Equinor third quarter 2023
35
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Gross investments/capex
– Capital expenditures, defined as Additions to PP&E, intangibles and equity accounted investments
in the financial statements, including Equinor’s proportionate share of capital expenditures in equity accounted investments not
included in additions to equity accounted investments. Forward-looking gross capital expenditures included in this report are not
reconcilable to its most directly comparable IFRS measure without unreasonable efforts, because the amounts excluded from
such IFRS measure to determine gross capital expenditures cannot be predicted with reasonable certainty.
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Cash flow from operations after taxes paid (CFFO after taxes paid)
represents, and is used by management, to evaluate cash
generated from operating activities after taxes paid, available for investing activities, for debt servicing and distribution to
shareholders. However, cash flow from operations after taxes paid is not a measure of our liquidity under IFRS and should not be
considered in isolation or as a substitute for an analysis of our results as reported in this report. Our definition of Cash flow from
operations after taxes paid is limited and does not represent residual cash flows available for discretionary expenditures.
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Net cash flow (previously named free cash flow)
- Net cash flow represents, and is used by management to evaluate, cash
generated from operational and investing activities available for debt servicing and distribution to shareholders. The name of the
measure was updated in the first quarter of 2023, but no changes have been made to the definition.
Adjusted earnings
adjust for the following items:
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Changes in fair value of derivatives
: In the ordinary course of business, Equinor enters into commodity derivative contracts to
manage the price risk exposure relating to future sale and purchase contracts. These commodity derivatives are measured at fair
value at each reporting date, with the movements in fair value recognised in the income statement. By contrast, the sale and
purchase contracts are not recognised until the transaction occurs resulting in timing differences. Therefore, with effect from the
first quarter of 2023, the unrealised movements in the fair value of these commodity derivative contracts are excluded from
adjusted earnings and deferred until the time of the physical delivery to minimise the effect of these timing differences. Further,
embedded derivatives within certain gas contracts and contingent consideration related to historical divestments are required to
be carried at fair value. Any accounting impacts resulting from such changes in fair value are also excluded from adjusted
earnings, as these fluctuations are not indicative of the underlying performance of the business.
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Periodisation of inventory hedging effect
: Equinor enters into derivative contracts to manage price risk exposure relating to its
commercial storage. These derivative contracts are carried at fair value while the inventories are accounted for at the lower of
cost or market price. Therefore, measurement differences occur in relation to the recognition of gains and losses. An adjustment
is made to align the valuation principles of inventories with related derivative contracts. With effect from the first quarter of 2023,
the adjusted valuation of inventories is based on the forward price at the expected realisation date. This is so that the valuation
principles between commercial storages and derivative contracts are better aligned.
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Over/underlift
: Over/underlift is accounted for using the sales method and therefore revenues were reflected in the period the
product was sold rather than in the period it was produced. The over/underlift position depended on several factors related to our
lifting programme and the way it corresponded to our entitlement share of production. The effect on income for the period is
therefore adjusted, to show estimated revenues and associated costs based upon the production for the period to reflect
operational performance and comparability with peers.
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The
operational storage
is not hedged and is not part of the trading portfolio. Cost of goods sold is measured based on the
FIFO (first-in, first-out) method, and includes realised gains or losses that arise due to changes in market prices. These gains or
losses will fluctuate from one period to another and are not considered part of the underlying operations for the period.
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Impairment and reversal of impairment
are excluded from adjusted earnings since they affect the economics of an asset for
the lifetime of that asset, not only the period in which it is impaired, or the impairment is reversed. Impairment and reversal of
impairment can impact both the exploration expenses and the depreciation, amortisation and impairment line items.
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Gain or loss from sales of assets
is eliminated from the measure since the gain or loss does not give an indication of future
performance or periodic performance; such a gain or loss is related to the cumulative value creation from the time the asset is
acquired until it is sold.
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Eliminations (Internal unrealised profit on inventories)
:
Volumes derived from equity oil inventory will vary depending on
several factors and inventory strategies, i.e., level of crude oil in inventory, equity oil used in the refining process and level of in-
transit cargoes. Internal profit related to volumes sold between entities within the group, and still in inventory at period end, is
eliminated according to IFRS (write down to production cost). The proportion of realised versus unrealised gain will fluctuate from
one period to another due to inventory strategies and consequently impact net operating income/(loss). Write-down to production
cost is not assessed to be a part of the underlying operational performance, and elimination of internal profit related to equity
volumes is excluded in adjusted earnings.
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Other items of income and expense
are adjusted when the impacts on income in the period are not reflective of Equinor’s
underlying operational performance in the reporting period. Such items may be unusual or infrequent transactions, but they may
also include transactions that are significant which would not necessarily qualify as either unusual or infrequent. Other items are
carefully assessed and can include transactions such as provisions related to reorganisation, early retirement, etc.
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Change in accounting policy
are adjusted when the impacts on income in the period are unusual or infrequent, and not
reflective of Equinor’s underlying operational performance in the reporting period.
For more information on our definitions and use of non-GAAP financial measures, see section 5.8 Use and reconciliation of non-
GAAP financial measures in Equinor's 2022 Integrated Annual Report.