European oil companies will not assimilate Equinor’s renewables opportunism

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Finding common ground in the energy transition strategies of European oil companies is not easy.

There is still a somewhat experimental approach in the sector: Eni is building satellite businesses that it can sell or possibly float. TotalEnergies increases electricity generation and LNG production. BP has made efforts in areas such as electric vehicle charging – and is preparing to abandon a 2030 target to cut oil and gas production.

This week, Equinor added another move to the mix. It built a 9.8% stake in offshore wind developer Ørsted, becoming its second-largest shareholder after the Danish government. It should prove a value-creating addition to the strategic sorting hat. But it’s not something others will necessarily ape.

Equinor was a relatively early development in offshore wind. It already has an operational portfolio of around 1GW and 2GW under construction. In recent years, however, it has often been excluded from European tenders for seabed leases. It has canceled some early-stage projects as the industry continues to face higher costs.

Given the recent troubles in the US, Ørsted may not look the best of targets. But it has a decent portfolio of 10.4GW of operating renewable assets, plus more under construction. Even if you assumed Equinor paid 10% of Ørsted’s roughly $25 billion market cap last Friday — the last day of trading before the announcement — it looks like Equinor is getting a decent discount to access some of that assets. The total net asset value of Ørsted’s portfolio is about $30 billion, estimates Bank of America’s Christopher Kuplent.

Of course, investors may wonder why Equinor isn’t returning more cash and letting them decide if they want exposure to a large renewables developer. That’s an argument oil and gas executives will continue to have.

In its defence, Equinor can already point to plenty of cash profits. It has pledged total distributions in 2024 of $14 billion, including buybacks and dividends — the equivalent of nearly a fifth of its market capitalization. The Ørsted Agreement should not alter planned future returns. Equinor can easily absorb the estimated 5% increase in its net debt ratio that Bernstein expects will follow the deal.

However, this is unlikely to trigger a buying frenzy of renewables stocks in the industry. Not all have the same balance sheet strength. BP, for example, has faced questions about whether it can meet its $7 billion annual share buyback starting in 2025.

If Equinor’s latest move suggests any theme, it’s that European oil majors are still struggling to find a clear path to 2050.

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