Statoil ASA’s (STO) first-quarter 2011 earnings of 48 cents per ADR were well below the Zacks Consensus Estimate of 75 cents. The underperformance was largely due to lower production volumes. However, the quarterly results showed a marginal improvement from the year-earlier earnings of 47 cents, attributable to higher liquids and gas prices.
Adjusted net income after-tax in the quarter stood at NOK 11.9 billion ($1.52 billion), down from the year-earlier level of NOK 12.1 billion ($1.49 billion).
Total revenue improved 13% year over year to NOK 145.6 billion ($18.6 billion), aided by higher liquids and gas prices. However, this was partially tempered by lower liquids and gas volumes.
Operational Performance
In the reported quarter, equity and entitlement production decreased 6% and 8%, respectively, from the year-earlier quarter. The decrease was due to lower production volume in the mature fields, production suspension in Libya as well as issues at the Shah Deniz field in Azerbaijan, along with various operational issues in Angola and the Norwegian Continental Shelf.
Total oil and gas equity production averaged 1.971 million barrels of oil equivalent per day (MMBOE/d), 57% of which was oil and 43% natural gas, compared with 2.102 MMBOE/d in the year-earlier period.
Total oil and gas entitlement production averaged 1.765 MMBOE/d during the quarter, 54% of which was oil and 46% natural gas, compared with 1.915 MMBOE/d in the year-earlier period.
Total oil and gas liftings were 1.698 MMBOE/d, compared with 1.929 MMBOE/d in the prior-year quarter. The company’s realized oil prices averaged $100.9 per barrel, up approximately 36% year over year, while natural gas price realization averaged NOK 1.97 (25 cents) per standard cubic meter, up approximately 20% from the year-earlier level.
Financials
During the quarter, total capital investment was NOK 24.8 billion ($3.2 billion) and operating cash flows were NOK 20.4 billion ($2.6 billion). Net debt-to-capitalization ratio stood at 18.9% (down from 24.6% in the preceding quarter).
Guidance
Statoil highlighted that its equity production would be steady or lower in 2011 compared with 2010. Management also said that it would deliver a compound annual production growth rate of around 3% between 2010 and 2012. Statoil expects turnarounds to have a negative impact on the equity production of around 50 MBOE/d for 2011, of which most are liquids.
The company expects capital expenditures to be around $16 billion and exploration activity of around $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) and hence 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 Sea, and intends to recover 4.2 billion barrels of oil equivalent in the coming years. This will enhance the company’s volume growth prospects going forward. Management is targeting an oil recovery rate of 50% by 2020.
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 #3 Rank (short-term Hold rating).
BP PLC (BP): Free Stock Analysis Report
ROYAL DTCH SH-A (RDS.A): Free Stock Analysis Report
STATOIL ASA-ADR (STO): Free Stock Analysis Report
Be the first to comment