Equinor ASA EQNR, a Norwegian energy firm, has mentioned that it plans to cut back on its investments in renewable energy till 2030. The announcement followed shortly after EQNR acquired a 9.8% stake in Ørsted, a Danish wind energy group. In October, the company had announced its decision to acquire a stake in Ørsted for $2.5 billion. Equinor also noted that it plans to increase the acquired stake to 10%. The deal is contingent upon regulatory approval.
Addition to EQNR’s Renewables Portfolio
The company stated that the acquisition would add to its renewable portfolio, allowing it to move one step closer to achieving its target of installing a renewable capacity of 12-16 GW by 2030. Notably, the acquisition would add a net generation capacity of 1.7 gigawatts (GW), contributing toward its 2030 target.
Equinor mentioned that the deal offers a cost-effective opportunity for the company to participate in offshore wind projects without having to develop them. This presents a major upside, per Equinor, as it is a more profitable way for the company to reach its renewables target. Further, this approach should enable EQNR to spend less on capital while reaching its target.
Investor Concerns Over Shifting Focus to Renewables
Renewable energy projects require a huge amount of investment, and the rapid transition from oil and gas toward renewables might weigh down on the profitability of energy firms. Many energy giants, such as BP and Shell, have scaled down their ambitious transition strategy due to investor pressure over maintaining profitability. Equinor’s decision to purchase a stake in Ørsted also came as a surprise to investors. However, EQNR believes that this transaction would enable the company to move closer to its targeted renewable portfolio while maintaining a disciplined approach to capex management.
EQNR’s Q3 Results and Updated Outlook
Equinor recently reported third-quarter results, which showed a year-over-year decline in revenues. The company also announced a reduction in its organic capex from its previously guided range of $13 billion. EQNR now expects organic capex for 2024 to be in the range of $12-$13 billion. This includes an investment cut in its Polish and Brazilianonshore renewable projects. The company has retained its 2024 outlook for oil and gas output. EQNR has scaled down its renewables output growth from 70% to 50% due to a delay in the Dogger Bank A wind project located off the British coast.
EQNR’s Zacks Rank and Key Picks
Currently, EQNR carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the energy sector are Archrock Inc. AROC, Sunoco LP SUN and FuelCell Energy FCEL. Archrock presently sports a Zacks Rank #1 (Strong Buy), while Sunoco and FuelCell Energy carry a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.
Archrock is an energy infrastructure company based in the United States, with a focus on midstream natural gas compression. It provides natural gas contract compression services and generates stable fee-based revenues.
Sunoco LP is one of the largest distributors of motor fuel in the United States. The partnership distributes fuel to independent dealers, commercial customers, convenience stores as well as distributors. Its current distribution yield is greater than that of the composite stocks in the industry, providing unitholders with consistent returns.
FuelCell Energy is a clean energy company offering low-carbon energy solutions. It produces power using flexible fuel sources such as biogas, natural gas and hydrogen. The company designs fuel cells that generate electricity through an electrochemical process that combines fuel with air, reducing carbon emissions and minimizing the environmental impact of power generation. As such, FCEL is anticipated to play a crucial role in the energy transition by enabling industries and communities to shift from traditional fossil fuels to low-carbon alternatives.
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