Business Context and Reporting Period
Company: Statoil ASA (Equinor ASA)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: First quarter ended March 31, 2010
Filing Date: May 20, 2010
Statoil ASA reported stronger results in volatile markets for the first quarter of 2010. The company operates in four main segments: Exploration & Production (E&P) Norway, International E&P, Natural Gas, and Manufacturing & Marketing. Key operational highlights include the sanctioning of six new upstream projects, including Gudrun and Marulk on the Norwegian Continental Shelf and the Chirag Oil Project in Azerbaijan. The Board also initiated a process to separate and list the energy and retail business on the Oslo Stock Exchange, with an IPO targeted for the fourth quarter of 2010 or later.
Key Financial Metrics
| Metric | Q1 2010 | Q1 2009 | Change |
|---|---|---|---|
| Revenues (NOK billion) | 128.7 | 112.6 | +14% |
| Net Operating Income (NOK billion) | 39.6 | 35.5 | +11% |
| Net Income (NOK billion) | 11.1 | 4.0 | +181% |
| Earnings Per Share (NOK) | 3.49 | 1.15 | +203% |
| Cash Flow from Operations (NOK billion) | 24.5 | 8.2 | +199% |
| Cash Flow from Investing (NOK billion) | (19.1) | (19.7) | -3% |
| Gross Financial Liabilities (NOK billion) | 103.3 | 93.2 | +11% |
| Net Debt to Capital Employed (%) | 25.6% | 19.5% | +6.1 pp |
Production & Pricing:
- Total Equity Production: 2,102 mboe/day (up 1% vs Q1 2009).
- Total Entitlement Production: 1,915 mboe/day (down 1% vs Q1 2009).
- Average Liquids Price: NOK 434/bbl (up 48% vs Q1 2009).
- Average Gas Price: NOK 1.64/scm (down 35% vs Q1 2009).
- Production Cost (Equity): NOK 36.6/boe (up 7% vs Q1 2009).
Material Changes vs. Prior Period
Revenue and Profit Growth: Net income surged 181% to NOK 11.1 billion, driven primarily by higher net operating income in International E&P, reduced losses on net financial items, and a lower effective tax rate (70.6% in Q1 2010 vs. 87.4% in Q1 2009).
Price Volatility: The 48% increase in liquids prices (measured in NOK) significantly boosted results, partially offset by a 35% decline in gas prices and lower entitlement volumes due to Production Sharing Agreement (PSA) effects.
Segment Performance:
- International E&P: Turned a loss of NOK 2.3 billion in Q1 2009 into a profit of NOK 4.9 billion in Q1 2010, aided by higher prices and reduced impairment charges.
- E&P Norway: Net operating income decreased 5% to NOK 28.6 billion due to lower gas transfer prices and liquids volumes, despite higher oil prices.
- Manufacturing & Marketing: Net operating income fell 50% to NOK 1.7 billion, impacted by low refining margins and the absence of a NOK 1.3 billion take-or-pay contract reversal recorded in Q1 2009.
Financial Items: Net financial items improved from a loss of NOK 3.9 billion to NOK 1.7 billion. This was due to fair value gains on interest rate swaps (NOK 1.0 billion) offsetting foreign exchange losses (NOK 2.5 billion) caused by the strengthening of the USD against the NOK.
Guidance, Outlook, and Risks
Production Guidance: Equity production is guided at 1,925–1,975 mboe/day for 2010 and 2.1–2.2 mmboe/day for 2012. Planned turnarounds in 2010 are expected to negatively impact equity production by approximately 50 mboe/day for the full year.
Capital Expenditures: Estimated at around USD 13 billion for 2010 (excluding acquisitions and capital leases). Exploration activity is expected to be around USD 2.3 billion.
Cost Outlook: Unit production cost for equity volumes is estimated at NOK 35–36/boe, on par with 2009 levels.
Risks and Contingencies:
- Market Volatility: Commodity prices and exchange rates remain volatile. The gas market is expected to be challenging in the near term.
- Refining Margins: Anticipated to remain at low levels in the near term.
- Legal Settlement: A settlement was reached with the Norwegian state regarding the Kårstø expansion case, requiring a payment of NOK 500 million plus NOK 270 million in interest.
- Operational Risks: Risks include entitlement volumes under PSAs, operational regularity, and the timing of new capacity.
Investor Verification Checklist
- Production Volumes: Verify the 1% increase in equity production (2,102 mboe/day) against the 1% decrease in entitlement production (1,915 mboe/day) and the impact of PSA effects.
- Price Sensitivity: Assess the impact of the 48% rise in NOK-denominated oil prices versus the 35% drop in gas prices on future margins.
- Debt Levels: Review the increase in net debt to capital employed ratio from 19.5% to 25.6% and the NOK 10.1 billion increase in gross financial liabilities.
- Segment Margins: Confirm the sustainability of the International E&P turnaround and the pressure on Manufacturing & Marketing margins due to low refining spreads.
- Strategic Moves: Monitor the progress of the planned IPO for the energy and retail business and the execution of the six sanctioned upstream projects.