Norwegian oil and gas major Equinor has defended the strategy driving its renewables business division and said performance will improve as assets become operational.
Equinor this week joined its energy peers in reporting stellar profits for 2022 and returning more capital to shareholders, with a record $74.9 billion in adjusted operating profits booked last year.
For 2022, Equinor posted nearly $75 billion in adjusted earnings across its liquids, gas and upstream operations.
In its latest financial update, Equinor noted its oil and gas business had one of the lowest breakeven points in the industry at $35 per barrel.
Its renewables business division, meanwhile, registered a loss of $184 million in 2022, deepening from a $136 million loss in 2021.
Company executives at a meeting in London defended the performance of the division and the strategy driving investment.
They cited a relatively small base of earnings-generating assets in operation to date against high investments to expand the overall renewables portfolio.
“We’re making good money on our renewables business, but we’re spending a lot of money as well, as we’re building it, building new projects,” Equinor chief financial officer Torgrim Reitan told Upstream.
“Because we’re building the assets, we have high expenses to sustain.”
Earnings will strengthen as projects come online, the company maintains.
“Once the assets are operational, to an extent they become self-funding,” Reitan said.
Commenting on the 2022 loss by its renewables division, chief executive Anders Opedal said on Wednesday: “We are making money on the producing assets, but we have expenses that lead to a loss.
“We prioritise the best projects with the best returns all the time.”
Opedal singled out the start of phase one of the Dogger Bank project — the world’s largest offshore wind farm, under development in the UK — scheduled for later this year, which will deliver 1.2 gigawatts of capacity.
“This year income [from renewables] will increase as Dogger Bank A will come into operation,” he said.
Equinor announced earlier this week that it was considering a fourth expansion phase for Dogger Bank in conjunction with SSE UK, with a view to power hydrogen production in Humberside.
The company gave a target guidance of between 4% and 8% of project base real returns from its renewables division for 2023 and the coming years.
Reitan described these as “fair returns”, adding the risk profile of the assets is “low” due to contract structures in place.
“The revenue is basically built in,” he said.
Reitan maintained that investment in the energy transition businesses will increase according to plan.
The company has a spending target of 30% of capex going towards renewables and low-carbon solutions by 2025, expanding that to 50% by 2030.
“We’ll continue to invest in oil and gas, grow the renewables and low carbon business at the same time. This will be a shareholder-friendly transition,” said Reitan.