Statoil: Third quarter Operating and Financial Review
(Thomson Reuters ONE) - CONSISTENT DELIVERIESStatoil's (OSE:STL, NYSE:STO) third quarter 2009 net operating incomewas NOK 28.3 billion, compared to NOK 47.0 billion in the thirdquarter of 2008. The quarterly result was mainly affected by a 31%drop in oil prices and a 32% decrease in the average price of naturalgas.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 wasmostly influenced by lower crude oil and gas prices and a gain onfinancial items.Adjusted earnings after tax was NOK 9.3 billion in the third quarterof 2009. Adjusted earnings after tax excludes the effect of tax onnet financial items, and represents an effective adjusted tax rate of70% in the third quarter of 2009."Statoil delivers solid financial and operational results andcontinues to maintain a high activity level both in Norway andinternationally. We have increased our equity production to 1,87million barrels of oil equivalents per day, up eight per cent fromthird quarter 2008. Our operations outside of Norway contributed withmore than 500,000 barrels of oil equivalents per day," says Statoil'schief executive Helge Lund."Since the second quarter we have started operations on several newoil and gas fields such as Tyrihans in the Norwegian Sea, Tune Southin the North Sea and Thunder Hawk in the Gulf of Mexico, and ourexploration programme continues to yield good results.""Although we see signs of improvement in the global economy, there isno firm evidence that industry investment, employment and privateconsumption have recovered in a sustainable way. This calls forcautiousness. Statoil is continuing to reduce cost, and we still havethe flexibility to adjust our activity in response to a volatilebusiness environment," says Lund.Highlights since second quarter 2009:* 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 South 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 unchanged2.1 OPERATIONAL REVIEWThird quarterTotal liquids and gas entitlement production in the third quarter of2009 was 1,712 mboe per day, compared to 1,550 mboe per day in thethird quarter of 2008. Total equity [9] production was 1,874 mboe perday in the third quarter of 2009 compared to 1,733 mboe per day inthe third quarter of 2008.The 8% increase in total equity production was primarily related tothe start-up of new fields and ramp-up of production from existingfields, and was only partly reduced by declining production frommature fields, maintenance activities and various operational issues.Entitlement production increased by 10% for the same reasons asstated above and also due to a less adverse effect of product sharingagreements (PSA effect). The average PSA effect was 163 mboe per dayin the third quarter of 2009 compared to 184 mboe per day in thethird quarter of 2008.Total liftings of liquids and gas were 1,656 mboe per day in thethird quarter of 2009, a 10% increase from 1,504 mboe per day in thethird quarter of 2008. The increase in lifting is based on theincrease in entitlement production. In the third quarter of 2009there was an underlift of 42 mboe per day [5], compared to anunderlift of 29 mboe per day in the third quarter of 2008.Refining margins were USD 3.8 per barrel in the third quarter of2009, a 59% decline since the third quarter of 2008.Production cost per boe of entitlement volumes was NOK 37.7 for the12 months ended 30 September 2009, compared to NOK 47.4 for the 12months ended 30 September 2008. [8] Based on equity [9] volumes, theproduction cost per boe for the two periods was respectively NOK 34.9and NOK 43.2.The 12 month rolling average production cost per boe decreased mainlydue to non-recurring restructuring cost relating to the merger ofStatoil ASA and Hydro Petroleum in 2007, and partial reversal of therestructuring cost in the fourth quarter of 2008.Adjusted for restructuring costs and other costs arising from themerger recorded in the fourth quarter of 2007, and partially reversedin the fourth quarter of 2008, and gas injection costs, theproduction cost per boe of equity production for the 12 months ended30 September 2009 was NOK 35.3 The comparable figure for the 12months ended 30 September 2008 was NOK 33.2. The increase is partlydue to currency effects from the strengthening of USD versus NOK inthe most recent 12 month period compared to the 12 months ended 30September 2008, and partly due to relatively high cost per barrelwhen new fields come on stream.In the third quarter of 2009, a total of nine exploration wells werecompleted before 30 September 2009, five on the NCS and fourinternationally. Five wells were announced as discoveries, of whichone are located outside the NCS.In the third quarter of 2009, Statoil started production fromTyrihans (July) and Tune South (July) on the NCS, and first oil andgas was received from the Murphy Oil operated Thunder Hawk field(July) in the Gulf of Mexico.First nine monthsTotal liquids and gas entitlement production in the first nine monthsof 2009 was 1,791 mboe per day, compared to 1,716 mboe per day in thefirst nine months of 2008. Total equity production was 1,930 mboe perday in the first nine months of 2009 compared to 1,892 mboe per dayin the first nine months of 2008.The 2% increase in total equity production in the first nine monthsof 2009 compared to same period in 2008 was primarily due toincreased production from start up of new fields and ramp up onexisting fields, partly offset by declining production from maturefields, various operational issues and maintenance activities.Entitlement production increased by 4% for the same reasons as statedabove and also due to a less adverse effect of product sharingagreements (PSA effect). The average PSA effect was 139 mboe per dayin the first nine months of 2009 compared to 177 mboe per day in thefirst nine months of of 2008.Total liquids and gas liftings in the first nine months of 2009 were1,760 mboe per day, compared to 1,691 mboe per day in the first ninemonths of 2008. The 4% increase in lifting is based on the increasein entitlement production. There was an underlift in the first ninemonths of 2009 of 16 mboe per day [5] compared to an underlift of 9mboe per day in the first nine months of 2008.Refining margins were USD 4.7 per barrel in the first nine months of2009, a 45% decline since the first nine months of 2008.In the first nine months of 2009 Statoil completed 53 explorationwells, 32 on the NCS and 21 internationally. A total of 32 wells wereannounced as discoveries in the period, 27 on the NCS and fiveinternationally.In the first nine months of 2009 Statoil started production fromYttergryta (January), Alve (March), Tyrihans (July) and Tune South(July) on the NCS and received first oil and gas from Tahiti (May)and Thunder Hawk (July) in the Gulf of Mexico.2.2 FINANCIAL REVIEWThird quarterIn the third quarter of 2009, net operating income was NOK 28.3billion, compared to NOK 47.0 billion in the third quarter of 2008.The decrease is mainly attributable to lower prices for both liquidsand gas and to a lesser extent increased depreciation and impairmentexpense.Net operating income includes certain items that management does notconsider to be reflective of Statoil's underlying operationalperformance. Management adjusts for these items to arrive at adjustedearnings. Adjusted earnings is a supplemental non-GAAP measure toStatoil's IFRS measure of net operating income which managementbelieves provides an indication of Statoil's underlying operationalperformance in the period and facilitates a better evaluation ofoperational developments between periods.In the third quarter of 2009, impairment losses net of reversals (NOK5.3 billion), underlift (NOK 0.9 billion), lower values of productsin operational storage (NOK 0.2 billion) negatively impacted netoperating income, while higher fair value of derivatives (NOK 3.0billion) and other accruals (NOK 0.1 billion) had a positive impacton net operating income. Adjusted for these items and the effects ofeliminations (NOK 0.4 billion), adjusted earnings were NOK 31.2billion in the third quarter of 2009.In the third quarter of 2008, impairment losses net of reversals (NOK3.1 billion), other accruals (NOK 1.7 billion), underlift (NOK 1.2billion) and lower values of products in operational storage (NOK 0.9billion) all had a negative impact on net operating income, whilehigher fair value of derivatives (NOK 0.6 billion) had a positiveimpact on net operating income. Adjusted for these items and theeffects of eliminations (NOK 0.9 billion), adjusted earnings were NOK52.4 billion in the third quarter 2008.The 41% decrease in adjusted earnings from third quarter 2008 tothird quarter 2009 was primarily caused by the reduction in pricesfor both liquids and gas, and was only partly compensated byincreased sales volumes of liquids and gas. Adjusted depreciation,amortisation and impairment also increased by NOK 2.8 billion mainlydue to higher production volumes, while adjusted exploration expensesdecreased by NOK 1.0 billion. Adjusted operating expenses decreasedby NOK 0.8 billion and adjusted selling and administrative expensesdecreased by NOK 0.1 billion.Net financial items amounted to a gain of NOK 3.2 billion in thethird quarter of 2009, compared to a loss of NOK 9.7 billion in thethird quarter of 2008. The NOK 3.2 billion gain in the third quarterof 2009 was primarily due to fair value gains on interest rate swappositions of NOK 1.8 billion and net foreign exchange gains of NOK2.0 billion.The fair value gains on interest rate swaps relate to decreasing USDinterest rates on the payable leg of the swaps during the three monthperiod ended 30 September 2009. The net foreign exchange gainsinclude fair value gains on currency swap positions related toliquidity and currency risk management and are due to a 9% weakeningof the USD versus the NOK in the third quarter of 2009.Adjusted for these factors and foreign exchange effects on thefinancial income, net financial items would amount to approximatelyzero for the period.Income taxes were NOK 24.9 billion in the third quarter of 2009,equivalent to a tax rate of 79%, compared to NOK 31.0 billion in thethird quarter of 2008, equivalent to a tax rate of 83%. The decreasein the tax rate was mainly due to deferred tax income caused bycurrency effects in companies that are taxable in other currenciesthan the functional currency. This was partly offset by relativelyhigher income from the NCS and impairment losses with lower thanaverage tax rate.In the third quarter of 2009, income before tax amounted to NOK 31.5billion, while taxable income was estimated to be NOK 10.9 billionhigher. The estimated difference of NOK 10.9 billion arose incompanies that changed their functional currency as from January 1,2009.Introducing the USD as functional currency in the parent company asfrom 2009 has led to reduced currency effects on net financialincome. While taxes payable are unaffected by this change, taxableincome exceeded consolidated accounting income before tax byapproximately NOK 10.9 billion in the third quarter of 2009, thuscontributing to a tax rate of 79%. Management does not consider thistax rate to be reflective of the underlying tax exposure. Adjustedearnings after tax excludes net financial items and tax on netfinancial items and is an alternative measure which provides anindication of Statoil's tax exposure to its underlying operationalperformance in the period, and therefore better facilitates acomparison between periods.Adjusted earnings after tax in the third quarter of 2009 was NOK 9.3billion, down from NOK 15.4 billion in the third quarter of 2008. Thetax rate on adjusted earnings was 70% and 71% in the third quarter of2009 and 2008, respectively.In the third quarter of 2009, net income was NOK 6.6 billion comparedto NOK 6.3 billion in the third quarter of 2008. The 6% increase ismainly due to the net gain on net financial items and a lowereffective tax rate, only partly offset by the reduction in netoperating income caused mainly by reduced prices.In the third quarter of 2009, earnings per share based on net incomewere NOK 2.33 compared to NOK 2.04 in the third quarter of 2008.First nine monthsIn the first nine months of 2009, the net operating income was NOK88.1 billion, compared to NOK 161.1 billion in the first nine monthsof 2008. The decrease is mainly attributable to lower prices of oiland gas and increased depreciation, amortisation and impairmentlosses, partly offset by income from higher volumes.In the first nine months of 2009, both impairment losses net ofreversals (NOK 11.0 billion) and underlift (NOK 1.4 billion)negatively impacted net operating income, while higher fair value ofderivatives (NOK 2.4 billion), higher values of products inoperational storage (NOK 1.5 billion), other accruals (NOK 1.5billion) and gain on sale of assets (NOK 0.5 billion) all had apositive impact on net operating income. Adjusted for these items andeffects of inter-company eliminations (NOK 1.8 billion), adjustedearnings 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 (NOK2.0 billion) and reversal of restructuring cost accrual (NOK 0.2billion) negatively impacted net operating income, while the highervalue of derivatives (NOK 4.7 billion), gain on sale of assets (NOK1.2 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 thefirst nine months of 2008.The 40% decrease in adjusted earnings from the first nine months of2008 to the first nine months of 2009 was primarily due to the dropin both liquids and gas prices, and was only partly offset by higherincome from sales of liquids and natural gas. Other contributingfactors include a NOK 6.7 billion increase in adjusted depreciation,amortisation and impairment expense caused by higher productionvolumes, a NOK 0.8 billion increase in adjusted operating expensesand a NOK 0.5 billion increase in adjusted selling, general andadministrative expense. Lower adjusted exploration expenses made apositive contribution of NOK 0.7 billion.Net financial items amounted to a loss of NOK 5.5 billion in thefirst nine months of 2009, compared to a loss of NOK 6.3 billion infirst nine months of 2008. The NOK 5.5 billion loss in the first ninemonths of 2009 was primarily due to fair value losses on interestrate swap positions of NOK 4.2 billion, net foreign exchange gains ofNOK 0.3 billion and an impairment loss of NOK 1.1 billion related toan investment in the Pernis refinery company.The fair value losses on interest rate swaps relate to increasing USDinterest rates on the payable leg of the swaps during the nine monthperiod ended 30 September 2009. The net foreign exchange gainsinclude fair value gains on currency swap positions related toliquidity and currency risk management and are due to a 17% weakeningof the USD versus the NOK in the first nine months of 2009.Adjusted for these factors, the impairment of the investment inPernis and for foreign exchange effects on financial income, netfinancial items would amount to approximately zero for the period.Income taxes were NOK 72.0 billion in the first nine months of 2009,equivalent to a tax rate of 87%, compared to NOK 113.5 billion in thefirst nine months of 2008, equivalent to a tax rate of 73%. Theincrease in the tax rate was mainly due to currency effects relatedto the change of functional currency for certain companies. In thefirst nine months of 2009 the taxable income is higher than incomebefore tax, which increases the tax rate in the first nine months. Inaddition, the tax rate was increased by relatively higher income fromthe NCS and impairments with lower than average tax rates.In the first nine months of 2009, income before tax amounted to NOK82.6 billion, while taxable income was estimated to be NOK 24.6billion higher than income before tax. The estimated difference ofNOK 24.6 billion arose in companies that changed their functionalcurrency as from January 1, 2009.Adjusted earnings after tax excludes the effects of tax on financialitems, and in the first nine months of 2009, adjusted earnings aftertax were NOK 28.5 billion, down from NOK 46.0 billion in the sameperiod last year. The decrease is mainly due to lower liquid prices,partly offset by higher income from natural gas sales and a lowereffective tax rate on adjusted earnings. The tax rate on adjustedearnings was 70% and 71% in the first nine months of 2009 and 2008,respectively.In the first nine months of 2009, net income was NOK 10.6 billioncompared to NOK 41.2 billion. The 74% decrease is mainly due toreduced operating income caused by lower revenues from liquids andgas sales and a higher effective tax rate, only partly offset byreduced loss on net financial items.In the first nine months of 2009 earnings per share based on netincome amounted to NOK 3.50, compared to NOK 12.95 in the first ninemonths of 2008.In the first nine months of 2009, cash flows were adversely affectedby a 37% decrease in liquids prices and an 8% decrease in natural gasprices, both measured in NOK, but cash flows provided by operationsstill exceeded cash flows to investments with NOK 5.7 billion.Cash flows provided by operations amounted to NOK 61.2 billion, whilecash flows to investments amounted to NOK 56.4 billion. Cash flowsprovided by operations decreased by NOK 22.0 billion from the sameperiod last year, mainly due to lower operating income, but partlycompensated by changes in working capital and lower income taxpayments. Cash flows to investments increased by NOK 15.2 billioncompared to the same period last year, mainly due to increasedinvestments in property, plant and equipment and less proceeds fromsales of assets.2.3 OUTLOOKStatoil's guiding for equity production is 1,950 mboe per day in 2009and 2,200 mboe per day in 2012. [13] The estimate for 2009 excludesany adverse effects of potential Opec quotas. Going forward,operational regularity, gas offtake and commercial considerationsrelated to gas sales activities represent the most significant risksto the production guidance.Maintenance activity is not expected to materially influence ourequity production in the fourth quarter of 2009, and is expected tobe approximately 30 mboe per day for the full year.Capital expenditures for 2009, excluding acquisitions and capitalleases, are estimated at around USD 13.5 billion.Unit production cost for equity volumes is estimated in the range ofNOK 33 to 36 per barrel in the period from 2009 to 2012, excludingpurchases of fuel and gas for injection. For 2009, the unitproduction 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 ofexploration assets and expects to maintain a high level ofexploration activity for the remainder of 2009, although slightlylower than in 2008. Statoil expects to complete around 70 explorationand appraisal wells in 2009 and exploration expenditures is estimatedat approximately USD 2.7 billion.We anticipate that commodity prices will continue to be volatile, atleast in the near term.Refining margins have been declining for more than a year, and weanticipate that they will remain low, at least in the near term.These forward-looking statements reflect current views about futureevents and are, by their nature, subject to significant risks anduncertainties because they relate to events and depend oncircumstances that will occur in the future. See "Forward-LookingStatements" below.2.4 RISK UPDATERisk factorsThe results of operations largely depend on a number of factors, mostsignificantly those that affect the price received in NOK forproducts sold. Specifically, such factors include the level ofliquids and natural gas prices, trends in the exchange rates, liquidsand natural gas production volumes, which in turn depend onentitlement volumes under profit sharing agreements and availablepetroleum reserves, Statoil's, as well as our partners' expertise andco-operation in recovering oil and natural gas from those reserves,and changes in Statoil's portfolio of assets due to acquisitions anddisposals.The illustration shows how certain changes in crude oil prices (asubstitute for liquids prices), natural gas contract prices and theUSDNOK exchange rate, if sustained for a full year, could impact ournet operating income in 2009. Changes in commodity prices, currencyand interest rates may result in income or expense for the period aswell as changes in the fair value of derivatives in the balancesheet.The illustration is not intended to be exhaustive with respect torisks that have or may have a material impact on the cash flows andresults of operation. See the annual report for 2008 for a moredetailed discussion of the risks to which Statoil is exposed.Financial risk managementStatoil has policies in place to manage acceptable risk forcommercial and financial counterparties and the use of derivativesand market activities in general. Statoil has so far had only limitedexposure towards distressed parties and instruments. The turmoil inthe financial markets has not caused us to make any changes in ourrisk management policies, but we have tightened our practices withrespect to credit risk and liquidity management. Only insignificantcounterparty losses have been incurred so far. The group's exposuretowards financial counterparties is still considered to have anacceptable risk profile, but it is anticipated that the risk mayincrease if the financial crisis worsens. This may be somewhatreduced by the effects of national and international actions bynations and national banks.The markets for short- and long-term financing are currentlyconsidered to function comfortably for borrowers with Statoil'scredit standing and general characteristics. However, under thecurrent circumstances uncertainty still exists. Funding costs forshort maturities are generally at historically low levels. Long-termfunding costs are at attractive absolute levels although the creditspread element for corporate issuers is still higher compared tolevels existing before the financial crisis. With regard to liquiditymanagement, the focus is on finding the right balance between riskand reward and most funds are currently placed in short term AA- andAAA-rated non-Norwegian government certificates, or with banks withAA-rating.In accordance with our internal credit rating policy, we reassesscounterparty credit risk at least annually and assess counterpartiesthat we identify as high risk more frequently. The internal creditratings reflect our assessment of the counterparties' credit risk andare similar to the rating categories used by well known credit ratingagencies, such as Standard & Poor's and Moody's.2.5 HEALTH, SAFETY AND THE ENVIRONMENT (HSE)Third quarterThe total recordable injury frequency was 4.0 in the third quarter of2009 compared to 5.9 in the third quarter of 2008. The seriousincident frequency decreased from 2.1 in the third quarter of 2008 to1.6 in the third quarter of 2009. There was one fatality in the thirdquarter of 2009 when a merchant seaman drowned in the river Seine inNormandy, France, and one fatality in October at the Leismerdevelopment south of Alberta, Canada.The number of accidental oil spills in the third quarter of 2009decreased compared to the third quarter of 2008, and the volumedecreased from 42 to 3 cubic metres in the third quarter of 2009.First nine monthsThe total recordable injury frequency was 4.2 in first nine months of2009 compared to 5.7 in first nine months of 2008. The seriousincident frequency rate decreased from 2.3 in first nine months of2008 to 2.0 in first nine months of 2009. There were five fatalitiesin the first nine months of 2009 (six year to date). One fatalityoccurred when a contractor fell down while dismantling scaffolding,three Statoil employees were on board the Air France flight 447 thatdisappeared over the Atlantic, and one fatality occurred on thevessel Lady Shana when the shore gangway collapsed and fell into theriver Seine while a crew member was crossing it.The number of accidental oil spills in the first nine months of 2009decreased compared to the first nine months of 2008, and the volumedecreased from 318 to 49 cubic metres in the first nine months of2009.3To see end notes referenced in main table and text please downloadour complete report from our website -http://www.statoil.com/en/InvestorCentre/QuarterlyResults/Pages/default.aspx*See end notes in the complete quarterely reportAttachments:- Press release- Financial statement and reviewFurther information from:Investor relationsLars Troen Sørensen, senior vice president investor relations, + 4790 64 91 44 (mobile)Geir Bjørnstad, vice president, US investor relations, + 1 203 9786950PressOla Morten Aanestad, vice president for media relations, + 47 480 80212 (mobile)Kai Nielsen, public affairs manager , +44 (0) 78 2432 6893 (mobile)http://hugin.info/132799/R/1352408/327165.pdfhttp://hugin.info/132799/R/1352408/327167.pdfhttp://hugin.info/132799/R/1352408/327168.pdfThis announcement was originally distributed by Hugin. The issuer is solely responsible for the content of this announcement.
Datum: 04.11.2009 - 07:57 Uhr
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