Equinor ASA (EQNR) Q3 2021 Earnings Call Transcript

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Equinor ASA (EQNR 0.29%)
Q3 2021 Earnings Call
Oct 27, 2021, 5:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the Equinor 3Q results call. [Operator Instructions]

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

Peter Hutton -- Senior Vice President, Norway Investor Relations

Thank you. And indeed, very much welcome to the Equinor 3Q results call. Thank you for the participation. We're joined today by Ulrica Fearn, CFO, who will run through a presentation of our results, and then we'll open up for questions, which we hope to complete within the hour. Also on the call, we have Svein Skeie, Head of Performance and Risk; Orjan Kvelvane, who is Head of Accounting; and Mads Holm, Head of Tax and Treasury.

With that, I pass immediately over to Ulrica. Thank you.

Ulrica Fearn -- Executive Vice President And Chief Financial Officer

Thank you, Peter, and thank you all for joining the call today. Today, we present our strongest financial results since 2012. Clearly, these results benefit from higher prices, particularly European gas prices but they also reflect our ability to capture those prices through our solid operational performance with high production efficiency, our flexible gas capabilities, which gives us potential to optimize volumes and our continued focus on costs. We delivered very strong cash flow from operations of over $10 billion in the quarter before tax and over $9 billion after tax, reflecting the normal phasing with only one tax payment on the NCS in the third quarter. Along with strict capital discipline, this further strengthens our balance sheet, makes us more robust for any future volatility and allows us to continue to invest in the energy transition. It also allows us to increase our capital distribution, and I'll get back to that shortly.

We are seeing significant moves in the energy markets and particularly in the gas market in Europe. Record prices in the second quarter were beaten in the third quarter and prices have continued to rise in October. This generates higher revenues for Equinor, but also serves as a reminder of the level of volatility in our markets. We are experiencing a tight gas market. At present, European inventories are low, and we expect the market to remain tight and subject to volatility going into the winter. The tightness of the energy market affects European industry and households, and Equinor remains committed to be a stable and reliable supplier of gas to Europe.

Therefore, we are now flexing to produce as much as we can and turning every valve to produce and export more gas to meet European demand. Earlier this autumn, we received permission to produce two billion cubic meters of additional natural gas from Troll and Oseberg. And I can also mention that Gina Krog, we have in October decided to redirect gas from normal injection to be able to increase exports over the next six months by about 30,000 barrels per day oil equivalent. This is an extraordinary measure resulting from the collaboration of partners and authorities. We started production from Troll Phase Three. And as I witnessed myself when visiting the platform this month, the production of Troll A has fully ramped up again after the start-up.

It's worth reminding you of its profitability, a breakeven below $10. While this is only a limited impact on near-term production, it improves resilient and its real value is over the longer term, with recoverable reserves of almost 350 billion cubic meters of gas extending to deliveries to Europe beyond 2050. We continue to make progress on our ambition to reach net zero by 2050 as outlined in our Capital Markets Day. We passed an important milestone for low carbon value chain when the East Coast plus in the Humber region was selected as one of the two first carbon capture usage and storage project in the U.K. This is the area where Equinor has its largest portfolio of projects for blue hydrogen and low-carbon gas power to be realized with CCS.

We further introduced the concept of our Norway energy hub, an industrial plan for the energy transition in Norway. This sets out how by working across industries and supply chain, we can industrialize offshore wins, make carbon capture and storage profitable and scale hydrogen production. It further shows how we can mature the solutions for the future using a base of existing capabilities and technologies. The Board has decided on cash dividend of $0.18 per share. At our Capital Markets Day in June, we introduced a share buyback program, which provides more flexibility for capital distribution to shareholders.

Our first tranche will sit at $300 million and completed in the quarter. Based on the strong commodity prices, strong cash flow generation, a strong net debt ratio, the Board has decided to increase the size of the second tranche of the share buyback program from the indicated level of $300 million to $1 billion, including the government shares. At the CMU, we highlighted the cash returns of $0.18 per share in cash dividends and $0.09 per share from the share buyback. This took us to $0.27 per share level with April 2020. With this increase in the share buyback, the return to shareholders increases in the quarter to $0.30 per share from the buyback, which in addition to the dividend of $0.18, takes us up to $0.48 per share for the third quarter. This is over 75% higher than the pre-COVID levels of $0.27 and shows the advantage of the flexibility in the capital distribution process and ability to return cash to shareholders.

For the last 12 months, we reported serious incident frequency of 0.4 and a total recordable injury frequency of 2.5 per million working hours. We are not satisfied with this, and work to massively find -- we work systematically to find root causes while working with our suppliers and partners to strengthen our joint safety culture. Turning to our financial results. Adjusted earnings totaled $9.8 billion, up from $780 million same quarter last year. The IFRS net operating income was $9.6 billion, and the IFRS net income, $1.4 billion. We see strong results across all our business areas in the quarter. From our Norwegian upstream business, the high prices, solid production efficiency and continued cost focus resulted in the highest contribution to net operating income since 2012. Our midstream and marketing segment, MMP, post results far above our normal guidance.

This is mainly due to the mark-to-market developments on our derivatives. Equinor's gas sales are mostly spot based, but relatively small proportion of our volumes are based on longer dated indices. Equinor uses derivatives to change its price exposure toward spot and frame pricing to obtain and match that over the rest of the portfolio. We don't report any realized gains all of it on the underlying gas volumes until the period when they are physically delivered. However, any mark-to-market gains or losses on derivatives are reported every quarter.

This is part of normal accounting. The recent scale of movement in the gas markets make these unrealized gains of derivatives associated with future gas deliveries significant. At current market prices, you should expect these gains to be approximately matched to the loss on physical deliveries in MMP over the next two quarters. Excluding the effect of these gas derivatives, the results for MMP in the quarter would have been a little below the normal range of $250 million to $500 million, consistent with what we said in the second quarter call. Overall, this has allowed us to capture current European gas prices. In the quarter, we had net reversals of impairments of around $500 million.

The two largest factors being the reversal of impairment of almost $980 million on one of our assets on the Norwegian Continental Shelf, mainly due to increased short-term gas prices. This is partially offset by an impairment of a refinery of $480 million due to the expected increased CO2 costs going forward. The group tax rate in the quarter will be 71.6%. This was up from 66% last quarter and due to strong earnings on the Norwegian Continental Shelf where the uplift deduction has less effect with higher prices. And now to more detailed comment on the earnings by segments. E&P Norway delivered another excellent quarter. We achieved high production efficiency and optimized gas production supporting stable supply and capturing the higher prices.

In the quarter, you will see an increase in reported costs in U.S. dollars which mainly reflects an increased noncash removal costs from gas led of around $200 million as well as currency effects due to strengthened Norwegian kroner compared to the same period last year. The underlying unit costs are stable. E&P International delivered solid cash flow and strong earnings of $556 million before tax. We have continued to optimize the optimization of the portfolio and announced -- as announced in the Capital Markets Day, and it is reflected by the reduction in reported exploration costs in the quarter as well as continued cost focus. E&P U.S. delivered production on par with the third quarter last year and adjusting for divestment in back-end, this despite the effects of Hurricane Ida, which for Equinor has the highest impact of any hurricane in Gulf of Mexico and impacted production by over 20,000 barrels per day.

By now, volumes have effectively come back to normal levels. We also reaped the benefit of long-term improvement efforts and cost focus. These, in combination with higher prices, lower Capex, continue to generate strong cash flow from our U.S. business of $477 million and solid earnings of $285 million after tax. Our Midstream & Marketing segment delivered adjusted earnings of $2.2 billion before tax and $428 million after tax. As already mentioned, this record high result is largely due to the effect of mark-to-market gains on derivatives. But at current prices, this will be followed by a loss on physical deliveries in MMP in later quarters.

Our strong sales of gas volumes and trading in North America also contributed to the results and account for 25% of MMP's earnings after tax. Hammerfest LNG remains shut down with expected start-up end of March. In the Renewables business, lower wind than seasonal average was partly offset by higher electricity prices and earnings from assets in production totaled $15 million. High activity levels on development contributes to a negative result of $28 million. As announced, we changed our policy of including gains and losses on sales in the adjusted earnings from the third quarter. This policy is now consistent with our other segments, where gains and losses on sales are included in the IFRS results but not in adjusted earnings. We delivered solid operational performance with total production of 1,996,000 barrels of oil equivalent per day.

Adjusting for the divestment of Bakken, production increased by around 3.5% compared to the third quarter last year. We optimize our gas production. And in addition to Troll Phase Three, it's worth mentioning that about half of the production from Martin Linge is gas transported through the fig pipeline to the U.K. Increased volumes from Johan Sverdrup adds to the production in the quarter. In the U.S., the production in the Gulf of Mexico is returning to normal after the impact of Hurricane Ida. We delivered a production of 304 gigawatt hours, down from about 319 in the same quarter last year. Our wind farm had good availability, but less wind than seasonal average impacted production. We are on track with maturing our renewables portfolio and developing projects. For Empire Wind, we recently selected the preferred supplier of the 15 megawatts with wind turbines.

These are turbines of size that one single rotation can meet the energy demand of households in New York for 1.5 days and further improved efficiency in cost for the project. In the U.K., we have started up the joint operation center for Sheringham Shoal and Dungeon, an important step in the effort to capture synergies and increase in the efficiency in the industry. The cash flow from operations is very strong, with $10.8 billion in the quarter before tax and a total of $24 billion so far this year. Higher prices, solid operational performance and strict capital discipline contributed positively to the cash flow. In the quarter, we had one tax payment of -- for the Norwegian Continental Shelf of NOK11.8 billion. With higher prices and solid results, we also updated the estimated tax payments for 2021. In the fourth quarter, we will pay a total of NOK55.5 billion. In total, we expect to pay more than NOK130 billion in taxes related to 2021 on the Norwegian Continental Shelf. The net debt ratio is 13.2%, and it's adjusted for half our tax payments paid on the 1st of October, which increases the ratio by around five percentage points. Let me briefly mention our guiding before we open for questions. We expect the production growth of around 2% for the current year, and we are approaching year-end, and we see that our Capex will come in somewhat lower. We therefore adjust our expectations for the year to around $8 billion in 2021. The rest of the guiding remains firm, and we will revert to this at our next capital market update that will be on the 9th of February 2022.

And with that, I hand back to you, Peter, and look forward to questions.

Peter Hutton -- Senior Vice President, Norway Investor Relations

Thanks, Ulrica, and I immediately pass over to the operator to open up for the polling.

Questions and Answers:

Operator

[Operator Instructions] The first question is from the line of Oswald Clint from Bernstein.

Oswald Clint -- Bernstein -- Analyst

Good morning. Thank you very much everyone. Two, please. The first one, just on natural gas and your business. The -- your invoice gas price in Europe was lower than the internal gas price, which is unusual. I know there's obviously a lot of stuff going on. So it's a little bit tricky to understand that perhaps you could explain that dynamic. Perhaps it's just a derivative. So what was happening to that in the quarter? And when might we expect that to revert to the mean and just get that margin that we're much more accustomed to coming through, please?

And then second was, I think there's obviously still some COVID impact here, scheduling delays, some cost pressures. I think you're still pointing to as still happening potentially project execution, cost risk still out there, but obviously unpredictable. I'm always cognizant of Equinor just announcing project delays and cost hikes with press releases. But Ulrica, I just want to get a sense, is there anything you're looking at or worrying about here as you think about that particular comment, please? Thank you.

Ulrica Fearn -- Executive Vice President And Chief Financial Officer

Thank you very much, Oswald. So let's start with the natural gas invoice price then. They are a little bit lower than the benchmark, because we did talk to you in the last quarter about some strategic positions we had outstanding that were weighing us down a little bit in the last two quarters. We are out of that now and what you're going to be is probably a move toward the more benchmark in the coming months. On the COVID impact, yes, it has been impacting us, and it continues a little bit as well, and we have come out with the impact, but it's clearly moving in the right direction.

What isn't moving in the right direction in general is, of course, the cost pressures in the supply chain in general, which we are watching very, very closely. And this is something we haven't really seen direct impact of just yet in the business, but we are very much paying attention to. And it is more the indirect supply constraints in some areas. But as it stands at the moment, we are sort of quite confident in where we're at. But as I said, it feels like there is some outstanding risks that might be coming our way. Steel and metal prices are trading flat.

They might actually be Eastern further going forward. And we do see sort of on the rigging side, we see high and stable rig utilization rates. And there is going to be increased demand on the actual supply chain and where that will pop up and if there's going to be any more bottlenecks we remain to watch and see.

Oswald Clint -- Bernstein -- Analyst

Very good. Thank you.

Operator

Next question is from the line of Biraj Borkhataria from RSB.

Biraj Borkhataria -- RSB -- Analyst

Hi. Thanks for taking my question. The first one is on the enhancer on Gina Krog. Very interestingly, you're deciding to do not inject the gas so you cannot sell more of it. A few questions on that. Are you looking to do that at other fields? And if so, could you talk about the potential incremental supply to the European gas market that come from activities like that?

And then secondly, why did you decide to do that for a period of six months. Is that just the market needs it for the winter? Or is there something else that drives that decision? And then the second question is on your Capex guidance, which implies a reasonable step up into 2022. Just going back to the prior question, does that step-up reflect some contingency because of supply chain pressures or inflation in like that? Or is that an activity-led increase? Thank you.

Ulrica Fearn -- Executive Vice President And Chief Financial Officer

Thank you very much, Biraj. And let's start on Gina Krog. We -- this is a very big step, and we are looking to see across the portfolio what we can do in different ways. And yes, we will be looking across and seeing whether there are similar things we can do elsewhere. But this is the one where we have really taken clear actions for now. Why six months? This is the start. We want to make sure we know how this works and we need to put this forward and is temporary for now, but we need to revisit the situation as we go along.

On our Capex I mean I think there's a couple of here. There are some delays from this year because as we've talked about before. And -- but we've also got some positive news. We have got many projects that have been -- incorporation across the different portfolios and the different parts of our business are coming in with better costs. So there is a combination of the delays and the better costs. So what we're looking at in the next year is mainly that -- sorry, rather than an update from inflation and then a contingency around inflation. But of course, we're going to continue to review all of that, as I said before.

Biraj Borkhataria -- RSB -- Analyst

Ok. Thank you.

Operator

Next question is from the line of Teodor Nilsen from SB1 Markets.

Teodor Nilsen -- SB1 Markets -- Analyst

Good morning and takes for taking my questions. Congratulations on excellent results. Two questions from me, if I may. Ulrica, as you highlighted, you have a very strong cash flow now and you had lower net debt to capital employed than you previously reported. Going into next year, you probably will have net cash given the current term price or the gas prices. So I just wonder, should we expect Equinor to be run at a net cash positive company going forward? That's my first question.

Second question is just on this technical effect around the interest gain or loss. So if I understand that some of the gains you booked in MNP for third quarter will be reversed. And just with regards to the timing, should we expect that to happen in Q4 or Q1? And also what the highs about potential losses to rectally match the gains in the third quarter?

Ulrica Fearn -- Executive Vice President And Chief Financial Officer

Thank you very much, Teodor. Let's start on the first question there on the net cash position, whether you could expect that. We have stated what our net debt ratio, long-term guidance is in the 15% to 30%, and that remains the case. We are where we are, and we are looking every quarter, as you know, around our sort of overall level of investments at our overall level of other uses of cash, but also our overall capital return to shareholders by looking at our three guiding lights that we have put out there at the Capital Markets Day.

We are looking at our financial strength and the debt ratio, the outlook on commodity prices, and we said 50 to 60, you would expect a 1.2 billion share buyback, and you're looking at the general economic environment. So we continue to live by those general guidelines, and we'll take every quarter when they come. On the technical effect in MMP, yes, there is a big gain in the third quarter. As I mentioned, you can expect that to be reversed and that will be in quarter four and in quarter one.

Operator

Next question is from the line of Mehdi Ennebati from Bank of America.

Mehdi Ennebati -- Bank of America -- Analyst

Hi. Good morning everyone and thanks for taking my questions. Two questions on my side. I just would like to come back on the tax installments that you explained, please, related to 2021 earnings. So you revised up the tax installment due to higher earnings than previously expected. Please, can you just confirm that you will pay around $8.8 billion tax in Norway in the first half of 2022?

That I understand well. And should I then just consider that the tax statement is up from around $1.4 billion per year to something like $2.9 billion. And the second question is about the low proposal regarding the change in Norwegian taxation. That was in the beginning of September since then the government has changed. But I just would like to know if this is voted. Is it fair to consider that the tax payment will come down the first year compared to if the new tax proposal is not voted. Because in a model, we have an $8 billion positive impact if that taxation, that taxation law is voted from 2022 to 2025. So just wanted to me, if you can give us some color there.

Ulrica Fearn -- Executive Vice President And Chief Financial Officer

And thank you very much for your question. A NOK67 billion for half one '22, I can confirm as prices, and that's in line with what we've been communicating before. On the tax question, I really don't like to speculate on what's on -- I'll hand over for some further comments from -- to Svein.

Svein Skeie -- Executive Vice President And Chief Financial Officer

There is a proposal out there from -- that was proposed by the government. We are now in the phase of the hearing on that one, given the feedback pointed. The proposal as it is, is that there will be directly entire toward the special tax in the Norwegian for the ordinary tax there. So also some of the rules in the transition phase that were being looked to look at as for this. But then overall, more than related then to the direct expense against the countries. Of course, this means also then to go to the parliament and expect then to be voted on during the first half of 2022. So that's the current status. So it's a hearing round which ongoing done.

Ulrica Fearn -- Executive Vice President And Chief Financial Officer

But the principle there are very clear and we understand where they are and the impact. So thank you for your question.

Operator

Next question is from the line of Yoann Charenton from Societe General.

Yoann Charenton -- Societe Genera -- Analyst

Good morning everyone. I will use this opportunity to ask again about the transition phase as of the -- basically as for the move to the new tax system, I understand that it's difficult for you to quantify at this stage. So I'm just willing to understand if you are happy to share us some estimates of tax balances for underappreciated or basically for updating Capex that has yet to be offset as tax payments. And basically, what is the portion of this that sit outside of the temporary tax scheme if that is possible. On the second question, which is more, let's say, a broader question with perspective on your capital allocation. It looks like the excess cash buildup is set to continue when looking at your balance sheet. And at the same time, you continue to underspend versus guidance in oil and gas. So I'm just wondering basically if this signal potential for higher distribution in the midterm? Or is that more, let's signal for increased flexibility for the investment in an solutions renewal. That would be great if you could provide some color on this.

Ulrica Fearn -- Executive Vice President And Chief Financial Officer

Very good. On the preferred tax system, I mean, what we're clear on is that we will get no benefit from the uplift in the overall tax movements toward overall 78% and put some more color on that, again, I'll hand over to Svein to give.

Svein Skeie -- Executive Vice President And Chief Financial Officer

Yes. As it is working is that the proposal that might tend to be away the uplift part of it is that the reported tax rate when we are fully affected for it, then we go then toward 78%. But remember, there's also the temporary changes in the tax system, which we now have. That is relevant for 2020, 2021. But also for our projects has a final investment decision at prior to 2022, meaning that if we deliver the pan development, and those will come under the temporary tax system, which are beneficial. So that means that as will then be reported, it will have an impact on the cash taxes that we have more reductions upfront but following when all projects are then delivered under the temporary taxes, the reported tax rate will go up toward then the 78%, but that's into the latter part of the decade. But the cash tax and the deferred tax will be different from what it was earlier, meaning more direct expense early compared to what it was prior to the temporary tax issue.

Ulrica Fearn -- Executive Vice President And Chief Financial Officer

The direct expense will help us in the short term. On the capital allocation, I'll come back to what I said before. We will continue using the guidance sort of the, if you like, the methodology that we launched in June when we're looking at it, and I work through it before we will look at the net debt ratio. We would look at the outlook on commodity prices, and we will look at the general environment we're in, and we'll stick to that and we'll do that every quarter. And as such, we have now become accustomed to, and we will look at the overall situation in Q4 again, therefore.

Operator

Next question is from the line of Michele Della Vigna from Goldman Sachs.

Michele Della Vigna -- Goldman Sachs -- Analyst

Thank you. Thank you. I had two questions, if I may. The first one is related to your buyback and congratulations for tripping the pace of buybacks there. At this stage, you're buying back about 5% of spending shares. I was wondering when does this start to feed into your dividend policy, because clearly, reducing it by 5% per annum could allow you to grow the dividend per annum faster than you probably would have previously assumed. And then my second question, and sorry if it is a little bit too specific. When I think about your North America and offshore wind development, I was wondering if you're starting to see some issues in terms of tightness there. Just on the equipment side, but more on the vessel side for construction. I believe there are some restrictions under the Jones Act, which could make it a bit more difficult to get the right vessels to do the installation there, especially as more projects will start to compete in the future.

Ulrica Fearn -- Executive Vice President And Chief Financial Officer

Thank you very much for your question. And I'll start with North America wind development. We don't yet see any of this, but if you look a little bit comes back to the comment I made earlier, which is we don't yet see it, but that doesn't mean that there is some supply crunch out there, which we are all worrying and seeing, but we are seeing uneven deliveries and shortages coming up in areas or you can't quite predict and that's the same across the whole world. So we're -- and that also applies to the North America wind development. On the dividend and the share buyback conversation, we are not needing to directly consider that in the short term. And we will, as I said, take this on a quarter-by-quarter basis and cost up bridge if we get to that we are in a comfortable place where we are at the moment.

Operator

Next question is from the line of Peter Low from Redburn.

Peter Low -- Redburn -- Analyst

I just had a couple of questions on the mechanics of the buyback. So the first tranche has been completed, but only 100 million has been bought back with the remaining 200 million deemed for the Norwegian government. How does that work? Is it a cash payment to them? And when will that be executed? And then as a follow up, for the next $1 billion tranche, presumably in the same fashion, you complete a fed bit in the market by the end of January, I think. But then again, when will the government portion be executed?

Ulrica Fearn -- Executive Vice President And Chief Financial Officer

So yes, the 2/3 of it will be special in that will be past the AGM in June -- so that's in June, July, and that's 200 million shares at the market price. And that will go for there. And that's around 9.5, and that goes for both this tranche and when we get to the next tranche.

Operator

Next question is from the line of Anders Holte from Kepler Cheauvreux.

Anders Holte -- Kepler Cheauvreux -- Analyst

Thank you for taking my questions. I have two questions, if I may. First one is related to as in the natural gas. And I know you canceled the Tanzania LNG quite a while back. I'm just curious to check with you if you are now seeing interest again from counterparties willing to sign long-term energy contracts. And if that is the case, does that facilitate a potential reopening of the Tanzania LNG project? Second is offshore wind. I mean it's somewhat related to the first question, but I guess it's a little bit broader. It's just you did take on your expected future return for offshore wind during your last meeting in June. Now raw material prices have somewhat stood by but still there seems to be quite a fierce competition on offshore wind as we see in the Scotsman run in copper. I'm just curious to see if you are seeing a continuous margin pressure on offshore wind or if at least also a little bit. Thank you very much. And on your first question, I won't comment on that. That will be commenting on activity in the market that we normally don't comment on. On the offshore wind comment, I think we could say it's about the same where it was. And it's a tight market. There's a lot of activity going on, and I would probably characterize it as the same

Operator

Next question is from the line of Martijn Rats from Morgan Stanley.

Martijn Rats -- Morgan Stanley -- Analyst

Yeah. Hi. Hello. Quite a few things have already been asked, but I was actually quite interested in the impairments on the refinery of $500 million. It seems a sort of fairly chunky amount for such an asset. I was wondering if you could sort of walk through with the, so to keep moving parts and why this such a big number?

Ulrica Fearn -- Executive Vice President And Chief Financial Officer

Yes, exactly, Martijn. On the refinery, we -- I mean, the driver of this is updated CO2 prices and, of course, estimating that into the future and then taking that into the value of the asset is basically one big driver on the back of that. And CO2 projections internationally and in Norway are going up, and that's the straightforward answer.

Martijn Rats -- Morgan Stanley -- Analyst

And there is no sort of Capex projects that you could do that would be less than $0.5 billion to sort of compensate for this. I take it, right?

Ulrica Fearn -- Executive Vice President And Chief Financial Officer

We continuously look for strategies as the long-term sort of robustness and viability of all our assets.

Martijn Rats -- Morgan Stanley -- Analyst

Ok. Thank you.

Ulrica Fearn -- Executive Vice President And Chief Financial Officer

Thank you.

Operator

Next question is from the line of John Olaisen from ABG.

John Olaisen -- ABG -- Analyst

Good Afternoon, ladies and gentlemen. I got questions regarding some of your offshore wind projects. You've mentioned the U.S. situation, but I also understand that the Empire Wind that you have applied to regulators to have a late start-up of the Empire Wind project. And also, you recently announced the Dungeon extension in a U.K. Sheringham Shoal are postponed or delayed. Could you explain a little bit more what's going on the two projects in particular, please? So what are the reasons for these delays, please?

Ulrica Fearn -- Executive Vice President And Chief Financial Officer

So the Empire Wind is not really a delay. It's a combination of the project so that we can coordinate and get the synergies out of the projects rather than delaying it. So that's a benefit that we will reap the benefits of later on. On Dungeon, I'll hand over to Svein to give you a heads up on that.

Svein Skeie -- Executive Vice President And Chief Financial Officer

No. No, things are progressing. We are looking into then also optimization then going forward there as we are moving along. So non big updates on this one but we are all progressing. And progressing on the portfolio in the different parts of it to see how we have done and build according to what we said at the Capital Market Day in June.

John Olaisen -- ABG -- Analyst

So there's no structural change in the project assume to try to optimize the synergies in the -- with Empire Wind initially as well. So it must be something that has changed. I mean, otherwise, the deadline is extended, I mean.

Svein Skeie -- Executive Vice President And Chief Financial Officer

On Empire, it's about then as Ulrica said, looking at one common development for Empire one and two.

Ulrica Fearn -- Executive Vice President And Chief Financial Officer

Yes.

John Olaisen -- ABG -- Analyst

Ok. Thank you.

Operator

[Operator Instructions] Next question is from the line of Andre Klotz from Jefferies.

Andre Klotz -- Jefferies -- Analyst

Hi, Thanks for taking my question. A very small one for me actually. On the Callenberg refinery sale, you mentioned Q4 closing. Any more details? Are we talking sort of now-ish, end of Q4? Any details would be very helpful. Thank you.

Ulrica Fearn -- Executive Vice President And Chief Financial Officer

Thank you. This is a short question and no more details on that, so thank you.

Andre Klotz -- Jefferies -- Analyst

Thanks.

Operator

Next question is from the line of Lukas Hermann from Exane.

Lukas Hermann -- Exane -- Analyst

Thanks very much for the opportunity. A couple of follow ups, if I might, just on comments you've already made. Just coming back to Capex, you indicated that there are two features that have driven the reduction this year apart with efficiencies and savings and part of it was delayed. Do you mind quantifying the extent to which the benefit this year in savings?

So we might get a better view perhaps on next year. And another follow up, just the carbon price you've used to determine the impairment and the refining business. And thirdly, a follow up, can you give us any indication as to how the MMP excess will spread over Q4 and Q1, i-e, 50-50, 60-40? Or is it impossible for you to say given where that price is decided today.

Ulrica Fearn -- Executive Vice President And Chief Financial Officer

Thank you very much. I'll start with the MMP question, and I'll hand over to Orjan on the disclosure of the CO2 surprise, and then I'll hand over to you, Svein. So I'll start with the MMP Q4, Q1. It's impossible to say. It's basically completely depend on the undersing market and where that moves. And of course, underlying delivery will be dependent on that. But also, the site in the direction of the derivatives will also move in accordance both in Q4 and Q1. So I would from the back up so start with you then on Orjan on the CO2 price function.

Svein Skeie -- Executive Vice President And Chief Financial Officer

Yes. So we see on the refinery side, we see that we have increased in the CO2 price. So we assume around USD58 per tonne in '22, and we move it upwards toward USD100 a tonne. And this is one part of it, but we also see a decrease of CO2 quarters into the interpolation, because that is also part of expectation to how the market will run for the refineries.

Orjan Kvelvane -- Senior Vice President And Chief Accounting Officer

Yes. Regarding the Capex there and the expect impact year-over-year that as Ulrica said, some delays but we're also seeing some positive contribution in the overall part of it. So it's a combination that we are seeing, and we're seeing it both in some in the Norwegian portfolio, but also, we are seeing impact in the international part of it. And then as we normally do, we will come back to further upside on further outlook as capital market offsetting in February on that front. So without going into exact details on that amount.

Lukas Hermann -- Exane -- Analyst

So you can't quantify the amount that you've realized from savings, how much of the reduction is about saving, how much of the reduction is just delayed?

Orjan Kvelvane -- Senior Vice President And Chief Accounting Officer

It's a combination of those two as we are seeing good savings. For example, we have seen that on projects that have been put on stream on the solar as we did. We did it on the call, but going into details on that front of the exact numbers that we are giving.

Lukas Hermann -- Exane -- Analyst

Ok. Thank you

Operator

Next question is from the line of Alastair Syme from Citi.

Alastair Syme -- Citi -- Analyst

I just wanted to follow up on the question about the new Norwegian tax proposal. You've already answered the question on it, but it sort of strikes me after so many years of fiscal stability because we saw a tax standards introduced last year and now this year. You seem to be going a bit the other way, given that the effective rate is going to go up over time. Can I just get a sense of your view about what do you think is behind the motivation from the government in making this change?

Orjan Kvelvane -- Senior Vice President And Chief Accounting Officer

That is not -- what they have said is that -- we had the Norwegian tax system, we had a temporary tax system. There is -- there has been some debate on the valuation of the uplift where the government has lowered this count rate than the companies in a way. So that might be one of the reasons behind it and then being argued and than taking all the uplift and then having direct expenses as -- and that could be one of the reasons that they have used. But there are difference in how those are being valued with lower discount rates from the states and more higher discounts than for the company. So that has been one of the reasons I have used.

Alastair Syme -- Citi -- Analyst

So suggesting simplification of the tax process? Can say that -- is it true that you think the effective rate, if you sort of roll forward to estimate effective rate is going to be higher than it would have been under the old is. Is that fair?

Orjan Kvelvane -- Senior Vice President And Chief Accounting Officer

The reported rate will go up since you don't have then the effect of the uplift anymore on the special tax. But remember, cash-wise, you will have much more on the direct expenses toward the special tax. So cash-wise, you get -- when you get the direct expense up, that is benefiting you on the cash flow and also then on a breakeven part of it. In sum, in nominal terms, there will be an increase and then we will then report to 78% tax rate if the proposal goes through. It's also fair to say, it's a proposal. It's up now in hearing, and it needs to be voted in the parliament. So that means that the reported tax rate is the -- and that means that you will then have the cash tax and the digital tax, which will then change compared to how it traditionally was. More direct expensing, more deduction early for investor.

Alastair Syme -- Citi -- Analyst

Alright. Thank you sir. Thank you.

Operator

Next question is from the line of Jason Kenney from Santander.

Jason Kenney -- Santander -- Analyst

Thanks. Just a follow up on an earlier question. How confident are you in fully unwinding the MMP gain over the next two quarters? Or is there a chance that it's only a partial unwinding over the next two quarters?

Ulrica Fearn -- Executive Vice President And Chief Financial Officer

Thank you, Jason. And we'll say we're confident on this. This is a very sort of hedged position, and it's only a small -- the majority of it is completely matched with the underlying. So there's a small but very high confidence in the matching here.

Operator

Next questions from the line of Jon Rigby from UBS.

Jon Rigby -- UBS -- Analyst

Thank you. Can I ask -- you announced that -- or you highlighted the good news around the Humble projects and the low carbon initiatives you have around that zero carbon initiatives around about that. Can you just maybe sort of update when you expect to start real activity spending money, etc.? And how will that be structured? Is it -- will it be a little like a traditional renewables project where you start to invest directly and get to critical mass and then maybe project financing or separately financed it? Or what's the sort of thought process around that? Because sort of the view that is quite a lot of capital, I guess, ultimately, that's going to go into that. If you can update me on that, that would be great.

Ulrica Fearn -- Executive Vice President And Chief Financial Officer

Well, this is very early days. And in our sort of real activity, it's on its way. But I think it takes a long time to work on all of these developments. We need to develop new markets and we need understand the market risk and the technologies that we need to deploy here. So basically, a lot more work to do before we mature this project and can go in and be very, very specific on the outcomes on exact timing and the tactics technologies and enablers. But it's very exciting for us. It's where we've got the most technologies is where we're building the biggest capabilities, and I think it's good for the company and for the U.K.

Jon Rigby -- UBS -- Analyst

Would it be fair if I sort of took the U.K. government's aspiration, I think they put some 2030 numbers out there and sort of back up from there and sort of assume that probably by 2024-ish activity should be really starting to get into the swing? Is that fair? I would just say it's really early days to give more detail guiding on the materiality of the portfolio in this area. All I can say it's an exciting project and it really establishes afoot for us here.

Operator

There are no further questions at this time, and I would like to hand back to Ulrica for any closing comments. Please go ahead.

Ulrica Fearn -- Executive Vice President And Chief Financial Officer

Well, thank you all for all your great questions and for your time today, and we are looking forward to seeing you again next time will be the 9th of February, as I mentioned before, 2022 which is our full year results, but also our Capital Market Update. So looking forward to speaking to you then, and thank you.

Operator

[Operator Closing Remarks]

Duration: 53 minutes

Call participants:

Peter Hutton -- Senior Vice President, Norway Investor Relations

Ulrica Fearn -- Executive Vice President And Chief Financial Officer

Svein Skeie -- Executive Vice President And Chief Financial Officer

Orjan Kvelvane -- Senior Vice President And Chief Accounting Officer

Oswald Clint -- Bernstein -- Analyst

Biraj Borkhataria -- RSB -- Analyst

Teodor Nilsen -- SB1 Markets -- Analyst

Mehdi Ennebati -- Bank of America -- Analyst

Yoann Charenton -- Societe Genera -- Analyst

Michele Della Vigna -- Goldman Sachs -- Analyst

Peter Low -- Redburn -- Analyst

Anders Holte -- Kepler Cheauvreux -- Analyst

Martijn Rats -- Morgan Stanley -- Analyst

John Olaisen -- ABG -- Analyst

Andre Klotz -- Jefferies -- Analyst

Lukas Hermann -- Exane -- Analyst

Alastair Syme -- Citi -- Analyst

Jason Kenney -- Santander -- Analyst

Jon Rigby -- UBS -- Analyst

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