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Equinor: Getting Less Attractive

Jun. 02, 2020 5:10 AM ETEquinor ASA (EQNR)6 Comments


  • Equinor reported first-quarter 2020 on May 7, 2020. Revenues and others were $15.13 billion, down 8.2% from the same quarter a year ago and down slightly sequentially.
  • It was a record operational performance with production in the first quarter of 2,233 K Boep/d, an increase from 2,178K Boep/d from the same period in 2019 and up 1.6%.
  • In some bad news, Equinor is slashing quarterly dividend by 67% to $0.09 per share.
  • The extent of the dividend cut has altered the investment thesis. While I do not recommend reducing your position, I believe it is time to take a pause and hold the stock.
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Source: The Johan Sverdrup field in the North Sea (Photo: Espen Rønnevik/Øyvind Gravås - Equinor ASA)

Investment Thesis

The Norwegian-based Equinor ASA (NYSE:EQNR), 67%-owned by the Norwegian state - formerly known as Statoil - reported its first-quarter 2020 results on May 7, 2020.

The main issue that has negatively affected common shareholders this quarter is that the company decided to slash its quarterly dividend from $0.27 per share to now $0.09 per share - a steep haircut of 67%, which is quite uncommon for the oil industry.

Yes, of course, there are plenty of reasons why this move is justified, but the fact of the matter is those common shareholders are not happy with this surprising move. The company decided to slash the dividend rather than increasing debt again and exacerbating debt-to-capital ratios, which are already high.

Surprisingly, only two oil supermajors chose to cut their dividend payout: Equinor and Royal Dutch Shell (RDS.A, RDS.B). All the others decided to keep the dividend at the same level, as we can see in the graph below.

It is an exceptional decision that fits the extraordinary constraint due to COVID-19 and the effects the actions of Saudi Arabia had on oil prices. Equinor also elected to suspend its $5 billion 2019-2022 share buyback program and issued $5 billion in a bond issue in April.

The European oil major was planning to execute the second tranche of its plan - worth $675 million when including the Norwegian state’s share - between May 18 and Oct. 28.

Equinor is one of the smallest in terms of market cap amongst its peers, as we can see below:

The extent of the dividend cut has altered the investment thesis. While I do not recommend reducing your position, I believe it is time to take a pause and hold

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