Just because a company changes its name doesn't mean that its results are going to look a whole lot different. That certainly was the case this past quarter as Equinor (NYSE:EQNR) -- formerly Statoil -- reported second-quarter earnings that were in line with its results from the prior quarter. Based on the company's business plan, though, that may be by design for now.
Let's take a look at Equinor's most recent earnings results and whether investors should be worried about the lack of growth at a time when oil and gas prices are on the rise.
By the numbers
|Metric||Q2 2018||Q1 2018||Q2 2017|
|Revenue||$18.13 billion||$19.9 billion||$14.86 billion|
|Net income||$1.22 billion||$1.29 billion||$1.43 billion|
|Operating cash flow||$3.0 billion||$7.07 billion||$4.05 billion|
One thing that pops out in these numbers is that net income decreased this past quarter, which comes as a bit of a surprise considering that oil prices are significantly higher than this time last year. A big reason for the strange result is that Equinor benefited from a $754 million settlement for its operations in Angola this time last year, which drastically increased its net income number. Stripping out these effects, the company's adjusted earnings look much better on paper.
- Production for the quarter was 2.03 million barrels of oil equivalent per day, a 2% increase compared to this time last year. The company had a lot of its offshore facilities shut down for maintenance this past quarter, though, so we could see an uptick in the second half of the year.
- Management remained very active on the acquisition front yet again this quarter, especially in Brazil where it signed deals to increase its working interest in four offshore blocks. One of them, the already-producing Roncador field, will increase Equinor's Brazil production by 150%. Equinor now owns 75% of this particular older field and intends to use its experience in enhanced oil recovery techniques to maintain high production rates.
- It also was awarded 16 new exploration licenses in Norway, 13 of which it will be the operator. On top of that, it signed an agreement with Azerbaijan's national oil company, SOCAR, to develop three fields in the Caspian Sea.
- The company was also active in developing its portfolio of renewable assets this past quarter. It announced it had installed a 1 MW battery system to its Hywind offshore development project and took a 50% stake in a 117 MW solar farm in Argentina.
What management had to say
In CEO Eldar Saetre's press release statement, his focus was very much on the longer-term future of the company as he highlighted several of the new exploration blocks it had won and some of the projects that are set to go live soon.
We continue to build on our industrial strengths and develop our portfolio. In the quarter we have closed the Roncador and Carcara transactions in Brazil and the North Platte transaction in the US, and we have secured new and attractive exploration acreage in Brazil, the U.K., and Norway. We have started field installation at Johan Sverdrup and have high project activity with several projects in execution. In July, we delivered the development plan for the very profitable Troll Phase 3 project for approval.
Considering the large profit gains Equinor's peers posted this past quarter, investors are right to question why results this past quarter seem so tepid. Some of this should be expected, though, as management has said this year will likely have very modest production growth while it maintains strict capital discipline and continues to cut operational costs. One thing to look forward to is the fact that the company is making a lot of moves to increase its portfolio of exploration assets, which should pay dividends much further down the road.
If oil prices remain this high for some time, then Equinor's management could change course and increase spending levels. For now, though, erring on the side of caution and focusing on a high rate of return on existing assets should work out for investors over the long haul.