Statoil ASA’s (STO) third-quarter 2011 earnings of 65 cents per ADR failed to meet the Zacks Consensus Estimate of 75 cents. However, quarterly results showed a significant improvement from the year-earlier earnings of 43 cents per ADR, attributable to higher liquids prices.
Adjusted net income after tax came in at NOK 11.4 billion ($2.07 billion), up from the year-earlier level of NOK 8.5 billion ($1.56 billion).
Total revenue leaped 31% year over year to NOK 166.8 billion ($30.4 billion), aided by higher liquids and gas prices. However, this was partially tempered by lower USD/NOK exchange rate and higher depreciation, depletion and amortization and impairments.
Operational Performance
In the reported quarter, equity and entitlement production increased 14% each, from the year-earlier quarter. The increase was due to the start-up of new fields, production ramp up from existing fields, increased ownership shares and extensive maintenance in the third quarter last year. However, natural decline on mature fields, reduced water injection at Gulfaks and suspended production in Libya, partly offset the increase.
Total oil and gas equity production averaged 1.764 million barrels of oil equivalent per day (MMBOE/d) compared with 1.552 MMBOE/d in the year-earlier period. Of the total quarterly output, 64% was oil and 36% was natural gas.
Total oil and gas entitlement production averaged 1.573 MMBOE/d during the quarter (60% oil and 40% natural gas) compared with 1.379 MMBOE/d in the year-earlier period.
Total oil and gas liftings were 1.565 MMBOE/d, compared with 1.383 MMBOE/d in the prior-year quarter. The company’s realized oil prices averaged $107.5 per barrel, up 46% year over year, while natural gas price realization averaged NOK 1.97 (USD 9.45 per million British thermal units) per standard cubic meter, up more than 13% from the year-earlier level.
Financials
During the quarter, total capital investment was NOK 23.9 billion ($4.35 billion) and operating cash flows were NOK 24.2 billion ($4.40 billion). Net debt-to-capitalization ratio was 13.6% (unchanged from the preceding quarter).
Guidance
Statoil expects the same or lower equity production in 2011 compared with 2010. Management also said that it would deliver a compound annual production growth rate (CAGR) of around 3% between 2010 and 2012. Statoil expects maintenance to have a negative impact of around 30 MBOE/d on equity production in the fourth quarter and of 50 MBOE/d in 2011, of which most are liquids.
Statoil aims to hit an equity production of above 2.5 million barrels of oil equivalent in 2020. The growth is expected to come from new projects between 2014 and 2016 that would result in a CAGR of 2% to 3% for the period 2012 to 2016.
The second stream of projects is expected within the 2016−2020 period that would likely lead to a CAGR of 3% to 4%. 2013 production is expected somewhere around the 2012 level.
The company expects capital expenditures of around $16 billion and exploration activity of about $3 billion for 2011.
Outlook
We believe Statoil’s venture to improve recovery of resources in mature fields is commendable. The company has operations in all major hydrocarbon-producing regions of the world, with an emphasis on the Norwegian Continental Shelf (NCS). Consequently, it remains well positioned to sustain its steady production growth for the next few years on the back of its large resource base at NCS.
The company is increasingly shifting its focus to the still-unexplored areas of the Norwegian Seawhich is expected to enhance the company’s volume growth prospects going forward.
Although near-term hiccups remain in the company’s production outlook, we have a favorable stance on Statoil’s long-term production growth attributable to significant investments in domestic fields such as the largest natural gas field, Troll. Competition from its peers BP Plc (BP), Royal Dutch Shell plc (RDS.A) and Total SA (TOT) is also a concern.
Our long-term Neutral recommendation remains unchanged and the company holds a Zacks #2 Rank (short-term Buy rating).
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