Statoil Posts Lower Q1 Earnings
Statoil's net income in the first quarter of 2007 amounted to NOK 7.8 billion, compared to NOK 10.8 billion in the first quarter of 2006.
The 27% decrease in net income from the first quarter of 2006 to the first quarter of 2007 was mainly due to an 11% decrease in the average realized oil price and a 14% decrease in gas prices, both measured in NOK.
"We are delivering strong results despite lower oil- and gas prices," said Statoil's chief executive officer Helge Lund.
"We are facing some technical challenges, mainly related to the pioneering high temperature and high pressure fields Kvitebjorn and Kristin. While addressing these short-term challenges, we are continuing to build positions for future growth.
"Statoil has made an important strategic move internationally with an offer to acquire all shares of North American Oil Sands Corporation in Canada. This transaction will strengthen the group's North America position with a substantial operatorship and a large, long-term resource base. In addition, Statoil has secured new exploration acreage in Indonesia and Tanzania."
The CEO also expresses satisfaction with the progress achieved in the planned merger between Statoil and Norsk Hydro's oil and gas activities.
"The merger process is on track," noted Lund. "In May the merger was cleared by the European Commission. Recently, the merger was also declared effective by the US Securities and Exchange Commission."
Return on average capital employed after tax (ROACE) for the 12 months ended 31 March 2007 was 24.3%, compared to 26.4% for the 12 months ended 31 December 2006. The decrease was mainly due to lower oil and gas prices. ROACE is defined as a non-GAAP financial measure.
In the first quarter of 2007, earnings per share were NOK 3.58 (USD 0.59) compared to NOK 4.92 (USD 0.75) in the first quarter of 2006.
Net operating income in the first quarter of 2007 was NOK 23.8 billion compared to NOK 33.0 billion in the first quarter of 2006. The decrease was mainly due to an 11% decrease in the average oil price measured in NOK, negative changes in fair value of derivatives amounting to NOK 2.7 billion, higher operating expenses of NOK 1.4 billion, mainly due to increased operating facility cost and higher activity in International E&P, and reduced results from Manufacturing & Marketing mainly due to deferred gains on inventories amounting to NOK 0.8 billion. The decrease in net operating income was partly offset by an increase in lifted volumes, contributing positively with NOK 0.9 billion and a decrease in selling, general and administrative expenses of NOK 0.8 billion. The first quarter of 2006 included infrequent insurance premiums and accruals related to liabilities in the two mutual insurance companies in which Statoil Forsikring participates.
Total oil and gas production in the first quarter of 2007 was 1,199,000 barrels of oil equivalents (boe) per day, compared to 1,237,000 boe per day in the first quarter of 2006, a decrease of 3%. The decrease in oil and gas production was mainly related to lower production at the Kvitebjorn and Gullfaks fields. This was partly offset by increased production on the Visund and Kristin fields. The decrease in oil and gas production from the Norwegian continental shelf (NCS) was partly offset by increased production from International E&P.
Total oil and gas liftings in the first quarter of 2007 were 1,253,000 boe per day, compared to 1,232,000 boe per day in the same period of 2006. This implies an increase of 2%. In the first quarter of 2007 there was an overlift of 54,000 boe per day, compared to a marginal underlift in the same period last year.
Exploration expenditure in the first quarter of 2007 was NOK 1.9 billion, compared to NOK 1.7 billion in the first quarter of 2006. The increase in exploration expenditure was mainly due to an increase in the number of wells drilled. Exploration expenditure reflects the period's total exploration activities.
Exploration expenses for the period consist of exploration expenditure adjusted for the period's change in capitalized exploration expenditure. Exploration expenses in the first quarter of 2007 amounted to NOK 1.2 billion, compared to NOK 1.1 billion in the first quarter of 2006. The increase in exploration expenses of NOK 0.1 billion was mainly due to increased exploration expenditure in the first quarter of 2007, partly offset by an increase in capitalized share of the current period's exploration activity.
A total of 13 exploration and appraisal wells were completed in the first quarter of 2007, six on the NCS and seven internationally. Six wells resulted in discoveries, while four wells await final evaluation. Six exploration wells were completed in the first quarter of 2006.
Production cost per boe was NOK 28.4 for the 12 months ended 31 March 2007, compared to NOK 27.4 for the 12 months ended 31 December 2006.
Normalized at a USDNOK exchange rate of 6.00 and adjusted for the estimated volume reduction due to production sharing agreement (PSA) effects, the production cost for the 12 months ended 31 March 2007 was NOK 27.9 per boe, compared to NOK 26.2 per boe for the 12 months ended 31 December 2006 (*). Based on realized oil and gas prices, the estimated PSA effect on the production unit cost for the twelve months ended 31 March 2007 was NOK 0.1 per boe. Normalized production cost is defined as a non-GAAP financial measure.
The production unit cost, both actual and normalized, have increased, mainly due to a relatively higher international production, which on average has a higher production cost per boe than our production on the NCS, and increasing industry cost pressure.
Net financial items amounted to an income of NOK 1.0 billion in the first quarter of 2007 compared to an income of NOK 1.4 billion in the first quarter of 2006. The decrease was mainly caused by reduced gains on securities in the first quarter of 2007, compared to the first quarter of 2006.
Income taxes in the first quarter of 2007 were NOK 17.0 billion, with a corresponding tax rate of 68.4%. Income taxes in the first quarter of 2006 were NOK 23.6 billion, equivalent to a tax rate of 68.6%.
The tax rate was somewhat reduced in the first quarter of 2007 compared with the first quarter of 2006. This was mainly due to a relatively higher impact from the uplift tax deduction on the NCS and net financial items, which are taxed at a lower rate than income from the NCS. On the other hand, these factors were mostly offset by lower effect of income generated outside the NCS.
Health, safety and the environment (HSE)
The frequency of serious incidents in the first quarter of 2007 is on par with the same quarter last year, while total recordable injury frequency has improved slightly.
A sailor died 27 May following an accident on liquefied petroleum gas carrier Goowood as the vessel was preparing to enter the Port of Mongstad north of Bergen. Another sailor was seriously injured in the accident. The Singapore-registered carrier is on charter with Statoil.
Implementation of International Financial Reporting Standards (IFRS)
Statoil has adopted International Financial Reporting Standards (IFRS) as its primary accounting principles as from 1 January 2007. Statoil's first quarter 2007 interim consolidated financial statements have been prepared in accordance with IFRS. Comparative financial statements for previous periods presented have also been prepared in accordance with IFRS.
IFRS requires that an entity develop accounting policies based on the standards and related interpretations effective at the reporting date of its first annual IFRS financial statements (e.g., 31 December 2007). IFRS also requires that those policies will be applied as of the date of transition to IFRS (e.g., 1 January 2006) and throughout all periods presented in the first IFRS financial statements. As a result, the accounting policies used to prepare these financial statements are subject to change up to the reporting date of Statoil's first IFRS financial statements.
New production guiding
Statoil ASA provided at 10 May 2007 a forecast for oil and gas production in 2007 at 1,150,000-1,200,000 boe per day based on an oil price of USD 60 per barrel. Previously, the target was 1,300,000 boe per day.
The shortfall is largely due to delayed ramp up of new fields and delays in projects and activities. As a direct consequence of reduced production, production cost per boe is expected to increase to above NOK 30 per boe for 2007.
Recent important events include the following:
- On 27 April 2007, Statoil announced that it had entered into an acquisition agreement whereby Statoil will make an all-cash offer to acquire all shares of North American Oil Sands Corporation (NAOSC). The total transaction value is approximately CAD 2.2 billion, equivalent to about USD 2.0 billion.
- On 18 April 2007, Statoil signed a PSA for deep water Block 2 off Tanzania in the Indian Ocean. This is the first time Statoil has been awarded exploration acreage in Tanzania.
- The 14th oil find in deepwater block 31 off Angola has been made, according to operator BP and the Angolan state oil company, Sonangol. Statoil has a 13.33% share in the block.
- On 2 March 2007, Statoil and Pertamina (Persero) were awarded the Karama deepwater block in the Makassar Strait in Indonesia.
- On 1 May 2007, the control of operation of the Sincor project in Venezuela was transferred to the state-owned company PDVSA.
- Statoil, as operator, together with its partners in the Kvitebjorn field in the North Sea, has decided to temporarily cease gas and oil production. The field was shut down on 1 May 2007. It is expected that production will resume during the fourth quarter of 2007.
- The plan for development and operation (PDO) of the Alve gas and condensate field in the Norwegian Sea received government approval on 16 March 2007.
- On 29 May 2007, Statoil, as operator, announced that a promising oil discovery has been made in the Ermintrude prospect on the NCS.
- On 3 May 2007, Statoil and Hydro received clearance from the European Commission for the announced merger between Norsk Hydro ASA's petroleum activities and Statoil ASA.
- On 25 May 2007, the prospectus relating to the planned merger of Norsk Hydro's petroleum business with Statoil, was declared effective by the US Securities and Exchange Commission (SEC).
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