Statoil ASA’s (STO - Analyst Report) fourth-quarter 2012 adjusted earnings of 84 cents per ADR comfortably surpassed the Zacks Consensus Estimate of 68 cents. The quarterly results also improved from the year-earlier adjusted earnings of 79 cents per ADR, attributable to higher gas sales volumes and margins as well as lower operating costs.
For full-year 2012, the company registered a profit of $2.98 per ADR, missing the Zacks Consensus Estimate by a penny but increasing from the year-earlier earnings of $2.84 per ADR.
Adjusted net income after tax came in at NOK15.1 billion (US$2.7 billion) in the fourth quarter, higher than the year-earlier level of NOK14.5 billion (US$2.5 billion). In 2012, adjusted earnings after tax were NOK 55.1 billion (US$9.5 billion) compared with NOK 50.7 billion (US$9.0 billion) in 2011.
In the fourth quarter, total revenue dropped 12.1% year over year to NOK 160.6 billion ($28.2 billion), mainly due to lower realized oil prices as well as lower volumes of liquids. In 2012, total revenue surged nearly 8% year over year to NOK 723.4 billion (US$124.3 billion).
In the reported quarter, equity and entitlement production increased 3% and 4% annually, respectively, based on production ramp up at existing fields and higher gas sales from NCS. The relatively lower effect from maintenance in the reported quarter compared to the year-ago quarter also contributed to the growth.
Total oil and gas equity production averaged 2.032 million barrels of oil equivalent per day (MMBOE/d) in the fourth quarter compared with 1.975 MMBOE/d in the year-earlier period. Of the total quarterly output, 55% was oil and 45% was natural gas.
Total oil and gas entitlement production averaged 1.841 MMBOE/d during the quarter (52% oil and 48% natural gas) compared with 1.778 MMBOE/d in the year-earlier period.
In 2012, equity production increased 8% annually to 2.004 MMBOE/d. Entitlement production increased 9% annually to 1.805 MMBOE/d.
Total oil and gas liftings were 1.828 MMBOE/d compared with 1.761 MMBOE/d in the prior-year quarter.
The company's realized oil prices averaged $102.7 per barrel, down 0.1% year over year, while natural gas price realization averaged NOK 2.12 per standard cubic meter, down 5.8% from the year-earlier level.
During the quarter, total capital investment was NOK 29.1 billion. For 2012, operating cash flow was NOK 128.0 billion. Net debt-to-capitalization ratio was 12.4% in the reported quarter versus 12.6% in the preceding quarter.
Management reaffirmed its production guidance for 2013. Statoil aims to achieve an equity production of above 2.5 million barrels of oil equivalent in 2020. The growth is expected to come from new projects between 2014 and 2016, resulting in a CAGR of 2% to 3% for the period 2012 to 2016.
The second stream of projects is expected within 2016−2020 that would likely lead to a CAGR of 3% to 4%. 2013 production is expected to be lower on a year-over-year basis, due to the recent transaction with Wintershall as well as a cut in gas output by 25 Mboe/d in U.S. onshore.
The company has projected organic capital expenditures of around $19 billion and exploration activity of about $3.5 billion for 2013. Statoil plans to complete around 50 wells during the year.
In 2012, Statoil delivered strong exploration results, adding significantly to its resource base by making several high impact discoveries, since the last 2 years. The company commissioned 46 exploration wells, of which 19 were on the NCS and 27 overseas. Discoveries of around 23 wells were announced during the period. The company also confirmed the prospects at Lavani-2 exploration well, offshore Tanzania, by finding natural gas during the quarter. ExxonMobil Corporation (XOM - Analyst Report) and Production Tanzania Limited are the other partners of the probe.
Statoil also made additional strategic progress on the agreement with Russian state-owned oil company OAO Rosneft. The companies have entered into an agreement wherein the Norwegian oil giant will jointly explore and develop Russian offshore deposits in the Barents Sea and Sea of Okhotsk. The venture is expected to involve an investment of approximately $100 billion over decades.
Following a surge in global oil demand, we see the Norwegian oil major as likely to benefit from its cooperation alliance with Russia-based Rosneft – the world's largest hydrocarbon-producing company.
Although we have a favorable stance on Statoil's long-term production growth based on its growing upstream presence in the emerging basins of the Caspian Sea, West Africa and the deepwater U.S. Gulf of Mexico, we remain cautious about its operating risk in Algeria. The deadly hostage attack last month when Islamist gunmen (believed to be from Libya) performed a hostage-taking attack on In Amenas, one of the country's largest wet gas fields, leaving 37 foreigners dead.
Statoil holds a Zacks #3 Rank (short-term Hold rating). However, there are other stocks in the oil and gas sector – Penn Virginia Corporation (PVA - Snapshot Report) and Memorial Production Partners LP (MEMP - Snapshot Report) - which hold a Zacks Rank #1 (Strong Buy) and are expected to perform better.