Business Context and Reporting Period
Company: Statoil ASA (now Equinor ASA)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Third Quarter (Q3) and First Nine Months ended September 30, 2017
Filing Date: October 26, 2017
Statoil ASA reported solid earnings and underlying cash flow driven by good operational performance, high production, and continued efficiency improvements. The company delivered 15% underlying production growth in Q3 2017 and an 11% reduction in underlying operating cost per barrel. Segment reporting names were updated in Q3 2017: "Development & Production Norway" is now "Exploration & Production Norway (E&P Norway)" and "Development & Production International" is now "Exploration & Production International (E&P International)."
Key Financial Metrics
| Metric (USD Million) | Q3 2017 | Q3 2016 | 9M 2017 | 9M 2016 |
|---|---|---|---|---|
| Net Operating Income | 1,095 | 737 | 8,588 | 1,977 |
| Net Income | (478) | (427) | 2,022 | (117) |
| Total Revenues | 13,609 | 12,106 | 44,073 | 33,117 |
| Operating Cash Flow (9M) | 12,704 (9M 2017) | 7,007 (9M 2016) | ||
| Operating Cash Flow Before Tax (9M) | ||||
| Equity Production (mboe/day) | 2,045 | 1,805 | 2,062 (9M avg) | 1,939 (9M avg) |
| Group Avg Liquids Price (USD/bbl) | 47.0 | 40.0 | 46.8 (9M avg) | 35.9 (9M avg) |
| Finance Debt (Total) | 31,255 (as of Sept 30, 2017) | |||
| Cash & Equivalents | 6,336 (as of Sept 30, 2017) |
Material Changes vs. Prior Period
- Net Operating Income: Increased 48% in Q3 2017 compared to Q3 2016, driven by higher oil and gas prices, increased gas volumes, and strong refining margins. This was partially offset by net impairment charges of USD 0.8 billion, primarily related to an unconventional onshore asset in North America.
- Net Income: Remained negative in Q3 2017 at USD 0.5 billion, down from a negative USD 0.4 billion in Q3 2016. The decline was due to higher income taxes (effective rate >100%) and negative changes in fair value of derivatives. However, for the first nine months, Net Income turned positive at USD 2.0 billion, a significant improvement from a loss of USD 0.1 billion in the same period in 2016.
- Production: Total equity production rose 13% year-over-year in Q3 to 2,045 mboe/day, driven by flexible gas production on the Norwegian Continental Shelf (NCS) and new field ramp-ups.
- Costs: Operating and administrative expenses decreased 10% in Q3 2017. Exploration expenses increased 11% in Q3 due to higher impairment of assets and drilling activity.
- Angola Dispute Resolution: In Q2 2017, a dispute with the Angolan Ministry of Finance was resolved, resulting in a USD 754 million revenue reversal and a USD 319 million reduction in interest expense, significantly boosting 9M 2017 results.
Guidance, Outlook, and Risks
- Production Guidance: Organic production growth for 2017 is estimated at around 6% above 2016 levels. For 2016-2020, organic production growth is expected to average 3% CAGR.
- Efficiency: The company expects to achieve an additional USD 1 billion in efficiency improvements in 2017, totaling USD 4.2 billion for the year.
- Exploration: Total exploration activity for 2017 is estimated at around USD 1.3 billion (excluding signature bonuses).
- Dividends: The Board declared a dividend of USD 0.2201 per share for Q3 2017. The scrip dividend programme continues, offering a 5% discount on new shares.
- Risks: Key risks include deferral of production, gas off-take issues, timing of new capacity, and operational regularity. The company also faces legal proceedings regarding the Brazilian BM-S-8 license acquisition and tax disputes, though management believes the financial position is not materially at risk.
Investor Verification Checklist
- Impairment Details: Verify the specifics of the USD 856 million impairment charge on the North American unconventional asset and its impact on future reserve estimates.
- Angola Settlement: Confirm the final tax implications and cash flow impact of the USD 956 million net positive adjustment from the Angola dispute resolution.
- Derivative Valuation: Review the USD 525 million negative impact from fair value changes in derivatives and inventory hedges in Q3 2017.
- Production Sustainability: Assess the sustainability of the 15% underlying production growth, particularly regarding flexible gas production on the NCS.
- Legal Contingencies: Monitor the status of the Brazilian court injunction regarding the BM-S-8 license and the Norwegian tax authority deviation notice.