flow in 2021 and the years ahead.

With that, I leave the floor to Svein to take us through the results and we look forward to your questions afterwards.

Svein Skeie -- Executive Vice President and Chief Financial Officer

Thank you, Anders, and good morning everyone. I must admit, it's a bit unusual for me to be on this side of the stage for the quarterly presentation. Normally, I'm at the back with my spreadsheets and the numbers, but this also feels good. We really appreciate you joining us today and I look forward to the dialog with all of you.

In this industry, we are used to the highs and the lows of the economic cycles and demand, but disruption caused by COVID-19 is unprecedented. COVID-19 hit demand hard and Equinor responded early and forcefully. We are also strengthening our position long-term. The impact on value creation and cash flow this year and the next will be significant. As Anders said, we have delivered above and beyond on the plan we launched in March. We said we will deliver savings of $3 billion and we have realized more than $3.7 billion and in fact, more than $4 billion if you use the same currency as we assumed in March.

We have shown very tight capital discipline in 2020. Organic capex spending was strictly controlled and for the year we ended at $7.8 billion and this is well below our initial guiding of $10 billion to $11 billion and also below our updated guiding of $8.5 billion. This reflects reduced activity, especially onshore USA and our decision to postpone sanctioning of projects to remain resilient. We have continued to improve our project. For example, Bacalhau in Brazil and Asgard West and Kristin South on the Norwegian Continental Shelf and we also reduced exploration activity and we reduced investments on partner-operated fields internationally.

In addition, we deferred some scope to 2021 and 2022 due to the situation. Last year, we said we would realize a 5% improvement of the unit production costs from 2019 to 2021. This we have already delivered one year ahead of schedule as supported by high production on Johan Sverdrup due to the strong regularity and the rapid ramp-up and the high production also contributed to the early payback of Johan Sverdrup Phase 1 despite the low prices in 2020.

We have also reduced operational costs in the different segments, capturing efficiency gains, and we are benefiting from the full implementation of our integrated operation center for our NCS assets.

We continue to deliver on our improvement program. Realizing around $0.5 billion in 2020 from new digital and technical solution. The improvement program continues and we must make sure to keep focused on implementation and realization. Our rebased production growth was 2.4% in 2020, also supported by higher production from Johan Sverdrup, irregularity in the fourth quarter, and high flex gas production, as prices recovered in the fall.

We expect annual capex at $9 billion to $10 billion for '21 and '22, well below indications given at our CMU last year, when we had said $10 billion to $11 billion for '21 and around $12 billion for '22. Solid improvements and tax adjustments in Norway, has enabled us to strengthen our highly competitive project portfolio even further. For projects on the NCS, planned to be sanctioned in 2021 and 2022, we have reduced the average breakeven with around $10 per barrel. In total, for all the projects we plan to sanction in '21 and '22, we have an expected breakeven of around $30 per barrel. The net present value of these projects net to Equinor is around $3.9 billion at a $50 oil price.

We have improved the portfolio since our last Capital Markets Update. Some of the operator projects we expect to sanction in the next two years, are Bacalhau in Brazil and several fields on the NCS. The projects on the NCS benefits from the temporary changes in the tax regime, such as Wisting, [Indecipherable] and Oseberg gas compression unit. And on the NCS, we also plan to sanction electrification project, such as the Troll field electrification. But we will continue to mature and improve our projects.

The improved portfolio is more robust and enable us to deliver a strong cash flow going forward. At an oil price of $50 per barrel, we have the capacity to deliver a free cash flow of around $6 billion before capital distribution in 2021, and this is not including the proceeds from the Bakken divestment. Before Bakken, we are cash breakeven after tax and before capital distribution at $30 per barrel, clearly demonstrating our robustness.

Now on to the financial results, the fourth quarter results reflect the lower commodity prices. Our average liquids price was down 28% from the same quarter last year. Average invoiced gas prices in Europe and U.S. were down 5% and 11% respectively, despite the European gas price recovery, which we saw during the second half of 2020.

The IFRS net operating income is negative by $989 million, while adjusted earnings in the quarter is $756 million, down from $3.5 million in the same period last year. IFRS net income is negative $2.4 billion, highly impacted by impairments.

The organization delivered solid operational performance, taking Group opex and SG&A costs down by 13% in the quarter. This reflects cost discipline throughout the organization. For the full year of 2020, we have realized cost savings of around $1 billion, significantly above the $700 million we set out to achieve in March and we see improvements across the company in all segments. On the production side, all financial results were impacted by production outages at Hammerfest LNG, and Peregrino in Brazil. In addition, we are taking action to optimize our oil and gas portfolio, leading to impairments of Tanzania LNG and Bakken in the U.S. in the quarter. In addition, the transfer of exploration obligation in Russia had some impact.

On our refinery in Norway, we take an impairment of around $600 million, mainly driven by lower expected future margins, and a somewhat higher cost base. The Group adjusted tax rate in the quarter was 173%, mainly due to writedowns in entities with no or low-reported tax.

And then, let me give some comments to each of the reporting segments. E&P Norway delivered adjusted earnings before tax of $1.8 billion. High production, despite the Hammerfest LNG outage and improved production efficiency in several fields, made a difference. In addition, we reduced underlying opex and SG&A by 11%, which includes positive development in the field costs. The adjusted tax rate in the quarter was 61.6% benefiting from the temporary tax change in Norway.

The losses from our two international segments for the quarter and for the year demonstrates that they are not sufficiently robust toward lower prices, and we take steps to focus our portfolio toward countries and projects, that can deliver long-term value for our shareholders. But for this quarter, the impact is negative.

E&P International delivered adjusted earnings before tax of negative $1.2 billion. The result is impacted by lower prices and the shutdown at the Peregrino field in Brazil, leading to a negative result this quarter for our Brazilian business area. An impairment of our Tanzania asset by around $1 billion had significant impact. However, we see solid cost reduction in the segment, with opex and SG&A down 18%, supporting positive cash flow from operation of around $400 million for the quarter. The low tax rate of 3.1% is due to the earnings composition.

Results from E&P USA are also impacted by the low prices. Capex and costs have been forcefully reduced, as operated onshore drilling and completions were stopped early on in 2020. In the quarter, underlying opex and SG&A is down 16%. Adjusted earnings before tax came in at negative $172 million, while net cash flow was positive with cash flow from operation of around $300 million.

Our MMP segment delivered strong results from European gas sales and trading. But offset by the shut-in at Hammerfest LNG, and low refinery margin. The opex and SG&A are down 14% year-on-year, mainly as a result of lower transportation costs. In total, MMP delivered adjusted earnings before tax of $352 million.

Fourth quarter is the last time we report activity on renewable energy projects and production in our Other segments. And from the first quarter of 2021, all renewable business will be a separate reporting segment, due to the strategic importance. In the fourth quarter, we had high availability on our offshore wind farms, and our equity accounted investment delivered net income of $21 million. Overall, adjusted earnings were negative, but these results will be improved, as we have been reimbursed for half of the project development costs, related to Empire and Beacon in the U.S.

So let me then reflect some of the production and reserves. Oil production in the quarter are stable and we have not seen negative COVID-19 effects on production. The total equity production in the quarter came in at 2.043 million barrels per day. For the full year, we delivered 2.4% rebased production growth. We adhered to the production curtailments imposed during 2020, but we used the opportunity to perform modification and upgrades on certain fields and installation without further production impact. Ramp-ups and new wells put on stream contribute to the rebased production in growth and we drilled more than 90 production well last year with high value creation and a breakeven well below $10 per barrel. New technologies such as automated drilling control contributes to the lower breakeven for the wells.

In the quarter, Johan Sverdrup produced 95,000 barrels per day, more than the same period last year. We also increased our NCS flex gas production to capture additional value as the European gas prices continue to recover through the fourth quarter. Our priority in 2020 was the strength in financial resilience. The deferral of project sanctioning impacted our reserve replacement ratio for the year, which came in at minus 5%. The three-year average for this was 95% and the reserves to production ratio based on SEC reserves is 7.4 years. Based on all resources, it is 24 years.

Our renewable electricity production in the quarter has been high and in line with expectations for the season. From 2019 to 2020, we increased our full year rebased production and in the fourth quarter, we continue to demonstrate that we can capture value in our renewable business by taking in a strong partner at the right time. We divested 10% of our Dogger Bank A and B to E&I with a net gain of around $270 million, expected to be big no in the first quarter. And in the US, we secured the largest ever US offshore win award for our Empire and Beacon Wind project. And in Poland, where Equinor has several offshore wind position, the government instantly approved offshore wind legislation that will increase the probability of new developments going forward. So summing up, 2020 has been a year of solid production as well as value creation and strategic progress within the renewables.

So to cash flow. We delivered a strong net positive cash flow of $1.4 billion in the quarter based on strict cost and capital discipline. We also delivered a positive net cash flow for the year, which is a true testament to our resilience and flexibility in a year when Brent averaged below $42 per barrel. The net NCS tax payment in the fourth quarter was NOK3.5 billion or slightly below $400 million. For the first half of 2021, we expect NCS taxes payable of around NOK2 billion. We repaid $550 million for the KGN acquisition in Russia and we also received $500 million prepayment on the US wind deal. Our net debt ratio ended at 31.7%, fairly stable from 31.6% in the third quarter of 2020.

So let me then end with the outlook. Anders presented our guiding, but let me repeat the key messages. We expect around 2% production growth in 2021, 3% compound annual growth rate from 2020 to 2026, exploration activity at $0.9 billion in 2021 and $9 billion to $10 billion annual capex level in 2021 and 2022. And with this, we have the capacity to deliver a free cash flow of around $6 billion before capital distribution in 2021 at an average oil price of $50. This represent a cash breakeven of just $30.

And with that I hand it back to you, Peter and I look forward to your question. Thank you very much for your attention.

Peter Hutton -- Senior Vice President, Investor Relations

Thanks very much, Svein. And with that, I pass that over to the operator to open-up for questions. Thanks very much.

Questions and Answers:

Operator

Ladies and gentlemen, at this time we will begin the question-and-answer session. [Operator Instructions] And the first question comes from the line of Biraj Borkhataria of RBC. Please go ahead.

Biraj Borkhataria -- RBC Capital Markets -- Analyst

Hi, thanks for taking my questions. I just had a few on the free cash flow guidance. So I believe that $4 MVP for 2021, are you able to provide a sensitivity on cash flow for European gas. I know you provided the earnings but cash flow would be helpful.

Secondly, embedded in guidance is an assumption on cash taxes for the full year. So can you say anything at this point on what you're assuming for the second half of the year.

And then just a quick final one. In that $6 billion free cash flow guidance, can you just confirm the Carcara unitization payment, which is due this year is already reflected in that number. Thank you.

Anders Opedal -- President and Chief Executive Officer

Thank you. Thank you very much. Let me start with the Bacalhau question. And yes, this consideration is included into those numbers and maybe you want to elaborate a little bit on the tax, Svein.

Svein Skeie -- Executive Vice President and Chief Financial Officer

Yeah, I can do that. On NCS, you saw that we pay half of the tax the year it incur and half of the taxes the year after. So for the first half, we will pay NOK2 billion in taxes for NCS and that is based on the results that we generated in 2020.

On the question regarding the prices that we used for the $6 billion, that is $50 oil and $4 MMBtu for the gas prices. And then looking into what will the payment in the second half be. Of course, that will depend very much on the prices and what we see now in during the the year and how we do it, is that when we come to June, then we will do a calculation based on what we have realized so far in the first months and then an outlook of how it looks like for the remainder part of the year, then we will decide the taxes. So that depends on the market.

But also the questions on the gas prices, in the presentation there is a slide then which is then showing then the sensitivity on the gas prices just both pre and post-tax for a $1 change in the gas price.

Biraj Borkhataria -- RBC Capital Markets -- Analyst

Just circling back on the gas price sensitivity, are you able to say that the cash flow sensitive activity because I know in the slide, it shows earnings.

Svein Skeie -- Executive Vice President and Chief Financial Officer

And what typically happens is how the totality is that you see, it's 2.1, pre-tax 0.8 after. And remember, then you have the half-year deferral, so half of it will happen this year and then you will get half effect next year.

Biraj Borkhataria -- RBC Capital Markets -- Analyst

Okay, understood.

Svein Skeie -- Executive Vice President and Chief Financial Officer

On the Norwegian part of it, On the US, then there is no tax.

Operator

Your next question comes from the line of Oswald Clint with Bernstein. Please go ahead.

Oswald Clint -- Sanford C. Bernstein -- Analyst

Thank you, both. Good morning. Anders, I'd like to explore a little bit more what you mean by optimizing the upstream oil and gas portfolio and really looking out a little bit. Is this about long-term growth, but increasingly from a low cost, low carbon barrel or do you think there is an optimum size for the upstream going forward and you'd have to bend the portfolio the other way and I'm really thinking post 2006 and into the next decade, especially with your aim here to be a leader in the transition.

And then perhaps for Svein, 3.7 cost reduction last year, there is $1 billion of fixed cost within that number, could you or it would be great if you could talk about what are those big cost buckets in that $1 billion, which regions and really just confirm that it won't rise back up, will it spring back up here now in 2021 with higher commodity prices. Thank you.

Anders Opedal -- President and Chief Executive Officer

Thank you very much for your question, Oswald and we say we're optimizing oil and gas. When you look at the, the future demand, as we see it, it will gradually increase toward around 2030 and then we expect to see a slight reduction in demand over-time. So we are building our portfolio that we also are able to capture the growth in demand and building increased resilience in our portfolio. We will focus on value creation and will be focused on robustness and that's why you saw, we took the actions with Tanzania and Bakken today. That's enabled us to take to consideration from the Bakken and reinvested in our more profitable portfolio. We had breakeven around 30. And of course, we are also investing in low carbon solutions and renewables to find very good balance between optimized oil and gas, accelerate growth in renewables and also build some more projects into the low carbon solution in addition to the Northern Lights that we already sanctioned this year. So both within oil and gas and we had renewables low carbon, we will focus on growing value going forward.

Svein Skeie -- Executive Vice President and Chief Financial Officer

I might add to the improvements as well. What is good to see is that when we set ambition of 0.7, we focused on all segments in the portfolio, so we have been able and to see that there are positive cost developments from all business units, it's coming down from -- taken down for example activity that we did in US with [Indecipherable] been taken down that has contributed. But we are also focused on then making sure that we are continuously looking into -- can we do things smarter as we are moving along and we're also seeing it utilizing for example technical solutions in a new way which are also then benefiting us in the totality. So where we know focus is then we need to make sure that we are keeping this improvement and continue to improve going forward as well.

If you look at the fixed cost, in totality, of course when new fields are coming on-stream, which is not in production today, they will add some some costs related to it, but the main focus in is then to maintain it and continue to focusing on improving as we move along.

Oswald Clint -- Sanford C. Bernstein -- Analyst

That's great. Thank you.

Operator

Your next question comes from the line of Thomas Adolff with Credit Suisse. Please go ahead.

Thomas Yoichi Adolff -- Credit Suisse -- Analyst

Good morning. Couple of questions, please. In offshore wind, you've done an excellent job unlocking value last year through farm downs in the US and also and Dogger Bank. And as it relates to the 4 to 6 gigawatt medium-term target following these farm downs, how do you feel about that target. Do you feel like we might need some shorter cycle sold out to hit your target that's 4 to 6 gigawatt range.

And then secondly, you've talked about the optimization in upstream and you've done Tanzania, you wrote it off and you sold Bakken. I wonder if there's anything else you're planning on doing near term in terms of asset sales and maybe you can also comment on the fairly sharp cutting capex in 2022 and I'm assuming this cannot be all related to capital efficiency. Thank you.

Anders Opedal -- President and Chief Executive Officer

Okay. Thank you, Thomas. We -- thank you very much for the acknowledgment of the value creation in offshore wind. We see opportunities also going forward in this new areas coming with potential bidder auctions like Svein mentioned in the presentation like Poland and also in Asia. So our targets for 4 to 6 gigawatt in 2026 remains firm. We will of course always seek to move into those projects where we see but can use our capabilities, our experience and seeking the return of 6% to 10% that we also said last year at the Capital Market Update. So we will continue working on growing our portfolio remained firm on the target.

When it comes to optimizing oil and gas, I mentioned Tanzania back in to growth course and the most important actions we are doing to optimize the oil and gas is to continue improving every projects that we do have. We postponed FID or Bacalhau some months to make sure that we could have fully improved that projects. We are doing the same on all the projects on the Norwegian Continental Shelf and ensuring that we can deliver this project with lowest possible breakeven and maximum value creation and I'm not -- of course BD is a part of our two books for value creation. But I cannot comment on any future potential BD deals.

Svein Skeie -- Executive Vice President and Chief Financial Officer

And maybe I can take somewhat on the 2022 OpEx as you asked Thomas. What we have been doing there is then focusing and making and prioritize within the portfolio on the overall context. For example, we have taken down activity in the US, and I said that for example, owned operated we stopped production and drilling and those are, for example some other measure that goes in. We also said earlier on that we postponed some folks on work it further on that one, taking also in in the results, then from he exploration wells there, which has an impact on the totality and that's understand on Bacalhau then moving it a bit out in time getting a slightly different profiles, but getting an improved portfolio compared to where we were last year that has an impact. So it's a combination of them -- the focus that we are doing and the improvements that we are doing to our project, which then brings us into a situation where we have a portfolio that deliver $3.9 billion for based on investment that we are doing in 2021 and 2022 and breakeven of $30.

Thomas Yoichi Adolff -- Credit Suisse -- Analyst

And what does the capex look like in 2023 then.

Svein Skeie -- Executive Vice President and Chief Financial Officer

That is too early to say. But what we will continue optimizing the portfolio and will guide at a later stage.

Thomas Yoichi Adolff -- Credit Suisse -- Analyst

Okay, thank you very much.

Operator

[Operator Instructions] Your next question comes from the line of Mehdi Ennebati Bank with America.

Mehdi Ennebati -- Bank of America Merrill Lynch -- Analyst

Hi. So good morning all and thanks for product presentation. Thanks for taking my questions. Two questions please. First one, a follow-up one regarding the sensitivity that you provided. You provided sensitivity on EBIT, you provided sensitivity on net income related to the oil and gas prices evaluation. Could you then provide any sensitivity on the cash flow from operation as usual, but my question is very simple. So if we want to have 90 on the cash flow from operation sensitivity and would you say that we should look at the EBIT sensitivity even then you will pay below tax amount this year in that way or the net income sensitivity, that's the first question.

And the second question is go to your guidance on the free cash flow. So you say, please takes into account the Bacalhau payments after $600 million [Indecipherable] Can you just tell us what disposal picture, let's say what M&A transactions did you take into account to get to that $6 billion free cash flow guidance, and if all those M&A playing have a negative impact, positive impact on your $6 billion cash flow. Thank you.

Svein Skeie -- Executive Vice President and Chief Financial Officer

Well, let me first take the second question and you continue on the sensitivity is fine. So basically the consideration that is in the guidance, as I mentioned Bacalhau, then is the US win with BP and also the ANA on the Dogger Bank and we have not included the Bakken transaction in this. So all known M&A are included in this guidance. Yeah, and just to build further on it, Anders, also remember that we have a pre-payment of $500 million that we received, which is included in 2020. So those has to be adjusted for the gross amount that we got. So that means that our net outstanding, approximately, yeah is $700-ish million on that one. Then going down into the sensitivity, and if you should look at the EBIT or the net income, I would say, you have to look at both. So due to the fact that the EBIT is giving the sensitivity pre-tax, then remember that in Norway, you would pay half of the tax this year and half of the tax the year after. So you will get a bit in between. Then on our international portfolio, there will be -- some of the countries, we pay taxes. But while other countries, where we are not in a tax position, then it's the pre-tax. So sorry not being into, into the exact number. But it's a combination, due to the but the Norwegian taxes offset in June, and then we are paying in three instalment in August, October and December.

Mehdi Ennebati -- Bank of America Merrill Lynch -- Analyst

All right, understood. Thank you very much for that.

Operator

The next question comes from the line of Teodor Nilsen with SB1 Markets. Please go ahead.

Teodor Sveen-Nilsen -- SB1 Capital Markets -- Analyst

Good morning and thank you for taking my questions. Two questions for me if I may. First, is my follow-up on the cash flow guidance of $6 billion this year. I just wonder, how will that number look like without the NCS tuck incentives in place? I guess that's a substantial positive impact on that number. And my second question is on reserves; you report reserve replacement ratio of minus 5%, and I understand of course that's due to lower oil and gas price assumptions partially. I just wonder, which fields in particular did contribute to that low reserve replacement ratio for 2020? Thank you.

Anders Opedal -- President and Chief Executive Officer

So let me start with the reserve replacement ratio and you can prepare on the cash flow, Svein. So we use 2020 to deliberately postpone some project, improve some project, to maintain our financial resilience. And that caused the kind of the annual RRR to be to be negative. But the three years average is 95%. With the next project that are due for FID, is the Bacalhau, that will considerably change this. We deliberately moved Bacalhau from FID in 2020 to 2021. So this is the biggest impact you will see.

Svein Skeie -- Executive Vice President and Chief Financial Officer

And on the cash flow Teodor, what we are now doing, is that we are focusing and prioritizing investments on the Norwegian Continental Shelf, due to the tax incentives that are available there. So that means that we have seen a lot of projects come and go or for sanctioning. I mentioned the Wisting, the Oseberg gas compression units, but also the electrification. And that means, when keep keeping up the activity and focusing there, to benefits from royalties, and we also get the positive cash flow impact on it. And for 2021, we estimate it to be around our $2-ish billion in impact.

So we will also -- as we mentioned earlier today, we focused a lot of our activity in Norwegian Continental Shelf, due to the tax package and increased profitability. We drilled more than 80 Production wells in 2020, and we will continue with high number of production wells on the Norwegian Continental Shelf, and also high exploration activity -- also for 2021.

Teodor Sveen-Nilsen -- SB1 Capital Markets -- Analyst

Okay. So then, just to be clear, those $6 billion will be $4 billion after you normalize tax regime [Indecipherable]?

Svein Skeie -- Executive Vice President and Chief Financial Officer

No, we are focusing on and capturing the value then from the tax incentives that are there. So the effect on the tax package in itself is around $2 billion in improved taxes for 2021, which is then benefiting, and then taking down to breakeven in the portfolio, with around $10 there. So it's then focusing on the NCS activity, which gives the benefits to us, and has an impact on around $2 billion.

Teodor Sveen-Nilsen -- SB1 Capital Markets -- Analyst

Okay, understood. Thank you.

Operator

Next question comes from the line of Lydia Rainforth with Barclays. Please go ahead.

Lydia Rainforth -- Barclays -- Analyst

Thanks and good morning. Two question if I could, just going back to the cash flow numbers, just to be specific, what do you expect to be the use of that free cash flow, and just in terms of the priorities, and obviously there probably is upside at the moment, if I look at where gas prices and oil prices are. So any excess free cash flow, what happens to that. And perhaps just related to that, is that more constrained to the renewable side at this point, is it level of investment or is the opportunities? And then just a final question on the safety element, clearly, we're -- probably more incidence than you must have liked, over the course of 2020. Can you just talk through what specific actions have been taken to try to [Indecipherable] that going into next year? Thank you.

Anders Opedal -- President and Chief Executive Officer

Yeah, let's start on the safety. So we clearly see that we need to improve on safety. Still with our best results in terms of Serious Incident Frequency and total recordable frequency incident, we see that we have too many incidents and too many people are getting hurt. Particularly, our focus will be now to avoid major accidents. So we are putting in an additional focus on process safety. We will use external company also, to see how we can improve even further. So that is kind of the biggest steps we are doing. We are also taking -- working together with unions and safety delegates to improve how Safety delegates are involved, in the way we work on a daily basis.

Then we are working now to -- and we have built during 2020, a solid financial framework. We will continue to make sure that we are solid, in terms of both the net debt ratio, the financial flexibility and we will look for opportunities in the market, both organically and inorganically. But we will have a value over volume, focus on both on the oil and gas, and on the renewables, and we will only pursue those opportunities that will create value for our shareholders.

So maybe you will have to elaborate a little bit more as well, Svein, on this.

Svein Skeie -- Executive Vice President and Chief Financial Officer

I can elaborate a little bit on where we are in the current situation, is that we are at the net debt ratio at 31.7%. It's slightly above our long-term ambition and we are comfortable with that one. But we also have a strong credit rating, which is in place there. And then, also building on what Anders was saying, we also have a very good portfolio ahead of us. As we said, the breakeven for the project expected then to be sanctioned over the next year, at $30, clearly robust portfolio adding a lot of value. So it's a kind of a combination of the totality within the financial framework, that we are looking at and working on a regular basis.

Lydia Rainforth -- Barclays -- Analyst

Great, thank you.

Operator

Next question comes from the line of Jon Rigby with UBS. Please go ahead.

Jon Rigby -- UBS -- Analyst

Yeah. Thank you. Thank you. Hi, Anders. Hi Svein. Two questions, the first is -- you referenced a sort of cautious increase in the dividend at 4Q, and sort of mindful that you wanted to indicate progress, but not get ahead of yourself, which I think is sensible. But as we head into June, the corporation, the company is sort of expressed its desire to get dividend or the payout back to pre-COVID levels. But obviously with the cut, it gives you a degree of flexibility about how you think about that. So without sort of committing yourself ahead of June, I kind of wondered whether you could think about or discuss a little bit about your thoughts on that, and the sort of ability to introduce some sort of shock absorbers into your distribution policy around volatility etc?

The second question is on LNG, I mean you've written off Tanzania, impaired Tanzania. One of the things that's always sort of occurred to me or interested me about your portfolio is, your strength in natural gas in Norway and your sort of Integral position in the European space. But your sort of shortfall in your exposure to LNG, which is widely regarded as a transition to low carbon source of energy for quite a long time to come. So without Tanzania, does this leave a sort of strategic gap in your portfolio? Is it one that you, all things equal, would like to fill or are you comfortable just leaving it as an absent piece? Thanks.

Anders Opedal -- President and Chief Executive Officer

Thank you, Jon. Let me elaborate a little bit on the dividend first. So you're right, we took extraordinary measures in this unprecedented situation in first quarter of '20 from $0.27 to $0.09, a reduction of 67%. As you might recall, it was a three point reference for long-term dividend level then. First, our dividend policy remained firm, so we will grow dividend in line with our long-term underlying earnings. And our dividend level also needs to be competitive. And of course the fourth quarter 2019 dividend level.

The speed of and return toward pre-corona level will depend on several factors. The Board of Directors will consider both the cash flow capex plans, financial requirement, and also the financial flexibility we need against the macro outlook. So the dividend level will be decided quarter-by-quarter. So we increased it last quarter from $9 billion to $11 billion and this one from $11 billion to $12 billion. So this is how we are thinking around the dividend level.

Regarding gas; the decision around Tanzania must be seen as some more project asset decision, not necessarily a wider thinking around our view of gas. We haven't had any progress in developing this project, despite a lot of hard work, and we haven't seen any progress also in the regulatory framework lately. And with no current plans to develop these assets, we took an impairment this quarter. Having said that, we are increasingly more and more exposed to LNG prices in our portfolio. We see that when Asia has been spiking due to cold weather and LNG outage, other places in the world. We've seen also price increase in Europe due to LNG being more moved to Asia. We don't have to be in a physical LNG plant, we can also use contractual arrangement and we are using that. So a combination of contractual arrangement, that gas prices in Europe exposed more and more to the LNG market give us some exposure. So this is not changing any view on gas.

And I would also like to refer to the gas market seminar. Now I can do the marketing here on February 19, where MMP and Jannicke [Phonetic] will give more broader view on the gas outlook.

Jon Rigby -- UBS -- Analyst

Very good. Thank you.

Operator

The next question comes from the line of Alastair Syme with Citi. Please go ahead.

Alastair Syme -- Citigroup -- Analyst

Thank you. Hi Anders, nice to meet you and wish you the best in your new role. As you look at the mandate, the Board has given you to accelerate Equinor's development as a broad energy company, do you think the company has all the skills it needs or other areas of competency that you think you need to build? And sort of secondly, a follow-up, it struck me that the 60-month payback at Johan Sverdrup is totally outstanding, what sort of perspective does that give you around the shift to renewables? So I presume there is nothing in renewables that even comes close to that level of payback, if you put aside the sort of farm down economics that you've been doing? Thank you.

Anders Opedal -- President and Chief Executive Officer

Yeah, thank you. Yeah, I wish there were more Sverdrups. But the Sverdrup is an outstanding asset, outstanding in terms of how we developed it, and also outstanding, how we're operating it and how we are actually including new digital technology to take out more -- more value. And I was not precise in my speech when I said, we will have a breakeven this week, it's actually on Saturday. So this is outstanding work.

Of course, not all assets are at the same return, as Johan Sverdrup, and in the long term, we see that beyond 2030 there will be a decline in demand for oil, and then we are building up our portfolio also to have cash flow capabilities beyond when we see the oil and gas going down. So that's why we will like to both optimize and invest in oil and gas, but at the same time, also invest in renewables, building future cash flow capabilities, as well as we see oil and gas will come down.

Competence; we have been able to buildup -- I see more and more analysts putting value to our renewable business. We have been able to build up this renewable business, using the competence and the ability to learn new technology and industrialize, based on the technology. This is really the core skills of this company. Being able to working in offshore, working in harsh environment, doing the engineering, be able to operate it, and that's what we have done with renewables. This is also what we have done in low carbon solution now, with Northern Lights, where we need the geologist, we need drilling engineers, we need pipeline engineers, everything that we do have in order to work also in that space.

So we have done in 49 years, we will continue to develop our competence, our skills, develop our technology, in particular in the digital space, and at the same time, we will also attract talents outside the oil and gas that we have done now for several years. Coming into our renewable business, into our oil and gas business and also into the low carbon solution business. So that is how we're going to develop these technologies in these value streams going forward. Anything to add Svein?

Svein Skeie -- Executive Vice President and Chief Financial Officer

I think you covered it well. And as you said, with the Sverdrup there, with the payback. But also remember some of the good features with renewables, is also that -- we are also getting some fixed income stream into the portfolio, giving a different risk profile to the portfolio. And also there we have -- by then taking position early and then the farm down, we have also seen pretty good payback on those as well. So it's not -- it's not black and white. Of course as you said, yes, we would like more Sverdrups in the portfolio, but it's about also then getting into project, which has a different profile related to it as well.

Alastair Syme -- Citigroup -- Analyst

As a follow-up to the first piece, can I ask, do you think that the oil price forecast you are using, which I think is now $65 a real 2021 in the middle of this decade is stringent enough to cause that rotation of capital that you really think you need?

Anders Opedal -- President and Chief Executive Officer

I didn't hear quite the question?

Svein Skeie -- Executive Vice President and Chief Financial Officer

Did you ask about our economic planning assumptions?

Alastair Syme -- Citigroup -- Analyst

Well, yeah. It's really -- if the core is to find projects with very good payback, do you think that the oil price criteria you're using, because I think your fair value analysis is still based on 65 real 2020 money? Is that putting the right enough of a pressure on the organization to find really good projects?

Anders Opedal -- President and Chief Executive Officer

Well, when we are deciding projects, we are of course using our planning assumption, but at the same time we are adding robustness criteria to this where we really also look into the sensitivity and make sure that we are in addition to maximizing the value of the project are driving down the breakeven. So this is independent of the expected oil price going forward. We are seeking this robustness for every project, for every well we also are drilling. So here is -- it is a combination.

Alastair Syme -- Citigroup -- Analyst

Okay, thank you for your time.

Peter Hutton -- Senior Vice President, Investor Relations

Can I just take this opportunity to ask people to be relatively tight in terms of the questions. We've got a few more to go and around 50 minutes left. So if we can keep it more toward the one question, please. Thanks very much.

Operator

The next question comes from the line of Christian Malik with JPMorgan. Please go ahead.

Christian Malik -- JPMorgan Chase & Co. -- Analyst

Hi, good morning gentlemen. First of all, congratulations on these appointments and the best of luck. Anders, in your first 100 days, I guess the first question. I'm sorry you had to make it too, because it wasn't clear about the difference earlier that John asked, but first is around trying to be clinical in M&A. I mean when you look at the business, I mean I'm staying the sale of buck on with the writedown and just reviewed the strategy, the decisions made and what do you think needs to change in terms of the way the company operates whether it's assumptions around the macro environment where you should be thinking about the portfolio internationally. I just wondered to what extent do you think there is either an immediate for more urgent pressing need to sort of review, so of the decisions and track record of the businesses internationally to obviously much the very high bar that you've set within within Sverdrup which I understand is exceptional.

The second question is on dividend. I'm still not clear, you've got a yield on the loan yield in the sector with one of the best portfolios and growth outlooks. And I was slightly surprised by the dividend increase. I thought it would be more if I can be really honest and I just wanted to what extent is there a more kind of sort of the acres of desire to raise a dividend to commensurate with your growth outlook and the cash flows you are generating through this year, particularly if the macro environment is conducive. Apologies for that second follow-up, but thank you very much.

Anders Opedal -- President and Chief Executive Officer

Yeah. Well, thank you very much. First of all, if I kind of reflect a little bit on strategy and the urgency, I think we've demonstrated today that we have a solid financial framework. We spent the 2020 well and also the energy transition, then the way we have built up also portfolio of renewables have taken place over many, many years. Credit to the previous CEO. So I think we are very well placed both on the financial, taking advantage of increasing oil price and gas price. We have built-up the capabilities to do and move into projects like Dogger Bank and in the Empire Wind competing for the kind of the big contracts in renewables and taking significant stand to step into the low carbon solutions.

So this is a solid fundament that we will build on. We see, as I said earlier today that we are not robust enough in the international oil and gas. We will continue working on that and enable further growth both in oil and gas and also taking the new opportunities that we see, particular in other areas for offshore wind both in Poland, Asia etc. So this is not kind of any need for any turnaround is to build on the strength and continue to take steps such that we are a leader in the energy transition. We have a history of being first out with some technology. First, start with a lot of technology compressor or at the Subsea for oil and gas, floating wind parks for renewable and then also the Northern Lights and storage for the low carbon solutions. So that is the fundament we will build on in the strategy update. So you will see us continuously developing in the direction I've indicated.

Regarding the dividend, same as I said to John, the dividend level will be based on those three points of reference that I mentioned. We will look at the cash flow, the capex plan, the financial requirements and also the financial flexibility we need in terms of the macro outlook we see and we are solid, but will also remind you that there are volatility and what we learned in 2020 is that there are also prices and that's why we're saying that we will evaluate this quarter by quarter.

Operator

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

Yoann Charenton -- Societe Generale -- Analyst

Good morning, Anders and Svein. My question will relate to the 2021 production guidance. If we adjust for the back-end asset sale, it looks like the guidance calls for broadly flattish or very slightly rising production growth this year. And would you be able to provide some color on the factors across your portfolio that offset Norway's projections rise in 2021. I will be keen to really understand for example, what is the implied decline rate in Angola and what sort of production profile is I assume in the Appalachia. Thank you.

Svein Skeie -- Executive Vice President and Chief Financial Officer

Yes, thank you for your question. And as we said, it's around 2% growth from 2020 to 2021. If you look at Bakken itself in 2020 had an average of around 70,000 barrels per day, but it was ending then toward 60,000 barrels per day. And there are declines since we have stopped drilling on new wells and then also the fracking there. So the expectations then for 2020 if it has been in our portfolio would have been lower than exit rate that we had. So that is some of the consideration around that one. I

If you look at the, at the decline, as a totality I think it's for where we operate and we need to comment on where we operate. We see 5% decline rates in the fields and that we have said earlier that we say no.

On the Angola one, there we also need and to ask also questions toward the operator in those assets, but we also see that there have been some optimization in the COVID situation taking measures there in that context.

And on Appalachian there are still rigs that is then being drilling and drilling wells, because we see that there are opportunity to continue then to deliver low cost I guess gas barrels into the market in US. So where we are partner then there are -- we extend really new wells as we speak and as also been done in the fourth quarter.

Yoann Charenton -- Societe Generale -- Analyst

Thank you.

Operator

Next question comes from the line of John A. Schj. Olaisen with ABG. Please go ahead.

John A. Schj. Olaisen -- ABG Sundal Collier -- Analyst

Management, I will remove myself from the queue. All my questions have been asked. Thank you.

Operator

Thank you. Your next question comes from Peter Low with Redburn. Please go ahead.

Peter Low -- Redburn -- Analyst

Hi, thanks. Just a quick one on your growth aspirations in offshore wind. Are you able to confirm whether you bid in the latest UK lease found which you announced this week and then touch more generally, are you see competition for new acreage. How confident are you that you can remain competitive. Thanks.

Anders Opedal -- President and Chief Executive Officer

Thank you. We are not able to confirm if we participated or not. But generally speaking, we see an increasing competition in the offshore wind segment, with new competitors coming in. We have 15 years of experience from offshore wind, to build up the capabilities both from operation, project development. We have been able to bring down the cost quite substantially from the first project that we did on Sheringham Shoal to now Dogger Bank. So we have been in this improvement mode for many, many years and are confident that we will also be competitive in the areas, where we select to compete.

We will select areas where we see that we can utilize our experience, our competence, and particular where we can utilize the offshore floating win, where we have a leading a leading position with the biggest floating offshore wind park being developed at Hywind Tampen, that will supply five plus oil and gas platforms with power. So that is how we are thinking about our competitive situation.

Peter Low -- Redburn -- Analyst

Thanks.

Operator

Next question comes from the line of under Anders Holte with Kepler Cheuvreux. Please go ahead.

Anders Holte -- Kepler Cheuvreux -- Analyst

Thank you and thank you for taking my question. It's a question to the CFO, it goes more to the point of the spending levels, as you have guided on for '21 and '22. Obviously, spending in '21 is going to be covered by the tax amendments currently in place in Norway. But my question is more precisely at what percentage of the 60% spending level in Norway is going to be covered by the amended tax regime in 2022?

Svein Skeie -- Executive Vice President and Chief Financial Officer

In 2022, the exact numbers that we will need to come back to, at a later stage. But we see that, for the benefits then in 2021 on the tax packages in Norway. What we learned happened for the capex in '22 and onwards, is that the things that we sanctioned in '21 and '22 will then start and to have also the benefits, as we move along. But normally what you typically see is that, you have a ramp up of projects. So when you sanction it, you are not spending most of them early on, before you are off then, to the running speed. So that means that you have less, less impact in the early days, but more impact from the tax benefits in those projects, when we are [Indecipherable] for '22 and '23 and onwards.

Anders Holte -- Kepler Cheuvreux -- Analyst

Okay, thank you.

Operator

The next question is from the line of Martijn Rats with Morgan Stanley. Please go ahead.

Martijn Rats -- Morgan Stanley -- Analyst

I had removed myself from the queue. All my questions have been answered. You covered an awful lot. So in the interest of time, and do Peter a favor, I'll hand it back.

Peter Hutton -- Senior Vice President, Investor Relations

Thanks Martin. We will always take a favor when it's offered, so appreciate that one. Thank you to everybody for calling in. I am pleased we are finishing absolutely 11:30 CET. So I'm very pleased about that one. Can I take this opportunity to thank Anders and Svein. We will now close the equity part of this. Thank you Anders for the reminder of the gas seminar later this month, you'll be getting invites to that one. And of course, if there are any questions, any follow-up, please don't hesitate to contact us in Investor Relations.

So with that, as I say, we'll close the equity part. The media one will continue on Zoom. Thank you very much for joining.

Bala Nagrajan -- Head of Originations/Investment Director

Thank you, Peter, and good morning everybody. My name is Bala Nagarajan. I am Head of New Originations in Equinor, and run this Q&A session and we are ready to start immediately. This will be a [Indecipherable]. You have two different opportunities to ask questions. Either you can use the function to raise your hand and you will be called upon, when it's your turn to ask a question and then please unmute when you ask your questions. Alternatively, you can ask your questions using the chat function and I will read the questions and some of you have already taken that opportunity. We will continue to run it in English, for the benefit of those international journalist attendees, and for those watching the webcast still ongoing. And both Anders and Svein will continue to be on stage and available to respond to questions.

So with that, I think we start, and I will kick us off with a question that has been posted in the chat field. Actually a double question from [Indecipherable]. And the question is, [Indecipherable] today, but underinvestment OPEC plus production constraints and cuts in the U.S. shale model, we reached 10 million barrels per day global oil supply shortfall between now and 2025. Do you agree with this assessment of supply and demand? And to the second part of the question is, can you elaborate on how the future sits between renewables and on carbon on the one hand, versus oil and gas will be in the future? And could rising oil prices affect this [Indecipherable]?

Anders Opedal -- President and Chief Executive Officer

Thank you. I'm not going to comment exactly what Total is saying, but how we see the market is that the OPEC Plus and the compliance with the decision of OPEC Plus is working, and there is a high degree of compliance and the markets, we are seeing that in terms of an increased -- gradual increase of prices. We know that there are more supply behind the valves, that can be opened up at the moment. But we also see that -- there are quite a lot of demand for oil and gas over the next period of time, We see also the storage going down, and the investments are going down. So we are also seeing in two to three years, that there are -- the supply and demand will meet, and this is reflected in our long-term EPA prices, where we see $65 in 2025.

And the second question, you have to remind, Bala?

Bala Nagrajan -- Head of Originations/Investment Director

The question was, on how you see the futures peak between renewables and low carbon on the one hand and oil and gas on the other hand? And if a spike in oil prices can impact that?

Anders Opedal -- President and Chief Executive Officer

As you saw earlier today, we saw that the amount of gross capex we committed or made investment decision for in 2020 was $3.2 billion. That's included the Dogger Bank A and B and some electrification projects and also on Gina Krog and Sleipner, and also the Northern Lights project. We will see that the balance between oil and gas projects and renewables low carbon projects will gradually increase over time, and we see a substantial higher amount from renewables and low carbon.

But for -- independent of oil prices. Oil prices are volatile. And so we will always seek to make sure that we have robust projects, even if we have short time spikes in the oil price. We are preparing according to our EPA prices and adding robustness criteria to that, we will do that independent of the oil price.

Bala Nagrajan -- Head of Originations/Investment Director

Thank you. We will take the next question from Maurice [Indecipherable]. Maurice, please unmute and ask your question.

Unidentified Speaker

Hello, thank you so much for taking the time. I have a couple of questions regarding your results. First of all, can you say what refinery you impaired in Norway? And secondly, in the measures you took, starting at the beginning of last year to costs and investments, you mentioned that your operating costs fell more than expected, but can you say what other elements gave that increased from $3 billion to $3.7 billion?

Anders Opedal -- President and Chief Executive Officer

Yeah. So you prepare on that, Svein. So yeah, refinery in Norway. So we have done some impairment on Mongstad. This is due to -- we see pressed refinery margins over the time, and also somewhat higher costs going forward, that has led to the impairment of this asset.

Svein Skeie -- Executive Vice President and Chief Financial Officer

And then on the $3.7 billion or more than $3.7 billion, as we said, it comes then from capex, opex and exploration. And let me then reflect a bit on it. About a year ago, we said that we had a guiding of $10 billion to $11 billion for full investments, for the year. And then, we delivered $7.8 billion. So then in a way, you take from $10.5 billion to $7.8 billion, that is the first element that comes into the equation.

Then the second one, is then regarding then the opex, where we then set the target, when we launched it back in March of more than $700 million. And in fact on the operating cost side, we delivered a $1 billion. I mean if we then had taken into account, the same currency rates as we used when we launched it in March. It would have been even bigger, both for both capex, as well as for opex part of it.

Then we also reduced exploration activity, from $1.4 billion and we delivered $1.1 billion. But just want to remind you, to avoid double counting on those one in the costs, as well as we are also then capitalizing some more explanation, we said more than $3.7 billion. And if you look at the split of it, we have seen on the capex side, we have taken down a lot in the International segment. For example, what we did in U.S. with onshore there [Indecipherable]. But we also have worked consistently across the organization, with the improvements, so that we have been able to take on opex in all segments, as we have been able to deliver them. So those are the, are the building blocks going into, into the more than $3.7 billion in savings that we have realized.

Unidentified Speaker

Okay, thank you so much.

Bala Nagrajan -- Head of Originations/Investment Director

Thank you. It seems, the preferred solution for our management, is to post the questions in chat. So I'll take on from there. It's from Nerijus Adomaitis in Reuters. And the question is did you participate in the latest U.K. offshore lease round, and what is your view on the old round, especially the process? And do you also have more details regarding your plans for participating in the upcoming Norwegian tender, did you participate for both, North and Southern North Sea too?

Anders Opedal -- President and Chief Executive Officer

Thank you. We are not able to confirm if we participated or not. We have noticed the strong competition. But we are also seeing that there are growing opportunities in other areas as well, in addition to those in U.K. and we will compete in upcoming auctions, based on our competitiveness and experience, and we have been in this market for many, many years, and demonstrated the strong value creation.

We come from Norway. We have developed the oil and gas industry in Norway. And now we see also an opportunity to continue developing the offshore wind. We are already developing floating offshore wind in Norway, with Hywind Tampen project, and we see the opportunities coming, both on [Indecipherable] and the Southern area, interesting and what we can offer into this, is that of course demonstrated experience and capabilities for offshore wind, both on floating and on fixed bottom wind turbines.

Bala Nagrajan -- Head of Originations/Investment Director

Thank you. The next question is from [Indecipherable]. How Anders, would you explain the difference between your strategy internationally and the former CEO, and how will you characterized the international expansion from 2007 up to the Hydro merger, and until today?

Anders Opedal -- President and Chief Executive Officer

Well I'm actually very, very lucky, taking over after Eldar Saetre, that has built up a very strong Equinor together with all the employees over many years. We have struggled in the international portfolio for a while, and we have been working for several years to improve it. There has been taken significant step to improve our efficiency and competitiveness in U.S. onshore and elsewhere over the last years. But we see that other competitors have also improved and particular in U.S. conventional, there are others that are able to operate in a much more cost efficient way. Among that, we enjoy that -- working together with Chesapeake on the Appalachian gas asset, and sold Western.

So we have invested quite a lot in the international business, at -- when the oil price was much higher. This has proven not to be robust enough when the oil prices have been falling, and we have taken significantly impairment losses. So my job now, is to look forward. We have the portfolio at the moment, and we will continuously improve that one. We have taken steps today, and we will continue working with -- in improving both the Norwegian portfolio, and the international portfolio. Actually both in in oil and gas, but also in renewables. Continuous improvement would always be our preferred tool, to improve our business.

Bala Nagrajan -- Head of Originations/Investment Director

Thank you. Let me remind new voters, that you can use the raise hand function to post your questions yourself. But I will continue to take those that has been posted in the chat function. There is a question from Lars Taraldsen in Bloomberg. Total has [Indecipherable] of only selling that, that has some sort of sustainability criteria. Is that something that Equinor might do? If so, how soon? If not, why not? Do you see a wide opening in the oil industry between clean [Indecipherable] producers with some branding themselves as ESG investment options?

Anders Opedal -- President and Chief Executive Officer

So I would let Svein, the CFO take the bond question.

Svein Skeie -- Executive Vice President and Chief Financial Officer

Thank you. Anders and thank you for the question there. What we see as a group in totality is that, we are in the situation with a solid balance sheet, being able to manage through, through 2020 with the COVID crisis. And we are now in a situation where we have a net debt ratio of 31.7%. We also have strong rating. We are rated AA- as a group, and that means that we are able to borrow money at good conditions, and good terms in the market. Of course, we are also following what is happening within the green bonds and others there. But, but we're also seeing it from a corporate perspective. Seeing, how can we raise funds. What is the best available solution offered to us? And that's why we also -- when we raised bond during 2020, we selected then to do it on a corporate level.

We also then in the project -- in the renewables projects, we also project financing, and we see that those are also attractive offers available then for project financing into the renewable. So we do a kind of a mix that on that -- how we are financing it. But we are following the market closely, as it develops.

Anders Opedal -- President and Chief Executive Officer

Yeah and let me just add, we have a very strong credit rating with AA on both rating agencies, and there has been some revision of the oil and gas sector, and there are many that's been on the watch list, but we are not on the watch list. So we are very good credit rating and we have access to competitive spreads in the market.

Bala Nagrajan -- Head of Originations/Investment Director

Thank you. The next question is from Deb Kelly, Energy Intelligence. How do you strike the right balance between slimming down the company to position for profitable future, and maintaining the manpower, that will allow you to develop both your upstream portfolio and in your offshoring projects. And to that end, could we see a [Indecipherable] bigger transactions involving utilities in the future?

Anders Opedal -- President and Chief Executive Officer

Well bid is of course, one of the tool box we do have for creating values. But we never comment on that one. So we will, of course, kind of continue to build the competence in the organization. We see that we -- there are a lot of people that will retire over the next 10 years. So we will need to recruit. We will need to recruit, both in the oil and gas and in the renewables and low carbon solutions, we will need new talents with new skills, also into all parts of our business. So we might be fewer in the future, but that does not seen that -- saying that we're going to scale down. We are reorganizing at the moment, but that is not a downsizing exercise. Any reducing of people will be based on activity level in certain areas.

Unidentified Speaker

Thank you. We'll take the next question from Jorgen [Indecipherable] E24.

Jorgen -- E24 -- Analyst

All right, thank you. Over the past years and also recently, you booked some significant profits and renewable deals. But when you look at what happened in the U.K., just the other day and the prices that BP and others were willing to pay, just the -- as you view the window of opportunity closing, to make good profits from these types of projects, or do you still see viable path for Equinor to acquire acreage and make profitable projects?

Anders Opedal -- President and Chief Executive Officer

We see that offshore wind will be needed for many countries to provide more clean energy. And we will need more clean energy and more and more regions need that. Offshore wind is the kind of the closest you come from renewable to a baseload. So we will see growing number of countries that will also include offshore wind into their energy mix. So in that respect, we will seek those opportunities. We see there will be a growing number of opportunities, and we will capture those opportunities, that gives us the required return from this business.

We are in a very good position to capture that, based on our experience, and been reducing cost over time. Hywind Scotland to Hywind Tampen was a reduction of 40% per megawatt, and we will continue to do this kind of work. So I think we are well positioned, even that we see increased competition, and particularly, in some areas.

Jorgen -- E24 -- Analyst

Thank you.

Bala Nagrajan -- Head of Originations/Investment Director

Thank you [Indecipherable]. I have a question from [Indecipherable]. Are translators. The go -- can you say something about the development of European gas prices this winter? Cold weather has given the higher prices. How do you see the price development going forward? Connected to that, the last couple of years, there has been talk about a LNG glut, is this situation now more normalized, and could that contribute to upwards pressure on prices?

Anders Opedal -- President and Chief Executive Officer

Well, on the gas prices, this has been a combination of manufacturers lately. We have seen an outage of some LNG plants, combined with lack of transportation vessels and also, strong cold winter in Asia. This in combination, directed a lot of LNGs to Asia, that should have been -- come to Europe. And then we have seen an upward pressure from European piped gas. We see now that, due to cold winter also in Europe, more and more gas is being used and with less LNG coming in, the delay in the North Stream 2, the storage and withdrawal from the storage is increasing, and that gives us support for positive outlook of the prices also coming into the summer season.

So I think we will see a volatile market, based on this [Indecipherable]. But we see that the market is more balancing, when we move a year or two ahead.

Bala Nagrajan -- Head of Originations/Investment Director

Thank you [Indecipherable]. The next question is from [Indecipherable]. Regarding Mongstad, have you made any assessment of the costs related to getting Mongstad in compliance with Norwegian environmental regulations?

Anders Opedal -- President and Chief Executive Officer

Well, this is related to the water treatment facility, and also the oil pipes there. And this is included in our cost estimates for the Mongstad refinery. And we will of course run the refinery within all regulations from the environmental agency. So all elements are included.

Bala Nagrajan -- Head of Originations/Investment Director

Thank you. A question from Nick Coleman in [Indecipherable]. Please clarify FID plans for the next year or two internationally? Is Bacalhau the only one, or do you expect others -- do you expect Rosebank FID by May 2022, and also are you confident of Wisting investment decision by end 2022, given that complexity of this?

Anders Opedal -- President and Chief Executive Officer

So Bacalhau is the projects that we will do an FID in 2021. The first half of 2021. We are waiting for the regulatory approval of the unitization. And for the other international projects we are working now on improving them. Ensuring that we are able to deliver them with the lowest breakeven and the highest net present value that we are able to achieve. So we have some plans, but we have no firm plans and exact date for the FID. We will make the FID when we think they are good enough and also in accordance with the expectation from the local authorities as well.

We're working very hard on the visitng projects now. This was one of those projects that we highlighted as a project that we would sanction as a part of the tax package discussion to demonstrate the value creation for the less supplier industry and local societies. So, we are progressing this project now according to the plan and we'll do the FID toward late 2022.

Bala Nagrajan -- Head of Originations/Investment Director

Thank you. The next question is from [Indecipherable] from Bloomberg again. Do you have any plans of further divestments from American shade?

Anders Opedal -- President and Chief Executive Officer

Well, we announced today that we are divesting from -- Buchan. But, let me just elaborate on that. We -- we have a very kind of strong solid position in the U.S. left with our US offshore fields in Gulf of Mexico, contributing significantly to the cash flow outlook we gave earlier today. And also the Appalachian gas assets that is very close to the market, where we also see that we have trading opportunities on top of an integrated midstream position. So, we have significantly value left in -- US. We have one small operated position and we will look also at the strategic option for that, potential JV with some other operators in the neighborhood, but that is just one of the strategic options we are pursuing and we have to come back to that at the later stage.

Bala Nagrajan -- Head of Originations/Investment Director

Thank you. I have one question noted left and that is from [Indecipherable] Energy Intelligence. I will take that now. There are still a few question that have been on the same subject and then I've taken only one of them, but I think I have covered all, but if there are any outstanding questions, please take the opportunity while we cover the final question from them.

Question from [Indecipherable] is can you provide some color around your exploration strategy going forward and what are your thoughts on the best way to realize value from your venture capital investments in the key and energy space. So, two questions same on that.

Anders Opedal -- President and Chief Executive Officer

So, for the exploration, we have focused our exploration strategy. We see good possibilities -- in already prolific areas, where we do have a position, particularly in the Norwegian Continental of Shelf in Brazil and Gulf of Mexico among others. We, on the exploration departments, work really hard to improve over the last year in terms of administration costs and reduced significantly on the costs, that's why we are able to guide a little bit down for 2021. But, we are going to drill between 20 and 30 exploration wells also in 2021. So, exploration is significant part of our business, but every well will be high graded and I will also -- need to meet the necessary value creation potential and the potential lifecycle breakeven as well.

Regarding the venture portfolio, it's very exciting portfolio with a lot of new technology. For us, of course, there is a potential to have increase in the value of the investment in shelf, but we are always looking for potential to integrate this technology into our business and really scale up the value substantially. So, let me give you just one example. We are investing in a company called Gumbo blockchain and as you know, we have digitalized Johan Sverdrup. So, we have a lot of sense over collecting data. Using blockchain, we are able to setup new types of contracts that actually we are measuring data Johan Sverdrup with this is automatically by new types of contract being converted into the price we are going to pay to the supplier and it can be paid immediately and nobody needs to be in between. So, this is somewhere we can use the exciting technology from the venture portfolio into our business. And we get a value creation on both sides.

Bala Nagrajan -- Head of Originations/Investment Director

Thank you. During that, we got two more questions, one on Lonestar one on Peregrino. So, if it's OK to you, we will cover those in on go and that will be the final questions of this Q&A. Question on Lonestar first, it's from [Indecipherable]. On the impairment, Tom [Phonetic], you provided a more precise figure on that and so more details on the closest behind it. You said part of it was due to lower margins and part higher cost terms, can you provide a breakdown of the two and can you confirm that the costs are related to upgrading the facility to get in line with regulations. That's the most of question. And the one on Peregrino, when will the production start again and what is the status for Phase II? That's from [Indecipherable]

Anders Opedal -- President and Chief Executive Officer

Yes. So, let me start with the Peregrino question and since there is a detailed number, so I'll leave it to the CFO for the Lonestar. That's the CFO job. So, on the Peregrino, we are working on the riser on the main field to they erupted last year, we are a little bit delayed on fixing those riser due to COVID-19. We have had outbreaks on the facility and had to take down demanding several times. But, during first quarter, we should be able to have the first riser installed.

Let me also elaborate a little bit on the Peregrino 2 project. This was a project that one year ago was on time and below budget. But, due to the COVID-19, we have had to demand the flow tell many many times and imperials have no progress on the project. So, the production start-up that was supposed to be end of last year will be in end of this year. But, for all of these projects that are highly affected by manning and due to infection risk, they have some uncertainty in them.

Svein Skeie -- Executive Vice President and Chief Financial Officer

Then among size said in my speech, we have an impairment of around $600 million as well to do it. It's then regarding on several factors that is impacting. It's both the refinery margins on the totality and the outlook there going forward, which is the very important part of generating the cash flow. It's then the cost side and then also related to the capex side, as well as the totality on EU it has the taxes and so on.

So, I can't be specific on how much each of the elements are. So, it is a combination of all those three that is important. But, the margin and cost and capex in totality meant that we did an impairment of the size that we didn't know in the fourth quarter.

Bala Nagrajan -- Head of Originations/Investment Director

Thank you. With that, we round off the Q&A session also for media. So thank you very much to Anders Opedal and Svein Skeie for taking the questions. Thank you to all journalists attending on Zoom and asking questions and thank you to all of you who have followed the webcast since 10 o clock this morning.

Thank you all and have a great rest of the day.

Duration: 126 minutes

Call participants:

Peter Hutton -- Senior Vice President, Investor Relations

Anders Opedal -- President and Chief Executive Officer

Svein Skeie -- Executive Vice President and Chief Financial Officer

Bala Nagrajan -- Head of Originations/Investment Director

Unidentified Speaker

Biraj Borkhataria -- RBC Capital Markets -- Analyst

Oswald Clint -- Sanford C. Bernstein -- Analyst

Thomas Yoichi Adolff -- Credit Suisse -- Analyst

Mehdi Ennebati -- Bank of America Merrill Lynch -- Analyst

Teodor Sveen-Nilsen -- SB1 Capital Markets -- Analyst

Lydia Rainforth -- Barclays -- Analyst

Jon Rigby -- UBS -- Analyst

Alastair Syme -- Citigroup -- Analyst

Christian Malik -- JPMorgan Chase & Co. -- Analyst

Yoann Charenton -- Societe Generale -- Analyst

John A. Schj. Olaisen -- ABG Sundal Collier -- Analyst

Peter Low -- Redburn -- Analyst

Anders Holte -- Kepler Cheuvreux -- Analyst

Martijn Rats -- Morgan Stanley -- Analyst

Jorgen -- E24 -- Analyst

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