OilVoice - Statoil Third Quarter Operating and Financial Review

Statoil Third Quarter Operating and Financial Review

04 November 2009

Statoil's third quarter 2009 net operating income was NOK 28.3 billion, compared to NOK 47.0 billion in the third quarter of 2008. The quarterly result was mainly affected by a 31% drop in oil prices and a 32% decrease in the average price of natural gas.

Adjusted earnings in the third quarter 2009 were NOK 31.2 billion.

Net income in the third quarter of 2009 was NOK 6.6 billion and was mostly influenced by lower crude oil and gas prices and a gain on financial items.

Adjusted earnings after tax was NOK 9.3 billion in the third quarter of 2009. Adjusted earnings after tax excludes the effect of tax on net financial items, and represents an effective adjusted tax rate of 70% in the third quarter of 2009.

"Statoil delivers solid financial and operational results and continues to maintain a high activity level both in Norway and internationally. We have increased our equity production to 1,87 million barrels of oil equivalents per day, up eight per cent from third quarter 2008. Our operations outside of Norway contributed with more than 500,000 barrels of oil equivalents per day," says Statoil's chief executive Helge Lund.

"Since the second quarter we have started operations on several new oil and gas fields such as Tyrihans in the Norwegian Sea, Tune South in the North Sea and Thunder Hawk in the Gulf of Mexico, and our exploration programme continues to yield good results."

"Although we see signs of improvement in the global economy, there is no firm evidence that industry investment, employment and private consumption have recovered in a sustainable way. This calls for cautiousness. Statoil is continuing to reduce cost, and we still have the flexibility to adjust our activity in response to a volatile business environment," says Lund.

Highlights since second quarter 2009:
• Equity production is up 8% from third quarter 2008 to 1,874 mboe per day. For the first nine months of the year, equity production is 1,930 mboe per day
• Entitlement production is up 10% from third quarter last year to 1,712 mboe per day
• Average liquids prices measured in NOK are down 31%, gas prices down 32%, and refining margins down 59% from third quarter last year
• Successful maintenance turnarounds on the Norwegian Continental Shelf (NCS)
• New fields coming on stream were Tyrihans and Tune South on the NCS and Thunder Hawk in the Gulf of Mexico
• Successful debt capital markets transaction issuing USD 900 million 2.90% Notes due in October 2014
• Guiding for 2009 equity production, capital expenditure and exploration activity is unchanged

Operational Review

Third quarter
Total liquids and gas entitlement production in the third quarter of 2009 was 1,712 mboe per day, compared to 1,550 mboe per day in the third quarter of 2008. Total equity [9] production was 1,874 mboe per day in the third quarter of 2009 compared to 1,733 mboe per day in the third quarter of 2008.

The 8% increase in total equity production was primarily related to the start-up of new fields and ramp-up of production from existing fields, and was only partly reduced by declining production from mature fields, maintenance activities and various operational issues.

Entitlement production increased by 10% for the same reasons as stated above and also due to a less adverse effect of product sharing agreements (PSA effect). The average PSA effect was 163 mboe per day in the third quarter of 2009 compared to 184 mboe per day in the third quarter of 2008.

Total liftings of liquids and gas were 1,656 mboe per day in the third quarter of 2009, a 10% increase from 1,504 mboe per day in the third quarter of 2008. The increase in lifting is based on the increase in entitlement production. In the third quarter of 2009 there was an underlift of 42 mboe per day [5], compared to an underlift of 29 mboe per day in the third quarter of 2008.

Refining margins were USD 3.8 per barrel in the third quarter of 2009, a 59% decline since the third quarter of 2008.

Production cost per boe of entitlement volumes was NOK 37.7 for the 12 months ended 30 September 2009, compared to NOK 47.4 for the 12 months ended 30 September 2008. [8] Based on equity [9] volumes, the production cost per boe for the two periods was respectively NOK 34.9 and NOK 43.2.

The 12 month rolling average production cost per boe decreased mainly due to non-recurring restructuring cost relating to the merger of Statoil ASA and Hydro Petroleum in 2007, and partial reversal of the restructuring cost in the fourth quarter of 2008.

Adjusted for restructuring costs and other costs arising from the merger recorded in the fourth quarter of 2007, and partially reversed in the fourth quarter of 2008, and gas injection costs, the production cost per boe of equity production for the 12 months ended 30 September 2009 was NOK 35.3 The comparable figure for the 12 months ended 30 September 2008 was NOK 33.2. The increase is partly due to currency effects from the strengthening of USD versus NOK in the most recent 12 month period compared to the 12 months ended 30 September 2008, and partly due to relatively high cost per barrel when new fields come on stream.

In the third quarter of 2009, a total of nine exploration wells were completed before 30 September 2009, five on the NCS and four internationally. Five wells were announced as discoveries, of which one are located outside the NCS.

In the third quarter of 2009, Statoil started production from Tyrihans (July) and Tune South (July) on the NCS, and first oil and gas was received from the Murphy Oil operated Thunder Hawk field (July) in the Gulf of Mexico.

First nine months
Total liquids and gas entitlement production in the first nine months of 2009 was 1,791 mboe per day, compared to 1,716 mboe per day in the first nine months of 2008. Total equity production was 1,930 mboe per day in the first nine months of 2009 compared to 1,892 mboe per day in the first nine months of 2008.

The 2% increase in total equity production in the first nine months of 2009 compared to same period in 2008 was primarily due to increased production from start up of new fields and ramp up on existing fields, partly offset by declining production from mature fields, various operational issues and maintenance activities.

Entitlement production increased by 4% for the same reasons as stated above and also due to a less adverse effect of product sharing agreements (PSA effect). The average PSA effect was 139 mboe per day in the first nine months of 2009 compared to 177 mboe per day in the first nine months of of 2008.

Total liquids and gas liftings in the first nine months of 2009 were 1,760 mboe per day, compared to 1,691 mboe per day in the first nine months of 2008. The 4% increase in lifting is based on the increase in entitlement production. There was an underlift in the first nine months of 2009 of 16 mboe per day [5] compared to an underlift of 9 mboe per day in the first nine months of 2008.

Refining margins were USD 4.7 per barrel in the first nine months of 2009, a 45% decline since the first nine months of 2008.

In the first nine months of 2009 Statoil completed 53 exploration wells, 32 on the NCS and 21 internationally. A total of 32 wells were announced as discoveries in the period, 27 on the NCS and five internationally.

In the first nine months of 2009 Statoil started production from Yttergryta (January), Alve (March), Tyrihans (July) and Tune South (July) on the NCS and received first oil and gas from Tahiti (May) and Thunder Hawk (July) in the Gulf of Mexico.

Outlook

Statoil's guiding for equity production is 1,950 mboe per day in 2009 and 2,200 mboe per day in 2012. [13] The estimate for 2009 excludes any adverse effects of potential Opec quotas. Going forward, operational regularity, gas offtake and commercial considerations related to gas sales activities represent the most significant risks to the production guidance.

Maintenance activity is not expected to materially influence our equity production in the fourth quarter of 2009, and is expected to be approximately 30 mboe per day for the full year.

Capital expenditures for 2009, excluding acquisitions and capital leases, are estimated at around USD 13.5 billion.

Unit production cost for equity volumes is estimated in the range of NOK 33 to 36 per barrel in the period from 2009 to 2012, excluding purchases of fuel and gas for injection. For 2009, the unit production cost is expected to be in the upper end of this range.