2020 was the year you really saw the start of a green wave among investors. There was great interest in putting their money into green projects. The price of the relatively few green companies was driven up sharply, and companies which had not yet earned a single kroner – were suddenly worth billions. A few years later, however, the tide has turned. Billions of green stock market values have evaporated. The green hangover also affected Equinor when the company presented its annual results and plans up to 2035 in London on Wednesday. The figures show a clear dilemma that both Equinor and the other traditional oil and gas companies are facing right now: On the one hand, the world will need more oil and gas up to 2030. On the other hand, there is a need for large investments in renewable energy to bring about the green shift. The problem, however, is that investments in green energy are expensive. Profitability is low. The return on oil and gas investments is typically around 15-20 per cent, while renewables are much lower – closer to 6-7 per cent. The oil and gas companies have raked in huge sums in recent years, due to high energy prices in the wake of the war in Ukraine. The large profits have piled up, and the companies are sitting on huge pockets of money. What will all this money be used for? If you put on the green glasses, the answer may seem obvious: green energy should be built on the shoulders of fossil energy. Must answer to the shareholders It is not quite that simple, however. The large energy companies are mostly listed on the stock exchange, and have shareholders who expect a return on their investment. The shareholders therefore expect the companies to do what adds value in a financial and economic sense, within the company’s ethical guidelines. For example, you can buy up other companies that fit your strategy, you can invest in existing businesses or you can distribute money to the owners of the company. There are also combinations of these. Equinor is also sitting on a huge bag of money. Analyst John Olaisen in ABG Sundal Collier wrote, among other things, in an analysis last week that “the money is burning holes in the pockets” at Equinor. Several Norwegian analysts have therefore, among other things to DN, advocated that instead of investing in renewable projects with low profitability, Equinor should rather put its money into oil and gas. It creates far greater financial values. Alternatively, they should send the money back to shareholders in the form of dividends or share buybacks (which increase the value of the shares). Equinor has opened offshore wind farms, including Dugeon off the UK. The challenge for shareholders is that oil and gas have been far more profitable. Photo: Equinor Other companies are rewarded On Tuesday, the British energy company BP was rewarded with a sharp price rise in the stock markets when the company did just that: increased its dividend and buybacks. The strategy can be seen in light of the fact that BP has recently been under pressure from activist shareholder Bluebell Capital Partners, who want the company to increase investments in oil and gas – and reduce spending on renewables. The Financial Times has obtained access to a letter to BP’s chairman Helge Lund, former CEO of Equinor, in which Bluebell writes that BP’s goal of reducing oil and gas production by 25 percent by 2030 is “destroying shareholder values”. “This irrational strategy has, understandably, reduced the share price in BP”, it says. Shell has also increased buybacks and dividends. The stock market probably believes that Equinor should also do this today. In 2023, the company distributed 17 billion dollars to its shareholders, in the form of direct dividends and share buybacks. For 2024, the figure is reduced to NOK 14 billion. On Wednesday, the company’s share price fell by around 7 percent. It is the worst trading day in four years. The fear, seen from the market, is probably that Equinor will “throw money” at green projects that are less profitable. In that case, the shareholders prefer to get a part of the money back. High expectations for new boss When Anders Opedal took over as CEO of Equinor at the end of 2020, many believed that he was chosen precisely because of his ambitions for green energy. In 2021, the company launched a plan that at least half of the investments until 2030 should be in renewable and low-carbon solutions. That goal is fixed, and in 2023 20 percent of investments were in renewables. However, oil and gas will still be by far the largest contributor to Equinor’s coffers over the next ten years or so. The company expects to make as much money from oil and gas in 2035 as the company did in 2023. “There is nothing in Equinor’s presentation in London on Wednesday to suggest that the company will not maintain a strong focus on oil and gas production,” is the clear message in DN today. – Oil and gas are needed where they are needed, Opedal said at today’s presentation. He points out that the demand for oil and gas will eventually decrease, but that it will continue to rise until 2030. Demanding journey He nevertheless emphasizes that if Equinor is to be relevant and competitive in the future as well, then they cannot just live on oil and gas. He admits, however, that it is a demanding journey right now, partly because of the very high costs of offshore wind. The costs of building offshore wind have shot through the roof, partly due to bottleneck problems at the producers. This has led to several companies, including those operating only in renewables, reducing their presence in offshore wind. Many have also taken large write-downs on their offshore wind projects. The Danish renewables company Ørsted announced earlier on Wednesday that they are pulling the brakes on their investments in offshore wind in Norway, Spain and Portugal. In the past, they have also withdrawn from projects in the USA. Build out, at what price? “We will develop that coast”, said Prime Minister Jonas Gahr Støre at NHO’s annual conference a few weeks ago. The state is the largest shareholder in Equinor, and it can be easy to think that there is a kind of social contract on the table where Equinor is expected to be a bigger contributor to the green shift than other companies. Nevertheless, Equinor is a listed company, which must deliver on the stock market’s expectations. The sharp fall in the stock market value on Wednesday thus illustrates a critical challenge that defines our time: everyone is for a better environment and climate – but who will pay for it?
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When green dreams collide with black numbers – Expression
