Statoil 2Q Revenues Up 38 Percent, But Profits Stall

Despite a 38 percent increase in revenues due to higher oil prices and increased production, Statoil's second quarter net income was stagnant.

Earnings per share fell from NOK 2.03 in the second quarter of 2003 to NOK 2.01 for the second quarter of 2004. The reason was primarily a massive differential in income taxes; Statoil paid NOK 9.6 billion in taxes in the second quarter of 2004, compared to just NOK 261 million in the same quarter of 2003. The 2003 tax payment was artificially low due to a change in the way the Norwegian state handles the cost of removal for installations on the Norway Continental Shelf.

Statoil received a NOK 6.7 billion tax break in 2Q 2003 due to the change. Statoil also received more income from the NCS in 2004 than in 2003, causing its overall tax rate to increase. NCS revenues are taxed at 78 percent, making the company's overall tax rate in 2Q 2004 68.6 percent, compared to 65 percent in the same quarter of 2003.

Before income taxes and other financial items, Statoil's income during the most recent quarter was NOK 14.2 billion, compared to NOK 10.3 billion in the same quarter a year ago. Without higher oil prices and increased production to offset the higher taxes, however, Statoil could have experienced a decline in operating revenues.

Overall, however, Statoil officials expressed satisfaction with the company's results.

"We have delivered another strong result from operations in the second quarter," acting Chief Executive Erling Øverland said in a press release. "High oil prices and good output at a continued low production cost per barrel are among the main contributors. We also are very satisfied with the awards to Statoil in the 18th licensing round in Norway, and internationally we took important steps to strengthen our gas position."

Oil prices during the quarter increased 33 percent, while lifted oil and gas volumes grew by 5 percent, the company said. Statoil lifted 1.058 million barrels per day of oil equivalent (boe) in the second quarter of 2004, compared to 1.005 million boe in the same period a year earlier.

To reach its target of 12 percent return on average capital employed in 2004, Statoil has determined that it must reduce costs and increase revenues by a combined total of NOK 3.5 billion in 2004, compared to 2001. The company said it has so far identified NOK 3.1 billion in improvements toward that goal.

The company said that major developments during the quarter included:

  • The award of four new operatorships in the 18th NCS licensing round, plus shares in five new production licenses. Two of these licenses are located in the North Sea and seven in the Norwegian Sea.
  • The acquisition of BP's interests in two natural gas fields in Algeria, including a 50 percent share in the In Amenas field and a 49 percent increase in the In Salah field.
  • An agreement to quadruple Statoil's access to expanded capacity at Dominion's Cove Point LNG terminal in Maryland. Planned startup is scheduled for 2008. The agreement, which is subject to approval of the terminal expansion by U.S. regulatory authorities, will give Statoil annual terminal capacity of 7.7 bcm per year for 20 years.
  • Acquisition of ICA AB's 50 percent holding in Statoil Detaljhandel Skandinavia AS (SDS).
  • Newly launched plans to build power plants at Mongstad supplied with natural gas from the Troll field, along with another natural gas-fired power plant at Tjeldbergodden.

  • In the first half of 2004, the company said it completed seven exploration and appraisal wells (five on the NCS and two internationally) and that five of these resulted in discoveries.

    One major uncertainty hanging over the company, however, involves ongoing investigations into Statoil's dealings with Horton Investments Ltd., a Turks & Caicos Islands company, for consultancy services in Iran. The Norwegian National Authority for Investigation and Prosecution of Economic and Environmental Crime (Økokrim) notified Statoil in late June that the agency had concluded the company violated a relatively new section of the Norwegian Penal Code that prohibits offering bribes to middlemen in exchange for exercising influence with a decision-maker.

    Økokrim has filed a notice of intent to impose a penalty of NOK 20 million on Statoil and given the company until October 18, 2004 to respond. The new code became effective in July 2003, but is being applied to an agreement entered into by Statoil and Horton beginning in 2002.

    Meanwhile, the U.S. Securities and Exchange Commission and the U.S. Department of Justice are conducting separate investigations of the Horton situation. The SEC is investigating the Horton consultancy arrangement to determine if there were any violations of U.S. securities laws, including the Foreign Corrupt Practices Act. The U.S. Justice Department is conducting a joint criminal investigation of the Horton arrangement in cooperation with the U.S. Attorney for the Southern District of New York. The Iranian Consultative Assembly also is investigating.

    In the footnotes to its financial statements, Statoil said that it agreed to pay Horton $15.2 million US for consultancy services over an 11-year contract, and made two payments of $5.2 million. Statoil later stopped the contract following an internal review and terminated the contract in September 2003. Statoil's chairman, its chief executive and its executive vice president of international exploration and production subsequently resigned.

    Statoil hired Norwegian attorney Erik Keiserud to conduct an independent review of the situation. Keiserud concluded that the company's contractual agreement with Mehdi Hashemi Rafsanjani, son of Iran's former president, did not violate the law but also did not comply with Statoil's internal ethical rules or rules of procurement.

    A subsequent review of the rest of Statoil's international consultancy arrangements by Deloitte & Touche and two law firms "did not find that Statoil, directly or indirectly, had offered bribes or otherwise exerted improper influence, or attempted to engage in such conduct, in its attempts to obtain or retain business outside Norway." Statoil said it is fully cooperating with all of the ongoing investigations.

    This article provided courtesy of EyeForEnergy