Statoil Sees Good Results in 3Q06
Statoil's income before financial items, income taxes and minority interest in the third quarter of 2006 increased to NOK 30.1 billion, up from NOK 23.9 billion in the third quarter of 2005.
The increase of 6.2 billion was mainly related to an increase in the average oil price of 13%, and a 33% increase in gas prices, both measured in NOK.
Net income in the third quarter of 2006 amounted to NOK 8.6 billion, compared to NOK 8.7 billion in the third quarter of 2005. The effect from an increase in oil and gas prices was offset by effects from financial items and tax. In the first nine months of 2006, net income was NOK 28.6 billion compared to NOK 22.2 billion in the first nine months of 2005.
"Statoil continues to show high earnings despite temporarily lower production on the Norwegian continental shelf," says chief executive Helge Lund.
"High exploration activity on the Norwegian continental shelf, as well as in our international business, characterizes Statoil's third quarter. We are continuing to add resources and are bringing new assets into production."
Mr. Lund calls particular attention to the strengthening of Statoil's deepwater position in the US Gulf of Mexico. This includes both the successful Jack well test as well as the signing of the agreement between Statoil and Plains Exploration & Production (PXP) pursuant to which Statoil will acquire PXP's working interest in two US Gulf of Mexico deepwater discoveries and one exploration prospect. Strong return on average capital employed after tax
Return on average capital employed after tax (ROACE) (*) for the 12 months ended 30 September 2006 was 28.4%, compared to 26.5% for the 12 months ended 30 September 2005. This increase was mainly due to higher oil and gas prices. ROACE is defined as a non-GAAP financial measure (*).
High earnings per share
In the third quarter of 2006, earnings per share were NOK 3.97 (US $0.61) compared to NOK 4.01 (US $0.61) in the third quarter of 2005. For the first nine months of 2006, earnings per share were NOK 13.22 (US $2.03) compared to NOK 10.25 (US $1.57) for the first nine months of 2005.
Increased income before financial items, income taxes and minority interest
Income before financial items, income taxes and minority interest increased to NOK 30.1 billion in the third quarter of 2006, up from NOK 23.9 billion in the third quarter of 2005. This was mainly related to an increase in the average oil price measured in NOK of 13% and a 33% increase in gas prices measured in NOK.
In the first nine months of 2006, income before financial items, income taxes and minority interest was NOK 90.8 billion compared to NOK 67.2 billion in the first nine months of 2005. The increase was mainly due to a 27% increase in the average oil price measured in NOK and a 41% increase in gas prices measured in NOK. The contribution from Statoil's downstream operations increased both in the third quarter and in the first nine months of 2006 compared to the same periods in 2005. The increase in income before financial items, income taxes and minority interest was partly offset by an increase in cost items both in the third quarter and in the first nine months of 2006 compared to the same periods in 2005. The increase in depreciation, depletion and amortization was largely due to reduction in the proved reserves estimates due to product sharing agreement (PSA) effects, while the increase in other cost items was mainly related to increased activity.
Reduced oil and gas production
Total oil and gas production in the third quarter of 2006 was 1,076,000 barrels of oil equivalent (boe) per day, compared to 1,128,000 boe per day in the third quarter of 2005, a reduction of 5%. In the first nine months of 2006 total oil and gas production was 1,129,000 boe per day, compared to 1,148,000 boe per day in the first nine months of 2005, a reduction of 2%. The decrease in oil and gas production was mainly related to decreased entitlement production internationally due to PSA effects, a decline on some of the established oil fields, partly caused by technical and capacity related challenges within the drilling and well area, as well as more extensive maintenance turnarounds on the Norwegian continental shelf (NCS). The reduced production was partly offset by production from new fields that commenced production in the third and the fourth quarter of 2005.
Total oil and gas liftings in the third quarter of 2006 were 1,054,000 boe per day, compared to 1,082,000 boe per day in the same period of 2005. This implies an underlift of 22,000 boe per day in the third quarter of 2006. In the first nine months of 2006, total oil and gas liftings were 1,129,000 boe per day compared to 1,137,000 boe per day in the corresponding period of 2005.
Increased exploration activity
Exploration expenditure in the third quarter of 2006 was NOK 2.0 billion, compared to NOK 1.2 billion in the third quarter of 2005. The increase in exploration expenditure of NOK 0.7 billion was to a large extent due to an increase in the period's exploration activity. Exploration expenses in the third quarter of 2006 amounted to NOK 1.5 billion, compared to NOK 1.1 billion in the third quarter of 2005.
A total of 16 exploration wells were completed in the third quarter of 2006, nine on the NCS and seven internationally. Six wells resulted in discoveries. Six exploration wells were completed in the third quarter of 2005.
In the first nine months of 2006 a total of 29 exploration and appraisal wells were completed, 14 on the NCS and 15 internationally. Eleven of these wells resulted in discoveries. The number of exploration wells completed in the first nine months of 2005 was 16.
Production cost per boe was NOK 25.3 for the 12 months ended September 30, 2006, compared to NOK 21.8 for the 12 months ended September 30, 2005 (*).
Normalised at a NOK/USD exchange rate of 6.00 and adjusted for the estimated volume reduction due to PSA effects, the production cost for the 12 months ended 30 September 2006 was NOK 24.6 per boe, compared to NOK 21.6 per boe for the 12 months ended September 30, 2005 (*).
The 2007 target for production cost per boe is based on an average oil price of USD 30 per barrel (bbl) in the period 2005-2007. Based on realized oil and gas prices, the estimated PSA effects on production unit cost for the third quarter of 2006 was NOK 0.42 per boe (*).
The production unit cost, both actual and normalized, has increased, mainly due to a higher activity level, temporary lower production, and increasing industry cost pressure.
Net financial items amounted to a cost of NOK 2.2 billion in the third quarter of 2006, compared to an income of NOK 0.6 billion in the third quarter of 2005. Net financial items in the first nine months of 2006 were an income of NOK 2.0 billion, compared to a cost of NOK 2.0 billion in the same period of 2005.
The change in net financial items is mainly due to currency effects. Most of the currency result relates to realized effects on short-term balances in USD and unrealized effects on long-term debt.
Income taxes in the third quarter of 2006 were NOK 19.1 billion, equivalent to a tax rate of 68.4%. Income taxes in the third quarter of 2005 were NOK 15.5 billion, equivalent to a tax rate of 63.5%.
For the first nine months of 2006 income taxes were NOK 63.6 billion, with a corresponding tax rate of 68.5%. In comparison, income taxes in the same period of 2005 were NOK 42.5 billion with a corresponding tax rate of 65.1%. The increased tax rate, both in the third quarter and for the first nine months of 2006, was mainly due to relatively lower income generated outside the NCS, and a higher tax rate on international activity. This was partly offset by the positive tax effect of net financial items.
Capital distribution & dividend policy
On 10 May 2006 the annual general meeting authorized Statoil's board of directors to acquire own shares for subsequent annulment. The authorization is valid until the next ordinary general meeting, and applies to the acquisition of up to 50,000,000 shares in the market, at a price of between NOK 50 and NOK 500 per share. Under an agreement with the Norwegian state, which currently has an owner interest in Statoil of 70.9%, a proportion of the state's shares will later be redeemed and annulled, so that the state's owner interest remains unchanged.
As of September 30, 2006 Statoil has acquired 2,437,000 shares in the open market in accordance with this authorization. In addition Statoil is obligated to acquire 5,936,463 shares from the Norwegian state. Both the acquired shares and the firm obligation are included in Treasury shares.
Statoil views the buy-back of shares as a flexible and efficient way to complement cash dividends as part of our total capital distribution to shareholders. It is Statoil's intention to pursue gradual implementation of the share buy-back authorization, and it is therefore not likely that the authorization will be fully utilized prior to its expiration.
Continued strong focus on HSE – most sustainable on Dow Jones Sustainability Index
The frequency of serious incidents in the third quarter of 2006 was record low. Since 2001 the frequency of serious incidents has been more than halved. One additional mitigation action, the on-site presence of HSE personnel, has in general been increased.
A spill of 174 scm base oil took place at Statoil's lubricant factory in Nynashamn in Sweden September 29th. The oil spill response operation has been successful, and in total approximately 95% have so far been efficiently recovered. Investigation is initiated.
Statoil's ambition for health, safety and the environment is zero harm. The group strives to achieve this through the safe behavior program, a large-scale safety training program, cooperation with our suppliers and strong involvement by management.
For the third year in a row, Statoil was named the global sustainability leader among the oil and gas producers on the Dow Jones Sustainability Index.
Revised production target for oil and gas
Statoil has modified its previously announced target for oil and gas production in 2007 by about 3%. Production in 2006 is expected to be about 3% lower than the earlier forecast. However, the company is targeting a growth in production of approximately 14% from 2006 to 2007. Output in 2006 is expected to be 1,140,000 boe per day based on an oil price of US $60 per bbl.
The production target for 2007 was reduced to 1,300,000 boe per day, with an indicative split between approximately 1,060,000 boe per day from the NCS and approximately 240,000 boe per day internationally. The target is based on an oil price of US $60 per bbl for the period 2005-07.
As a direct consequence of reduced production, production costs per boe are expected to increase correspondingly for both 2006 and 2007 compared to previous guidance and target.
* See end notes in the complete quarterly report.
Recent important events include the following:
- On September 5th, Chevron as operator and partners Statoil and Devon announced that they had successfully completed a production test in the highly challenging structure Jack in the US Gulf of Mexico, which is the deepest successful well test in the Gulf of Mexico.
- Statoil has signed an agreement with Plains Exploration & Production under which Statoil will acquire working interest in two Gulf of Mexico deepwater discoveries and one exploration prospect. The existing leaseholders had pre-emption rights which have not been exercised.
- On October 23rd, the Azeri-Chirag-Gunashli (ACG) field operator BP announced start-up of production from the East Azeri platform, four months ahead of schedule.
- In a press release on October 9th, Russian energy group Gazprom stated that they will develop the Shtokman field without foreign partners.
- A combined heat and power (CHP) plant is to be commissioned by Statoil at Mongstad near Bergen, Norway, following the receipt of a carbon dioxide emission permit from Norway's Ministry of the Environment.
- Statoil was named the global sustainability leader among the world's oil and gas companies in the Dow Jones Sustainability World Index (DJSI World) for the third year in a row.
- Statoil reached agreements with the US Securities and Exchange Commission (SEC), the US Department of Justice (DOJ), and the United States Attorney's Office for the Southern District of New York (USAO) that settle the agencies' investigations under US law related to Statoil's 2002 contract with Horton Investments Ltd for business development in Iran.
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