Equinor suspends output guidance, says it could reduce activity further on oil market crisis - S&P Global

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Highlights

Government-imposed cuts crimp output growth plans

Johan Sverdrup propels 19% surge in Norwegian oil output

Krone depreciation, production sharing agreements shield company

London — Norway's state-controlled Equinor on Thursday suspended a previous forecast of 7% oil and gas production growth this year due to market uncertainties and production curbs planned by the government, and said it could go further to reduce activity levels.

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In a results statement, Equinor confirmed that the giant Johan Sverdrup field, which came on stream last October, had reached its first phase production target of 470,000 b/d at the end of April.

Rising output from Johan Sverdrup underpinned a 19% year-on-year increase in Equinor's Norwegian oil production in the first quarter to 649,000 b/d, while a 2% jump in overseas output took the company's total oil output to 1.1 million b/d.

It said its international output was boosted by the Mariner heavy oil field offshore the UK, which came on stream last August, and noted it was being assigned additional barrels in some locations due to production sharing agreements and royalty arrangements, which help shield companies against low prices.

The company had already slashed its capital expenditure plans this year by 20% to $8.5 billion due to the meltdown in markets and impact of coronavirus on operations, and said Thursday it was prepared to do more to reduce costs if necessary.

"Uncertainty remains high with very low commodity prices and increased differentials towards the end of the first quarter and in the start of the second quarter. We will continue to prioritise value over volume and have already reduced activity, particularly in the US onshore," CEO Eldar Saetre said. "We will consider further activity reductions and use the flexibility we have in our portfolio as necessary."

Following a government decision to join in international production cuts aimed at stabilizing the market on April 29, Equinor said it was suspending its guidance on output for the rest of the year "due to market uncertainties, government-imposed production curtailments and Equinor's value over volume approach," the latter a reference to its practise of holding back gas production at a time of low prices.

Production curbs

The Norwegian government has said it will reduce the country's overall crude output by 250,000 b/d in June and 134,000 b/d for the rest of the year. However, the cuts are from a relatively high level of 1,859,000 b/d, which is 160,000 b/d above the country's actual output in Q1, when Johan Sverdrup was still ramping up.

Equinor kept in place a forecast that its overall oil and gas output will increase by 3% annually on average in the period 2019-2026. A second phase of Johan Sverdrup production is due to start in the fourth quarter of 2022, lifting output to 690,000 b/d, and the Johan Castberg field in the Barents Sea is due on stream the same year.

Equinor noted it expected a reduced impact on its oil and gas production from maintenance this year, likely due to constraints resulting from the pandemic. It estimated the full-year maintenance impact would be 25,000 b/d of oil equivalent.

The company reported a $705 million loss for Q1, reflecting a $2.45 billion impairment resulting from reduced oil and gas price assumptions. It said it was being helped, however, by a depreciation of the Norwegian krone, which was keeping down costs.

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Equinor suspends output guidance, says it could reduce activity further on oil market crisis - S&P Global
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