Equinor ASA (DNQA) Risk Analysis
Risk Overview Q4, 2021
Source: the company's latest filing for the period ended Dec 31, 2021, filed Mar 18, 2022
Risk Change Over Time
- Share Price & Shareholder Rights - Risk 1he interests of Equinor’s majority shareholder, the Norwegian State, may not always be alignedwith the interests of Equinor’s other shareholders, and this may affect Equinor’s activities, including its decisions relating to the NCS.
The Norwegian State has resolved that its shares in Equinor and the SDFI’s interest in NCS licences must be managed in accordancewith a coordinated ownership strategy for the Norwegian State’s oil and gas interests. Under this strategy, the Norwegian State hasrequired Equinor to market the Norwegian State’s oil and gas together with Equinor’s own oil and gas as a single economic unit.Pursuant to this coordinated ownership strategy, the Norwegian State requires Equinor, in its activities on the NCS, to take account ofthe Norwegian State’s interests in all decisions that may affect the marketing of Equinor’s own and the Norwegian State’s oil and gas.The Norwegian State directly held 67% of Equinor's ordinary shares as of 31 December 2021 and has effectively the power toinfluence the outcome of any vote of shareholders, including amending its articles of association and electing all non-employeemembers of the corporate assembly. The interests of the Norwegian State in deciding these and other matters and the factors itconsiders when casting its votes, especially the coordinated ownership strategy for the SDFI and Equinor’s shares held by theNorwegian State, could be different from the interests of Equinor’s other shareholders.If the Norwegian State’s coordinated ownership strategy is not implemented and pursued in the future, then Equinor’s mandate tocontinue to sell the Norwegian State’s oil and gas together with its own oil and gas as a single economic unit is likely to be prejudiced.Loss of the mandate to sell the SDFI’s oil and gas could have an adverse effect on Equinor’s position in the markets in which itoperates. See also section 3.4 under the Governance chapter for further details on State ownership
- Accounting & Financial Operations - Risk 2Crude oil and natural gas reserves are based on estimates and Equinor’sfuture production, revenues and expenditures with respect to its reserves may differ from these estimates.
he reliability of the reserve estimates is dependent on:? the quality and quantity of Equinor’s geological, technical and economic data; ? the production performance of Equinor’s reservoirs; ? extensive engineering judgments; and ? whether the prevailing tax rules and other government regulations, contracts and oil, gas and other prices remain the same as onthe date the estimates are made. Many of the factors, assumptions and variables involved in estimating reserves are beyond Equinor’s control and may prove to beincorrect over time. The results of drilling, testing and production after the date of the estimates may require substantial upward ordownward revisions in Equinor’s reserve data.In addition, proved reserves are estimated based on the US Securities and Exchange Commission (SEC) requirements and maytherefore differ substantially from Equinor’s view on expected reserves. The prices used for proved reserves are defined by the SECand are calculated based on a 12-month unweighted arithmetic average of the first day of the month price for each month during thereporting year, leading to a forward price strongly linked to last year’s price environment.Fluctuations in oil and gas prices will have a direct impact on Equinor’s proved reserves. For fields governed by production sharingagreements (PSAs), a lower price may lead to higher entitlement to the production and increased reserves for those fields.Conversely, a lower price environment may also lead to lower activity resulting in reduced reserves. For PSAs, these two effects mayto some degree offset each other. In addition, a lower price environment may result in earlier shutdown due to uneconomicproduction. This will affect both PSAs and fields with concession types of agreement.
- Corporate Activity and Growth - Risk 3Equinor may not achieve its strategic objectives of successfully exploiting profitable opportunities
Equinor intends to continue to nurture attractive commercial opportunities to create value. This may involve acquisition of newbusinesses, and/or properties or moving into new markets. Failure by Equinor to successfully pursue and exploit new businessopportunities, including in renewable and new energy solutions, could result in financial losses and inhibit value creation.Equinor’s ability to achieve this strategic objective depends on several factors, including the ability to:? maintain Equinor’s zero-harm safety culture; ? identify suitable opportunities; ? build a significant and profitable renewables portfolio;? achieve its ambitions to reduce net carbon intensity;? negotiate favourable terms; ? compete efficiently in the rising global competition for access to new opportunities; ? develop new market opportunities or acquire properties or businesses in an agile and efficient way; ? effectively integrate acquired properties or businesses into Equinor's operations; ? arrange financing, if necessary; and? comply with legal regulations. Equinor anticipates significant investments and costs as it cultivates business opportunities in new and existing markets. New projectsand acquisitions may have different embedded risks than Equinor’s existing portfolio. As a result, new projects and acquisitions couldresult in unanticipated liabilities, losses or costs, as well as Equinor having to revise its forecasts either or both with respect to unitproduction costs and production. In addition, the pursuit of acquisitions or new business opportunities could divert financial andmanagement resources away from Equinor’s day-to-day operations to the integration of acquired operations or properties. Equinormay require additional debt or equity financing to undertake or consummate future acquisitions or projects, and such financing maynot be available on terms satisfactory to Equinor, if at all, and it may, in the case of equity, be dilutive to Equinor’s earnings per share.
- Corporate Activity and Growth - Risk 4The implementation of the new corporate structure in 2021 and its continuedimplementation may pose a risk for upholding safe and secure operations
The changes to Equinor’s corporate structure were decided and implemented to further strengthen Equinor’s ability to deliver on ourstrategy of always safe, high value and low carbon. The ongoing implementation process of these changes may divert managementand employee attention from tasks and responsibilities with a potential, negative impact on our ability to uphold safe and secure operations.
Risk Highlights Q4, 2021
Risk Word Cloud
Risk Factors Full Breakdown - Total Risks 35
- Manufacturing - Risk 1ChangedFailure to discover, acquire and develop additional reserves, will result in material decline of reserves andproduction from current levels.
Equinor's future production is dependent on its success in discovering or acquiring and developing additional reserves adding value. Ifunsuccessful, future total proved reserves and production will decline.If upstream resources are not progressed to proved reserves in a timely manner, Equinor’s reserve base, and thereby futureproduction, will gradually decline and future revenue will be reduced. In particular, in a number of resource-rich countries, national oil companies control a significant proportion of oil and gas reserves thatremain to be developed. To the extent that national oil companies choose to develop their oil and gas resources without theparticipation of international oil companies, or if Equinor is unable to develop partnerships with national oil companies, its ability todiscover or acquire and develop additional reserves will be limited.In addition, undeveloped resources could be impacted by low oil and/or gas prices over a sustained period of time. Such low pricesmay result in Equinor deciding not to develop these resources or at least deferring development awaiting improved prices.
- Manufacturing - Risk 2ChangedFor Equinor to build a material renewable business,covering also low carbon solutions such as hydrogen and carbon capture and storage (CCS), being competitive and getting access toattractive acreage and opportunities at the right terms are key. Future conditions along with risks and uncertainties in power, hydrogenand carbon markets as well as internal factors will influence our ability to achieve our ambitions relating to renewable energy.
Risks related to changes in policies, laws and regulations:Policy makers in many modern electricity markets provide both direct andindirect support to renewables aimed at helping the renewable industry to grow and mature. The framework for low carbon solutionsremains relatively immature while such solutions require material levels of investment. Potential regulatory changes, and new policymeasures related to support regimes represent both threats and opportunities for Equinor. However, regulatory stability andpredictability are key concerns in this area.Market and technology risks: Technology development, such as for wind turbines, hydrogen production and carbon capture, is adriving force to ensure financial viability of Equinor’s investments. Important risk factors are Equinor’s understanding of the markets,market future development, and our ability to reduce costs and capitalize on technology improvements.Financial and reputational impact: Strong competition for assets may lead to diminishing returns within the renewable and low carbonindustries and hamper the transition into a broader energy company. Competitive auctions/tenders where prices do not allowabsorption of higher costs may increase the exposure to inflation risk. This is also relevant for assets where the costs and/or incomehave been locked in before the final investment decision.Although renewables and low carbon solutions are generally perceived to be important means to meet climate challenges, theseindustries may also entail impact on local communities and habitats. Accordingly, growth is also expected to be accompanied bygreater scrutiny from other industries and the society at large. Increasing criticism and push-back from environmental non-governmental organisations and equivalents could lead to a negative perception of the renewable and low carbon industries which inturn could lead to less access to attractive business opportunities.Organisational risk factors: Equinor’s ambition of growth within the renewable and low carbon solutions domains highlights the needfor robust processes and fit-for-purpose management systems to ensure a solid growth foundation. Providing the renewable and lowcarbon domains with a management system that is easy to adopt, implement, use and understand as well as ensuring sufficientcapability in the organization will be crucial to the future success of a broader energy company. This implies uncertainty and risks withregards to continuously developing renewable and low carbon competence, having a disciplined capital allocation, ensuring enoughcapacity and management focus on delivering a sustainable and fit for purpose growth
- Manufacturing - Risk 3The profitability of Equinor’s oil, gas and power production in remote areas may be affected byinfrastructure constraints
Equinor’s ability to commercially exploit discovered petroleum resources depends, among other factors, on infrastructure to transportoil, petroleum products and gas to potential buyers at a commercial price. Oil and petroleum products are transported by vessels, railor pipelines to potential customers/refineries, petrochemical plants or storage facilities, and natural gas is transported to processingplants and end users by pipeline or vessels (for liquefied natural gas). Equinor’s ability to commercially exploit renewable opportunitiesdepends on available infrastructure to transmit electric power to potential buyers at a commercial price. Electricity is transmittedthrough power transmission and distribution lines. Equinor must secure access to a power system with sufficient capacity to transmitthe electric power to the customers. Equinor may be unsuccessful in its efforts to secure transportation, transmission and markets for all its potential production
- Manufacturing - Risk 4Equinor is exposed to a wide range of health, safety and environmental risks that could result insignificant losses.
Exploration, project development, operation and transportation related to oil and natural gas, as well as development and operation ofrenewable energy production, can be hazardous. In addition, Equinor’s activities and operations are affected by external factors likedifficult geographies, climate zones and environmentally sensitive regions.Risk factors that could affect health, safety and the environment include human performance, operational failures, detrimentalsubstances, subsurface behaviour, technical integrity failures, vessel collisions, natural disasters, adverse weather conditions,epidemics or pandemics, structural and organisational changes and other occurrences. Furthermore, non-compliance with ourmanagement system could influence the potential for negative effects. These risk factors could result in disruptions of our operationsand could, among other things, lead to blowouts, structural collapses, loss of containment of hydrocarbons or other hazardousmaterials, fires, explosions and water contamination that cause harm to people, loss of life or environmental damage. In particular, allmodes of transportation of hydrocarbons - including road, sea or pipeline - are susceptible to a loss of containment of hydrocarbonsand other hazardous materials and represent a significant risk to people and the environment.As operations are subject to inherent uncertainty, it is not possible to guarantee that the management system or other policies andprocedures will be able to identify all aspects of health, safety and environmental risks. It is also not possible to say with certainty thatall activities will be carried out in accordance with these systems.For a further description of Equinor’s health and safety results, including certain incidents in 2021, see section 2.14 Safety, security and sustainability.
- Manufacturing - Risk 5Equinor is exposed to risks as a result of its use of hydraulic fracturing
Equinor's US operations use hydraulic fracturing which is subject to a range of applicable federal, state and local laws, including thosediscussed under the heading “Legal, Regulatory and Compliance Risks”. A case of subsurface migration of hydraulic fracturing fluidsor a case of spillage or mishandling of hydraulic fracturing fluids during these activities could subject Equinor to civil and/or criminalliability and the possibility of incurring substantial costs, including for environmental remediation. In addition, various states and localgovernments have implemented, or are considering, increased regulatory oversight of hydraulic fracturing through additional permitrequirements, operational restrictions, disclosure requirements and temporary or permanent bans. Changes to the applicableregulatory regimes could make it more difficult to complete oil and natural gas wells in shale formations, cause operational delays,increase costs of regulatory compliance or in exploration and production, which could adversely affect Equinor's US onshore business and the demand for its fracturing services.
See a full breakdown of risk according to category and subcategory. The list starts with the category with the most risk. Click on subcategories to read relevant extracts from the most recent report.
