StatoilHydro Posts '08 Preliminary Results


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StatoilHydro's net income for the year 2008 amounted to NOK 43.3 billion, compared to NOK 44.6 billion in 2007. In the fourth quarter of 2008, net income was NOK 2.0 billion compared to NOK 6.2 billion in the same quarter a year ago.

The quarterly result was negatively affected by weaker oil prices. Furthermore, the significant strengthening of the US dollar compared to NOK had a material negative effect on net financial items and consequently, the result became subject to an unusually high effective tax rate.

Total equity production of liquids and gas in 2008 was 1.925 million barrels of oil equivalents per day, up 5% from 2007.

The board of directors is proposing a dividend of NOK 7.25 per share.

In the fourth quarter of 2008, the net operating income was NOK 37.8 billion, compared to NOK 30.8 billion in the fourth quarter of 2007. For the year 2008, net operating income amounted to NOK 198.8 billion, compared to NOK 137.2 billion in 2007.
Adjusted for certain items that management considers not to be reflective of StatoilHydro's underlying operational performance, adjusted earnings in the fourth quarter of 2008 were NOK 43.7 billion, compared to NOK 45.1 billion in the fourth quarter of 2007. The decrease in adjusted earnings was mainly due to an increase in overall operating expenses and a drop in prices of liquids, partly offset by an increase in both prices and volumes of natural gas.

For the year 2008, adjusted earnings increased by NOK 54.7 billion to NOK 203.9 billion as compared to adjusted earnings in 2007. The increase in adjusted earnings was mainly due to an increase in realized prices on both liquids and natural gas, measured in NOK. The increase was partly offset by increased operating expenses.

"I am pleased with what our people achieved in 2008," said Helge Lund, StatoilHydro's chief executive.

"We have delivered record production and carried out our most active exploration programme ever. In 2008 we put 12 new fields on stream. Through targeted business development we have also strengthened our positions for long-term international growth," said Mr. Lund.

"StatoilHydro is well positioned to manage through the global economic downturn. A strong balance sheet and active cost management will enable us to pursue our long term strategic direction," said Mr. Lund.

"Good operational performance is the best protection in times of uncertainty, and the merger is key to our continuous performance improvements. We have already realized significant merger synergies. The ongoing integration and standardization of our offshore operations is aimed at further improving our health, safety and environement (HSE) results, as well as increasing flexibility and efficiency in our organisation," added Mr. Lund.

In the fourth quarter of 2008, StatoilHydro delivered total liquids and gas entitlement production of 1,857 mboe per day, which increased compared to the 1.818 mboe per day delivered in the fourth quarter of 2007. Total liftings of liquids and gas were 1,783 mboe per day in the fourth quarter of 2008, compared to 1,785 mboe in the fourth quarter of 2007. Total equity production increased by 3% from the fourth quarter of 2007 to 2,023 mboe per day in the fourth quarter of 2008.

Higher volumes and prices for natural gas were only partly offset by the negative effects from lower liquids prices and lower liquids volumes. Net operating income for the fourth quarter of 2008 increased to NOK 37.8 billion, up 22% from NOK 30.8 billion in the fourth quarter of 2007.

In 2008, StatoilHydro delivered total liquids and gas entitlement production of 1,751 mboe per day, up 2% from 1.724 mboe per day in 2007. Total equity production increased by 5% from 2007 to 1,925 mboe per day in 2008. Strong production and high prices contributed to a net operating income of NOK 198.8 billion in 2008, compared to NOK 137.2 billion in 2007.

During 2008, the group gained access to 20 new exploration licenses in the Gulf of Mexico, Alaska, Brazil, Canada and the Faroe Islands. On the NCS we were granted access to 12 new licenses, as operator in nina and as partner in three . In addition the group acquired a 15% interest in the Goliat field and a 10% interest in the Ragnarrock discovery on the NCS. In accordance with an agreement with Chesapeake Energy Corporation, StatoilHydro acquired a 32.5% interest in the Marcellus shale gas acreage in the USA. Statoilhydro also completed the purchase of the remaining 50% interest of the Peregrino development offshore Brazil.

StatoilHydro delivered an extensive exploration program in 2008. Of a total of 79 exploration wells completed before December 31, 2008, 40 were drilled outside the NCS. Thirty-five wells were discoveries , of which eight are located outside the NCS. An additional eight wells have been completed since 31 December 2008.

StatoilHydro maintained a high activity level in progressing projects into production. In 2008, StatoilHydro delivered three PDOs (Plan for Development and Operation) on the NCS: Yttergryta (18 January), Morvin (15 February) and the Troll Field project (27 June). StatoilHydro also started production from seven fields: Volve (12 February), Gulltopp (7 April), Oseberg Gamma Main Statfjord (12 April), Vigdis East (15 April), Theta Cook (26 June), Oseberg Delta (27 June) and Vilje (1 August). Internationally, production commenced on Mondo in Angola (1 January), Deep Water Gunashli in Azerbaijan (22 April), Saxi and Batuque offshore Angola (1 July), the Agbami in Nigeria (29 July) and South Pars in Iran (1 October).

Return on average capital employed after tax (ROACE) [*] for the 12 months ended December 31, 2008 was 21.0%, compared to 17.7% for the 12 months ended December 31, 2007. The increase was due to higher income, partly offset by higher average capital employed. ROACE is defined as a non-GAAP financial measure. [*]

In the fourth quarter of 2008, earnings per share were NOK 0.63, compared to NOK 1.93 in the fourth quarter of 2007. In 2008, earnings per share were NOK 13.58, compared to NOK 13.80 in 2007.

StatoilHydro's board of directors proposes to the annual general meeting an ordinary dividend of NOK 4.40 per share for 2008, as well as NOK 2.85 per share in special dividend, for a total of NOK 7.25 per share. In 2007 Statoil ASA paid an ordinary dividend of NOK 4.20 per share and a special dividend of NOK 4.30 per share, for a total dividend of NOK 8.50 per share.

Items impactingIn the fourth quarter of 2008, the net operating income was NOK 37.8 billion, compared to NOK 30.8 billion in the fourth quarter of 2007.

Net operating income includes certain items that management considers not to be reflective of StatoilHydro's underlying operational performance. Management adjusts for these items to arrive at adjusted earnings. Adjusted earnings is a supplemental non-GAAP measure to StatoilHydro's IFRS measure of net operating income which management believes provides an indication of StatoilHydro's underlying operational performance in the period and facilitates a better evaluation of operational trends between periods.

The following items negatively impacted the net operating income in the fourth quarter of 2008: lower fair value of derivatives (NOK 2.1 billion), impairment charges net of reversals (NOK 1.3 billion), underlift (NOK 1.3 billion), lower values of products in operational storage (NOK 3.6 billion), loss on sale of assets (NOK 0.8 billion) and other accruals (NOK 0.3 billion), while reversal of restructuring cost accrual (NOK 1.6 billion) had a positive impact on net operating income for the fourth quarter of 2008.

Adjusted for these items and effects of eliminations (NOK 1.9 billion), adjusted earnings were NOK 43.7 billion in the fourth quarter of 2008, compared to NOK 45.1 billion in the fourth quarter of 2007. The decrease was mainly due to a drop in the prices of liquids, an increase in depreciation because of higher equity production and new, more expensive fields coming on stream. The decrease was partly offset by increased revenues from both higher volumes and prices for natural gas.

In 2008 the net operating income was NOK 198.8 billion, compared to NOK 137.2 billion in 2007. The following items impacted the net operating income in 2008: impairment charges net of reversals (NOK 4.8 billion), lower values of products in operational storage (NOK 2.8 billion), underlift (NOK 2.4 billion) and other accruals (NOK 2.3 billion) impacted net operating income in 2008 negatively, while increased fair value of derivatives (NOK 1.8 billion), gains on derivatives to hedge the value of inventories (NOK 0.8 billion), gain on sales of assets (NOK 1.4 billion) and reversal of restructuring cost accrual (NOK 1.6 billion) positively impacted net operating income in 2008.

Adjusted for these items and effects of eliminations (NOK 2.8 billion), adjusted earnings were NOK 203.9 billion in 2008, compared to NOK 149.2 billion in 2007. The increase was mainly due to an increase in realised prices on both liquids and natural gas, measured in NOK, and was only partly offset by increased operating expenses caused by a higher activity level and new, more expensive fields coming on stream.

Total liquids and gas liftings in the fourth quarter of 2008 were 1,783 mboe per day, compared to 1,785 mboe per day in the fourth quarter of 2007. In the fourth quarter of 2008 there was an underlift of 57 mboe per day [*] compared to an underlift in the fourth quarter of 2007 of 33 mboe per day.

Total liquids and gas liftings in 2008 were 1,714 mboe per day, compared to 1,735 mboe per day in 2007. There was an underlift in 2008 of 20 mboe per day [*] compared to an overlift in 2007 of 11 mboe per day.

Total liquids and gas entitlement production in the fourth quarter of 2008 was 1,857 mboe per day, compared to 1,818 mboe per day in the fourth quarter of 2007. Average equity [*] production was 2,023 mboe per day in the fourth quarter of 2008 compared to 1,958 mboe per day in the fourth quarter of 2007. The increase in entitlement production mainly stems from ramp-up in production from new fields coming on stream, and was only partly offset by maintenance activity, shut downs and declining production from maturing fields.

Total liquids and gas entitlement production in 2008 was 1,751 mboe per day, compared to 1,724 mboe per day in 2007. Average equity [*] production was up 5% to 1,925 mboe per day in 2008 compared to 1,839 mboe per day in 2007. Increased production mainly stems from new fields coming on stream and a higher gas off-take, partly offset by declining production from maturing fields.

Exploration expenditure was NOK 5.9 billion in the fourth quarter of 2008, compared to NOK 5.2 billion in the fourth quarter of 2007. Exploration expenditure was NOK 17.8 billion in 2008, compared to NOK 14.2 billion in 2007. The increase in both periods was mainly due to higher exploration activity and increased drilling costs. Exploration expenditure reflects exploration activities in the period.

Adjusted exploration expenses for the period consist of exploration expenditure adjusted for the period's change in capitalised exploration expenditure and for certain items impacting the net operating income as described above. The adjusted exploration expenses increased to NOK 3.8 billion in the fourth quarter of 2008 from NOK 3.2 billion in the fourth quarter of 2007.

Adjusted exploration expenses increased from NOK 10.0 billion in 2007 to NOK 12.2 billion in 2008, mainly due to higher exploration activity, increased drilling costs and an increase in expenses of previously capitalised exploration expenditures.

In the fourth quarter of 2008, a total of 19 exploration and appraisal wells and three exploration extension wells were completed, 15 on the NCS and seven internationally. Nine exploration and appraisal wells and two exploration extension wells have been declared as discoveries. In the fourth quarter of 2007, a total of 18 exploration and appraisal wells were completed, four on the NCS and 14 internationally. Five exploration and appraisal wells were declared as discoveries.

In 2008, a total of 79 exploration and appraisal wells and nine exploration extension wells were completed, 48 on the NCS and 40 internationally. Thirty-five exploration and appraisal wells and six exploration extension wells have been declared as discoveries. In 2007, a total of 71 exploration and appraisal wells and two exploration extension wells were completed, 26 on the NCS and 47 internationally. Thirty-four exploration and appraisal wells and two exploration extension wells were declared as discoveries.

A number of completed wells internationally have encountered hydrocarbons but we need to carry out a more extensive evaluation before making a public announcement.

Drilling of 16 exploration and appraisal wells was ongoing at the end of fourth quarter 2008. Eleven wells have been completed after 31 December 2008, of which six wells were declared as discoveries.

Proved reserves at the end of 2008 were 5,584 mmboe, compared to 6,010 mmboe at the end of 2007, a decrease of 426 mmboe. In 2008, 230 mmboe were added through revisions, extensions and discoveries, compared to additions of 542 mmboe in 2007, also through revisions, extensions and discoveries.

The reserve replacement ratio was 34% in 2008, compared to 86% in 2007, while the average three-year replacement ratio, including the effects of sales and purchases, was 60% at the end of 2008, compared to 81% at the end of 2007. The reserve replacement rate is a function of the high production level and the time it takes to mature the significant number of recent discoveries and the latest acquisitions of large unproved reserves to proved reserves.

Production cost per boe was NOK 36.9 for the 12 months ended December 31, 2008, compared to NOK 44.1 for the 12 months ended December 31, 2007. [*] Based on equity volumes, [*] the production cost per boe for the two periods was NOK 33.5 and NOK 41.4, respectively.

Normalized at a USDNOK exchange rate of 6.00, the production cost for the 12 months ended December 31, 2008 was NOK 37.4 per boe, compared to NOK 44.3 per boe for the 12 months ended December 31, 2007. [*] Normalized production cost is defined as a non-GAAP financial measure. [*]

The production cost per boe, both actual and normalized, has decreased significantly, mainly due to non-recurring restructuring costs relating to the merger of Statoil ASA and Hydro Petroleum in 2007, but partly offset by start-up of new fields, increased maintenance cost and general industry cost pressure.

Adjusted for restructuring costs and other costs arising from the merger recorded in the fourth quarter of 2007 and gas injection costs, the production cost per boe of equity production for the 12 months ended December 31, 2008 was NOK 33.3. The comparable figure for the 12 months ended 31 December 2007 was NOK 31.2. These figures have not been normalized for the currency effects described above.

Net financial items amounted to a loss of NOK 12.1 billion in the fourth quarter of 2008, compared to a loss of NOK 0.7 billion in the fourth quarter of 2007.

The NOK 11.4 billion negative change was mostly attributable to unrealized currency losses with no immediate effects on cash flows, caused by a 20% weakening of NOK against the US dollar. Currency losses in the fourth quarter of 2008 amounted to NOK 22.9 billion of which NOK 17.9 billion was related to currency swaps for liquidity and currency risk management and NOK 8.5 billion was related to non-current financial liabilities. This compares to a NOK 1.0 billion currency loss in the fourth quarter of 2007. The NOK 22.0 billion increase in currency losses was partly offset by a NOK 4.2 billion improvement in financial expenses, a NOK 4.0 billion increase in income from securities and a NOK 2.3 billion increase in financial income.

In 2008, net financial items amounted to a loss of NOK 18.4 billion, compared to a gain of NOK 9.6 billion in 2007.

The NOK 28.0 billion negative change was mainly attributable to NOK 32.6 billion in currency losses caused by a 29% weakening of NOK against USD in 2008 compared to a NOK 10.0 billion gain from a 14% strengthening of the NOK against the USD in 2007. The negative impact of currency exchange losses was partly offset by a NOK 5.5 billion increase in income from securities primarily due to currency gains on USD denominated investments, a NOK 4.7 billion positive change in interest expenses mostly due to gains on derivatives and a NOK 4.4 billion increase in interest income.

 

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