Statoil ASA’s (STO) second-quarter 2011 earnings of 74 cents per ADR inched passed the Zacks Consensus Estimate of 73 cents. However, quarterly results showed a significant improvement from the year-earlier earnings of 54 cents per ADR, attributable to higher liquids prices.
Adjusted net income after-tax came in at NOK 12.8 billion ($2.35 billion), up from the year-earlier level of NOK 10.6 billion ($1.71 billion).
The rise also shows a NOK 7.5 billion gain from asset sales. The company completed its divestiture program of 40% interest of the Peregrino field, off Brazil, during the quarter, that brought home a gain of NOK 8.8 billion before tax.
Total revenue registered a 30% year-over-year improvement to reach NOK 168.8 billion ($31.0 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 14% and 16%, respectively, from the year-earlier quarter. The decrease was due to lower gas off-take, reduced production permits, reduced water injection at Gullfaks, planned maintenance activities, lower production volume in mature fields as well as production suspension in Libya. However, start-up of the new fields in Vega, Morvin, Gjoa, Peregrino and Leismer, and increased output from existing fields, partly compensated for the downfall.
Total oil and gas equity production averaged 1.692 million barrels of oil equivalent per day (MMBOE/d) compared with 1.957 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 1.486 MMBOE/d during the quarter (60% oil and 40% natural gas) compared with 1.765 MMBOE/d in the year-earlier period.
Total oil and gas liftings were 1.416 MMBOE/d, compared with 1.725 MMBOE/d in the prior-year quarter. The company’s realized oil prices averaged $112.1 per barrel, up 51% year over year, while natural gas price realization averaged NOK 2.06 (38 cents) per standard cubic meter, up approximately 28% from the year-earlier level.
Financials
During the quarter, total capital investment was NOK 19.8 billion ($3.64 billion) and operating cash flows were NOK 32.8 billion ($6.02 billion). Net debt-to-capitalization ratio was 13.6% (down from 18.9% in the preceding quarter).
Guidance
Statoil expects steady 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 maintenanceto have a negative impact of around 70 MBOE/d on equity production in the third 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 from 2014 to 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 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).
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