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It is not easy to find common ground in the energy transition strategies of the European oil majors.
There is still a somewhat experimental approach across the sector: Eni is creating satellite businesses that it can sell or possibly float. TotalEnergies is increasing electricity generation and liquefied natural gas production. BP has ventured into areas such as electric vehicle charging, and is reportedly preparing to abandon its 2030 goal of reducing oil and gas production.
This week, Equinor added another move to the mix. has built a 9.8 percent stake in offshore wind developer Ørsted, becoming its second largest shareholder behind the Danish government. It should prove a value-creating addition to the strategic selection hat. But it’s not something that others will necessarily imitate.
Equinor was one of the first to promote offshore wind energy. It already has an operational portfolio of approximately 1GW and 2GW under construction. However, in recent years it has often been excluded from European seabed leasing auctions. has canceled some projects in early stage as the industry continues to grapple with higher costs.
Given his recent problems In the United States, Ørsted might not seem like the best of targets. But it has a decent portfolio of 10.4GW of operational renewable assets, with more under construction. Even assuming Equinor paid 10 percent of Ørsted’s roughly $25 billion market cap last Friday (the last trading day before the announcement), it looks like Equinor is getting a decent discount to access a portion of those assets. The total net asset value of Ørsted’s portfolio is about $30 billion, estimates Christopher Kuplent of Bank of America.
Of course, investors may wonder why Equinor doesn’t return more money and let them decide if they want exposure to a large renewable energy developer. That’s an argument oil and gas CEOs will use continue having.
In its defense, Equinor can already point to plenty of cash returns. It has promised total distributions in 2024 of $14 billion, including buybacks and dividends, equal to nearly a fifth of its market capitalization. The deal with Ørsted should not alter expected future returns. Equinor can easily shoulder the estimated 5 percent increase in its net debt ratio that Bernstein expects to occur following the deal.
However, this is unlikely to start an industry-wide renewables buying frenzy. Not all have the same balance sheet strength. BP, for example, has faced doubts about whether it will be able to meet its Annual share buybacks worth $7 billion starting in 2025.
If Equinor’s latest move suggests any theme, it’s that Europe’s oil majors are still struggling to find a clear path to 2050.