Business Context and Reporting Period
Company: Statoil ASA (Equinor)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Third Quarter ended September 30, 2011
Filing Date: October 27, 2011
Statoil reported strong third-quarter financial results driven by operational performance in line with expectations and elevated oil and gas prices. The company highlighted the giant Aldous/Avaldsnes discovery on the Norwegian Continental Shelf (NCS) and announced a merger agreement to acquire Brigham Exploration Company to expand its unconventional assets in the United States.
Key Financial Metrics
| Metric (NOK Billion) | Q3 2011 | Q3 2010 | Change |
|---|---|---|---|
| Net Operating Income | 39.3 | 28.2 | +39% |
| Adjusted Earnings | 43.1 | 26.7 | +62% |
| Net Income | 9.9 | 13.8 | -28% |
| Earnings Per Share (NOK) | 3.27 | 4.34 | -25% |
| Cash Flow from Operations | 24.2 | 19.0 | +27% |
| Gross Investments | 23.9 | 18.9 | +27% |
Liquidity and Debt:
- Net Debt to Capital Employed Ratio: 13.6% (down from 27.7% in Q3 2010).
- Cash and Cash Equivalents: NOK 54.9 billion (up from NOK 32.5 billion in Q3 2010).
- Net Financial Liabilities: NOK 30.2 billion (down from NOK 72.8 billion in Q3 2010).
Operational Metrics:
- Equity Production: 1,764 mboe/day (up 14% vs. Q3 2010).
- Average Liquids Price: NOK 591/bbl (up 30% vs. Q3 2010).
- Average Gas Price: NOK 1.97/scm (up 13% vs. Q3 2010).
Material Changes vs. Prior Period
Revenue and Profitability: Net operating income increased 39% primarily due to a 30% increase in average liquids prices and a 13% increase in lifted volumes. However, Net Income decreased 28% due to lower gains on net financial items and a higher effective tax rate of 76.6% (compared to 60.9% in Q3 2010).
Impairments: The quarter included a net impairment loss of NOK 4.8 billion, mainly related to the refinery business (Mongstad and Kalundborg), reflecting lower forecasts for future refining margins.
Production: Total equity production rose 14% year-over-year, driven by new field start-ups (Pazflor in Angola, Peregrino in Brazil, Leismer in Canada) and ramp-ups, partially offset by natural decline and suspended production in Libya.
Financial Items: Net financial items resulted in a gain of NOK 2.9 billion, down from NOK 7.1 billion in Q3 2010. The decrease was driven by lower foreign exchange gains and losses on securities, partially offset by fair value gains on interest rate swaps.
Guidance, Outlook, and Risks
Outlook:
- 2011 Production: Expected to be slightly below 2010 levels due to planned turnarounds.
- 2012 Production: Estimated to grow by approximately 3% CAGR based on 2010 levels.
- Long-term Ambition: Target equity production above 2.5 million boe/day by 2020.
- Capital Expenditure: Organic capex for 2011 estimated at USD 16 billion; 2012 expected at a similar level excluding the Brigham acquisition.
Management Commentary: CEO Helge Lund emphasized the revitalization of the NCS and the strategic expansion into unconventionals via the Brigham acquisition. The company aims to maintain production costs in the top quartile of its peer group.
Risks and Contingencies:
- Commodity Prices: Results are highly sensitive to oil and gas prices and exchange rates (USD/NOK).
- Legal Disputes: Ongoing disputes with the Angolan Ministry of Finance (estimated exposure USD 0.5 billion) and the Nigerian National Petroleum Corporation (NNPC) regarding profit oil calculations (estimated exposure USD 0.5 billion).
- Operational Risks: Risks related to operational regularity, timing of new capacity, and gas off-take optimization.
- Acquisition Risk: The Brigham Exploration acquisition is subject to regulatory approvals and tender offer conditions.
Investor Verification Checklist
- Brigham Acquisition Status: Verify the progress of the all-cash tender offer for Brigham Exploration Company (USD 4.4 billion equity value) and regulatory approvals.
- Refinery Impairments: Assess the long-term impact of the NOK 4.8 billion impairment on the Mongstad and Kalundborg refineries and future margin forecasts.
- Legal Exposure: Monitor the resolution of the tax and profit oil disputes in Angola and Nigeria, which represent significant contingent liabilities.
- Production Guidance: Track Q4 2011 production volumes against the guidance of being slightly below 2010 levels, considering the impact of planned turnarounds.
- Tax Rate Volatility: Review the drivers of the 76.6% effective tax rate, specifically the mix of NCS income and currency effects, to understand future net income volatility.