Statoil ASA‘s (STO) fourth-quarter 2011 earnings of 79 cents per ADR marched past the Zacks Consensus Estimate of 73 cents. The quarterly result also showed a significant improvement from the year-earlier earnings of 58 cents per ADR, attributable to higher liquids and gas prices.

For full-year 2011, the company registered a profit of $2.84 per ADR, beating the Zacks Consensus Estimate of $2.61 per ADR and the year-earlier earnings of $2.19 per ADR.

Adjusted net income after tax came in at NOK 14.5 billion (US$2.5 billion), up from the year-earlier level of NOK 11.0 billion (US$1.9 billion). In 2011, adjusted earnings after tax were NOK 50.7 billion (US$9.04 billion) compared with NOK 42.0 billion (US$7.0 billion) in 2010.

Total revenue leaped 27% year over year to NOK 182.7 billion ($31.7 billion), aided by higher liquids and gas prices. However, this was partially tempered by lower volumes of both liquids and gas sold and higher operating expenses. In 2011, total revenue surged 26% year over year to NOK 670.2 billion (US$119.6 billion).

Operational Performance

In the reported quarter, equity and entitlement production increased 2% and 1% respectively, from the year-earlier quarter. The increase was attributable to the start-up of new fields Peregrino and Pazflor, production ramp-up at existing fields, increased ownership shares in some fields as well as higher maintenance activity in the fourth quarter of 2010. However, natural decline on mature fields, reduced water injection at Gulfaks and deferral of gas sales, partly offset the increase.

Total oil and gas equity production averaged 1.975 million barrels of oil equivalent per day (MMBOE/d) in the fourth quarter compared with 1.945 MMBOE/d in the year-earlier period. Of the total quarterly output, 58% was oil and 42% was natural gas.

Total oil and gas entitlement production averaged 1.778 MMBOE/d during the quarter (56% oil and 44% natural gas) compared with 1.768 MMBOE/d in the year-earlier period.

Total oil and gas liftings were 1.761 MMBOE/d, compared with 1.794 MMBOE/d in the prior-year quarter. The company’s realized oil prices averaged $102.8 per barrel, up 22% year over year, while natural gas price realization averaged NOK 2.25 per standard cubic meter, up more than 22% from the year-earlier level.

Financials

During the quarter, total capital investment was NOK 68.2 billion (US$11.8 billion) and operating cash flows were NOK 33.7 billion (US$5.9 billion). Net debt-to-capitalization ratio was 21.1% (versus 13.6% in the preceding quarter).

Guidance

Management said that it would deliver a compound annual equity production growth rate (CAGR) of around 3% between 2010 and 2012. Statoil aims to hit 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 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 organic capital expenditures of around US$17 billion and exploration activity of about $3 billion for 2012.

Outlook

In 2011, Statoil delivered strong exploration results, adding more than 1 billion barrels to its resource base. The company also makes significant discoveries in the mature North Sea as well as in the Barents Sea, reaffirming the potential of the Norwegian continental shelf. We believe Statoil’s venture to improve recovery of resources in mature fields is commendable. Proved reserves at the end of 2011 amounted to 5,426 MMBOE, compared to 5,325 MMBOE at the end of 2010, reflecting an increase of 101 MMBOE.

Of late, the company has been monetizing low-profit generating assets and teaming up with companies in an attempt to streamline its operations. The acquisition of Brigham Exploration Company in December 2011 is noteworthy in this respect. Again, recently, Statoil completed the sale of its 24.1% interest in a natural gas transport infrastructure joint venture – Gassled – to the Solveig Gas Norway AS consortium. The transaction is valued at NOK 17.35 billion, per the announcement made on June 6, 2011.

With the completion of the sale, Statoil owns a 5% interest in Gassled and remains the technical service provider. Other joint venture partners in Gassled are Total SA (TOT), ExxonMobil Corporation (XOM), Royal Dutch Shell (RDS.A), Norsea Gas, ConocoPhillips (COP), Eni SpA (E), DONG, GDF Suez and RWE Dea Norge. We believe that these divestments will render Statoil financial flexibility to concentrate on high yielding projects or share buybacks.

Although near-term hiccups remain in the company’s production outlook, we have a favorable stance on Statoil’s long-term production growth given its growing upstream presence in the emerging basins of the Caspian Sea, West Africa and the deepwater U.S. Gulf of Mexico.

Our long-term Neutral recommendation remains unchanged and the company holds a Zacks #3 Rank (short-term Hold rating).

To read this article on Zacks.com click here.

Zacks Investment Research