Business Context and Reporting Period
This Form 20-F is the Annual Report for StatoilHydro ASA (formerly Statoil ASA) for the fiscal year ended December 31, 2007. The report reflects the company's first full year of operations following the merger with Norsk Hydro ASA's oil and gas activities (Hydro Petroleum), which was completed on October 1, 2007. The company is a technology-based oil and gas company headquartered in Stavanger, Norway, and is the leading operator on the Norwegian Continental Shelf (NCS). Financial statements are prepared in accordance with International Financial Reporting Standards (IFRS).
Key Financial Metrics
| Metric (NOK Million) | 2007 | 2006 |
|---|---|---|
| Total Revenues and Other Income | 522,797 | 521,482 |
| Net Operating Income | 137,204 | 166,164 |
| Net Income | 44,641 | 51,847 |
| Cash Flows from Operating Activities | 93,926 | 88,593 |
| Cash Flows Used in Investing Activities | (75,112) | (57,175) |
| Net Interest-Bearing Debt | 25,461 | 43,779 |
| Net Debt to Capital Employed | 12.4% | 20.5% |
| Return on Average Capital Employed (ROACE) | 17.9% | 22.9% |
| Earnings Per Share (NOK) | 13.80 | 15.82 |
Operational Highlights: Combined oil and gas production averaged 1,724 thousand boe/day. Proved reserves stood at 6,010 million boe. Production cost was NOK 44.1/boe.
Material Changes vs. Prior Period
- Merger Impact: The merger with Hydro Petroleum resulted in NOK 11.1 billion in restructuring costs, significantly impacting net operating income. The company recorded a total expense of NOK 10.7 billion related to restructuring and merger costs, primarily for pensions and early retirement packages.
- Production Costs: Unit production cost increased by 56% to NOK 44.1/boe from NOK 28.4/boe in 2006. This increase was driven by restructuring costs, the start-up of new fields, increased maintenance costs, and general industry cost pressures. Excluding restructuring costs, the adjusted cost was NOK 35.7/boe.
- Segment Performance:
- Exploration & Production Norway (EPN): Net operating income decreased 9% to NOK 123.2 billion due to price/volume effects and restructuring costs.
- International E&P (INT): Net operating income surged 210% to NOK 12.2 billion, driven by a 31% increase in entitlement production and lower depreciation/impairment charges compared to 2006.
- Natural Gas: Net operating income plummeted 93% to NOK 1.6 billion due to a 13% drop in European gas prices and negative changes in the fair value of derivatives.
- Reserves: Proved reserves decreased slightly to 6,010 million boe from 6,101 million boe. The reserve replacement ratio improved to 86% in 2007 (81% three-year average) compared to 61% in 2006.
Guidance, Outlook, and Risks
- 2008 Outlook: The company estimates entitlement production of approximately 1.75 mmboe/day. Organic capital expenditures are estimated at NOK 75 billion for 2008 and NOK 80 billion for 2009. Unit production costs are estimated in the range of NOK 33-36/boe for 2008-2012.
- Key Projects: Major milestones include the start-up of the Ormen Lange field and the Snøhvit LNG plant. However, the Snøhvit LNG plant has faced operational challenges, creating uncertainty regarding the timing of regular and stable operations.
- Strategic Acquisitions: The company strengthened its heavy oil position through the acquisition of North American Oil Sands Corporation (NAOSC) and the Peregrino development in Brazil. A framework agreement was signed with Gazprom for the Shtokman development.
- Risks and Contingencies:
- Legal Proceedings: The company settled the "Horton Case" regarding Iran consultancy services with the US DOJ and SEC for USD 10.5 million. An external review is ongoing regarding potential anti-corruption violations related to Hydro's operations in Libya.
- Operational Risks: Production interruptions occurred at the Kvitebjørn field due to pipeline damage. The Snøhvit LNG plant faces start-up uncertainties.
- Market Risks: Significant exposure to fluctuations in oil and gas prices and the USD/NOK exchange rate. A 10% adverse change in NOK currency rates could result in a loss of approximately NOK 10.4 billion.
Important Facts for Investor Verification
- Merger Synergies: Verify the realization of the projected NOK 6 billion in annual synergies from the Statoil-Hydro merger.
- Snøhvit LNG Operations: Monitor the resolution of operational challenges at the Snøhvit LNG plant to ensure it meets contractual delivery obligations.
- Production Cost Trajectory: Track the normalization of production costs as restructuring charges are removed and new fields ramp up.
- Legal Exposure: Follow the outcome of the external review regarding Hydro's Libya operations and any potential additional penalties.
- Reserve Replacement: Confirm the sustainability of the 86% reserve replacement ratio in the context of maturing NCS fields and international PSA effects.