On Monday, Equinor ASA (EQNR +3.37%) announced a shift change as six-year CEO Eldar Saetre retires to open the door for 23-year Equinor veteran Anders Opedal. With an engineering background and a passion for renewable investment, Opedal's promotion gives Equinor crucial C-suite backing to accelerate its investments into renewable energy.
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Management
Opedal is Equinor's executive vice president (EVP) of technology, projects, and drilling. He'll take the helm as the new CEO of Equinor on November 2.
Norway's largest energy company has been vocal about its dedication to the energy transition, setting aggressive spending and capacity goals. Opedal made it clear that one of his main focuses will be making Equinor a leader in the energy transition with aggressive investment into the company's renewable portfolio. As the first engineer to rise through the ranks of Equinor to become CEO, the board of directors seems confident that his first-hand knowledge and decades of experience in the industry make him the right fit to lead Equinor in its new direction.
Motivation
Equinor is an offshore operator that has specialized in developing the North Sea's plentiful hydrocarbon reserves. But those reserves are diminishing, or at least getting harder to turn a profit on. Even with some impressive cost reductions and technological advancements, Equinor thinks that its North Sea assets could really begin to lose their profitability by 2030. Foreseeing this decline, Equinor has determined that it can use its competitive advantages in offshore production and its long coastline along the shallow Norwegian continental shelf to gain a first-mover's advantage in the niche offshore wind energy market -- and there's evidence to suggest it could become the world's leading operator in this field.
Money
Despite its renewable intentions, Equinor is still primarily an oil and gas company. Like other majors, its earnings have suffered this year. Equinor noted that prices for liquids and natural gas were down around 60%, which was one reason it reported a $472 million loss for the second quarter. But despite short-term hits to earnings and cash flow, Equinor retains a fairly healthy balance sheet, and has taken the necessary measures to increase its liquidity.
It's worth noting that Equinor grew both cash and debt on its balance sheet over the past year, but its debt to capital (D/C) ratio increased from around 40% at the end of 2019 to around 51% at the end of this quarter. This is higher than many other oil majors so it's something to be mindful of going forward.
EQNR Debt To Capital (Quarterly) data by YCharts
Aside from higher D/C, most of Equinor's financial metrics are currently at the high end of their five-year ranges, but remain at decent levels, especially given the circumstances. The company was arguably overly cautious in suspending share buybacks, cutting the dividend by two-thirds, and issuing bonds at low interest rates. But at this point, it thinks it has "secured liquidity and financial flexibility" to give it the tools it needs to operate through this challenging time. In addition to those measures, Equinor cut its spending from an estimated $10 billion to $11 billion down to just $8.5 billion for 2020, and has spent just $4.1 billion so far this year. It plans to pick spending back up to $10 billion in 2021. As far as reinstating the dividend, Equinor will use the pre-cut $0.27 per quarter as a reference for what to shoot for when the time is right. That said, the company seems more intent on its financial health at this time.
Setting the bar high
Anders Opedal gives Equinor the final tools it needs to make its renewable dreams a reality. As an engineer working within the firm for over 20 years, he provides unique knowledge of Equinor's drilling technology that could be useful in developing more advanced offshore wind solutions.
Although Equinor's earnings are hurting from lower oil and gas prices, the company has taken action to make sure it retains the deep pockets necessary to fund its renewable growth. Aside from its long-term motives to transition away from the North Sea toward new horizons, Equinor is currently facing very challenging short-term headwinds in oil and gas that I assume would only reinforce its interest in alternative energy solutions, such as renewables.
Equinor continues to set the bar high for other oil majors by illustrating what dedicated renewable investment entails. As it stands now, I would argue that Equinor is the most determined oil major when it comes to renewable investment. The main thing to look for going forward is to see if Equinor can make its renewable investments profitable. In the meantime, Equinor is worth adding to your watchlist and maybe even picking up a few shares in now and some more down the road if its renewable investments begin to pan out well.
Despite your interest in the stock or not, Equinor is embarking on one of the most fascinating identity shifts in the energy industry. Its existing and planned projects are admirable and worth following if you're interested in renewable energy and especially offshore wind energy.
