Statoil ASA(STO) reported significantly better-than-expected third-quarter earnings of 70 cents per ADR, compared with a Zacks Consensus Estimate of 50 cents and year-earlier earnings of 38 cents. Total revenue in the quarter was NOK 127.4 billion ($20.6 billion).
Net income in the quarter more than doubled to NOK 13.8 billion ($2.24 billion). Adjusted earnings after tax were NOK 8.5 billion ($1.38 billion), down 8% from the year-earlier quarter due to lower volumes of gas sold, partly offset by increased gas prices.
Operational Performance
In the reported quarter, equity and entitlement production decreased 17% and 19%, respectively, from the year-earlier quarter. The decrease in production was due to heavy maintenance activities and normal field decline.
Total oil and gas equity production during the quarter averaged 1.55 million barrels of oil equivalent per day (MMBOE/d), 66% of which was oil and 34% natural gas, compared with 1.87 MMBOE/d in the year-earlier period.
Total oil and gas entitlement production during the quarter averaged 1.38 MMBOE/d, 63% of which was oil and 37% natural gas, compared with 1.71 MMBOE/d in the year-earlier period.
Total oil and gas liftings in the quarter were 1.383 MMBOE/d, compared with 1.66 MMBOE/d in the year-earlier period. During the quarter, the company’s realized oil prices averaged NOK 455 ($73.8) per barrel, up approximately 14% year over year, while realized natural gas prices averaged NOK 1.74 (28 cents) per standard cubic meter, up approximately 8% from the year-earlier level.
During the quarter, total capital investment was NOK 18.9 billion ($3.1 billion) and operating cash flow was NOK 19.5 billion ($3.2 billion). Net debt-to-capitalization ratio stood at 27.7% (down from 29.2% at the end of the last quarter). Cash and cash equivalents at the end of the quarter were NOK 32.5 billion ($5.3 billion).
Statoil revised its 2010 equity production guidance at 1.9 MMBOE/d (down from a range of 1.925–1.975 MMBOE/d). Capital expenditures for 2010 are expected to be around U.S.$13 billion. Excluding purchases of fuel and gas for injection, unit production cost for equity volumes is expected to be in the range of NOK 36–37 per barrel for the full year.
Outlook
Statoil is planning turnarounds on several oil and gas fields to improve recovery of resources in mature fields. While the company is still exploring various domestic as well as international resources for upstream growth, its recent entry in the Eagle Ford Shale play by a joint venture with Talisman is commendable.
Production growth from international operations is a key component of the company’s overall annual upstream growth plans over the next few years. The company has a growing upstream presence in the emerging basins of the Caspian Sea, West Africa and the deepwaters of the U.S. Gulf of Mexico.
Although near-term hiccups on the production front persist, we have a favorable outlook on Statoil’s long-term production growth with the company’s significant investment in domestic fields such as Norway’s largest natural gas field, Troll. Our Neutral recommendation remains unchanged with the Zacks #3 Rank (Neutral).
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