Statoil Stays at Outperform – Analyst Blog

We maintain our Outperform rating for Statoil ASA (STO) ADRs following the better-than-expected first quarter results. Quarterly earnings came in at 60 cents per share, compared with the Zacks Consensus Estimate of 57 cents and the year-earlier profit of 17 cents.

Adjusted earnings during the quarter were NOK 38.9 billion ($6.6 billion), up 8% from the year-earlier quarter. The increase was primarily driven by the increase in oil prices, partly compensated by lower gas prices. Revenue for the quarter was NOK 128.7 billion (approximately $22 billion), up 14% year over year.

Statoil continues to maintain a high activity level in Norway and abroad. While equity production was up 1%, entitlement production was down by  same percentage points from the year earlier level. The increase in equity production was driven by the commencement of operations in several new oil and gas fields as well as the ramp-up of production in existing fields.

Total oil and gas equity production during the quarter averaged 2.10 million barrels of oil equivalent per day (MMBOE/d), 58% of which was oil and 42% natural gas, compared with 2.07 MMBOE/d in the year-earlier period.

Total oil and gas entitlement production during the quarter averaged 1.92 MMBOE/d, 56% of which was oil and 44% natural gas, compared with 1.94 MMBOE/d in the year-earlier period.

Total oil and gas liftings in the quarter were 1.93 MMBOE/d, compared with 1.96 MMBOE/d in the year-earlier period. During the quarter, the company’s realized oil prices averaged NOK 434 ($74.1) per barrel, up approximately 48% year over year, while realized natural gas prices averaged NOK 1.64 (28 cents) per standard cubic meter, down approximately 35% from the year-ago level.

During the quarter, total capital investment was NOK 21.2 billion ($3.6 billion) and operating cash flows were NOK 24.5 billion ($4.2 billion). Net debt-to-capitalization ratio stood at 25.7% (down from 27.3% at the end of the last quarter). Cash and cash equivalents at the end of the quarter stood at NOK 27.6 billion ($4.7 billion).

Statoil reaffirmed its 2010 equity production in the range of 1.925 – 1.975 MMBOE/d. Capital expenditures for 2010 are expected to be around US$13 billion. Excluding purchases of fuel and gas for injection, unit production cost for equity volumes in 2010 is expected to be in the range of NOK 35 to 36 per barrel.

Statoil has been fairly active on the project development front. In the reported quarter alone, the company has announced six new projects in the NCS (Norwegian Continental Shelf) and Azerbaijan. The company is also planning turnarounds on several oil and gas fields in 2010 to improve its recovery of resources.

We like Statoil for solid finances and strong asset base. It also remains focused on improving normalized returns on capital employed (ROCE) by maintaining disciplined capital outlays and reducing operating costs.