Equinor Cancels Key Offshore Wind Projects Amid Rising Costs

Equinor ASA EQNR, a Norwegian energy giant, announced the cancellation of its offshore wind projects in Spain and Portugal, following a previous similar decision to exit Vietnam.

This strategic withdrawal came at the heels of the company facing mounting costs in the offshore wind sector due to inflation, high interest rates and supply chain delays. The company's head of renewables, Paal Eitrheim, shared these updates in an interview with Reuters on Wednesday.

EQNR Navigates Rising Costs by Exiting Key Wind Markets

Equinor's decision to exit Spain, Portugal and Vietnam highlights the financial challenges currently plaguing the offshore wind industry. The sector has been hit hard by inflation and increased interest rates, causing projects to be more expensive and time-taking.

Eitrheim mentioned that Equinor has been exploring early-stage opportunities across various global markets and confirmed the company's decision to exit Vietnam, Spain and Portugal. He also hinted at EQNR's withdrawal from other markets in the future as part of its efforts to better manage its expenses.

The company has been compelled to reassess its capital allocation priorities as the cost pressures continue to mount. Eitrheim noted that increasing expenses are extending timelines in several global markets.

Equinor's Renewables Ambitions and Adjustments

Despite these exits, Equinor remains committed to its long-term renewable energy goals. The company aims to reach 12-16 gigawatts (GW) of installed renewable energy capacity by 2030. This suggests a significant increase from 0.9 GW in 2023. However, Eitrheim highlighted that the target is flexible and might change, as the company is not willing to compromise profitability for the sake of achieving 12-16 GW of capacity, reinforcing its focus on financial sustainability.

He noted a "two-track pace of development" within the renewables sector, with onshore wind and solar projects being less affected by the rising costs compared to offshore wind. This differentiation may influence Equinor's future investment decisions as it navigates the challenges of the current market environment.

EQNR's Ongoing Projects and Outlook

Despite the strategic exits, Equinor's renewables division is entering a period of significant activity. The company is currently constructing the first phase of the Dogger Bank offshore wind farm in the UK, in collaboration with SSE and Vaargroenn. Additionally, Equinor is nearing the final investment decision on its Empire Wind project near New York and two Baltic Sea wind farms in Poland. These projects are expected to drive the next phase of growth for Equinor's offshore wind portfolio.

Despite the recent setbacks, Eitrheim is optimistic about the future of Equinor's offshore wind business. He believes that the current projects will drive the next phase of growth. While the company remains committed to renewable energy development, it will adopt a more cautious approach to new investments.

Equinor's recent decisions highlight the challenges facing the offshore wind sector amid economic setbacks. While the company is withdrawing from certain markets to manage costs better, it continues to pursue significant projects that align with its strategic goals and financial priorities. As the renewables sector evolves, Equinor is positioning itself to remain a key player by focusing on profitability and sustainable growth.

EQNR's Zacks Rank & Key Picks

Equinor currently carries a Zacks Rank #3 (Hold).

Investors interested in the energy sector may look at some better-ranked stocks like SM Energy Company SM, MPLX LP MPLX and TechnipFMC plc FTI. While SM Energy and MPLX currently sport a Zacks Rank #1 (Strong Buy), TechnipFMC carries a Zacks Rank #2 (Buy).

SM Energy is set to expand its oil-centered operations in the coming years with an increasing focus on crude oil, especially in the Permian Basin and Eagle Ford regions. The company's attractive oil and gas investments should create long-term value for its shareholders.

The Zacks Consensus Estimate for SM's 2024 EPS is pegged at $7.57. The company has a Zacks Style Score of A for Value. It has witnessed upward earnings estimate revisions for 2024 and 2025 in the past 30 days.

MPLX derives stable fee-based revenues from long-term contracts, with minimal exposure to commodity-price fluctuations. The partnership's robust capital expenditure forecast for 2024, along with significant expansion initiatives, underscores its commitment to sustainable growth.

The Zacks Consensus Estimate for MPLX's 2024 EPS is pegged at $4.29. The company has a Zacks Style Score of B for Value. It has witnessed upward earnings estimate revisions for 2024 in the past seven days.

TechnipFMC is a leading manufacturer and supplier of products, services and fully integrated technology solutions for the energy industry, with a focus on the subsea segment in offshore basins worldwide. FTI's growing backlog ensures strong revenue visibility and supports margin improvements.

The Zacks Consensus Estimate for FTI's 2024 EPS is pegged at $1.34. The company has a Zacks Style Score of B for Value. It has witnessed upward earnings estimate revisions for 2024 and 2025 in the past 30 days.

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