Equinor Q3 core profit falls more than expected

Equinor reported a 9.9% decline in third-quarter adjusted earnings before tax to $6.21 billion, falling short of analyst estimates, primarily due to lower oil and gas prices compared to the previous year. Despite the profit reduction, the Norwegian energy group maintained its outlook for 4% oil and gas production growth in 2024 and its $13 billion capital expenditure forecast for 2025, driven by new field developments. However, the company lowered its guidance for the Midstream, Marketing and Processing segment, and its share price has underperformed the broader European energy index year-to-date.

Analysis

Equinor reported a 9.9% year-over-year decline in third-quarter adjusted earnings before tax, reaching $6.21 billion, missing analyst expectations of $6.31 billion. This profit contraction was primarily attributed to lower oil and gas prices. Despite the earnings miss, Q3 production volume increased to 2.13 million barrels of oil equivalent per day (boed), aligning with analyst forecasts and up from 1.98 million boed a year ago.

The company maintained its projection for 4% oil and gas output growth in 2024 and its $13 billion capital expenditure forecast for 2025, driven by new fields. This strategy aligns with rivals prioritizing hydrocarbon output over renewables due to challenging green energy market conditions. However, Equinor lowered its Midstream, Marketing and Processing (MMP) segment guidance to approximately $400 million, citing changing market conditions and asset divestments.

The MMP unit's actual earnings of $299 million also missed analyst expectations of $307 million, contributing to the moderately negative sentiment. Equinor's share price has declined 9% year-to-date, significantly underperforming the 18% rise in the broader European energy stock index (.SXEP). This underperformance persists despite Equinor's strategic role as Europe's largest natural gas supplier since 2022.

Key Decisions for Investors

• Investors should closely monitor energy commodity price trends, as they were the primary driver of Equinor's Q3 profit decline.
• Evaluate the long-term implications of Equinor's strategic shift towards increased hydrocarbon output and reduced renewables investment, considering both market dynamics and ESG factors.
• Pay close attention to the performance of the Midstream, Marketing and Processing segment, given its lowered guidance and missed earnings, which may signal ongoing operational or market challenges.
• Analyze Equinor's valuation and performance relative to its European energy peers, especially in light of its significant year-to-date underperformance against the broader index.