Business Context and Reporting Period
This Form 6-K filing by Statoil ASA (proposing a name change to Equinor ASA) covers the first quarter of 2018, ending March 31, 2018. The company operates globally in exploration, production, transportation, refining, and marketing of petroleum. The quarter was characterized by solid earnings across all segments, record-high international production, and strong operational performance.
Key Financial Metrics
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Adjusted Earnings | USD 4.4 billion | USD 3.3 billion |
| Adjusted Earnings After Tax | USD 1.5 billion | USD 1.1 billion |
| IFRS Net Operating Income | USD 5.0 billion | USD 4.3 billion |
| IFRS Net Income | USD 1.3 billion | USD 1.1 billion |
| Operating Cash Flow (pre-tax/working capital) | USD 7.1 billion | USD 5.9 billion |
| Free Cash Flow | USD 1.5 billion | USD 3.2 billion |
| Net Debt to Capital Employed | 25.1% | 30.0% |
| Equity Production | 2,180 mboe/day | 2,146 mboe/day |
| Organic Capital Expenditure | USD 2.1 billion | Not specified |
Material Changes vs. Prior Period
- Revenue and Profit Growth: Adjusted earnings increased 33% year-over-year, driven by higher oil and gas prices (Group average liquids price up 23% to USD 60.2/bbl) and increased production volumes.
- Production: Total equity production rose 2% to 2,180 mboe/day, primarily due to higher production in the US and new fields coming on stream. International production reached record highs.
- Costs: Operating costs increased due to the USD/NOK exchange rate, higher transportation costs, and increased royalty expenses linked to higher prices. A change in depreciation basis for a Norwegian field added over USD 100 million to expenses.
- Balance Sheet: The net debt ratio improved significantly from 29.0% (Q4 2017) to 25.1% (Q1 2018) following the payment for the Martin Linge acquisition.
- Accounting Changes: Implementation of IFRS 9 and IFRS 15, along with a voluntary change in policy for recognizing revenue from lifting imbalances, resulted in a USD 287 million positive implementation effect on net operating income.
Guidance, Outlook, and Risks
- 2018 Guidance: Organic capital expenditures are estimated at around USD 11 billion. Exploration activity is estimated at USD 1.5 billion. Production is expected to be 1-2% above 2017 levels, with a long-term (2017-2020) CAGR of 3-4%.
- Dividends: The board declared a dividend of USD 0.23 per share for Q1 2018.
- Strategic Moves: The board proposed changing the company name to Equinor ASA. The company acquired Total's stake in the Martin Linge field (USD 1.56 billion) and Cobalt's North Platte interest in the Gulf of Mexico.
- Risks: Significant risks include commodity price volatility, operational regularity, timing of new capacity, and uncertainty regarding the closing of announced transactions. Scheduled maintenance is expected to reduce production by approximately 50 mboe/day in Q2 2018.
- Contingencies: A dispute with Norwegian tax authorities regarding R&D cost allocation has increased maximum exposure to approximately USD 500 million. An arbitration ruling in Nigeria regarding the Agbami field was dismissed, though the company has already provided for the outcome.
Investor Verification Checklist
- Verify the impact of the USD/NOK exchange rate on reported costs and earnings.
- Confirm the timing and regulatory approval for the Martin Linge and North Platte acquisitions.
- Monitor the execution of the name change to Equinor ASA at the May 2018 Annual General Meeting.
- Assess the sustainability of the 25.1% net debt ratio given the planned USD 11 billion capital expenditure program.
- Review the status of the Norwegian tax dispute regarding R&D costs and the potential USD 500 million exposure.