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It has been a difficult year for the Norwegian energy giant Equinor (NYSE:EQNR)with the share price down 19.5% this year. Equinor was the worst performing energy company in 2024 and underperformed ExxonMobil, Chevron, Total Energies, Shell, BP, Eniand the wider energy sector.
Despite the poor share price performance, Equinor continues to generate solid profits and return a record amount of capital to shareholders. This is why Equinor stands out as one of the best oil and gas dividend stocks to buy right now.
Equinor is an international energy company that is largely state-owned. Since 75% of the company is owned by the Norwegian state and Norwegian private owners, Equinor is strongly influenced by Norwegian energy policy.
Norway has abundant offshore reserves along the Norwegian Continental Shelf (NCS). Equinor has been drilling in the NCS for decades. Although it has diversified its upstream portfolio, Norwegian exploration and production efforts still account for 85% of total oil and gas operating revenues.
There is no real need for Equinor to diversify its oil and gas portfolio too much outside Norway due to its experience operating in the region and because technological advances have opened up new opportunities along the NCS. Johan Sverdrup, for example, has become the third largest oil field along the NCP and now represents as much as a third of Norway’s oil production.
During its third-quarter earnings call, Equinor said Johan Sverdrup has produced more than 1 billion barrels of oil in five years, generating revenues of more than $80 billion, and set a new record of 756,000 barrels produced on September 21. For context, ExxonMobil is averaging 630,000 barrels per day from Guyana in the second quarter of 2024. ExxonMobil has invested heavily in Guyana, which is now the largest offshore production region.
Despite Johan Sverdrup’s growth, Equinor’s NCS production rose just 2% this quarter compared to the same quarter last year. As mentioned, the company is influenced by Norwegian energy policy, which has aggressive climate targets. As such, Equinor has invested heavily in renewable energy and made judicious investments in oil and gas. It has been far less aggressive than companies like ExxonMobil and Chevron, which are accelerating their oil and gas capital spending and making blockbuster acquisitions.
Equinor has invested in a variety of sustainable energy projects. It was an early adopter of offshore wind energy and plans to have 12 gigawatts (GW) to 16 GW of installed renewable capacity by 2030. Renewable energy generation reached 677 GWh in the third quarter of 2024, compared to only 373 GWh in the third quarter of 2023.
In September it completed Northern Lights, a cross-border carbon capture, transport and storage facility.
On October 7, Equinor announced it had acquired a 9.8% minority stake in the Danish wind giant Orsted. The stake is worth approximately $2.5 billion.
Despite these recent achievements, Equinor’s renewable energy implementation has been quite spotty in recent years. It has divested (and continues to do so) some of its major projects to reduce capital commitments and operational risk. The renewable energy industry as a whole is in a recession due to higher interest rates and a lack of investment. So Equinor’s decision not to accelerate oil and gas investments and focus on renewables has been a bit of a bad look, at least in recent years. But it can still be the right move for the long term.
It would be one thing if Equinor put all its oil and gas profits into renewable energy. But it doesn’t – not even close.
In fact, Equinor expects full-year capital expenditure to be between $12 billion and $13 billion, with the majority of that going to oil and gas. And yet it still returns $14 billion to shareholders through dividends and buybacks.
Equinor has bought back a lot of shares in recent years and paid an ordinary and extraordinary dividend. Most recently, these payments amounted to $0.35 per share, good for an 11% yield based on Equinor’s share price at market close on October 25.
Over the past three years, Equinor has reduced the number of shares outstanding by 15.3% – an almost unprecedented pace of share buybacks. For context, Chevron, which has also been aggressively buying back shares, has only reduced its share count by 5.3% over the past three years.
The massive capital return program was Equinor’s way of putting capital to work and rewarding shareholders without ramping up oil and gas production to move the company further from its sustainability goals.
Unfortunately, Equinor has made it clear that this period of huge capital returns from 2022 to 2024 is coming to an end. In 2025, there will be an $8 billion and $10 billion capital return program, as well as the elimination of the extraordinary dividend, with plans to increase the regular dividend by $0.02 per share per year.
The extraordinary dividend cost about $4 billion per year, so the capital return program is expected to include about $4 billion in dividends and $4 billion to $6 billion in buybacks. It’s still significant, but not nearly as large as what investors have become accustomed to in recent years. And it means Equinor will have a dividend yield of about 5.5%, not 11%.
Equinor is perhaps the best oil company you can buy right now. The share is dirt cheap with a price-earnings ratio of only 7.8. The yield is still huge, even if the extraordinary dividend disappears. And Equinor still has a highly efficient oil and gas portfolio and room to monetize renewables.
Equinor’s decision to invest in Orsted eases the pressure to develop Equinor’s own sustainable energy projects. The opening of Northern Lights shows that Equinor’s sustainable energy portfolio is much more than just offshore wind energy.
Add it all up and Equinor is a great buy, even if it won’t return another $14 billion to shareholders in 2025.
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Daniel Foelber holds positions at Equinor Asa. The Motley Fool holds positions in and recommends BP, Chevron and Ørsted A/s. The Motley Fool recommends Equinor Asa. The Motley Fool has a disclosure policy.
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