Equinor second quarter 2021
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Organic capital expenditures
– Capital expenditures, defined as Additions to PP&E, intangibles and equity accounted
investments in note 2 Segments to the Condensed interim financial statements, amounted to USD 2.2 billion in the second quarter
of 2021. Organic capital expenditures are capital expenditures excluding acquisitions, recognised lease assets (RoU assets) and
other investments with significant different cash flow pattern. In the second quarter of 2021, a total of USD 0.2 billion are excluded
in the organic capital expenditures. Forward-looking organic capital expenditures included in this report are not reconcilable
to its
most directly comparable IFRS measure without unreasonable efforts, because the amounts excluded from such IFRS measure to
determine organic capital expenditures cannot be predicted with reasonable certainty.
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Gross capital expenditures
– Capital expenditures, defined as Additions to PP&E, intangibles and equity accounted investments
in the financial statements, including Equinor’s proportionate share of capital expenditures in equity accounted
investments not
included in additions to equity accounted investments. Forward-looking gross capital expenditures included in this report
are not
reconcilable to its most directly comparable IFRS measure without unreasonable efforts, because the amounts excluded from
such IFRS measure to determine gross capital expenditures cannot be predicted with reasonable certainty.
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Free cash flow for the second quarter 2021
includes the following line items in the Consolidated statement of cash flows: Cash
flows provided by operating activities before taxes paid and working capital items (USD 6.5 billion), taxes paid (negative USD 0.3
billion), cash used in business combinations (negative USD 0.1 billion), capital expenditures and investments (negative USD 1.7
billion), (increase)/decrease in other items interest-bearing (negative USD 0.1 billion), proceeds from sale of assets and
businesses (USD 0.7 billion), dividend paid (negative USD 0.4 billion) and share buy-back (USD 0.0 billion), resulting in a
free
cash flow of USD 4.5 billion in the second quarter of 2021.
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Free cash flow for the first half of 2021
includes the following line items in the Consolidated statement of cash flows: Cash flows
provided by operating activities before taxes paid and working capital items (USD 13.2 billion), taxes paid (negative USD 0.4
billion), cash used in business combinations (negative USD 0.1 billion), capital expenditures and investments (negative USD 3.9
billion), (increase)/decrease in other items interest-bearing (negative USD 0.1 billion), proceeds from sale of assets and
businesses (USD 1.8 billion), dividend paid (negative USD 0.7 billion) and share buy-back (USD 0.0 billion), resulting in a
free
cash flow of USD 9.7 billion in the first half of 2021.
Amended principles for adjusted earnings with effect from the first quarter of 2021:
With effect from the first quarter of 2021 Equinor has changed its policy for how gain or loss from sales of assets are to be recognised
in Adjusted earnings for the Renewables segment. Previously gain or loss from sales of assets within the renewables segment
has
been excluded from the adjusted earnings performance measure, while as of the first quarter of 2021 such gain or loss will be
included as part of the adjusted earnings performance measure for the segment. The change in policy for the adjusted earnings
performance measure does not impact the other reporting segments, where such gain or loss will continue to be excluded from
the
adjusted earnings performance measure. The policy has been retrospectively applied, but with no impact on the comparable
numbers
for 2020.
The change in policy for gain or loss from sales of assets in the Renewables segment is based on the increased activity and
significance of the segment (REN as a separate reporting segment with effect of the first quarter of 2021), where management
consider such gain or loss on divestments to be an integral part of the performance of the segment. Early access at
scale with a
subsequent partial divestment is an integral part of the strategy for the Renewables segment that distinguishes it from
the other
segments in Equinor.
Adjusted earnings
adjust for the following items:
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Changes in fair value of derivatives:
Certain gas contracts are, due to pricing or delivery conditions, deemed to contain
embedded derivatives, required to be carried at fair value. Also, certain transactions related to historical divestments include
contingent consideration, are carried at fair value. The accounting impacts of changes in fair value of the aforementioned are
excluded from adjusted earnings. In addition, adjustments are also made for changes in the unrealised fair value of derivatives
related to some natural gas trading contracts. Due to the nature of these gas sales contracts, these are classified as financial
derivatives to be measured at fair value at the balance sheet date. Unrealised gains and losses on these contracts reflect
the
value of the difference between current market gas prices and the actual prices to be realised under the gas sales contracts. Only
realised gains and losses on these contracts are reflected in adjusted earnings. This presentation best reflects the underlying
performance of the business as it replaces the effect of temporary timing differences associated with the re-measurements of the
derivatives to fair value at the balance sheet date with actual realised gains and losses for the period.
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Periodisation of inventory hedging effect:
Commercial storage is hedged in the derivatives market and is accounted for using
the lower of cost or market price. If market prices increase above cost price, the inventory will not reflect this increase in value.
There will be a loss on the derivative hedging the inventory since the derivatives always reflect changes in the market price.
An
adjustment is made to reflect the unrealised market increase of the commercial storage. As a result, loss on derivatives is
matched by a similar adjustment for the exposure being managed. If market prices decrease below cost price, the write-down
of
the inventory and the derivative effect in the IFRS income statement will offset each other and no adjustment is made.
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Over/underlift
: Over/underlift is accounted for using the sales method and therefore revenues were reflected in the period the
product was sold rather than in the period it was produced. The over/underlift position depended on a number of
factors related to
our lifting programme and the way it corresponded to our entitlement share of production. The effect on income for the period is