Statoil ASA (STO) reported fourth-quarter earnings of 50 cents per ADR, well below the Zacks Consensus Estimate of 62 cents. However, the quarterly results were above the year-earlier earnings of 40 cents, mainly attributable to higher liquids and gas prices, partially offset by reduced liftings, higher net financial losses and tax hikes. Total revenue in the quarter improved 15% year over year to NOK 143.3 billion ($24.8 billion).
Net income in the quarter stood at NOK 9.7 billion ($1.64 billion). Adjusted earnings after tax were NOK 10.8 billion ($1.82 billion), up 11% from the year-earlier quarter.
Operational Performance
In the reported quarter, both equity and entitlement production decreased 5% from the year-earlier quarter. The decrease was due to lower production volume in the mature fields as well as in Independence Hub in the US Gulf of Mexico, along with various operational issues in Angola and the Norwegian Continental Shelf.
Total oil and gas equity production during the quarter averaged 1.95 million barrels of oil equivalent per day (MMBOE/d), 57% of which was oil and 43% natural gas, compared with 2.06 MMBOE/d in the year-earlier period.
Total oil and gas entitlement production during the quarter averaged 1.77 MMBOE/d, 54% of which was oil and 46% natural gas, compared with 1.85 MMBOE/d in the year-earlier period.
Total oil and gas liftings in the quarter were 1.794 MMBOE/d, compared with 1.858 MMBOE/d in the prior-year quarter. The company’s realized oil prices averaged NOK 499 ($84.2) per barrel, up approximately 23% year over year, while realized natural gas prices averaged NOK 1.84 (31 cents) per standard cubic meter, up approximately 17% from the year-earlier level.
During the quarter, total capital investment was NOK 25.7 billion ($4.3 billion) and operating cash flows were NOK 13.4 billion ($2.3 billion). Net debt-to-capitalization ratio stood at 24.6% (down from 27.7% at the end of the prior quarter).
Guidance
Statoil highlighted that its oil and gas production would be steady or lower in 2011 owing to field maintenance. Management also said that it would deliver a compound annual production growth rate of around 3% between 2010 and 2012. However, restrictions in the existing production permits and temporary contentions at Gullfaks will likely depress growth.
The company expects capital expenditures to be around $16 billion and exploration activity of around $3 billion for 2011.
Outlook
We appreciate Statoil’s endeavor to improve recovery of resources in mature fields. The oil and gas company has operations in all major hydrocarbon-producing regions of the world, with an emphasis on the Norwegian Continental Shelf.
We believe that Statoil is well positioned to sustain its steady production growth for the next few years on the back of its large resource base in the Norwegian Continental Shelf.
Although near-term hiccups will disturb the company’s production, we have a favorable outlook 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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