Statoil ASA’s (STO) third-quarter 2013 adjusted earnings of 63 cents per ADR beat the Zacks Consensus Estimate of 59 cents. The results were flat year over year. The earnings beat was mainly due to higher oil prices.
Adjusted net income after tax came in at NOK 12.1 billion (US$2.0 billion) in the third quarter versus the year-earlier level of NOK 11.9 billion (US$2.0 billion).
In the third quarter, total revenue increased 2% year over year to NOK 169.8 billion ($28.3 billion), mainly attributable to higher liquids volumes.
Operational Performance
In the reported quarter, both equity and entitlement production increased by 2% and 4% annually, respectively, owing to the ramp-up of production on various fields and production start-up on new fields along with lower maintenance effects.
Total oil and gas equity production averaged 1.852 million barrels of oil equivalent per day (MMBOE/d) in the third quarter compared with 1.811 MMBOE/d a year ago. Of the total quarterly output, 60% was oil and 40% was natural gas.
Total oil and gas entitlement production averaged 1.687 MMBOE/d during the quarter (58.2% oil and 41.8% natural gas) compared with 1.624 MMBOE/d in the year-earlier quarter.
The company's realized oil prices averaged $102.9 per barrel, up 3% year over year, while natural gas price realization averaged NOK 1.97 per standard cubic meter, down 9% from the year-earlier level.
Financials
During the quarter, exploration expenditure (including capitalized exploration expenditure) was NOK 5.9 billion, up from NOK 4.9 billion in the third quarter of 2012. For the first three quarters, operating cash flow was NOK 86.7 billion. Net debt to capital employed ratio increased from 8.3% to 14.3%, mainly due to an increase in net interest-bearing debt.
Guidance
Management reaffirmed its production guidance for 2013. Statoil aims 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, resulting in a CAGR of 2% to 3% for the period 2012 to 2016.
The second stream of projects, expected within 2016−2020, would likely lead to a CAGR of 3% to 4%. For 2013, production is expected to shrink on a year-over-year basis.
The company has projected organic capital expenditures of around $19 billion and exploration activity of about $3.75 billion for 2013. Around 60 wells are slated for completion by this year end.
Outlook
Though we have a favorable stance on Statoil's long-term production growth based on its growing upstream presence in the emerging basins of the Caspian Sea, West Africa and the deepwater U.S. Gulf of Mexico, we remain cautious about its operating risk in Algeria.
Statoil holds a Zacks Rank #3 (short-term Hold). However, there are other stocks in the oil and gas sector – TransAtlantic Petroleum Ltd (TAT), Matador Resources Company (MTDR) and Northern Oil and Gas, Inc. (NOG) – which hold a Zacks Rank #1 (Strong Buy) and are expected to perform better.
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