The increase in net income of NOK 3.5 billion from the fourth quarter of 2005 to the fourth quarter of 2006 was mainly due to higher financial income and lower income taxes.
"The annual income for 2006 is the best ever for Statoil. We maintain strong earnings and competitive returns, despite temporarily lower production overall," said chief executive Helge Lund. "Through the acquisition of two deepwater portfolios in the Gulf of Mexico (GoM) from Anadarko and Plains and the subsequent divestment of the retail operation in Ireland we have further upgraded our portfolio.
"Both the fourth quarter and the year as a whole have been characterized by high exploration activity, both on the Norwegian continental shelf (NCS) and internationally. At the same time we have also secured new exploration acreage, put new fields on stream and launched new field development plans that support the group's long-term growth ambition."
Lund pointed to the field development plans for Gjoa and Alve as good examples of the group's efforts in further developing the NCS. During 2006, nine new fields came on stream. On the NCS, Statoil's portfolio has been strengthened with the Norne K-template, Gimle, Fram East, Oseberg West Flank and Ringhorne East, while the international upstream position has been strengthened with production from In Amenas in Algeria, Dalia in Angola and East Azeri and Shah Deniz in Azerbaijan.
"On 18 December it was announced that the boards of directors of Statoil and Hydro recommend a merger of Hydro's oil and gas activities with Statoil. The processes that lead up to the necessary approvals of the merger are well under way. By combining the strengths from both companies, we will build a strong Norwegian based energy company, well positioned to succeed even better in the global competition," said Lund.
Return on average capital employed after tax (ROACE) (*) for the 12 months ended 31 December 2006 was 27.1%, compared to 27.6% for the 12 months ended 31 December 2005. The decrease in ROACE was mainly due to the increase in capital employed partly offset by higher net income. ROACE is defined as a non-GAAP financial measure (*).
In 2006, earnings per share were NOK 18.79 (USD 3.02) compared to NOK 14.19 (USD 2.10) in 2005. In the fourth quarter of 2006, earnings per share were NOK 5.58 (USD 0.90) compared to NOK 3.94 (USD 0.59) in the fourth quarter of 2005.
Statoil's board of directors will propose to the annual general meeting an ordinary dividend of NOK 4.00 per share for 2006, as well as NOK 5.12 per share in special dividend. In 2005 the ordinary dividend was NOK 3.60 per share, while the special dividend amounted to NOK 4.60 per share.
Income before financial items, income taxes and minority interest in 2006 was NOK 116.9 billion compared to NOK 95.0 billion in 2005. The increase was mainly due to a 20% increase in the average oil price measured in NOK and a 32% increase in the gas price measured in NOK. The increase was partly offset by a reduction in lifted oil volumes and an increase in cost items.
Income before financial items, income taxes and minority interest decreased from NOK 27.8 billion in the fourth quarter of 2005 to NOK 26.1 billion in the same period of 2006. This was mainly related to a 9% decrease in the total oil and gas liftings, a 43% reduction in refining margins, and the tax-free capital gain of NOK 1.5 billion from the sale of Borealis in the fourth quarter of 2005. In addition, operating expenses increased by NOK 1.2 billion and exploration expenses increased by NOK 1.2 billion, mainly due to higher activity.
The decrease in income before financial items, income taxes and minority interest in the fourth quarter of 2006 was partly offset by an increased average gas price measured in NOK of 16%. Selling, general and administrative expenses decreased by NOK 1.3 billion in the fourth quarter, mainly due to decreased insurance cost of NOK 0.9 billion. The fourth quarter of 2005 included an insurance cost of NOK 0.5 billion due to insurance premium commitments and accruals related to liabilities in the two mutual insurance companies in which Statoil Forsikring participates. These accruals were partially reversed by NOK 0.4 billion in the fourth quarter of 2006. In addition, discontinuing operations in Ireland, including a pre-tax gain of NOK 0.6 billion, is reported net under selling, general and administrative expenses. Depreciations decreased by NOK 1.2 billion, mainly due to the write-down of the South Pars field in Iran in the fourth quarter of 2005 of NOK 2.2 billion, partly offset by increased depreciations related to producing fields.
Total oil and gas production in 2006 was 1,135,000 barrels of oil equivalent (boe) per day, compared to 1,169,000 boe per day in 2005. In the fourth quarter of 2006 total oil and gas production amounted to 1,153,000 boe per day, compared to 1,232,000 boe per day in the fourth quarter of 2005. Statoil's guiding on production for 2006 at 1,140,000 boe per day was based on an oil price of USD 60 per bbl. A realised oil price of USD 60 per bbl would have resulted in an estimated production of 1,139,000 boe per day. The difference from reported production is due to production sharing agreements (PSA) effects.
Total oil and gas liftings in 2006 were 1,133,000 boe per day compared to 1,166,000 boe per day in 2005. This indicates an average underlift of 2,000 boe per day in 2006, compared to an average underlift of 3,000 boe per day in 2005.
In the fourth quarter of 2006 total oil and gas liftings were 1,145,000 boe per day compared to 1,252,000 boe per day in the fourth quarter of 2005. This indicates an average underlift of 8,000 boe per day in the fourth quarter of 2006 compared to an average overlift of 20,000 boe per day in the fourth quarter of 2005.
Exploration expenditure in 2006 was NOK 7.5 billion, compared to NOK 4.3 billion in 2005. Exploration expenditure in the fourth quarter of 2006 amounted to NOK 2.0 billion, compared to NOK 1.1 billion in the fourth quarter of 2005. Exploration expenditure reflects the period's exploration activities.
Exploration expenses for the period consist of exploration expenditure adjusted for the period's change in capitalised exploration expenditure. Exploration expenses in 2006 amounted to NOK 5.7 billion, compared to NOK 3.3 billion in 2005. In the fourth quarter of 2006 exploration expenses amounted to NOK 1.9 billion, compared to NOK 0.7 billion in the fourth quarter of 2005. The increase both in exploration expenditure and exploration expenses was mainly due to higher exploration activity in 2006 compared to 2005. Exploration expenses also increased due to an increase in expense of previously capitalised licenses and well expenditures.
A total of 37 exploration and appraisal wells were completed in 2006, 17 on the NCS and 20 internationally. Of these wells, 19 resulted in discoveries, while six wells await final evaluation. In addition, four exploration extensions on the NCS were completed in 2006, two of which resulted in discoveries. The number of exploration wells completed in 2005 was 20.
In the fourth quarter of 2006, a total of seven exploration and appraisal wells were completed, four on the NCS and three internationally. Four wells resulted in discoveries, while one well awaits final evaluation. In addition, one exploration extension on the NCS was completed in the fourth quarter of 2006 and resulted in a discovery. Four exploration wells were completed in the fourth quarter of 2005.
Proved reserves at the end of 2006 were 4,185 million boe, compared to 4,295 million boe at the end of 2005, a decrease of 111 million boe. In 2006, 307 million boe were added, mostly through revisions, extensions and discoveries, compared to 453 million boe in 2005. Production in 2006 was 415 million boe compared to 427 million boe in 2005.
The reserve replacement ratio (*) was 73% in 2006, compared to 102% in 2005, while the average three-year replacement ratio was 94% in 2006, compared to 102% in of 2005.
Production cost per boe was NOK 26.6 for the 12 months ended 31 December 2006, compared to NOK 22.3 for the 12 months ended 31 December 2005 (*).
Normalized at a USDNOK exchange rate of 6.00 and adjusted for the estimated volume due to PSA effects based on an average oil price of USD 60 per bbl, the production cost for the 12 months ended 31 December 2006 was NOK 26.2 per boe, compared to NOK 22.0 per boe for the 12 months ended 31 December 2005 (*).
The production unit costs, both actual and normalized, have increased, mainly due to a higher activity level, temporary lower production, and increasing industry cost pressure.
Net financial items amounted to an income of NOK 4.8 billion in 2006 compared to an expense of NOK 3.5 billion in 2005. In the fourth quarter of 2006 net financial items were an income of NOK 2.8 billion, compared to an expense of NOK 1.5 billion in the fourth quarter of 2005.
The increased income in 2006 was mainly caused by increased currency gains, due to a weakening of the USD in relation to the NOK in 2006. Most of the currency gains relate to Statoil's short-term NOK hedging policy and unrealized gains on long-term USD debt.
Income taxes in 2006 were NOK 80.4 billion, with a corresponding tax rate of 66.0%, compared to income taxes in 2005 of NOK 60.0 billion with a corresponding tax rate of 65.6%.
In the fourth quarter of 2006 income taxes were NOK 16.8 billion, equivalent to a tax rate of 58.1%. Income taxes in the fourth quarter of 2005 were NOK 17.6 billion, equivalent to a tax rate of 66.9%. Adjusted for the effect of the tax-free capital gain on the sale of shares in Borealis, the tax rate was 71.0%. Adjusted for the one-time NOK 2.0 billion reduction of deferred tax liabilities relating to new tax rules for allocation of financial items with respect to the NCS and temporary differences in intercompany transactions, the tax rate for the fourth quarter 2006 was 65.0%. The lower adjusted tax rate in the fourth quarter of 2006 compared with the fourth quarter of 2005 mainly relates to relatively higher income outside the NCS, which is taxed at a lower tax rate, and impact of financial items.
Health, safety and the environment (HSE)
There were no fatalities during 2006. The serious incident indicator has been halved since 2001, and has never been at a lower level. The indicators for personnel injuries have shown a slight increase from the record low results in 2005. The serious injuries have decreased from 22 in 2005 to 18 in 2006.
In 2006, Statoil started a major initiative to reduce incidents caused by dropped objects. There has been a significant reduction in serious incidents of 25% since 2005. The chief executive's HSE prize 2006 was awarded to the zero dropped objects team, which is devoted to identifying and reducing the threat of dropped objects offshore.
The total volume of oil spills decreased from 2005 to 2006. There was one oil spill of some significance in 2006, in Nynashamn in Sweden. The spill amounted to 104 standard cubic meters (scm). Statoil's oil spill emergency response was efficient, and as a result only 10 scm spillage remains uncollected.
Our objective is zero harm to health, security and the environment. Sustained top management involvement, a strong focus on developing the right HSE attitude throughout the company, measures for upgrading skills, and cooperation with our contractors to further improve HSE results, will continue with undiminished strength.
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