Equinor

Equinor’s adjusted first-quarter results largely topped or met market expectations, with most segments outperforming, benefiting from a full quarter of higher commodity prices and margins. Production increased 3% from a year ago.

Why it matters: Equinor remains well-positioned to benefit from the surge in oil and gas prices, thanks to its strategic pivot back toward oil and gas, growing production and leverage to spot prices. Production growth guidance for 2026 remains unchanged at 3% in 2026. Production from higher-value projects, along with targeted cost reductions, should lead to margin expansion beyond that provided by higher commodity prices.

The bottom line: Our $33/NOK 311 fair value estimate and Morningstar Economic Moat Rating of none remain unchanged, leaving shares overvalued after the recent runup following the collapse of the US-Iran temporary peace agreement. Buyback guidance was unchanged at $3.0 billion for 2026, after being increased from $1.5 billion in June to incorporate the higher price environment. The increase in commodity prices since the beginning of the year likely means management can move from leaning on the balance sheet to strengthening it this year.

Big picture: We continue to think Equinor's strategy is the right one to drive shareholder value as it drives incremental investment in the upstream and limits it into renewables. However, the recent increase in commodity prices, well above our midcycle level, leaves shares overvalued. That said, the duration of high prices remains uncertain. European natural gas prices—about 37% of Equinor's production—look to remain higher for longer, even if oil prices fall, given the need to refill storage before the winter heating season begins. Beyond then, prices could remain higher if storage levels are not achieved and seasonal demand is high. We don’t expect the high prices of 2022-23 to return, but they're still much higher than in recent years, benefiting Equinor.

We are increasing our fair value estimate to $33 per share from $27.20 after incorporating the recent increase in near-term oil and gas prices. Our fair value estimate corresponds to a forward enterprise value/ EBITDA multiple of 1.9 times our 2026 EBITDA forecast of $49.3 billion.

Our fair value estimate is derived using Morningstar’s standard three-stage discounted cash flow, or DCF, methodology. With this methodology, a terminal value is derived using our assumptions for long-term earnings growth and return on new invested capital. This valuation methodology also more explicitly incorporates our moat rating, which reflects how long we expect a given firm to deliver excess returns on invested capital from a DCF analysis.

In our DCF model, we assume Brent prices of $87 per barrel in 2026 and $76 in 2027. Our long-term oil price assumption is $65. We assume a cost of equity of 9.0% and a weighted average cost of capital of 7.4%.

We forecast production growth through 2028 to 2.3 mmboe/d before falling to 2.2 mmboe/d in 2030, in line with management’s guidance. Beyond that, total volumes should decline as NCS production falls. We also model modest cost improvements as higher-margin volumes are added to the portfolio. We expect the midstream and downstream segments to earn about $2.0 billion per year in operating profit at midcycle levels, but to do better in the near term given the fallout from the war in Iran. We assume modest earnings from the renewables segment by 2030 as most capacity additions take hold in the second half of the decade. We do not model any earnings or proceeds from renewable project farm-downs.

Thanks to its dominant position on the NCS, Equinor holds some competitive advantages relative to peers. The focus on a single area allowed the firm to gain in-depth knowledge of the region relative to its rivals while building out significant infrastructure that lowered the capital cost of incremental production. However, given a high tax burden in Norway, Equinor has historically failed to match the after-tax upstream earnings margins or returns on capital of its higher quality peers. Given the uneven recent history of returns and the narrow forecast for excess returns at our midcycle price of $65 per barrel, we do not award Equinor an economic moat.

That said, Equinor has made great progress on reducing capital spending, improving its cost structure, and bolstering the economics of projects under development or delaying higher-cost and lower-return projects. Also, thanks to recent discoveries, Equinor is reversing years of declining volumes on the NCS and developing projects that will leverage its expertise and existing infrastructure. This should lead to the addition of higher-margin, lower-capital barrels, which will improve returns from recent levels.

Similar progress has been made in Equinor’s international operations where it plans to only operate offshore projects and exit countries where it has smaller, lower-quality positions like Nicaragua, Mexico and Australia. Additional exits or divestments beyond those announced will likely occur, further narrowing the portfolio to the highest-quality areas.

In both the NCS and internationally, it has a portfolio of more than 50 projects that will come on stream in the next 10 years, with a breakeven below $40/bbl and payback periods of around 2.5 years, assuming $70/bbl oil.

Foremost among its international growth options is Equinor’s Brazilian position, which should deliver steady growth during the next decade as a string of projects with low-break-even levels come online. Currently producing less than 100 mb/d, Brazil could contribute over 200 mb/d to Equinor by 2030.

Although Equinor was an early mover into offshore wind and arguably has crossover capability and experience, particularly in the NCS, from its oil operations, we do not see it as having a competitive advantage in this business. Although it has experience and assets in Norway and a large, concentrated geographic footprint, it might at some point carve out a cost advantage, though that remains uncertain at this point.

Furthermore, Equinor has faced strong competition for assets, which, along with supply chain constraints and significant cost inflation, have compressed returns across the offshore wind segment. These challenges led the company to record a $300 million impairment on its US offshore wind projects in 2023 after an inability to increase prices. Financial pressures continued into 2025, with an additional $1.1 billion impairment recorded for the US offshore wind business, primarily driven by regulatory changes, increased exposure to tariffs, and reduced expected synergies for the Empire Wind project.

As a result, Equinor now targets a nominal equity return of around 10% for its renewable projects full-cycle, including the effects of farm-downs and project financing. It has also reduced spending by focusing primarily on projects already in execution while scaling back early-phase activities.

Carbon capture and hydrogen production might also provide an opportunity to build moats around cost and experience, but it remains far too early to determine winners in those sectors.

Equinor is exposed to several environmental, social, and governance-related risks, but these have no bearing on our final moat rating as most are too long-term for moat consideration or are not probable or material enough risk to cause material value destruction. Equinor’s primary ESG risk stems from carbon emissions in its operations and use of its products and emissions, effluents and waste generated in operations such as oil spills.

The risk from carbon emissions is most likely to materialize through a carbon tax, which increases the price of end products to consumers, reducing demand over time and threatening Equinor’s hydrocarbon business. Carbon taxes may gain wider adoption over time, but any impact on hydrocarbon demand is still more than a decade away. Furthermore, Equinor’s strategic plans call for a move away from hydrocarbons, which should insulate it to a greater degree than peers from any carbon tax. Also, its production has some of the lowest-carbon intensity in the sector and should fall further as Equinor targets reductions and invests in greater electrification of offshore fields.

Oil spills are an ever-present risk for oil companies operating offshore and can be devastating to a firm's value as BP’s Macondo incident in the Gulf of Mexico shows. While oil companies regularly cause spills, most are immaterial in size and associated fines and cleanup costs are manageable. Meanwhile, large sills such as Macondo are very rare and do not factor into any of our scenario modeling.

Equinor is exerting capital discipline by reducing investment in lower-return renewable and low-carbon projects and instead focusing on oil and gas, which should boost returns.

Equinor benefits from its proximity to continental Europe as it can capitalize on relatively high natural gas prices and efforts to reduce reliance on Russian gas by increasing production.

Equinor is leveraging its experience developing projects in harsh offshore environments to build offshore wind projects, in order to diversify its business away from oil and gas in preparation for the energy transition.

Equinor's investments in renewables might not generate the returns its oil and gas investments historically have, resulting in a dilution of returns, if not impairments.

Recent gas price volatility will likely accelerate the adoption of renewables in Europe, reducing demand in Equinor's primary gas export market.

By maintaining explicit power generation and spending goals, Equinor risks overpaying for new projects to hit targets.