Ørsted shares plunge; Equinor's loss increases to nine billion

A third of Equinor's investment in Ørsted has been blown away: - We are very negative about the whole green initiative, says the investment director.

Equinor's investment of over 26 billion kroner in the Danish wind power company Ørsted has so far been a financial disaster – and now it's going from bad to worse.

On Tuesday morning, Ørsted shares plunged 17 percent, after the company announced on Monday evening write-downs of 12.1 billion Danish kroner (19 billion Norwegian kroner) related to projects in the United States.

Equinor has previously stated that the shares were purchased at an average price of 398.5 Danish kroner. This means that the oil company has a return of minus 35 percent, corresponding to a paper loss of approximately nine billion Norwegian kroner.

Own rather own others

Investment Director Gaute Eie at Eika Kapitalforvaltning is not impressed. Various Eika funds have Equinor shares worth over half a billion kroner, but the Norway fund has underweighted the stock, and the Alpha fund does not own it at all, says Eie.

"We are very negative about the whole green initiative, as the return on the investments they make is far too low. When they also buy minority stakes in other green companies that we cannot count on, such as Ørsted, it means that we would rather own other oil companies," Eie tells DN.

The market has long been concerned that Equinor will throw money at renewable projects with low or no profitability. When Equinor announced last fall that it had bought ten percent of the shares in Ørsted, the stock market value of the oil giant fell by around 30 billion kroner, more than the Ørsted investment itself.

The consolation is that there are worse examples, points out analyst Teodor Sveen-Nilsen at Sparebank 1 Markets. On Monday, DN reported on his latest analysis, in which he asked: "Is Empire Wind the next Norwegian industrial scandal?" .

Empire Wind is an offshore wind project off the coast of New York, with a price tag of NOK 60 billion. Sveen-Nilsen believes Empire Wind costs three to four times more than Ørsted shares per unit of production capacity.

"If you accept that Equinor has a renewable strategy and a capacity target, which is a different discussion, the purchase of Ørsted shares looks sensible. But if we look at the price development, there is no doubt that the timing has been very bad," says Sveen-Nilsen.

In a recent note, Pareto analysts Tom Erik Kristiansen and Olav Haugerud point out that the Ørsted writedown does not bode well for Equinor's own US projects either. They foresee a writedown of up to $1.1 billion, given that Equinor faces the same type of challenges as Ørsted.

If Equinor were to reach the capacity target only by purchasing Ørsted shares, the company would have to increase its ownership stake from ten to approximately 50 percent, depending on assumptions surrounding the current Equinor portfolio, according to Sveen-Nilsen.

"If Equinor was positive about Ørsted last fall, they should at least be positive and buy more now," he says.

Eie praises the analysis from Sveen-Nilsen, and believes it should be food for thought for Equinor management.

"When you buy something at four times the cost of the Ørsted share, then you are pretty bad at what you are doing. It is absolutely wild what they are doing, and the argument is very weak. This applies to both Empire Wind and Ørsted," says Eie.

Eie believes there is no reason why Equinor in particular should have a green initiative. "Aker BP is not doing green, Vår Energi is not doing green, and all the big oil companies are going back on this. Then we'll see if Equinor has the guts to buy even more Ørsted shares, because now it's 35 percent cheaper. If they do, we'll have even fewer Equinor shares."

Rikke Høistad Sjøberg, press contact at Equinor, responds to the criticism as follows: "Our investment in Ørsted has a long-term perspective, and we do not wish to comment on the price development on an ongoing basis."

Missed Trump analysis

Manager Trond Omdal at Pensum Asset Management is also critical. He is surprised that Equinor bought the shares ahead of the presidential election, as Donald Trump is strongly critical of offshore wind.

"The purchase of Ørsted shares shows, firstly, that Equinor has no competitive advantage in renewables, and then they enter Ørsted at a time when offshore wind projects in the US, such as Equinor's Empire Wind, require several hundred billion in subsidies and yet have low profitability."

"It would be interesting to know what Equinor's analysis of offshore wind under Trump was. After all, this is an increase in exposure to the US," Omdal adds.

A year ago, Equinor was punished on the stock exchange after the Capital Markets Day, where the company announced that it would stick to its renewable strategy. Now Omdal is eagerly awaiting what Equinor will say at the Capital Markets Day on February 5th.

"In the short term, dropping the entire renewable ambition would increase values ​​considerably. It is an observation that the board members of Equinor own minimal shares."

Jan Petter Sissener's hedge fund has not invested in Equinor in recent years, with the exception of a few short-term trades. That doesn't stop the experienced manager from having opinions about capital allocation.

"In general, I am concerned that one works for the good of the shareholder community, and it seems as if the management forgets that it is the shareholders' money. It is possible that Equinor knows something about Ørsted that the market does not, but I doubt it."

Sissener believes Equinor should rather focus on dividends and concentrate on oil and gas projects.

"We generally stay away from companies where the state is a major owner, because there you have to be so politically correct all the time. What we need are shareholder-friendly board representatives who know how to run a business and maintain control. In a broader perspective, this helps to destroy trust in Norwegian business."