Equinor flags up $1.5 billion Q4 loss from gas derivatives

Norwegian energy group Equinor is poised to post a loss of up to US $1.5 billion from gas derivatives for the final quarter of 2021, in part due to agreed contracts before energy prices started soaring last year, the company said on Tuesday.

The forecast is in line with Equinor’s previous statements that some third-quarter profits would be reversed, the energy company said. The company is scheduled to publish Q4 results on February 9 and invited analysts to provide input to consensus estimates.

Equinor reported a third-quarter profit on October 27 – with revenues and others at US $23.264 billion, up from $11.339 billion the same quarter a year ago and up 33.2 percent sequentially. The third-quarter production was 1,996K Boepd, up from 1,994K Boepd the same period in 2020 and nearly unchanged sequentially. Equinor share for power generation was down to 304 GWh this quarter.

But the surge in July-September earnings was primarily driven by a global energy supply crunch that pushed Europe’s natural gas prices to record highs and sent the value of derivative contracts soaring.

Equinor had warned at the time that the mark-to-market accounting of gas contracts would be followed by losses in the October-December quarter – when volumes were delivered under long-term contracts that were concluded at lower prices. Equinor's gas sales are mostly spot based, but a share of its long term piped gas contracts are based on longer-dated indices.

For its E&P Norway business, Equinor said it had the option to use flexibility in gas production and move gas volumes to capture higher value. “Oseberg and Troll had higher gas production compared to 4Q 2020. Total NCS gas production expected to increase compared to 4Q 2020,” the company said in a statement.

The company’s operational expenses in Q4 “will be impacted by Gassled removal obligation of about 100 MUSD due to changes to discount rate and =no cash effect,” the company said.

Equinor has the option to use flexibility in gas production and move gas volumes to capture higher value. Oseberg and Troll had higher gas production compared to 4Q 2020, while total NCS gas production is expected to increase compared to 4Q 2020, the company said.

For its international segment, Equinor estimated the realised liquids price in 4Q in the range of range of US $75.4 to US $77.4 /bbl, and warned that production will be impacted mainly by higher gas offtake at In Salah (Algeria), which will also increase gas/liquids ratio compared to last quarter.