Equinor (NYSE:EQNR) reported second-quarter financial results on Wednesday. The transcript from the company's second-quarter earnings call has been provided below.
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The full earnings call is available at https://www.equinor.com/investors/events-and-presentations
Summary
Equinor reported strong financial results for Q2, with an adjusted operating income of $11 billion before tax and a net income of $4.8 billion year-to-date.
The company announced strategic initiatives including the first wave of tieback projects on the Norwegian continental shelf and the final investment decision for the Greater Parche project in Angola.
Equinor maintained its production guidance for 2026, expecting a 3% growth despite challenges at the Johan Castberg field.
The company plans to double its share buyback program to $3 billion by 2026 and declared an ordinary cash dividend of $0.39 per share.
Management highlighted a strong cash position of $24 billion and a net debt ratio decrease to 10.4%, with expectations of dropping below 10% by year-end.
Full Transcript
OPERATOR
Hello and welcome to the Equinor analyst call. I would like to turn the call over to Bart Glad Petersen, Head of Investor Relations. Bart, you may begin.
Bart Glad Petersen, Head of Investor Relations
Thank you, operator, and good morning all. Thank you for joining the analyst call for Equinor's second quarter results. Our CFO, Torgrim Reitan, will as usual present the results before we open for a Q&A. You can already now sign up for questions by pressing star one on your phone. We plan to complete the session within one hour in total and with that I hand it to you to take us through the results.
Torgrim Reitan, CFO
Thank you, Bart, and good morning, and thank you for joining us and I hope you are all enjoying your summer. Today, it is five weeks since our capital markets day where we shared with you our updated plans to deliver more energy, growing cash flow, and superior returns. We showed you an improved portfolio delivering production growth of 150,000 barrels per day to 2030, a growth in cash flow from operations of 30%, and an industry-leading 15% return on capital employed.
With this we expect to deliver over $40 billion in free cash flow towards 2030. And not to forget, we presented a breakeven after dividend of $50 per barrel. This is a reduction of this breakeven price of $10 per barrel. In the second quarter we took several concrete steps to deliver on this. On the Norwegian continental shelf, we awarded the contracts for the first wave of tieback projects. This is an important first within our new NCS 2035 operating model, aiming to double the speed of developments and reduce costs by half.
The contracts awarded for the first wave support these improvements. We continued to use business development as a tool to harmonize ownership across licenses. We have done this through a series of swaps with DNO, Aker BP, and Vår Energi, supporting progress on the Ringwe Vest project. Internationally, we took the final investment decision for the Greater Parche project in Angola where we expect to generate more than $50 per barrel in cash flow from operations.
Greater Parche is an important step in building longevity within the international E&P business and growing cash flow from operations by 80% towards 2030. We also delivered strong results in the quarter. Production grew by 3% with well executed turnarounds and new fields like Irene and Simra coming on stream during the quarter. With this we capture value from higher prices and our trading business captures value uplift from increased volatility, delivering strong contributions to our results.
This quarter we report adjusted operating income of $11 billion before tax and an IFRS net income of $4.8 billion year to date. Our cash flow from operations after tax has been strong at $13.7 billion this quarter. Our adjusted earnings per share were $1.33. While energy markets remain impacted by geopolitical unrest, we continue to focus on what we control: our operations, how we remain robust through price cycles, and our commitment to cost and capital discipline, then to capital distribution.
At our capital markets day we announced a doubling of the share buyback program for 2026 from $1.5 billion to $3 billion. We follow up this now and for the quarter the board approved an ordinary cash dividend of $0.39 per share and a third tranche of share buyback of up to $1.125 billion, including the state's share. So let's dive into our results. First, let me start with safety, our top priority. Our serious incident frequency and personal injury rate remained relatively stable in the second quarter.
We have seen a slight increase in both metrics this year when compared to 2025. We are working very hard to learn from incidents to improve safety and performance. In the second quarter we produced 2,165,000 barrels per day, up 3% from the same quarter last year. On the NCS our production is up 4%, mainly driven by new fields like Johan Castberg, Halten East, and Verdande. Now we are adding also Irene and Simra, which came on stream this quarter.
Let me also highlight that we saw another quarter of strong performance from Johan Sverdrup. We have previously indicated a decline of 10% to 20% this year from that asset. Based on the strong performance so far, we now expect it to be at the low end of this range. NCS production was impacted by planned turnarounds and maintenance and also Johan Castberg coming offline for a period towards the end of the quarter and into July. Johan Castberg is now back at plateau after production resumed last week, implying that the impact will be larger in the third quarter than in the second quarter.
Internationally, the increase was driven by Adura in the UK and Bacalhau in Brazil. The growth more than offsets the decrease from our reduced ownership in Peregrino and the divestment of the onshore Argentina assets. During the first half of 2026 we have delivered in total a very strong production growth of 6%. Therefore, our guidance of a 3% growth for the full year is now more robust than when we started the year, even taking into account the issues at Johan Castberg and the planned turnarounds.
Also in the third quarter, within power we produced 1.2 TWh this quarter; the growth is from Dogger Bank in the UK and new onshore assets. Now to our financial results. Liquids and European gas prices were higher than the same quarter last year while US gas prices were lower. This has impacted our results across the segments. Adjusted operating income in E&P Norway totaled $9.2 billion before tax and $2.1 billion after tax. In our international E&P business, prices increased around 50% but operating income almost doubled based on production growth of 4% and increased quality in the portfolio.
Our E&P US results were driven by high offshore production with higher prices, partly offset by lower gas prices. In the US, MMP delivered $777 million pre-tax, well above the guiding of $400 million per quarter. This was driven by crude trading and strong performance at our refinery Mongstad, capturing value from higher margins. Our power results reflect a strong contribution from power trading for the second quarter in a row. In total, we have nearly doubled our adjusted operating income after tax compared to last year, demonstrating the improvements in the portfolio and our ability to capture value in higher price environments.
This quarter cash flow from operations was $14.8 billion. Before tax we paid $7.1 billion in taxes, including three NCS instalments summing up to around $6.4 billion. Next quarter there will be two payments of 23.3 billion Norwegian kroner each. Also in the second quarter we received a quarterly cash distribution from Adura of $150 million. The sale of the Argentina onshore assets resulted in cash proceeds of $558 million in the quarter, in addition to $88 million in proceeds received in the first quarter.
We also recorded a gain of $467 million during the second quarter. Our financial position in Scatec was partially divested for $171 million during the quarter. Here we have an accumulated recorded gain of $61 million. Organic capex was $3.4 billion and our net cash flow before distribution was positive $5.5 billion. This quarter we distributed $1.1 billion to our shareholders. We strengthened our balance sheet and have a solid financial position with around $24 billion in cash and cash equivalents.
Working capital, which is not included in our cash flow from operations, decreased by $1.8 billion to $3.6 billion. This is a lower level than what we usually have. Our net debt ratio decreased to 10.4% this quarter despite three tax installments paid and the state's share of the buyback from last year booked as a finance debt. The state's share of share buyback was paid in early July and the cash flow impact will be as such in the third quarter.
At current forward prices we expect the net debt ratio to be somewhat below 10% at the end of the year. And now to our guidance where there are no changes. Our progress is in line with our communicated outlook both in terms of production, capex, and capital distribution. And finally, to conclude I will refer you back to a slide from our capital markets day five weeks ago. The second quarter results demonstrate execution in line with the plans we presented to deliver more energy: 150,000 barrels per day production growth to 2030, a growing cash flow, a 30% growth in cash flow from operations, and superior returns.
We will continue to lead the industry on the return on capital employed, and we aim for 15% through this decade. So now thank you very much and I look forward to your questions. So back to you, Bart.
Bart Glad Petersen, Head of Investor Relations
Thank you, Torgrim. And we are ready to start the Q&A. We have a good list already. But let me remind you that you can sign up for asking a question by pressing star one on your phone. We ask that you limit yourself to two questions each. First we have Theodor Svennilssen from SpareBank 1 Markets, and please Theodor, go ahead, your line is open.
Theodor Svennilssen, Analyst at SpareBank 1 Markets
Thank you. Good morning, Torgrim and Bart. Two questions left for me. First, on the Castberg production. As far as I understand, there's still some trouble going into Q3. Just wondering specifically if you can indicate what you expect as net production from Castberg in Q3. And the second question is on downstream and MMP. We definitely have observed strong refinery margins going into the third quarter. Could you comment on the profitability at Mongstad so far in third quarter and what you expect during the second half of this year?
Torgrim Reitan, CFO
Okay, thanks, Theodor. So as far as I got, the first question was about Johan Castberg, right. So we have had some issues related to the turbines' heat waste that took, you know, three weeks—or 18 days—to get in order. We had it back in production from 13 July, meaning that the impact of that stop is around 14,000 barrels per day for next quarter. So that is up and running again. You know, it is a field that is producing very well, clearly, but it is still in a run-in period.
So there might always be some operational issues when you have a new field getting there. But no, that's the situation on Castberg. On the—
Theodor Svennilssen, Analyst at SpareBank 1 Markets
The 14,000—sorry, the 14,000, is that net to Equinor or gross?
Torgrim Reitan, CFO
Yeah, that is Equinor impact. Okay, so then on the MMP results. So strong results, where Mongstad is contributing well, with very high regularity. This is part of the Other group in the MMP reporting. So it clearly creates significant value at the current refinery margins. To say a little bit about the refinery situation and the margin in Europe: clearly the oil market is tight, but the product market is even tighter. And if you look at the FCC margin for the second quarter, it was actually at some $25 per barrel, which is very significant.
We don't give a specific margin for Mongstad, but clearly it is significantly above what it costs to run it—at breakeven. So far into this quarter, it continues to deliver strong results. I encourage you to follow the general refinery margins going forward and that will directly impact the Mongstad delivery.
Bart Glad Petersen, Head of Investor Relations
Thank you. Thank you, Theodor. Next one on my list is Biraj Borkhataria from RBC. Biraj, please go ahead.
Biraj Borkhataria, Analyst at RBC Capital Markets
Hi there. Just one question from me. Your partner Bay du Nord gave up their stake and you were targeting FID in 2027. So are you comfortable to push that project forward at 100% or would you look to farm it down before progressing it? And maybe you could just talk a little bit about the sort of Canadian support for that project, because it looks like there's quite a lot of movement and sentiment change on the politics side in Canada recently. Thank you.
Torgrim Reitan, CFO
Okay, thank you. Thank you very much, Biraj. Yeah, so BP is sort of handing over the ownership in that asset to ourselves. There will be ultimately a minimum payment for us for this share, subject to a final investment decision, but a minimum one compared to the size of the opportunity here. So the timeline, there's no change to that. We aim to sanction it in 2027. And then, you know, we are working on bringing in another partner with us in this project.
It is an attractive one, fully supported by the Canadian government. And as you would understand, in the current environment, energy security for all countries is very high on the agenda. And the same goes for Canada. So this is an attractive investment opportunity that we look forward to realizing together with the Canadian government and potentially additional partners.
Bart Glad Petersen, Head of Investor Relations
Thank you, Biraj.
Biraj Borkhataria, Analyst at RBC Capital Markets
Thank you.
Bart Glad Petersen, Head of Investor Relations
Thank you. The next one is Santander, Alejandro Vigil. Alejandro, please go ahead with your question.
Alejandro Vigil, Analyst at Santander
Yes, thank you for taking my questions. I missed the beginning because I had some problems. So I don't know if someone asked about the European natural gas market, your expectation for the second half of the year in general, how you see the balance of demand and supply in the market. And the second question is related to that. We are seeing a very strong energy commodity environment, very strong cash flow. Your leverage now probably will be below 10%.
According to your comments, is there any room for additional buybacks this year above the 3 billion that you are guiding now? Thank you.
Torgrim Reitan, CFO
Okay, thank you very much, Alejandro. Two very important and large questions. So let me take the first one first on the European gas situation. So it is a vulnerable situation and we might enter the autumn and winter with large uncertainties. So clearly the fact that the Strait of Hormuz is where it is sort of shuts in around 20% of the global LNG, you know, and restricts the global flows of LNG and that directly impacts Europe because currently around 30% of the supply will have to come from LNG, and Europe will compete particularly with Asia for that.
And then when we combine that with a storage situation in Europe where the storage filling is at 53%, which is more than 15 percentage points below a normal situation or average, it leads to a fairly tight situation. So, say that the situation around Hormuz is normalizing and we are back to sort of regular flows of LNG. Still, we do not believe that Europe will get to 80% storage filling before the winter and we'll be below that. So that is the situation.
Also worth mentioning is that Russian gas will leave Europe. I mean, this year LNG is going to be stopped and next year the remaining piped gas. So there will be even more LNG that needs to come to Europe. So first of all, we do hope the situation settles and that we can get back to normal, but we just need to be prepared for volatility and uncertainty in the European gas market. You would know that we are very well placed to provide reliable energy into a situation like that, which we take very, very seriously.
We have a cost of our gas of $2 per MMBtu currently selling into a close to $20 market, just illustrating how important the Norwegian gas is for Europe. We are the largest energy provider to Europe and we will continue to take that very, very seriously. Then your second question, strong cash flow, leverage, and the potential for additional share buyback. So, you know, we aim to run with a very solid balance sheet. We have currently a net debt ratio of 10.4%.
Based on the forward curve, as they looked a couple of days ago, we expect it to be somewhat lower than 10% by year-end and, you know, with a strong cash flow naturally. And we intend to run with a very solid balance sheet and particularly in high price environments to build balance sheet to be able to manage low price environments well. As such, then the question related to whether there is a potential for more share buyback this year. The answer to that is no. When we entered this year we expected, of course, much lower oil and gas prices than what we have seen. The way we have distributed or used that additional cash is first and foremost we have increased our investment into oil and gas with $1 billion more in Norway, more internationally, actually adding to the production outlook in 2030. Secondly, we are strengthening the balance sheet. You know, as we entered 2026, the plan was to lean on the balance sheet.
We will no longer need to do that. We're actually strengthening the balance sheet. And the third priority is actually to double the share buyback for the year. So we think this is the best way to create shareholder value and allocate capital in this environment. From next year there is a new framework in place and we look forward to discuss that with you at our fourth quarter results in February next year.
Bart Glad Petersen, Head of Investor Relations
Thank you, Alejandro. Next question is Henri Patricot from UBS. Henri, please, your line is open.
Henri Patricot, Analyst at UBS
Yes, thank you, Bart. Two questions from me, please. Just the first one, to come back to the question on European gas and maybe more specifically for Equinor, given the much higher prices that we're seeing at the moment, I was wondering if there's any flexibility on your side to increase natural gas production in the second half of the year and exports to the European market. And secondly, thank you for the update on Johan Sverdrup production for the year.
Good to see the good performance continues in the second quarter. Hoping you could elaborate on what is driving the outperformance. And the new guidance seems to imply that there should be still quite a large drop in the second half of the year versus the first half. So could we still see even further outperformance in the second half of the year?
Torgrim Reitan, CFO
Okay, thank you very much, Henri. So when it comes to the overall production of gas to Europe, we are already producing at maximum in the short term, so there's no additional overall volumes that can be made available. When that is said, you know, we have flexibility in our production system and we have flexibility in our transportation system. So we will be able to get the natural gas to where it is needed the most and where the price is highest.
So typically what we have seen over the last year is that German prices have been higher than, you know, British prices. So more gas has actually gone to Germany in those periods. So we will continue to optimize around the volumes that we have to provide Europe with gas where it is needed the most. Second point on this one is that you are all well aware that we keep all our exposure to natural gas prices floating and we also keep it very exposed to the prompt.
We have a 70% exposure to day-ahead prices and 30% to month-ahead. So, meaning volatility in prices will happen. We will be able to steer our gas to where that volatility is and capture the values from that as such. So we will expect, and we do expect, more volatility during the next year within that market. Then on Johan Sverdrup. So clearly we are using a lot of effort and all our competence to make the most out of Johan Sverdrup, and it continues to deliver better than we had planned.
At the point of sanctioning we expected a recovery rate of 65%. Now it's actually 75% that we look at. And we increased the plateau level and we have been able to reduce decline more than we have expected. If I should point to two activities or technologies that are really making a big difference here, the first one is our ability to manage water because as a field matures you start to produce more and more water and then you need efficiently to manage that.
That has gone very well. So as we manage water very efficiently, we make room for more oil production. So that is a very important activity. The second one is well placement. So we have now started to retrofit wells with multilaterals, you know, wells that already have been produced, and then splitting into several wells from one wellbore. That has also continued to deliver very well, and we will continue with more of those during the year. So first half of the year has gone very well.
We will continue to do our very best with Sverdrup and we'll see how that goes in the second half of the year.
Bart Glad Petersen, Head of Investor Relations
Thank you, Henri. Michele Della Vigna from Goldman Sachs is up next. Michele, please go ahead.
Michele Della Vigna, Analyst at Goldman Sachs
Thank you very much. Good to see the contribution of the Adura joint venture this quarter. I was wondering if you could elaborate a bit there. The company certainly has a lot of stability space to gear up and finance itself. What should we expect in terms of dividend from it in the next 12 months? And then secondly, you are ramping up more frontier, high-impact exploration. I was just wondering if you could lay out, by the end of the year, what should be the high-impact wells we should be looking forward to.
Thank you.
Torgrim Reitan, CFO
Okay, thanks, Michele. So first on Adura. We are very satisfied with having set up that company together with Shell, clearly transforming our cash flow out of the UK from actually a negative cash flow due to investments to a positive contribution. So we have received $150 million in capital distribution in the first quarter and we have also received that now in the second quarter. Over '26 and '27 we expect more than a billion dollars in capital distribution altogether from Adura.
And then you asked a question about there being potential to gear up the company. Adura has raised around 3 billion pounds in debt. So it is already, you know, fairly, you know, levered to an appropriate level as such, giving them even more capacity to make business. Then on the exploration activities. So clearly exploration activity is very important to us. We are drilling, you know, 120 wells per year. Many of these wells are wells close to infrastructure on the Norwegian continental shelf.
But actually 20% of the wells in Norway are towards standalone opportunities. So there is a continued flow of opportunities with higher impact and higher upside but of course higher risk as well. Internationally the program this year is mainly within ILX opportunities in Angola, similar type of opportunities that we see in Norway. And then we have lined up several high-impact opportunities internationally and, if I should mention a few, it is actually Brazil where we intend to drill a few high-impact opportunities through '27 and '28, among others, the neighboring block to Bumurong in the southern part.
So excited and we'll see where this brings us.
Michele Della Vigna, Analyst at Goldman Sachs
Thank you.
Bart Glad Petersen, Head of Investor Relations
Thank you. Thank you, Michele. The next one is Martijn Rats from Morgan Stanley. Martin, your line is open.
Martijn Rats, Analyst at Morgan Stanley
Yeah, good morning. So two questions for me, if I may. I briefly wanted to ask you about the production guidance because I don't think I've fully understood what you said. As in, you said that with the results achieved in the first half, the full-year production guidance is now better underpinned. I just want to make sure I've got that correct. But also, if, given the result of the first half, doesn't the full-year production guidance now imply a deceleration or a sequential decline into the second half, suggesting perhaps that there may be some upside?
I was hoping you could clarify that. And the other point I wanted to pick you up on is the gas price realizations in the United States, and they'd fallen more, at least, than we modeled. And I was hoping you could say a few things about it. There seems to be a lot of basis risk and a lot of very local circumstances going on. Last quarter you got that position very strategic and looks only one quarter, so that's probably the case. But I was wondering if you could say a few things about whether that position is still developing as you initially expected.
Torgrim Reitan, CFO
Okay. Thank you. Thank you, Martin. So first on production guidance. Very strong operations in the first half of the year and better than we planned for when we started the year, clearly coming out of good regularity across operations, super delivery from operational organizations. And also the ramp-up of new fields has gone well. We talked about Johan Sverdrup as one example. So far this year, you know, 6% growth in a way. I just want to say that it was actually planned for the growth for the year to be tilted towards the first half of the year based on the ramp-ups of Bacalhau, Johan Castberg, and new start-ups as such.
So that was always the plan. But you also say that the expectation for the full year is more robust. We have decided not to increase the production guidance, but clearly we will follow this very closely and we will revert in the third quarter on production naturally. So we'll see. We'll keep it as it is, but it is a more robust guidance. The second, the gas price realization. If you look at the quarter as such, Henry Hub came in at $2.9; our average gas price in North America was $2.3.
So a discount of 0.6, which is actually lower than it normally is; it's a little bit higher than that normally. In general, we are located in the most attractive acreage and basins with very low unit production costs. So this continues to be a very strong contributor to our results. Prices were down compared to last quarter last year by 16%, but still making significant value out of it.
Bart Glad Petersen, Head of Investor Relations
Thank you, Martin. Next one is Fergus Neave from Rothschild. Fergus, please. Your line is open.
Fergus Neave, Analyst at Rothschild
Morning everyone. Thanks for taking my question. Just the one from me. Looking at MMP, which delivered another strong quarter given the volatility we saw, I was just wondering if you were able to comment on the drivers of the relative mix within the results between gas, oil, and refining, and the movements in those quarter on quarter. And then whether you could also comment at all on what you've seen in terms of volatility in gas and oil markets in the current quarter, noting that you've already commented a little on the refining side of things.
Thanks a lot.
Torgrim Reitan, CFO
Thanks, Fergus. Another strong quarter from the marketing and trading organization. We talked about refining at Mongstad as a key contributor. The other one that sticks out this quarter is the crude trading with significant contributions to the results, larger than what you should expect. LNG is also doing better than expected, while the normal gas trading is on par with what you should expect; that doesn't stick out as something special. What we typically see as drivers for the results in MMP going forward is clearly volatility; it means a lot. Geographical dislocations meaning there are arbitrage opportunities geographically, both on the oil side and on the gas side—key drivers. And then, of course, if there are things on the curve that give us opportunities with time arbitrage as well. We have guided on a normal quarter of around $400 million per quarter; that remains intact. And we have also said that over time we expect to increase our guiding to around $500 million.
So this is a special quarter, clearly driven by events in the world, geopolitical events, and we just need to be prepared that the results within this segment will fluctuate.
Bart Glad Petersen, Head of Investor Relations
Thank you, Fergus. Next up is Nash Kiwi from Barclays. Nash, please go ahead.
Nash Kiwi, Analyst at Barclays
Hey, good morning everyone. Thanks for taking my questions. I have two left, please. The first one is Bay du Nord. It's a very big, over $10 billion CapEx project. I wonder how sensitive the project economics are to the carbon service cost inflation. And could you remind us what return threshold you are requiring before sanctioning it next year? And then my second question is one of your Norwegian peers reported about 6% to 7% CapEx inflation for its two large growth projects.
I wonder if the NCS CapEx cost is a concern for Equinor as well, and if you can comment on how you have been managing the cost, please. Thank you.
Torgrim Reitan, CFO
Okay, thank you, Nash. So the first question was related to Bay du Nord. It is a very significant project and large project with a large CapEx, $9 to $10 billion. We have worked over time to significantly improve that over the last three years to now be a very robust and good project. We have been able to limit cost increases, and we have actually scaled down the scope of the development and maintained very attractive returns. So this is returns well above what we set as a threshold for investments on the Norwegian continental shelf.
And your question was more in general how we manage cost and all of that. I think you know as well that we have a very, very diligent way of continuing to improve our business and improve our projects, taking out scale and synergies and all of that. There is one key number that we often use, and that is the broader breakeven related to new developments. That is now below $40 per barrel, and that has actually remained at that level over many, many years, even if we have, say, 5% inflation one year, 10% the next year, and 5%.
So there is an underlying drive to improve and take out cost in the system. We have been able to maintain that even if we have seen inflation. Second point is that clearly we are a very large developer, particularly in Norway, so we have been able to get contracts on frame contracts, long-term contracts, and develop things on a portfolio level. Last point I would like to make is everything that we now do around NCS 2035, where we do a massive standardization and massive simplification of the new developments, and we expect that to lead to reduced CapEx—not increased, but reduced CapEx by 50% through this portfolio.
So even with inflation, we will be able to reduce our investment levels on the Norwegian continental shelf. This is a key part of what we discussed with you on the Capital Markets Day, and we will continue to come back to this topic as we progress.
Bart Glad Petersen, Head of Investor Relations
Thank you, Nash. Next is Matt Lofting from JP Morgan. Matt, please go ahead with your questions.
Matt Lofting, Analyst at JP Morgan
Thanks for taking the questions and the update. Two quick ones from me. First, just on gas, I wondered, Torgrim, if you could add any perspectives on the demand baseline that you're seeing in Europe currently—perhaps particularly the industry segment, which has tended over the last few years to be a bit more sensitive to price and supply uncertainty. And then second, just within the moving parts on gearing, I wondered if you could expand on the working cap baseline and, ex-price effects, perhaps what you're expecting there for the second half of the year.
If I heard right earlier, I think you said that the inventory baseline was a bit lower at this point in the year than would normally be the case. Thanks.
Torgrim Reitan, CFO
Okay, thank you very much, Matt. When it comes to the industrial demand for natural gas in Europe, that has come down after the war in Ukraine. We actually see some 25% down on the industrial demand lately—fairly stable, actually—but there is a reduction in demand. When that is said, the European gas market, if you look at what is needed of new gas to the market, that is actually growing. So there's a growing need for gas in Europe even if industrial demand has come down.
And we do expect that the LNG share of the market will have to grow from around 30% today to actually 50% by 2030. Even with that, we see a rather tight situation over the next few years. Second question on gearing and working capital. We saw a reduction in working capital for the second quarter of 1.0 billion, and working capital level is now at 3.6. That is lower than normal. It comes from reduction in inventories and also a reduction in accounts receivable.
And we have also actually fewer cargoes in transit at the end of the quarter due to shorter sailing distance from current trading that we are doing. Going forward, we don't provide a guiding on working capital, but the absolute price level is clearly an important determinant of working capital. In general, you could say that if prices are low, working capital should be low. If prices increase significantly, working capital is expected to be higher, but actually net debt then will go down.
So those things hang together. Working capital clearly will also flex somewhat. It will.
Bart Glad Petersen, Head of Investor Relations
Thanks, Matt. Next up is Chris Kuplent from Bank of America. Chris, your line is open.
Chris Kuplent, Analyst at Bank of America
Yeah, thank you very much, Torgrim. Two quick questions I've got left. Firstly, could you update us on the proceeds still to come from the Peregrino disposal, and any update you can give us on timing? And a second question: remembering '22 and '23, how much flex is there, or how much appetite is there to use flex for pulling forward tax payments into the year? What's your current thinking there around the flexibility that you do have in the Norwegian system?
Thank you.
Torgrim Reitan, CFO
Thank you very much, Chris. So, Peregrino: we have divested that in two tranches. We own 60%, so it's a 40% part and it's a 20% part. The 40%—we have received the funds. The total headline consideration is $3.5 billion as such. So the first transaction, the 40%, that is all settled and we have received the money for that. The second transaction is the remaining 20%. This is currently classified as held for sale in our books, and there are still some ongoing things related to that part.
We do expect that transaction to close maybe towards the end of this year, early next year, but of course we are not in full control of everything around that process. So that is what we do expect. Then on the tax, just on the...
Chris Kuplent, Analyst at Bank of America
Number, Torgrim, is most of that item held for sale backed up by Peregrino?
Torgrim Reitan, CFO
So that is. Yes, that's right. That's right. So that is. It means that sort of revenue, cost, and production is reported as normal, but we don't report depreciation for it as it is, you know, held for sale. Then your second question about the tax payment for this, you know, going forward, and I guess you think about Norway. In the first half of the year, we paid—each installment was around 20 billion kroner. And we have now indicated to the state that we will pay 23 billion kroner per installment.
There are two installments in the third quarter and three installments in the fourth quarter. So it's an increase of some 16% or something like that. So when we set that, and we have to inform the taxman what we're going to pay, we made a judgment of sort of increase and higher price as such. So there are no plans to make adjustments to that. However, there is an opportunity to increase it at a point in August, but we have no concrete plans for that currently.
Bart Glad Petersen, Head of Investor Relations
Thank you, Chris. Next one is Sadnan Ali from HSBC. Sadnan, please go ahead.
Sadnan Ali, Analyst at HSBC
Hi there. Thanks for taking my questions. Just a couple on unit production costs, please. Firstly, in February with the full-year results, you had a target to reduce your unit production cost to $6 per barrel for 2026 specifically. But it looks like that was removed with your first-quarter results in May. So I just wanted to ask what led to that target being removed quietly, if it was. And secondly, and related, at the June CMD, you introduced a $6 per barrel unit production cost target, but averaging over 2026 to 2030.
For your international portfolio specifically, you're expecting a 30% reduction, under $5.50 per barrel. But what about for NCS specifically? Could you share what your current unit production costs are for the NCS and how you think about that trajectory out to 2030, please?
Torgrim Reitan, CFO
All right. Thanks, Sadnan. So clearly unit production cost is a very important metric for us, and we follow that very closely. We had a slide actually in the Capital Markets Day presentation deck showing that we are at around $6 while our peers are around $8. So we continue to operate on a very competitive cost level. So the $6 UPC for 2026—that is sort of a combined number across the portfolio, and it's approximately what we do expect for 2026, and EPI and EPN is broadly on the same level as such.
Then in our Capital Markets Day we said $6 per barrel towards 2030 and $5.5 for International. So clearly, you know, broadly the same level in Norway and International towards 2030. While we're at it, you know, this is clearly a key metric to measure when it comes to cost. But we have also set a target for the year that we are going to reduce our operating costs and administrative cost, SG&A, by 10% compared to last year. So if you study your numbers you actually see that there is an increase of 11% year to date, or in the second quarter.
And I just want to provide you with some color to that, because that is very much driven by increased transportation cost related to higher production, and also higher operating and maintenance cost due to more assets under operations. If we strip out transportation cost and royalty, we actually have a reduction of 6% compared to last year. And if you then strip out currency impact that we don't have an impact over, it's actually minus 10%. So we are on track to deliver on this, and this is clearly something that we follow very diligently as such.
Bart Glad Petersen, Head of Investor Relations
Thank you, Sadnan. I have a few left on my list. Let's try to cover as many as possible before we close at half past as planned. Jun, you are next from ABG Sundal Collier. Jun, please go ahead.
Jun, Analyst at ABG Sundal Collier
Thank you, and thanks for taking my question. Two questions. First, Roncador Field has experienced technical issues that have hampered production over the last three quarters. Could you tell us what is the issue and when do you expect that to be solved? That was question number one. Number two is related to Adura. The result jumped from minus $90 in Q1 to plus $90 in Q2. And in Q2 you said there was higher depreciation due to change of principles that had lowered the results.
I just wonder now, have the depreciation charges or principles been changed again? I just wonder. So two questions.
Torgrim Reitan, CFO
Okay, so if we take the question first. You're right, it goes from minus 94 to minus 91 to plus 94. So I think first of all that is driven by higher realized prices in the second quarter. That is an important parameter. Also, in the first quarter there were some one-offs related to establishment of the new company. And there are no changes in depreciation principles through all of this. When that is said, you know, we have received a dividend of $150 million both in first quarter and second quarter, which is higher than the reported earnings or net profit, in a way.
So that leads to that the dividend or the capital distribution received is not part of the cash flow from operations that we have reported. It is a subtraction to the investment cash flow as such. That's the way it's treated accounting-wise. So actually the cash flow from operations is a tad stronger than what you should read through, you know, the first glimpse of this number. When it comes to Roncador, there have been some operational issues, but we are not operating there, and I think it's better for Petrobras to respond to that.
Clearly, we are supporting them and are working very, very closely with them. So, thanks, Jun.
Bart Glad Petersen, Head of Investor Relations
Thank you, Jun. Next one is Jason Gabelman from TD Cowen. Jason, please go ahead.
Jason Gabelman, Analyst at TD Cowen
Yeah, hey, thanks for taking my question. Just one quick one from me. I'm wondering if the kind of lower gas prices in the US have impacted or have opened up the acquisition window a bit more. I know you've been focused on expanding your non-Appalachia footprint. So just any thoughts there would be great. Thanks.
Torgrim Reitan, CFO
Thanks, Jason. Yeah, I mean we do believe that natural gas is an attractive commodity to be part of going forward, both in Europe but also in the US, and you have seen us doing some significant transactions and acquisitions in the space over the last couple of years, bringing the position up to a very, very significant one. So, you know, going forward, we will first and foremost be interested in creating the maximum value out of it. And then if there are opportunities, you know, we will always consider that.
But nothing to say around that. In general, when it comes to M&A, we have been very active over the last few years, both selling and divesting.
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