Statoil Delivers 'Solid' 3Q Results, Expects to Complete 70 Wells in '09


Tyrihans Subsea Tie-Back
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Statoil's third quarter 2009 net operating income was NOK 28.3 billion, compared to NOK 47.0 billion in the third quarter of 2008. The quarterly result was mainly affected by a 31% drop in oil prices and a 32% decrease in the average price of natural gas. Adjusted earnings in the third quarter 2009 were NOK 31.2 billion.

Net income in the third quarter of 2009 was NOK 6.6 billion and was mostly influenced by lower crude oil and gas prices and a gain on financial items. Adjusted earnings after tax was NOK 9.3 billion in the third quarter of 2009. Adjusted earnings after tax excludes the effect of tax on net financial items, and represents an effective adjusted tax rate of 70% in the third quarter of 2009.

"Statoil delivers solid financial and operational results and continues to maintain a high activity level both in Norway and internationally. We have increased our equity production to 1,87 million barrels of oil equivalents per day, up eight per cent from third quarter 2008. Our operations outside of Norway contributed with more than 500,000 barrels of oil equivalents per day," said Statoil's chief executive Helge Lund.

"Since the second quarter we have started operations on several new oil and gas fields such as Tyrihans in the Norwegian Sea, Tune Sor in the North Sea and Thunder Hawk in the Gulf of Mexico, and our exploration programme continues to yield good results."

Lund continued, "We see signs of improvement in the global economy, but there is no firm evidence that industry investment, employment and private consumption have recovered in a sustainable way. This calls for cautiousness. Statoil is continuing to reduce cost, and we still have the flexibility to adjust our activity in response to a volatile business environment."

Highlights

  • Equity production is up 8% from third quarter 2008 to 1,874 mboe per day. For the first nine months of the year, equity production is 1,930 mboe per day
  • Entitlement production is up 10% from third quarter last year to 1,712 mboe per day
  • Average liquids prices measured in NOK are down 31%, gas prices down 32%, and refining margins down 59% from third quarter last year
  • Successful maintenance turnarounds on the Norwegian Continental Shelf (NCS)
  • New fields coming on stream were Tyrihans and Tune Sør on the NCS and Thunder Hawk in the Gulf of Mexico
  • Successful debt capital markets transaction issuing USD 900 million 2.90% Notes due in October 2014
  • Guiding for 2009 equity production, capital expenditure and exploration activity is unchanged

OPERATIONAL REVIEW

Third quarter

Total liquids and gas entitlement production in the third quarter of 2009 was 1,712 mboe per day, compared to 1,550 mboe per day in the third quarter of 2008. Total equity [9] production was 1,874 mboe per day in the third quarter of 2009 compared to 1,733 mboe per day in the third quarter of 2008. The 8% increase in total equity production was primarily related to the start-up of new fields and ramp-up of production from existing fields, and was only partly reduced by declining production from mature fields, maintenance activities and various operational issues. Entitlement production increased by 10% for the same reasons as stated above and also due to a less adverse effect of product sharing agreements (PSA effect). The average PSA effect was 163 mboe per day in the third quarter of 2009 compared to 184 mboe per day in the third quarter of 2008. Total liftings of liquids and gas were 1,656 mboe per day in the third quarter of 2009, a 10% increase from 1,504 mboe per day in the third quarter of 2008. The increase in lifting is based on the increase in entitlement production. In the third quarter of 2009 there was an underlift of 42 mboe per day, compared to an underlift of 29 mboe per day in the third quarter of 2008.

Production cost per boe of entitlement volumes was NOK 37.7 for the 12 months ended 30 September 2009, compared to NOK 47.4 for the 12 months ended September 30, 2008. Based on equity volumes, the production cost per boe for the two periods was respectively NOK 34.9 and NOK 43.2. The 12 month rolling average production cost per boe decreased mainly due to non-recurring restructuring cost relating to the merger of Statoil ASA and Hydro Petroleum in 2007, and partial reversal of the restructuring cost in the fourth quarter of 2008.

Adjusted for restructuring costs and other costs arising from the merger recorded in the fourth quarter of 2007, and partially reversed in the fourth quarter of 2008, and gas injection costs, the production cost per boe of equity production for the 12 months ended September 30, 2009 was NOK 35.3 The comparable figure for the 12 months ended September 30, 2008 was NOK 33.2. The increase is partly due to currency effects from the strengthening of USD versus NOK in the most recent 12 month period compared to the 12 months ended 30 September 2008, and partly due to relatively high cost per barrel when new fields come on stream.

In the third quarter of 2009, a total of nine exploration wells were completed before September 30, 2009, five on the NCS and four internationally. Five wells were announced as discoveries, of which one are located outside the NCS. In the third quarter of 2009, Statoil started production from Tyrihans (July) and Tune Sor (July) on the NCS, and first oil and gas was received from the Murphy Oil operated Thunder Hawk field (July) in the Gulf of Mexico.

First nine months

Total liquids and gas entitlement production in the first nine months of 2009 was 1,791 mboe per day, compared to 1,716 mboe per day in the first nine months of 2008. Total equity production was 1,930 mboe per day in the first nine months of 2009 compared to 1,892 mboe per day in the first nine months of 2008. The 2% increase in total equity production in the first nine months of 2009 compared to same period in 2008 was primarily due to increased production from start up of new fields and ramp up on existing fields, partly offset by declining production from mature fields, various operational issues and maintenance activities. Entitlement production increased by 4% for the same reasons as stated above and also due to a less adverse effect of product sharing agreements (PSA effect). The average PSA effect was 139 mboe per day in the first nine months of 2009 compared to 177 mboe per day in the first nine months of of 2008.

Total liquids and gas liftings in the first nine months of 2009 were 1,760 mboe per day, compared to 1,691 mboe per day in the first nine months of 2008. The 4% increase in lifting is based on the increase in entitlement production. There was an underlift in the first nine months of 2009 of 16 mboe per day compared to an underlift of 9 mboe per day in the first nine months of 2008.

In the first nine months of 2009 Statoil completed 53 exploration wells, 32 on the NCS and 21 internationally. A total of 32 wells were announced as discoveries in the period, 27 on the NCS and five internationally. In the first nine months of 2009 Statoil started production from Yttergryta (January), Alve (March), Tyrihans (July) and Tune Sor (July) on the NCS and received first oil and gas from Tahiti (May) and Thunder Hawk (July) in the Gulf of Mexico.

FINANCIAL REVIEW

Third quarter

In the third quarter of 2009, net operating income was NOK 28.3 billion, compared to NOK 47.0 billion in the third quarter of 2008. The decrease is mainly attributable to lower prices for both liquids and gas and to a lesser extent increased depreciation and impairment expense. Net operating income includes certain items that management does not consider to be reflective of Statoil's underlying operational performance. Management adjusts for these items to arrive at adjusted earnings. Adjusted earnings is a supplemental non-GAAP measure to Statoil's IFRS measure of net operating income which management believes provides an indication of Statoil's underlying operational performance in the period and facilitates a better evaluation of operational developments between periods.

In the third quarter of 2009, impairment losses net of reversals (NOK 5.3 billion), underlift (NOK 0.9 billion), lower values of products in operational storage (NOK 0.2 billion) negatively impacted net operating income, while higher fair value of derivatives (NOK 3.0 billion) and other accruals (NOK 0.1 billion) had a positive impact on net operating income. Adjusted for these items and the effects of eliminations (NOK 0.4 billion), adjusted earnings were NOK 31.2 billion in the third quarter of 2009. In the third quarter of 2008, impairment losses net of reversals (NOK 3.1 billion), other accruals (NOK 1.7 billion), underlift (NOK 1.2 billion) and lower values of products in operational storage (NOK 0.9 billion) all had a negative impact on net operating income, while higher fair value of derivatives (NOK 0.6 billion) had a positive impact on net operating income. Adjusted for these items and the effects of eliminations (NOK 0.9 billion), adjusted earnings were NOK 52.4 billion in the third quarter 2008.

The 41% decrease in adjusted earnings from third quarter 2008 to third quarter 2009 was primarily caused by the reduction in prices for both liquids and gas, and was only partly compensated by increased sales volumes of liquids and gas. Adjusted depreciation, amortisation and impairment also increased by NOK 2.8 billion mainly due to higher production volumes, while adjusted exploration expenses decreased by NOK 1.0 billion. Adjusted operating expenses decreased by NOK 0.8 billion and adjusted selling and administrative expenses decreased by NOK 0.1 billion.

First nine months

In the first nine months of 2009, the net operating income was NOK 88.1 billion, compared to NOK 161.1 billion in the first nine months of 2008. The decrease is mainly attributable to lower prices of oil and gas and increased depreciation, amortisation and impairment losses, partly offset by income from higher volumes. In the first nine months of 2009, both impairment losses net of reversals (NOK 11.0 billion) and underlift (NOK 1.4 billion) negatively impacted net operating income, while higher fair value of derivatives (NOK 2.4 billion), higher values of products in operational storage (NOK 1.5 billion), other accruals (NOK 1.5 billion) and gain on sale of assets (NOK 0.5 billion) all had a positive impact on net operating income. Adjusted for these items and effects of inter-company eliminations (NOK 1.8 billion), adjusted earnings were NOK 96.4 billion in the first nine months of 2009. In the first nine months of 2008 impairment losses net of reversals (NOK 3.5 billion), underlift (NOK 1.1 billion), other accruals (NOK 2.0 billion) and reversal of restructuring cost accrual (NOK 0.2 billion) negatively impacted net operating income, while the higher value of derivatives (NOK 4.7 billion), gain on sale of assets (NOK 1.2 billion) and higher values of products in operational storage (NOK 0.8 billion) all had a positive impact on net operating income. Adjusted for these items and effects of inter-company eliminations (NOK 0.9 billion), adjusted earnings were NOK 160.3 billion in the first nine months of 2008.

The 40% decrease in adjusted earnings from the first nine months of 2008 to the first nine months of 2009 was primarily due to the drop in both liquids and gas prices, and was only partly offset by higher income from sales of liquids and natural gas. Other contributing factors include a NOK 6.7 billion increase in adjusted depreciation, amortisation and impairment expense caused by higher production volumes, a NOK 0.8 billion increase in adjusted operating expenses and a NOK 0.5 billion increase in adjusted selling, general and administrative expense. Lower adjusted exploration expenses made a positive contribution of NOK 0.7 billion.

OUTLOOK

Statoil's guiding for equity production is 1,950 mboe per day in 2009 and 2,200 mboe per day in 2012. [13] The estimate for 2009 excludes any adverse effects of potential Opec quotas. Going forward, operational regularity, gas offtake and commercial considerations related to gas sales activities represent the most significant risks to the production guidance. Maintenance activity is not expected to materially influence our equity production in the fourth quarter of 2009, and is expected to be approximately 30 mboe per day for the full year.

Capital expenditures for 2009, excluding acquisitions and capital leases, are estimated at around US $13.5 billion. Unit production cost for equity volumes is estimated in the range of NOK 33 to 36 per barrel in the period from 2009 to 2012, excluding purchases of fuel and gas for injection. For 2009, the unit production cost is expected to be in the upper end of this range. Exploration drilling is the primary tool for growing our business. The company will continue to high-grade the large portfolio of exploration assets and expects to maintain a high level of exploration activity for the remainder of 2009, although slightly lower than in 2008. Statoil expects to complete around 70 exploration and appraisal wells in 2009 and exploration expenditures is estimated at approximately US $2.7 billion.

 

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