Equinor ASA (EQNR) 2018 Q4 法說會逐字稿

Ladies and gentlemen, if I can ask people to take their seats, so that we can get proceedings underway. Thank you very much.

Okay. Ladies and gentlemen, welcome to the Equinor Capital Markets Day. It's a real pleasure to see you all here today and also to connect to those who -- of you who are dialing in on the phone. For those of you here, I would like to start with a brief, but important safety announcement. If the building needs to be evacuated, the fire alarm will sound. On hearing the alarm, security and support staff will be on hand to direct you to the nearest emergency exit and assembly point. The assembly point is in (inaudible) close, which is next to the Apex London Wall Hotel, just across the side of this venue. We -- I think it's right to say, there are no planned fire alarms today. So if you hear anything, please follow those instructions.

After the presentations, we will have the normal question-and-answer session in the hall, but also on the phone, not only with those presenting, but also other members of the Executive Committee who are joining us here today. And there'll be an opportunity for everybody to meet at the venue afterwards over lunch and drink.

So with that, let me ask Eldar Sætre, our CEO to take the words.

So thank you, Peter, and good morning, it's almost good afternoon to all of you. It's really great to see you here. So this is the fifth time I have the pleasure of welcoming you to our regular capital markets update here in London. But it is definitely the first time I do so as the CEO of Equinor. So for us 2018 was definitely a year of change, you could say, but some things will remain the same. We still take a lot of pride in delivering on our promises. And due to some really significant and sustainable improvements as well as a high-quality portfolio, high-value projects, our outlook is even stronger.

Today, we will show you that we are on track to increase returns, and to grow production and cash flow to record levels. Which also allows us to step-up capital distribution, while at the same time, strengthening our balance sheet.

So in short, we are delivering on our strategy: high value, low carbon and always safe. The safety of our people and the integrity of our operations remain our top priority. We have reinforced our efforts and last year we delivered our best safety results ever. We know what it takes: consistent leadership and a systematic approach across the company. We also know that relentless efforts to ensure operational quality is necessary, both to further improve the safety as well as efficiency. And past performance is no guarantee for future success, but we will use our improved results as inspiration because we know that we can, and that we also must continue to improve, and our mindset is zero - zero harm.

Last year, we set clear targets for 2018, and our people have responded very well. We have done what we said. In fact, we have delivered above and beyond, even quite ambitious targets. We said that we, at an average oil price of USD 70 per barrel would grow our return on average capital employed to around 10% in 2018 and 12% in 2020. As it turned out, we delivered 12% already, last year. And we materially increased our organic free cash flow to well above USD 6 billion.

During the downturn, we also improved our project portfolio significantly. As a result, we sanctioned 7 new projects last year, delivering more than 1 billion barrels to Equinor at an average breakeven price of $14 per barrel, $14.

In 2018, we also took new steps to become even more carbon efficient. Equinor is already a leading company when it comes to CO2 effective oil and gas production with average emissions around 9 kilos per barrel, which is around half of the global average. And we aim to reduce it even further to 8 kilos. In fact, the Equinor operated projects that we sanctioned last year, have average emissions below 1 kilo per barrel.

Our methane emissions, so its intensity is also industry-leading at 0.03% and we are pursuing further improvements. In addition, we are growing within renewables and our projects today have a capacity of around 1.3 gigawatts.

In a recent external benchmark by CDP, Equinor was ranked first among our peers, when it comes to readiness for the low carbon transition. Confirming that we are on the right track to face the future.

I'm also convinced that our low carbon strategy will increasingly become a competitive advantage. Climate change is happening, the world needs a comprehensive transition of our energy systems, and our industry has to be an integrated part of that transition.

As a company, we are well prepared for this future, and to meet high expectations from investors, from talents, political leaders as well as the communities where we operate. Nobody can predict the future with certainty, but we must try to understand the drivers for a change. And we must be prepared to be surprised. However, one thing we do know is that the demand for energy is growing. We need to grow renewables at scale, but due to natural decline, we must also find new resources of oil and gas and produce these resources with the lowest possible carbon footprint. Equinor is developing as a broad energy company, we are growing in renewables and we are well-positioned to deliver competitive barrels at low cost and with low emissions.

Equinor was built on the Norwegian continental shelf. We started out as, what I would call, an apprentice to the impressive leading global IOCs. And from there, we have developed into the strong, global and industrial company that we are today.

On the NCS, our home turf, we can develop new technologies and digital solutions, we can scale them efficiently, industrially, and further develop our competitive edge to the benefit of all parts of our business.

Arne Sigve will show you that even though the NCS is maturing, opportunities are still plentiful and highly valuable. In fact, in 2025, our NCS equity production is expected to be at the highest level ever.

We continue to develop our international portfolio, and we are increasingly also taking on the role as operator, allowing us to leverage our industrial value drivers even more. Torgrim will revert to this shortly, and Margareth will tell you how Brazil fits our strengths perfectly and has become a core area for Equinor.

You will see across our presentations today, that we consciously seek opportunities that play to our strength. And today, we are showing you mainly in numbers and metrics, but our most valuable asset is our people, their competence, deep competence and their values, and their collaborative way of working, this is an essential part of our competitive edge.

We used the downturn well, and fundamentally strengthened our competitiveness by taking down cost, becoming much more efficient and radically improving our projects. But we will never, never rest. So I've been in this industry now for almost 40 years, impressive. And I've seen oil prices record high and record low. That's a big difference. And I've seen how industry costs have followed right behind the commodity cycles every time. We are determined not to repeat the mistakes of the past this time, because we know that we must be competitive at all times. The market volatility that we've seen in recent months is clear evidence, demonstration of the need for a consistent, cost and capital discipline and for continuous improvements through the cycles. Lars Christian will revert to how we work diligently with continuous improvement in our organization and you will also hear examples from the business areas.

So let me then give you the main points of reference, on our financial performance over the next 3 years. In the period up including 2021, we can be organic free cash flow positive at an oil price below $50 per barrel. At $70, we can deliver around $14 billion in free cash flow after investments and after dividend. This is $2 billion more than the 3-year outlook that we provided last year.

Our return on average capital employed has already increased to 12% as mentioned, 2 years ahead of plan. And towards 2021, we expect to increase our returns even further to more than 14%. And by the way, this is substantially higher returns than we delivered at oil prices above $100 before the downturn, telling us that we are today a much more resilient and a stronger company.

Let me then turn to our project portfolio that will come on stream over the next few years. And you've heard about Johan Sverdrup many, many times. And there's more to come because all these barrels, the income and the cash generation allow it, it's all ahead of us. In November, this year, we will start producing from this 660,000 barrels a day, the full-field development. Since sanctioning of Phase I, back in 2015, we have increased resources as well as reduced capital expenditures by 30% for Phase I and 40% for the full field. These are, I would say, unprecedented improvements. And the full field can now deliver around 1.2 billion barrels to Equinor with an average breakeven price below $20.

So Johan Sverdrup is truly a flagship project, but we have many more highly profitable projects coming. By the end of 2025, we will have started up a portfolio of projects providing around 6 billion barrels to Equinor at an average breakeven price of around $30. And an internal rate of return of around 30% at USD 70 per barrel.

Our annual production growth is estimated to around 3% in the period from 2019 to -- including 2025. We have increased production and improved our projects, but we have also strengthened our resource base. We are delivering a record high reserve replacement ratio of 213%, and then organic RRR of 189%. Our reserves-to-production ratio is now almost 9 years. In addition, we have added around 1.6 billion new barrels to our resource base in 2018. And we're also well prepared for future resource growth. Last year, we acquired and won attractive exploration licenses in Norway, in Brazil, Canada, in the U.K., and the Gulf of Mexico. We expect to spend around $1.7 billion on exploration this year. And plan to do well since several attractive basins including some high-impact opportunities in Brazil, in Canada, and in Gulf of Mexico.

An important part of our strategy is to capture additional value from cyclicality. We divested selected assets carefully when their prices were high and have been able to access highly attractive inorganic opportunities during the downturn. As a result, we have since 2012, capital gains around $9 billion. Today, we have a strong balance sheet and attractive project portfolio ahead of us and a competitive resource base. Which means, that we have the strength, the time, and the patience to take a continued disciplined approach to consider acquisitions or divestments when the best opportunities are there, when the prices are right, and also, the industrial and the strategic fit is in place.

Another part to our countercyclical strategy is to launch projects and award contracts when conditions are most attractive. Our strong financial position allowed us to mature and launch several projects during the downturn and from 2015 to 2018, we awarded contracts totaling more than $100 billion, which we will continue to benefit from also in the years to come in close collaboration with our suppliers.

Equinor is developing as a broad energy company, and we are gradually building a portfolio also within renewable energy. Provided that we are able to access attractive projects, we expect that 15% to 20% of our capital expenditures can go to new energy solutions by 2030. Today, we are delivering a competitive returns of around 10% from projects in the U.K., in Germany and Brazil, and looking forward, we are now maturing further opportunities in the North Sea, the Baltic Sea and on the East Coast of the U.S. A key value driver for us is to leverage some of the same strengths that make us competitive within oil and gas, and in addition, we will pursue an opportunistic approach to realize value from divestments.

Renewables has opened up a new set of opportunities to create value for our company, while also, diversifying our portfolio and making it more resilient.

Let me also remind you that our global trading system supports value creation through the cycles. We have a clear strategy to secure flow assurance, and access premium markets from a highly cost-effective and also a highly flexible infrastructure. Growing our asset-backed trading as well as capturing margins from an increase in trades towards Asia, are important parts of this strategy.

Last year, we sold more than 800 million barrels of oil and 100 billion cubic meters of natural gas. And we have now also taken a material position in the electricity market. Danske commodities, which we bought for around EUR 400 million is expected to deliver earnings before tax -- interest and tax of around $80 million in 2018. And I'm confident that this will be a strategically important and value adding transaction for us, not the least by supporting our renewables business.

As a result of strong and sustainable results from our improvements, efforts in the recent years, the board proposed a step up in our capital distribution, increasing our quarterly cash dividend by 13% to $0.26 per share. This underlines our strong commitment to capital distribution, clearly demonstrated by the fact that we have always maintained or increased our dividend, also in periods with low commodity prices. And as stated in our dividend policy, it's our ambition to grow the annual cash dividend in line with the long-term underlying earnings.

All in all, we are proud today to present what we believe is a strong value proposition. First of all, we are growing our cash flows and returns. Secondly, we are investing in world-class projects at an average breakeven price of around $30 per barrel, and we expect 3% annual growth into -- towards 2025. And finally, we are stepping up capital distribution by increasing our quarterly dividend by 13% to $0.26 per share.

And by that, I thank you for your attention and I leave the floor to my friend, Arne Sigve, please.

Thank you, Eldar, and good to see you all. It's exciting times on the NCS. After 50 years still going strong and the best is yet to come. NCS will grow and deliver significant value for many years and we have some of the largest and most profitable oil and gas projects in the world.

The last year's improvements, our unique infrastructure, technological development and improved efficiency create a very attractive and valuable opportunity set on the NCS. We are seeing strong volume growth, taking us to a historical high production in 2025. Who would have believed that just a few years ago? We already operate with a very competitive unit production cost, and we will continue to improve maintaining a strong cost discipline going forward. Over the next 3 years, we will generate a substantial net cash flow of around $15 billion after tax, and to put it simply, our future on the NCS is valuable growth. You heard Eldar talk about Johan Sverdrup with its significant production and low breakeven. In addition to Sverdrup, several attractive projects will come on stream over the next years. Martin Linge, Troll Phase 3, Snøhvit expansion, Johan Castberg, just to name a few. We have a strong non-sanctioned project portfolio, a large set of exploration opportunities, and a great potential from legacy assets.

Our portfolio of non-sanctioned projects currently has a breakeven of around $30 per barrel and this portfolio is expected to deliver 1.8 billion barrels of oil equivalence for Equinor. But still, early phase, we constantly look for further improvements as these projects are matured in collaboration with our partners and suppliers.

We are continuously adding high-value barrels from existing low-cost infrastructure through increased oil and gas recovery from our producing fields.

As we presented last year, we have a recovery ambition from our oilfields of 60%, and we have now also established a gas recovery ambition of 85%. These ambitions represent a total potential of 7.5 billion barrels with 3 billion barrels of these Equinor share. To capture this potential, we plan to drill around 100 new production wells per year. The current well portfolio has a low breakeven with an average payback time less than 10 months. So the value creation potential on the NCS is significant. This is also the case for exploration. We plan to drill 20 to 30 exploration wells per year, going forward. And we will actively explore for both oil and gas, near infrastructure, in low legacy place, while also testing new ideas and concepts with 2 to 4 game changing wells per year.

2018 was our best exploration year since 2014 with more volumes per discovery well. Our low carbon advantage is evident on the NCS. Last year, we talked about the 1.4 million tons CO2 reduction since 2008. This is now increased to 1.6 million tons by implementing profitable portfolio of energy-efficient projects. This is good for environment and reduces operating cost with around NOK 1 billion, lowering environmental tax and importers. In addition to what we already have in operation and under development, we are evaluating new opportunities to further improve our low carbon advantage and capture more value in the years to come.

I would like to highlight Hywind Tampen, if sanctioned, it will be the world's first floating wind farm producing electricity to offshore installations, bringing power to Snorre and Gullfaks, the project underpins the force of innovation on the NCS.

The digital transformation is well underway. Last year's CMU, we presented the field of the future concept. With a 50% reduction in OpEx and a 30% reduction in facility CapEx. And we have matured the technology further. Let me just point to Krafla, where we have selected an unmanned production platform at 30% lower facility CapEx compared to a traditional concept. Automated drilling control reduces drilling cost, and will be available on several rigs in 2019.

In October last year, we established our new integrated operation center, utilizing data and digital tools. Now supporting 5 fields, we already see increased production, and efficiency in our operations. By 2021, all Equinor operated fields on the NCS and onshore facilities will get support from this center. And we are still in an early phase, but see an exciting potential transforming the way we work.

Last year, we presented our ambition of $2 billion of value creation by 2025 from the center. And I would say, that we are definitely well on our way.

We have also launched our new geo-operation center. Now geologists can work onshore, monitoring and controlling geo-operations without traveling offshore, improving quality, efficiency and reducing cost. So we see a bright future on the NCS. We are capitalizing on our position, our competence and technology to deliver on our corporate strategy: always safe, high-value, low carbon.

Thank you so much for your attention. Torgrim, the floor is yours.

So thank you, Arne Sigve, and good afternoon. It's very good to see you again.

Today I find myself between 2 great leaders. Arne Sigve and Margareth that has truly shaped our company. And you know that fits very well with what I'm going to talk about today. And that is about how we're going to apply the best of Equinor internationally.

So I will cover 3 topics. So first, international business has become a true cash generator. Secondly, our share of operator production is going to double, and that will enable us to apply the best of Equinor more broadly. And finally, international will grow with quality as cash margins increase further.

So let's start with cash. So I'm very proud of our people and how they have changed our business.

Last year, we had a cash margin of $30 per barrel and that is a significant improvement. But we can achieve even more. And we expect to increase the cash margin by another 20% by 2025 in a $70 environment. Higher margin barrels will come on stream, and a higher share of production with a low cash tax rate.

For many years our international business needed funding. But last year, we delivered $2.9 billion in net cash flow. And we will generate even more cash, approximately $10 billion over the next 3 years in a $70 environment. But you know, we can't rely on $70, our business has to work at $50 and in fact from now on, we aim to be net cash flow positive below $45 per barrel in DPI.

So let me turn to our U.S. business. 3 years ago, we promised a lot for 2018, and we called it from $90 to $50. And you will remember that we needed more than $90 to make money. And we were deeply, deeply in the red. So but our people responded, and we have made progress every year since, and now it's time to report. And I'm happy to say that our business now makes money at $50. We promised to improve the cash margin from $5 to $12 per barrel in a $50 environment, well we got to $14. We also aimed to grow our business by 50% and ended at 58%. So the U.S. will continue to grow, and from now on, also generate surplus cash.

We will double our operated share of production to 40% in 2025 and reach 50% by 2030. And we will continue to have an impact as a partner, but this shift will allow us to have an even stronger impact. And apply the best of Equinor more broadly, being always safe, creating high-value, and delivering low carbon.

Bay du Nord is our first opportunity to operate offshore, Canada. And we will use learnings from the high recovery rates on the NCS and the innovative FPSO design on Johan Castberg. Last year, we produced more than 750,000 barrels per day in DPI, and that is a record. We tripled our operative production in the Appalachian basin in Ohio to 50,000 barrels per day. We learned from what we did in Norway and other places in the U.S. to drive operational excellence. So unit production cost is now less than $2 per barrel there and our CO2 intensity is reduced from 7 kilo to 2 kilo per barrel and this is actually 1/8 of industry average. And this contributes positively to our corporate targets as we aim to be an industry leader in carbon efficiency.

Last year, we reported a 40% reduction in breakeven in non-sanctioned projects. And today, we report 14%. And we aim to reduce our breakevens further, which brings me to my third example, which is the Rosebank in the U.K. So we divested Rosebank when prices were high, but we saw that we could create more value. And again, using learnings from Johan Castberg, where we have reduced breakevens from $80 to less than $35 per barrel. So we bought Rosebank back and this time, as the operator.

So production will grow, but cash margin will increase much more. So this is growing with quality. The growth in the U.S. will offset declining production in West Africa and by 2025, there are 3 more projects in the U.S. planned to be on stream. In addition, Bay du Nord in Canada, Mariner in the U.K., North Komsomolskoye in Russia, and Block 17 Satellites in Angola.

Over the last 2 years, DPI has contributed with 40% of the NPV improvements in our non-sanctioned projects. And this is nearly $3 billion in NPV. We have a significant resource base to be developed over the last -- over the next decade, 1.1 billion barrels and this does not include our unconventional assets. And we are encouraged by recent developments in Tanzania. Once we agree on the commercial and legal framework with the government, we can add another 1.4 billion barrels to this number.

So exploration is key, and we plan to drill 10 to 20 wells per year going forward. We will increase our international activity in 2019, including 3 high-impact wells in prolific basins, 2 in the U.S. Gulf of Mexico and 1 in Canada.

So let me conclude. DPI generated significant surplus cash in 2018, around $2.9 billion. We will continue to grow and contribute with $10 billion over the next 3 years, and then we will double the share of operated production to 40% by 2025, and an important contributor to this is Mariner, on the left of this chart that will come on stream this year. But applying the best of Equinor is all about our people. And I've spent the last 6 months traveling to meet our organizations around the world and there is 1 thing that stands out, and that is the quality of our people. And I see it in the way that we work with our partners, I see it in how we engage with societies, and I see it in the trust that is built with governments. And this is how we are going to apply the best of Equinor.

So thank you very much, and then I will leave the words to a good friend. She has earlier been called techno babe and before that, also called breakeven babe and now she comes directly from Rio de Janeiro with a glowing suntan, and I'm not sure what I'm going to call you this time, Margareth. But please, the floor is yours.

Thank you, Torgrim. And I just have to say, you really look good with your new George Clooney style. So this was one one. Bom dia Today, you will discover why I decided to leave the cold winters of Norway to become The Girl from Ipanema in the sun Rio de Janeiro, or at least a bit older version of her. My main message today is about the unique opportunities set in Brazil, and how Equinor has strengthened its position during the last years.

Brazil has a huge offshore resource base. There are some seats there as well. Join us. I'll take it once more. Brazil has a huge offshore resource base, regular access to acreage and a large recovery potential from mature fields. During 2 decades including 8 years of Peregrino operation, we have built a strong local organization with proven operating competence, ability to manage risk, and a solid standing in the local industry. Built on long-term relationship with very important and key partners, we know what it takes to develop and operate in Brazil.

Our oil and gas portfolio has high-quality assets in all development phases with a potential to produce 300,000 to 500,000 barrels a day in 2030. In Roncador, a field with 10 billion barrels of oil in place, together with Petrobras, we now aim to increase the recovery factor by 10 percentage points. Our non-sanctioned portfolio has a breakeven below $40 per barrel, and we want to improve it further.

Tim believes the exploration portfolio in Brazil is the best he has seen since NCS in the 80s. In the next 3 years, we will drill 5 high-impact prospects in the pre-salt area. There's also upside potential from associated gas and some of Equinor's best gas professionals are in Rio working on monetization options. Like Torgrim said, it is really about applying the best of Equinor. Personally for me, it is an opportunity to utilize what I've learned in many different roles across the value chain on the Norwegian continental shelf. I feel really lucky to start the journey again, now with a bit more maturity than 30 years ago, but with the same enthusiasm. And our story started with Peregrino, more than 180 million barrels have been safely produced in a field, not we thought was possible. Peregrino II comes on stream in next year adding more than 250 million barrels. And we will bring gas into Peregrino to reduce CO2 emissions by more than 100,000 kilos per year. It is a good business case for the environment, but also for our financials.

Our non-sanctioned projects add up to 1.4 billion BOE of share. By 2025, we almost double our production and only 5 years later, we could be producing up to 5x what we are doing today.

The Brazil portfolio is very competitive and resilient. In 2025, 4 of Equinor's highest NPV assets are in Brazil. 5 years later, we expect to generate a net cash flow above $2.5 billion with Brent at $70 or above $1.5 billion with Brent at $40.

Roncador is among the top 3 producing fields in Petrobras. Our strategic alliance creates business opportunities for both companies having safety as number 1 priority. Last year, our ambition was to increase the recovery factor by an additional 5 percentage points, and that is 500 million barrels. After 7 months of collaboration, we have agreed to double that ambition, now close to 40% recovery factor.

On the NCS, we have increased recovery rates from 30% to 52% and DPN is now pursuing 60%. And Arne Sigve, you will be my benchmark and I will incorporate all the learnings we have from Norwegian continental shelf. And we have really enjoyed the collaboration with Petrobras. This is one-of-a-kind combination. Petrobras deep, older experience and Equinor IOR toolbox.

Increased recovery on Roncador is about optimized drainage strategy, it's about implementing a robust infill drilling program with faster and cheaper wells, it is optimized subsea solution and it's also applying best practices from topside and subsea integrity to prolong the lifetime of the operation -- of the installations. And with our experience, we are confident, it is possible to increase recovery and deliver very profitable barrels.

Carcará is the first greenfield project in the Brazil pre-salt to be developed by an international operator. And we are about to complete the first well in the north area that shows world-class productivity. The value driver in a pre-salt field is early production, and high capacity. And since last CMU, we have taken decisions, which improves our business case, a phase development to accelerate production, while continuing the full field appraisal, and industry standard FPSO solution to enable faster execution and lower cost, with the highest production capacity in Brazilian waters so far, 220,000 barrels a day. And we have simplified the subsea solutions based on our experience from Trestakk and Castberg, and using standard Brazilian equipment. To remove the dependency of the gas value chain, we have decided to reinject gas for Phase I. This will not only de-risk the project schedule, but also increase our recovery. The project team has worked hard to reduce the breakeven to below $35 per barrel. And there is potential for more. Our ambition is to start up as fast as possible, and I'm sure Anders will do his best to deliver.

And now Anders, I am the demanding customer.

We estimate, that around 1 billion barrels of recoverable resources from our current exploration portfolio in Brazil Equinor share. These are world-class reservoirs with high quality oil, low CO2 content to enable cost efficient development solution. And our exploration efforts are not only about finding oil, but also understanding how the well will flow. We have established a pre-salt center of excellence in Rio to transform the way we work, speeding up the development of the assets. This includes integrated work between petroleum technology, exploration, drilling and well, and research, which I think is quite unique. Targeting first wells that have the potential to be producers, and utilizing 1 digital subsurface data lake to capture synergies from the different pre-salt hubs and to reduce the number of wells.

Do you think, we are done? There could be more and the calendar of -- beat drums -- for the pre-and the post salt have been confirmed for the coming years. And the transfer of right surplus volumes could be an opportunity this year, if commercially attractive. Guided by our values and strategy, we will work very hard to improve our portfolio further, and deliver safe, high value and low carbon production to Equinor. With all of this, I have no time for caipirinha or beach life, that's for sure.

Now Lars Christian, where are you? Lars Christian will take you through the financials. Muito Obrigado

Thank you, Margareth. Ladies and gentlemen, good afternoon. It's really great to see you all. This is my first Capital Markets update as CFO. And in my first 6 months, priority #1 has been to sustain the cost and efficiency improvements and further improve across the whole organization. In a more uncertain world with high volatility, improving our competitiveness is even more important to stay attractive.

2018 was another strong year for Equinor. We delivered strong results, further reduced the breakeven through our projects, announced value enhancing transactions, stepped up our cash dividend and strengthened our balance sheet. And as you have heard from my colleagues, we have a lot of exciting opportunities ahead of us, all building on our industrial strength, and all with the aim of creating value.

Let me start with the fourth quarter 2018 results. As we have seen, we delivered adjusted earnings of $4.4 billion in the fourth quarter, an increase of 11% from 2017. Gas prices in Europe and especially in the U.S. were higher than 2017. And on average, we also realized somewhat higher liquid prices. But during the quarter, we experienced the steepest fall in the oil prices since 2014. In early October, Brent was traded around $85 a barrel and ended the year below $55. Due to sales pricing mechanisms in the market, where prices are set 5 days after the actual transaction, the significant drop in the prices led to a one-off effect with a higher than normal differential between realized liquid prices and Brent. This impacted our adjusted earnings from exploration and production Norway, who delivered $3.2 billion up from $3 billion last year.

Underlying OpEx and SG&A was as expected, slightly higher than last year, mainly due to asset removal cost on Gassled and pre-operating costs from several fields, including Martin Linge and Aasta Hansteen. In addition, we had a lower share of profits from associated companies, impacting the tax rate for the quarter. Exploration and production international delivered adjusted earnings of $774 million, after tax adjusted earnings were $491 million, an increase of 146% from last year.

Increased production from new fields and new wells coming on stream contributed to the strong results. Both in Norway and internationally, we had higher exploration activity in the quarter, impacting adjusted earnings. Our mid and downstream business delivered a result of $319 million with a strong contribution from LNG and through trading. However, low gasoline prices led to low margins on our refineries, and market developments led to a weak result from products trading in the quarter.

Now let's move to full year. And for the full year, we are reporting solid adjusted earnings of $18 billion, an increase of 43% from $12.6 billion in the previous year. Equinor's net income increased from $4.6 billion to $7.5 billion. Increased oil and gas prices, and solid operational performance have contributed to this good result. We delivered record high full-year production, $9.9 billion organic capex, and exploration spend of $1.4 billion, all better than guidance. And in addition, we delivered 12% ROACE, already meaning -- meeting our 2020 ambition.

It's also worth noting that our organic cash flow would have been positive below $50, and our financial robustness was rewarded with upgrades from both Moody's and Standard & Poor's during 2018, a testament to our focus on resilience.

Moving to our production. And more than 2.1 million barrels per day, that is a record-high production. New wells coming on stream, acquisition of Roncador and start of our 8 new fields contributed to this record level. And among the new fields, there was Oseberg Vestflanken and Stampede. These are high margin barrels that contribute to our strong cash flow.

In 2018, we delivered 2.1% underlying production growth. Let's take a look at the cash flow. In 2018, we generated $27.6 billion in operating cash flow, and paid $9 billion in taxes. We delivered organic CapEx of $9.9 billion below our original guidance due to good project execution, achieved efficiencies, and continued strict prioritization. We also continued to execute portfolio enhancing transactions, divesting non-core assets like Alba, King Lear and Tommeliten Alpha. And aligning ownership in Carcará, contributed $1.8 billion to our cash flow.

We spent $5 billion on acquisitions and signature bonuses for new licenses, where we can leverage our industrial strength. Roncador, Martin Linge and Carcará are examples of such acquisitions.

Our free cash flow was $3.1 billion after CapEx and dividend, but before transactions, the free cash flow was $6.3 billion. And then we also reduced our gearing then from 29% to 22.2%, a reduction of 6.8 percentage points for the year.

Since 2013, Equinor has fundamentally reset its cost base, and we are today a stronger and a more robust company. I started my speech by underlining the importance of keeping cost down and fighting cost inflation. Our objectives are to collaborate with suppliers to safeguard the achieved efficiencies, develop and utilize digital solutions, and drive further simplifications and standardization. We believe that there is still significant industry improvement potential, and as a company, we have to be competitive at all times.

The last couple of months of volatility in oil price is a clear confirmation of the need to -- for continued cost and capital discipline for operators like Equinor as well as for suppliers. And in Equinor, we are on a journey of an improvement program to an improvement culture. We strive for efficiency in everything we do and are using lean principles as our way of working to improve safety, to increase value creation, and to reduce CO2 emissions. Our unit production cost is industry-leading at around $5 per barrel, and as we said in last year's EMU, the unit production cost would increase somewhat in 2018 and 2019 before reverting back to around 2017 level in 2020.

On Johan Sverdrup, we have reduced unit production cost by 35% since the plan for development and operation to around $2 per barrel. This is truly a world-class unit production cost.

Arne Sigve, he talked about the digital transformation on NCS being a digital leader compared to conventional solutions, what we call the field of the future can deliver 30% reduction in facility CapEx and 50% lower operating cost. Integrated operation centers are a core enabler to deliver more than the $2 billion in increased value creation by 2025.

In Equinor, we actively use benchmarks to drive performance to ensure that we deliver on our strategy, always safe, high value, low carbon. And we see that we deliver competitive results. As of the third quarter, 2018, we delivered first quartile corporate ROACE, second in our peer group. And whether you rank total shareholder returns over the last 5 years, last 3 years, or the last 12 months, Equinor is ranked in the top 2, either #1 or #2. And remember, this has been in a period where the oil price has fluctuated between $113 and $27. And we hope to demonstrate today, that there's more value to come.

Next I want to address the reserves and resources. We started 2018 with 19 billion barrels oil equivalence in total resources and during the year, we have delivered record-high production and done divestments. Even so, we increased our resource base by adding volumes in existing assets, discovering through exploration, as well as executing value-adding transactions. In total, adding 1.6 billion barrels, ending the year with a resource base of 20 billion barrels. And as Eldar mentioned, we reported a record high reserve replacement ratio at 213% in 2018, and our 3-year average is at 153%, and if you look at the organic reserve replacement ratio for 2018, it was strong 189%.

Our reserve life is 8.7 years, up from a 7.6 last year. We are very comfortable with this level. As you've seen from Margareth, Torgrim, and Arne Sigve's presentations, we have a strong focus on cost and capital discipline, a strong production outlook and we have a competitive project opportunity set. In combination with the resource base, this gives me comfort in our future deliveries.

Our portfolio not only offers optionality and flexibility, but also gives us time to look for the best opportunities and the best opportunities only. Equinor expects that 2019 production to be around the same level, the same record-high level as in 2018, followed by an annual average growth of around 3% from 2019 to 2025. At the same time, we expect the CapEx to stay around $11 billion on average in the period 2019 to 2021. Free cash flow in the same period is expected to be around $14 billion at an oil price of $70. And remember, this is after tax, after CapEx, after dividend, and after announced transactions.

Let me go into more details on the projects coming on stream. To the right, you see a strong and broad pipeline of projects, both in upstream as well as in renewables. And Equinor will be the operator for most of these projects. And ladies and gentlemen, operatorships are where we can leverage our industrial strength in order to drive down cost and ensure profitability, to shape development concepts, deploy technology and deliver low carbon solutions. This portfolio has increased in value since 2017 by more than 30%, has an average breakeven of $30, and internal rate of return around 30% and a CO2 intensity more than 30% lower than our current producing portfolio. This is what we would call a portfolio fit for the future.

To the very far right on this slide, there is a -- in the table, we have listed some non-sanctioned projects, and let me go into more details and explain the slide to the left. On this slide, it's important to be on the low side, and to the far right, the lower and further to the right, the better it is. And you see, we have improved over the years. And since last year, the portfolio of non-sanctioned projects has increased further in value by another $7 billion, achieved an average breakeven below $40 with an internal rate of return of more than 25% at an oil price of $70.

And when sanctioned, and on-stream, these projects will add around 4.3 billion barrels of oil equivalence to Equinor, with us being the operator for 80% of the volumes. Our projects will be sanctioned only when the value is as good as it can get. And our project organization tells me, this is a key learning to ensure good project execution and economics.

Let's move to returns, balance sheet, and capital distribution. Equinor is delivering growing returns on cash flow from operations while at the same time strengthening our balance sheet. We delivered ROACE of 12%, 2 years earlier than previously communicated, and we expect the ROACE to grow to more than 14% in 2021. Our balance sheet remained strong and continued to reduce our net debt ratio. And cash flow resilience is illustrated by our ability to maintain our net debt ratio in a $50 scenario.

We are committed to attractive capital distribution to shareholders, demonstrated by Equinor always maintaining or increasing our dividend level. Also in periods with low commodity prices.

As you have heard, Eldar earlier today, we proposed to increase our quarterly cash dividend by 13% from $0.23 to $0.26 per share, a 30% increase in the dividend represents a significant step up in the level of distribution to shareholders. This increase also reflects the sustainability of our improvements, and the improvement in the long term earnings outlook. And cash dividend is our highest priority in terms of capital distribution to shareholders.

In 2019, we plan for around $11 billion in organic CapEx, and exploration spend of around $1.7 billion and a production around the same level for 2018, and a 3% compound annual growth from 2019 to 2025.

Before I sum up, let me remind you that new accounting principles came into effect January 1. For us, the main impact from IFRS 16 will be on capital employed, net debt, net debt ratio and ROACE. But we will continue to report key matrices with and without this impact from IFRS 16.

So, let me sum up. And in sum -- in -- and we believe Equinor, let me sum up why we believe Equinor offers value to investors. One, growing cash flow and returns. We have provided clear and quantifiable indicators on growing ROACE to above 14%, free cash flow of $14 billion in the period '19 to 2021, and we've also created a more robust company able to be free cash flow positive at $50.

Two, investing in high-value projects. We have extended the visibility well into the next decade, production of projects until 2025 with the breakeven around $30, non-sanctioned projects next 10 years with an IRR above 25%, CapEx, as well as a 3% annual production growth.

Three, we are committed to growing returns. From internal rates of returns on projects and returns on capital employed to returns to shareholders, by growing long-term sustainable earnings supporting a dividend which we propose to increase by 13%. And finally, we have the people and the organizational capability to execute.

Thank you for the attention. And then I pass it over back to you Peter and I look forward to the Q&A session.

Thank you very much, ladies and gentlemen. And we've got up to 45 minutes for questions and answers in the formal session. Not just from in here, but also on the phones as well, what we try to do is to circulate some mics here first and then we'll do a batch from the phones. I always ask if we can keep the questions relatively short and 1 each, I never entirely succeed. And so there'll be 1 and a follow up, which preferably is on the same kind of question as you've just answered. So with that one, can I ask for questions here. We've got everybody who has made presentations, but as I said, we've also got the other members of the corporate executive committee here as well. So feel free. And the first question I saw was from Lydia.

It's Lydia Rainforth from Barclays here. Two questions linked to cash flow. The first one is if I look at the free cash flow into the $14 billion, it's post dividend. What dividend growth rate do you have in there for the '19, '20, '21 if I think about that 3-year plan? And then the second one links partly to the free cash flow side around the standardization and cost savings digitalization plan, how much cash benefit have you put in the cash flow numbers for that?

Okay. So when it comes to the dividend part on the assumptions, I think what I can do is to refer to the dividend policy. It's a boring answer. So I won't give you a percentage, and in fact I don't know, that could be an assumption but the basic thing is that our ambition is to grow. That's firmly stated in the dividend policy. That's also explained very much why we ended at $0.26 at the starting point where we can actually grow from. But exactly how this is going to look like going forward is yet to be seen. But there is growth in the dividend, but I can't give you a more precise number on that. The other question for you.

On digitalization and the impact of it. We have a sort of a big program internally of aggregating all the improvement initiatives, impressed by still all the ideas that are coming up in the organization. And whether it's digitalization or lean or whatever it is, this adds up and it is just included in the numbers that are being provided. On digitalization specifically, we said last year, more than $2 billion in contribution in increased value. And we see that we are starting to close that kind of gap towards that ambition.

Yes, Jon?

It's Jon Rigby from UBS. Can -- you indicated or -- and used a fairly compelling chart where you showed that you sell assets in high oil prices and buy in low. But you could also probably put a line of your organic CapEx on there as well. So you tend to be more inorganically active when your organic CapEx is low. And so it looks to me that you do, and not to say that this is not the appropriate thing to do, is you do use the market to supplement your longer-term positioning with inorganic purchases. So as we look out through to 2025, you've given guidance on organics spend, '21. Could we also assume that to be building and preparing for the longer term that a chunk of cash, maybe sort of net $1 billion to $2 billion that you've been spending over the last cycle is likely to be spent again on inorganic opportunities? I think you've already referenced, for instance transfer of rights surplus volumes, et cetera. And then maybe if I ask my second at the same time because it does link, so tick that box. I think there was some reports in the newspapers that you had expressed an interest in entering Qatar, for instance. And I think one of the gaps in your portfolio globally seems to mean there's been a material LNG footprint which is kind of curious given your position in European gas. So I just wondered, whether, a, that was true, and b, whether that does represent one of the sort of the strategic spaces that you might want to expand into over time?

So oil and gas is, you produce a certain amount of barrels every year. And just to stay in that game and sustain, that capacity, at some point, you need to replace that with new barrels. And exploration is the main priority, we really like to succeed on exploration we are stepping up that. But we do see that we are not likely to compensate for the production over the years only through exploration. That's the nature of it. You see also globally that exploration is also coming down. So we depend on actually some high-quality additions to that from inorganic, from acquisitions, purchasing assets and that's where we say that this, how we do that, when we do that, the shape and form of these acquisitions is extremely important because they need to create value for us. They have to be a good strategic fit, tap into the industrial strength that we pointed at, that comes from the Norwegian continental shelf and is not just taking a bet on the oil prices. Really that we can put into action some of our competitive skills and start improving from that point. So it's something that we -- it's a responsibility I have, we have to continue to look for these kind of opportunities. It also includes divestments, so optimizing the portfolio continuously through that. So it's something that we wouldn't be surprised that we would continue to look for that and that's why we are also very precise that the guiding we give is an organic guiding. It includes the paying for the transaction that we have done, but nothing beyond that. So it's very precise that we will continue to look for these optimization and these opportunities to replace resources within our resource base. But we do have a strong resource base. So we are very patient on this. We illustrated the cycles as kind of a guiding thing. They are there, they're very fundamental. And they define sort of broadly speaking where things might be sort of more attractive in terms of divestment and acquisitions. But there is always opportunities, both -- wherever we are in the cycle and that's what we have seen. So strategic fit, price right, hopefully getting the cycle right as well, and that is something we would work on.

On Qatar, that is -- so say LNG is, we have 1 asset in Norway, it's a growing theme and is growing within the gas space, it's become connecting the regions of the world when it comes to natural gas. And we have the Tanzania asset that Torgrim mentioned briefly, it's down the road quite a few years and we are now working on the terms and conditions. So we are looking for that. It's not something we have to do again. But we are looking for are there any LNG opportunities out there that might make sense for us? If there isn't, I'm fine with that. And if there is, it would be filling a nice space between Snøhvit back in 2007 and Tanzania maybe 20 years later. So it's kind of things that would be useful. Because we need also, to be in the LNG game, we also need to have an arbitrage of trading systems to make sure that you are not cannibalized in the gas markets from LNG. So you need sort of the sources of LNG, equity sources to have that system. So it's something we are looking at, but by no means desperately, and this is, but it also means that we are screening LNG opportunities. If it does work, we will do it but to screen it, we need sometimes to be qualified to do that and tying in certain things to just have a look at stuff and that's basically what is the case with Qatar. It's now sort of a conscious thing that we have to do. It's something that we would like to take a look at when it comes to LNG.

Okay, I've got Oswald?

Peter, yes, 2 specific topics for me, please. First is Roncador. The kind of update from Margaret is pretty staggering, I think, an extra 5% recovery factor from that field within last 12 months. So but I guess in your due diligence, you spent $2.5 billion to get that asset, you must have thought about better drainage and a much better infield program and that 5% prize. So 12 months later to have another 5%, I think is pretty impressive. So maybe just flesh that out a little bit more. Was that something you thought was also possible? Did it surprise you the last 12 months? Could we stand here this time next year and see that 40% realization being discussed more concretely and kind of even higher? So I think it's a big number. And then secondly, to Rosebank, so and obviously Roncador shows the importance of Statoil's capability. But Eldar, going back to your initial comments about not repeating the kind of sins of the past and having strength and time and discipline to make good acquisitions. I want to go back to Rosebank because yes, you did some good M&A, getting out of it, getting back into it and that. You talked about Johan Castberg, $80 to $35 breakeven, but it feels like Rosebank potentially too complex, too difficult. I mean this is a challenging discovery, west of Shetland. Chevron looked at it quite a lot. There's a lot of volcanics around it. Is this maybe a little bit too difficult or are you starting to chew up a little bit too much?

Okay. And maybe Margaret can talk, but what I can say, when we did that transaction basically the price we paid was based on as is. So we obviously saw that we could increase the recovery and we talked about that. That was really where the value creation was. Now we see more. Maybe, Margaret, you would like to comment a little bit on that.

Is this on? Yes. I don't think it was a surprise, to be honest. But first of all in such a collaboration, which I think is very, very good, we need to -- you need to build trust and confidence and we have been working with Petrobras on technology agreement for many, many years. So I think, we work in a efficient way together. And we have now used the whole Equinor, Jannicke's organization, and we've used people from DPN coming to Brazil to look in, to dig into all the details on Roncador, to see and compare what we have been doing on the Norwegian continental shaft. And we have suggested a lot of different measures that we can take. And I think we have also agreed on an ambition, which is, of course it is ambitious, but at the same time, that's how we are developing. When we put very ambitious targets and we really drive towards these targets. So I think it's very interesting. And what I also said on the -- what is really promising in Brazil is not only the presalt but there is a lot field also on the post-salt, where they had a pretty low recovery rate. So I think in that sense, could be interesting for us to contribute. So it's a powerful collaboration.

So Rosebank. I remember we were a part owner in that asset when we made the discovery. I was so happy, also tough discovery, deep down and salt and so on. So we know this asset quite well actually.

So that means a better starting point than you typically have when we start from scratch. We also know the subsurface pretty well. So I think, I know I have some colleagues here, Al did the acquisition and Torgrim is going to run it and Anders is going to develop it. So if you want to comment on this, you can give it a try. But I can say basically, we knew that we can come up with leaner concepts. There was a plan for this project which we reviewed and based on where we come from, our experience from the downturn, we knew we can do this, this fits nicely and we have some great ideas about how to develop this. And we know the subsurface. So really it's based on this. We -- so this is really not taking the concept as it is, but actually which would be sort of changing, sort of taking a view on the oil market. It's really about improving the project. And we believe we can do that significantly, and we will also ask for more time to do that to get time to get it right, as you pointed to, Lars Christian. So I don't know if any of my colleagues would like -- Anders, looks like you want to comment on this. We will deliver project. So you better.

Yes, of course we looked at this project and it's similar to both Bay du Nord and the Castberg, it's harsh environment. When we looked at the reservoir, we looked at the capacity on the Rosebank, we saw there is potential for improvements. So basically, we looked through all the value chain and see that if we worked similar what we had done on the Castberg field, we are able to bring down the breakeven, as Eldar alluded to.

Next question is from Biraj in the center.

It's Biraj Borkhataria, RBC. So I have a question on CapEx. You've got into quite a good habit of putting in a number there at the start of the year and then coming in lower and lower and lower as you move through the year. But obviously, I'm not expecting you to do that in February. But thinking about it alongside the production growth, so your production is growing by 3% per annum and you want to manage within a flat CapEx framework. That seems to be quite challenging over time. So do -- I guess the question is do you think you have sufficient momentum on the efficiency side and reducing the capital intensity further from here, such that CapEx can stay flat over time, over the medium term? Or should we think of a they're being us upside pressure to that number over time?

So I think we go back to last year, we guided at $11 billion for this year, this range, this year including 2020 as $11 billion. That's where we were still are. So we are on the same level as was. Then it happened that last year came out $1 billion lower. The efficiency we see that we still managed to take down costs within our overall project portfolio is getting tougher and tougher, and -- but we have done so. And that is savings. It's not something that we have deferred into this year. So you don't see that $1 billion on top of sort of the $11 billion that we have talked about last year for this year. So I think that is important. It's basically same level, and there is a high level of transparency of this. And then longer term, we can't be precise beyond 2021 because we don't know exactly the portfolio, don't know exactly how cost is going to go in. But we know that we can do -- continue to do a lot on improving the efficiency of our portfolio mix. And we talked about the digital, the solutions, how we can develop Krafla and so on, with the lower costs. So I think that's what we see, drilling more efficiently, so we drill more wells to capture more resources and so on. That's what we are talking about, and how that exactly is going to play out beyond '21 is exactly to see. But there are different forces and we believe, strongly believe in what we can do, what we can influence and also contractual strategies. We see opportunities to further enhance our collaboration with our suppliers, innovate, how we set up this, how we engage with our suppliers, incentives and integrated contracts and so on, and length of the contract, optionalities. So this is also -- and also then obviously, the digital relationship with our suppliers and how that works out. So I think where this is going, we can't say. So I think we are proud to just stick to $11 billion and I'm also happy that what -- the savings we did almost nothing of that is delaying projects into this year's CapEx. Would you like to...

One comment, I mean we have contracts of a value at $100 billion already agreed to, so in many ways we are covered over the next couple of years broadly speaking. And whatever beyond is too early to judge.

Okay. We've got a few questions to get through. So I'm going to do a batch of a couple of people on this side, then I'm going to take some questions from the phone, then we're going to do a batch over this side. So Alwyn first and then Thomas. So Alwyn is in the middle here?

Alwyn Thomas here from Exane BNP Paribas. Just a quick one for me on the U.S. business. Given some of the volatility in WTI spreads, I just wanted to know looking, before you talked about the $45 potential breakeven. Do you think you still have to go further than that in the sort of near and midterm as well as trying to drive volume with that? How do you think about that in the next sort of 3 to 5-year period?

Okay, this is a perfect question for Torgrim.

Yes, all right, thank you very much. Yes, you are right, I mean the WTI and the spread and the discount in North Dakota has fluctuated a lot. It was up to $20 at one point in time and now it's sort of coming back down again. So despite that, we have been able to make money out of that business with those discounts. And on top of that, Irene and her business is taking oil and bringing it to the Atlantic to get Brent prices for it. So this is a significant uplift in the value chain, actually. But clearly, we are monitoring the situation very closely and taking capacity where needed to be able to achieve a higher price than the local price.

And then if I can pass over to Thomas over here.

Thomas Adolff from Crédit Suisse. First question is on benchmarking, I think Torgrim mentioned the word benchmarking. And presumably you benchmark against peers inside the industry, but also outside of the industry. And when we think about offshore versus onshore, offshore you're presumably Tier 1 already inside of the industry. What are the key takeaways from outside of the industry that you can incorporate into operations offshore? And then onshore, you've done an amazing job bringing down the breakeven, but understand if I'm -- correct me if I'm mistaken, that you operate the business differently to the independents in the U.S., a little less kind of independent, if you will, it's more kind of the corporate organization. Is that the right way forward? Or can you really adopt the a more efficient approach that the independents in the U.S. adopt? And then the second question I guess is just on new energies. There's always a big debate around returns in new energies. But for example, if we were to electrify all your offshore operations on the NCS with wind, what does that mean in terms of value created from additional gas sales volume?

You talk about all the offshore. Okay. So I think when it comes to the U.S. onshore, Torgrim will prepare his answer on that. So we do learn from outside industry? We do that, typically the industry is a family, it's always easier to benchmark with each other and we do a lot of that. And basically the concept that we have developed through the downturn is very much based on what we actually learned from the U.S. onshore, very extensively benchmarked into -- from industrial like activity. And you can pick up what is the best, what is the perfect, what is the perfect well, we translate that into the perfect facility and as a concept. So we break it up and take individual pieces and define through benchmark, and also internal benchmark what is the best available performance that we can compare with. And if you can combine that and get the best well in total and the best facility in total, that's how we drive, sort of continue to drive towards the very best. We benchmark, I think we have -- we do -- now and then we do more extensive search outside of our industry. We've done that on safety, for instance, last year, had a group do really deep dive into sort of other companies. He said starting to slow down a little bit on improvements, we need to step up. We need to get more IDs from the outside. So really looking into what are the really best doing on safety, aviation for instance. The digital end, so we realize that our industry is not seen as sort of -- hasn't been seen and as a leader when it comes to digitalization. So important to shape the future, how can we learn from others? So again really deep dive into other companies and what they are doing, what kind of a -- what is important really at the core of it, to get the priorities right. So we do that as much as we can and also on industrial practices in general. But in terms of number, it's hard to get sort of really comparable data. So you are -- it's more practices that you find from the outside. On electrification of the whole, right, prepared for this (inaudible)? So the whole NCS, that is a no go. In a way it doesn't fit for that. It's -- basically electrification, you need -- if it's offshore wind, you need floating wind parks, basically to float, that you can't do it from the seabed. So it's still technology that we believe a lot in and cost is going to come down, but you still need sort of -- it doesn't run on its own, so it needs support and financial support. So the Hywind [thumper] project is, I think, significant part of that will have be support from the government as part of their low carbon strategy as well. So I think it's really -- but if cost is coming down, that could sort of increase the opportunities for the Norwegian continent shelf and also beyond that. So now I leave the world to Arne Sigve to elaborate a little bit on that and Torgrim will soon get ready on the U.S. onshore.

Yes, thank you very much, Eldar. When it comes to electrification, there are a few prerequisites that we have to have put in place. First we look at the abatement costs, what is the cost of the project compared to CO2 tax and quotas. So that is one. The next one is really and obviously, if you can do it, you can sell the gas to the market. But we do not have a figure for all the assets on the NCS, what it will mean when it comes to electrification, because as Eldar says, it's not practically possible due to the grid systems. So we are looking at what we can electrify based on the available grid system and also looking at the abatement costs. So if that adds up, and we will have profitable projects, we will do it. And as Eldar says, when it comes to Hywind pump, that is a new opportunity that we're looking at and quite exciting that we will explore further as I said in my speech.

Then our business model for the U.S. onshore. It's a strong business model, so well thought through Torgrim, explain why.

Thank you very much. Yes, so I mean the business is currently working well, delivered earnings and a good surplus cash flow in the current environment and improvement has happened, but we still have a lot to do. I mean we still have to learn from others, and we see that we can actually do the things that better than we do today. Then we have taken a more long-term approach to our business, not optimizing initial production rate, but much more focused on recovery rates and technology application. So Anders, he has an R&D team sitting in Austin, working closely together with them and then in the marketing and trading organization is also deeply involved in that business. So the business model is partly separate from the rest of the company, but trying to capitalize on the bigger system to find that balance. So that has worked okay so far. What we see now is that the next level will take more technology. And if we are going to apply the best of Equinor, we need to bring that U.S. onshore activities even closer to the rest of the company. And it goes around digitalization of operations comments, it's around subsurface technology applications and even closely linked to marketing of the assets. So if we are trending any way, it's actually to bring it closer to the rest of the company than it has been.

Now I know we've got at least 4 people waiting patiently, but we've got at least 7 people waiting even more patiently on the phone. So we're going to take a break from the room and take some questions from the phone. And we've got a lot to go through. So I think if I can ask everybody if we keep questions and answers relatively smooth and efficient.

We'll take the next question from Anne Gjoen from Handlesbanken.

If you took at your guided production now, it's until 2025, 3%, so it's a rather long way out. Previously it was until 2020, 3% to 4%. So I assume it's still the strongest growth in 2020. But if you look at a bit longer out after 2025, I understand that you believe in peak oil demand within some years, but will you gradually position Equinor for growth and renewables and probably before that in natural gas? But are you still positioning also for oil production growth all until 2025 or even longer?

So short answer. I'll take that challenge. So when it comes to the 3%, we say that's an average over these 6 years. So we can't be precise, but obviously, '20 would be a good year with Johan Sverdrup coming into play. And Phase 2 and Castberg in 2022 as well. So obviously, there is an energy transition going on and at some point, global oil demand will come down, start coming down. And we say that's a good thing. But we do need alternative to oil to make that happen, otherwise the demand would be there and it will just go on. So this transition is really about developing alternatives that can compete and outcompete oil and energy mix and before that, hopefully coal. So that is really what this is about. It's not about stopping to produce because that doesn't help because there are a lot of hydrocarbons out there which has a higher carbon footprint than what we can produce in our portfolio. So I don't -- I can't say exactly how long we will continue to grow our oil production but the oil is still increasing its demand. And as long as we can do that with the lowest carbon footprint there is, actually highly competitive, and I think carbon that would, because the regulations associated to that increasingly is going to be competitive advantage, and I think it is really important that the world is served by carbon efficient barrels than less efficient barrels as long as we need that. And then it's a transition that is going on and the shape and form is yet to be seen, but we will be part of that, we will follow this closely and in the meantime, we will continue to grow our numerous business, our low carbon business, so we need to have 2 thoughts, at least, in our head at the same time. So we're very conscious about this. We've integrated the strategy. But I can't give a precise answer to your question, but it is strategically important question down the road.

We'll now take our next question from Anders Holte from Kepler Cheuvreux.

Now it's regarding Carcara. You previously talked about it as a new Johan Sverdrup and now have listed the deal on Phase 1 which was in 220,000 barrels per day of course oil production. Now my question is more towards how many phases do you actually see at Carcara? And given that you have previously talked about this as the [new on site], should we expect to see a Phase 2 and potentially a Phase 3 down the line? And also on the Carcara fields, I understand you drilled an appraisal well towards the end of 2018. I'm just wondering the results of that, will that contribute in terms of recoverable resources?

So the girl from Ipanema please?

Ipanema, yes. Carcara, we believe, at least we will have 2 phases for Carcara. The resource potential we have as the same we had the last year to 2 billion barrels oil equivalent. And what we have been doing the last year is really to take a lot of very prudent decisions on -- because the drivers for the presalt, the drivers for the profitability is really high capacity and this is early, early production. So now we have decided this standard FPSO, we are going to inject gas. We are not -- we do not need to wait for the gas value chain to happen. And we have a very high capacity, 220,000 barrels per day. So and that appraisal, we are not -- I don't think we are really leaving anything on the wells at the moment, but if you listen to what I said, we had a very high or world-class productivity on the well we have been doing in the North area. And we are looking now on 2 different phases. And it's the first phase, of course, we have chosen or we will have a standard FPSO. Was it anything more than that?

No.

Was it good? Okay, yes. Thank you.

I have to say that every time to keep her happy.

Thank you, Margaret. Next question from the phone.

We'll now take our next question from Teodor Nilsen from Swedbank .

There has been a lot of discussion around both Brazil and the U.S. today. So 2 very specific questions on those areas. First one is how much do you plan to spend in Brazil over the next few years? You previously indicated that you will spend $15 billion until 2030. A second question for U.S., I guess that's for Torgrim, how much of the fourth quarter adjusted EBIT comes from the U.S. activities?

So we have some trouble actually hearing the question, but maybe you did Margareth, on the first one.

Yes, I think we haven't done any changes to that one. We have said for both 15 billion wells -- or USD 15 billion after 2030, that's our plan.

And I must admit the second question I didn't...

I think the second question was how much of the 4Q EBIT comes from the U.S.? I think that was the question. If that was the question, we can't give that answer, I'm afraid.

But it's a significant part.

I don't -- think we just have to -- so basically we still report on these segments in the international and the NCS and that's, I think that is how we report and need to look at it.

Thank you for those questions, next from the phone.

We'll now take our next question from Christyan Malek from JP Morgan.

Two if I may. The first on portfolio evolution or revolution. You've got plenty of opportunities both in Brazil and Norway and some fantastic grounds to develop. So just going back on a question Biraj asked, is $11 billion the right normalized level of spend in the medium term? And if so, is it fair to say that you will allocate the excess free cash flow towards M&A? It certainly feels like that, as opposed to returning it back to shareholders through a buyback, for example. Second question is I want to come back to the framework which you model the evolution of project breakevens and feel you have great targets you're aspiring to and lowering and continuing to do a great job on that. But given the volatile oil backdrop on what appears to be a continuous improvement in lowering the marginal cost of oil, which clearly is somewhat bearish oil itself. But I'm fairly confused as to how you frame the $70 oil price deck against your benchmarking to achieve a 25% return. So can you you just walk me through the logic around or sort of the basis to your assumptions around your oil price and the framework that you use to model breakeven?

So on the cash and the $11 billion and we indicated $14 billion in the organic cash flow, which includes the inorganic stuff we have done prior to this going into this year. So that is obviously cash available. It includes before that -- the organic investment program of $11 billion, which is a high-quality program. So that is really important and it's our highest priority. Then we are committed, I didn't give a number on dividend, but we are committed to actually grow the dividend in underlying earnings, that is included. So we are left with cash and we indicated how our debt ratio could develop given that we don't do any inorganic measures, which I discussed a little bit in one of the previous questions, so it's not unlikely that we will. So given $70, we will strengthen our balance sheet and -- but there are a lot of question marks in -- on that roadmap. And it has to do with the commodity environment and the uncertainties related to that, and the opportunities that are ahead of us and obviously in the end how our gearing is going to work and what it is going to look like.

We have [said with clarity] that we give priority to the cash dividend and that has always been the legacy of this company back from going back to 2001 and the IPO and to get that back on track and actually on a higher level now than the trajectory that we left back in 2015. So it's competitive, as what we think it is, and it's our idea to sustain that. And buybacks is something that we state in our dividend policy as an additional tool that we might use given that these conditions. And then you are back to the commodity environment and the opportunities and the gearing. And our priority is still to improve the balance sheet, strengthen the balance sheet further. We are in the middle of the range now that we talked about. We definitely would like to strengthen that, and -- but if the projections goes like sort of indicated on this slide, and no additional sort of acquisition, we are heading towards a good place. But we'll have to take that when we get to that space. The $70, that's for you, Lars Christian, it's not your invention, but you have to answer.

I think when you want an answer and look at what you're doing you need to go back and see what we experienced during the downturn. And the strength of the resource base today means that we do not have to buy barrels. Eventually we will but we have the time to choose and go for the best of. And the strength of the balance sheet means that we don't have to sell. So we can choose the timing of this and match it according to what we feel is -- we feel are good deals, and that is important. And then the $50 breakeven cash flow positive below $50, that is important number. It's more important in many ways than what we do at $70. But we calculate on $70 because we have done it a couple of times and we would like to show the consistency over time. So we see how we develop and how we strengthen as we go forward. So that's the $70 and why we use that. But internally, we use different numbers for hurdle rates and follow the $50 breakeven positive and see that, how that develops forward.

So just I may add add a couple of points. So when it comes to the assumptions that we make for accounting purposes and also for an internal optimization of projects and activities, that is the planning assumptions and they're actually heading towards $75 in 2025. And there is no change to that, it's been like that for a couple of years now.

Now to be comparable, as you say, $70, just a number, it's not something we believe or don't believe in, it's just a number to -- so that you could have a reference point. $50 is not a criteria for us, but it's a good illustration what we have achieved in terms of resilience. It's portfolio thing and there might be projects that we might be above or beyond or below, but at the portfolio, it's a very good starting point, a good place to be. And we would like to focus on resilience going forward and not whatever we believe at any point might be the oil price. That doesn't take us to a good place because I don't know.

Sure, but just a follow-up...

No.

Just a quick follow-up, in your M&A assumptions on...

Christyan, thank you. Sorry, I'll follow up with you later, we had the 2 questions. We need to get onto other people. I'm really sorry about that one. Can we have the next question on the phone?

The next question comes from Halvor Nygård from SEB.

My questions have already been answered. So thank you.

We'll now take our next question from John Olaisen from ABG.

May I have an indication of when we should expect PDOs for the fully deployed main international projects, being Bay du Nord, North Platte, Carcara and maybe Rosebank as well, please?

I think there is an indication on your slide. You want to comment on that, Lars Christian?

Yes, the start of Carcara is '23 and '24 and PDO, Margareth?

PDO 2020.

PDO 2020. Rosebank, haven't said anything about because we are, as I said, asking for some extensions so that we can really work the concept to bring it forward as the best possible project. North Platte, Torgrim?

North Platte, we have said we will have started in 2022, 2023 area, but that's Total that should respond to that, as we're just an operator.

And Bay Du Nord, we will do the DG2 in end of this year and the DG4 around '25.

We'll now take our next question from Trond Omdal from Fearnley Securities.

Congratulations on record generation on debt reduction and also partly reflected in your higher dividends. The question has been asked before but I'll try in another way. Back in 2006, your total dividends including special dividends was a NOK 9.5 -- more than NOK 9 and you also had a buyback program. Is -- and in 2014, you paid out when you were transitioned to quarterly dividends, NOK 10.6. Is there any learnings, any -- you can share on the thought process of why you're not distributing more? Is there any thesis that you will have to go below 20%? Or is it also a reflection of the recent macro uncertainty that you want to keep the capital flexibility? Second question, since the other has been partly been answered. On -- I noticed that Nnwa-Doro popped up again, that's been in your portfolio since the 1990s. Is there any new developments there? And do you see that moving forward to the FID maybe ahead of Tanzania?

Are you prepared for the Nnwa-Doro, Togrim, or -- yes. So it's been a long time with us, so. So on the dividend, I realize people would like to have predictability so that's why we focus on the cash dividend because that is really a predictable thing that you can relay to your spreadsheet or whatever, because we have a clear policy statement from that starting point. So I think that's an important aspect, characteristic of preferring that as the main way of distributing capital.

So when it comes to share buybacks, it is an additional tool, it might be used and you also have arrangements with the government so that we can actually push that button if we like to. We know how to do it with the government, who would like to maintain their ownership in Equinor. So that is a complex consideration. It has to do as you pointed to the commodity environment, not only where we are but the uncertainties and the volatility and we have a lot of that. We saw it in the previous quarter. And as I said, the balance sheet, and I'm sorry, I can't give the figure, but it is not only about the balance sheet, but also about these other things including the opportunity set and how we see it. So I think this is something we just will have to look into, and depending on how things comes together. But there will be no figures coming from us on this one, predefined figures.

Thank you for those of you on the phone, we're going to go back into the room. We are going to go a little over time, so we want to try and keep it efficient.

So I'm going to ask people to hand the mic over to the next person, and start with Michele and after you finish, can you pass it over to Rob.

Sorry, Nnwa-Doro.

Oh, sorry, forgot about that one, okay.

So Nnwa-Doro is a very significant gas discovery that we have in Nigeria. It is within deep waters and as in Tanzania, we are dependent on agreements with the government and established deepwater gas conditions for that field. So that is what needs to happen. We are looking at it, but it will clearly take time and a very dependent on discussions within the Nigerian state.

Michele.

Michele Della Vigna from Goldman Sachs. Eldar, you've entered the power market with a material position in wind and in trading. Some of your peers are also entering the retail market for power in the specific countries. I was wondering if that was on your radar screen as well. And last question, I was wondering if you would give us an indication of the tax installments in Norway for 2019?

Okay, so you address the tax. And on the retail, we've been there on the crude side and the gasoline stations and basically, as we see it is a very different game. It's a very different competence and it's extremely competitive and a business model that we are really not set up to address. So I think we could try, but I don't think we will be successful. So why try and waste. So I think -- and I don't think it is necessary really to capture the values from our assets. What we do think is important is to be in the power markets because we see merchant risk coming into this renewable space, and we don't want to be cannibalized in that market. So have that strength to address that and capture these values, and also tying it into the natural gas business because we see hydrocarbons from natural gas and renewables. They are interruptible, natural gas is a flexible resource and other ways of combining. I just look at my colleagues here, if there are any additional -- there isn't, they are very happy with my answer, so I'm good to go.

And then on tax installments Norway, 1st of February, April and June, totaling NOK 32.5 billion. And then we're also changing some of the guiding for tax internationally down from 50% to 55%, to down to then 30% to 45% due to more production from low or no tax income production. Around 1/3 of the profits internationally will come from no or low income, sort of no or low tax position countries.

Rob?

Rob Pulleyn from Morgan Stanley. May I ask you about the NCS pipeline of opportunities, particularly as Sverdrup CapEx steps down over coming years. Is there enough projects on the NCS to offset the increase in cash taxes we would otherwise see, and specifically, gas projects? So it looks like your portfolio post-trial in the mid-2020s will start to see declines and certainly I think it speaks to the question of Equinor's role in European gas supplies over the next couple of decades.

So just put in place a major gas development that is going to stay there for a long time, and opening up a new very gassy province in the Norwegian Sea as well. Just to mention that. You mentioned that we are exploring for gas, but now we've had enough time to think about this answer, Arne Sigve?

Yes. When it comes to gas specifically, Troll Phase 3 is a very, should I say, good project with reserves equal to the lower span of Johan Sverdrup. So and it will go 50 years into the future. And we have Oseberg and looking for even more gas also at Oseberg and other fields. But as we say in our roadmap, we will look for oil and gas, and that is why we have put into our roadmap quite a substantial amount of wells annually, both when it comes to production wells, but also exploration wells between 20 to 30. So we will export gas. We will develop our existing assets in an efficient way. But of course, it will be something that we will be working hard on going forward in the coming years. And roadmap is perspective of 2 decades.

I might add the major big projects that they are sort of, they are there, and we need to make big discoveries to have any of those. But we have a lot of projects and a lot of stuff to work with. And we can enhance what we have, and we can develop new prospects, probably smaller ones. So cost is really important, that we can -- really can make these projects work, even if they are smaller wells and lean concepts.

Jason?

Jason Gammel with Jefferies. Just wanted to ask about the new energy portfolio. You talked about being able to achieve returns of about 10% of that business. That would be dilutive to the 14% target that you have on ROACE for the overall corporation. So just want to ask you how you think about the desire to diversify your businesses into new areas relative to the dilute that you actually have on returns? And how much capital you would actually be going to put forward in that type of investment? And then maybe just the final part of that, is there a point in time where you will start to disclose the results for the renewals business separately, so that we can evaluate the financial performance of that business?

So yes, that is very different returns from what we see in the oil and gas. But it is also extreme volatility within oil and gas. So now is good times, and there are worse times, there definitely have been. So this risk-reward is an important part of this concept. It has to be competitive in that space. I comment this is strategically meaningful, it's industrially meaningful because we can leverage with the competence that we have and do good projects. That makes us competitive in this space. It's also engages in the energy transition. I think that long term strategically is important. It's not something we, as a major company with a long-term horizon just can look at. We have to engage in that and take part in that transition. We don't know exactly the shape and form, and I'd also talked about the oil developments going forward. So I think the returns are different, competition is fierce. It has to work. That's why I say, we will grow our investments into renewables, we indicate 15% to 20%. The growth from the current around 5% is probably going to be backload a little bit as we're heading towards 2030. And we are working at full speed. Right now, we have some major projects, but we have access to a lot of projects. Maybe you would like to talk to that a little bit, Pal?

I guess we have 3 regions that stand out on renewable side, and as particularly on the offshore wind. So for U.K., it's clearly an area where we have been growing and also where we see the potential for more growth. It's also a country that's made a very deliberate step into renewables. You will also see that we have taken positions in the U.S. We are an upcoming auction in mid-February in New York, where we -- and that we look forward to. And then recently we also took a position in Massachusetts. Both of those, we have gone in 100%, positioning in the region that we think is going to be important for offshore wind development going forward. Also building on the footprint we already have in the Northeast of the U.S. And then finally, we have also taken steps into Poland. We are quite early in Poland, and we have gone in at scale. And we think that is the region that's going to be the next wave of offshore wind developments where we can leverage the capabilities and strength that we think that we have.

And on disclosure, when are you going to disclose to some people?

That's way too early. We haven't had it on the agenda yet to -- I mean, to discuss, I mean. It will take some time.

But it will happen.

It will happen one day.

Okay, one last one from the row.

Alastair Syme from Citi. Can I just ask on the Slide 45 on the creaming curve, you show the 4.3 billion barrels of resource. And you talk about a breakeven less than 40. Presumably, that's a go-forward breakeven, just to clarify. So shouldn't you think about what the acquisition cost that you've made over the last couple of years would do to that breakeven if you were to think about full cycle? And a related question, if I look at the 2017 curve, there is a very large flat line at about $40, close to 1 billion barrels and it's kind of disappeared from 2018 curve. So [can I just clarify] what's happened?

You thinking about the flat line? So if I may, sort of this -- obviously, this is where we're looking, as you say. That's -- I always have to think about looking forward, what we can do. And before that, there has been a wide range of access in these resources from exploration to acquisitions that go a long way back in different markets etc to some newer acquisition as well. So it's wide range of access cost. So basically, then you are back to sort of how we think when we do acquisitions and build a portfolio. Exploration is high priority. On top of that, we're looking for these opportunities. And obviously, when we start and look at these projects, we are looking at -- we don't look at $40, that's not the starting point. But that's sort of -- so you have to add -- take into account sort of that you don't have all the answers where this is taking you. But you do know, and we have to know that we can make a difference. But this project, well, this is what it looks like now, and this is how we can enhance it going forward. So Rosebank was an illustration of that; Roncador, when we started look at that, how can we enhance that and see that's what we can do. We can really down cost [offshore]. We've done that over the last couple of years and -- but you need to get into the project. You need to access it and need to be very disciplined when you do that, but you also need to see that well, this is an asset that we can really work on -- start working on. And I'm sure you will say that $40, that is -- we can improve that going forward. But this is where we are now. It's a journey. And some projects take time to put them into the portfolio and might not have priority to work on it now, but we will pick it up and really start working it, and then we'll move the needle on the cost by putting our strengths to work.

And part of -- ability to deliver on the CapEx, it's also strict prioritisation. So we do not necessarily work on all the projects all the time. Because this need to be stacked capacity wise, but also from a sort of financial sound way we're running our business. When you look at these slides, there has been no sort of asset long flat line that has been sort of a reduction in volume. So I am not 100% sure where on that line you are, but either it has been sanctioned, and thereby sort of out of the non-sanctioned, the 4.3 billion, or it has been split because we are now talking about Phase 1 and Phase 2. But most likely, it's been sanctioned and thereby sort of taken out of the non-sanctioned.

Now I'm going to -- we have to close the hall for today. I know there's a couple of people who we didn't get around to, so I'm going to make sure that they get first chance to ask at the management direct, couple of people we didn't get around to today. And before I pass the word back to Eldar to close proceedings, just like to thank everybody on behalf of Investor Relations for coming in today. I would also remind you of the next couple of events that we've got scheduled. We've got our European Gas Seminar, which will be in London in here on the 21st of February; and also our SRI Day will be at the back end of May. So thank you very much. And, Eldar?

So thank you, Peter, so and thanks to all of you for coming and seeing us and taking the time to do that, spend these couple of hours with us. I hope sort of -- this has been useful for you. I brought the whole team here today, and everybody hasn't been able to talk. You have sort of rare a opportunity to ask questions on exploration and on the mid and downstream and so on. So but they are here. So really an opportunity for you to get onto sort of whatever you'd like to hear from my whole team. So this is -- and the reason why this is -- the whole team is here because this is an important event for us. It's really an event that we use extensively, also internally. I use this event as a motivation for the rest of organization. Why do I do global town hall for -- with hundred different locations actually tapping into that town hall? And the idea is really to make sure that everybody is on board on the promises of what we've said here today. So in the end, this is a slide that has been hanging on now for some time. I wanted you to see this, bring it with you. It's pretty -- I think it's pretty compelling actually. And I won't go through it now. But don't forget what is in this slide. So take -- bring it with you. And I'm sure you will reflect on this, and write your report or whatever you do. We will also continue with our business and go back home and do our business day to day. And we are deeply committed to what we have said here today, bring the whole team on board and some of us will also do some traveling and some roadshows to see investors over the next few days. So we really look forward to that. So thank you very much to all of you for coming, spending the time with us. And enjoy the rest of the day, and have a very safe travel back home, wherever you go. Thank you very much.