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Statoil ASA’s first-quarter 2013 adjusted earnings of 66 cents per ADR missed the Zacks Consensus Estimate of 75 cents. The quarterly results also came below the year-earlier adjusted earnings of 82 cents per ADR, attributable to lower sales volumes and margins as well as higher operating costs.

Adjusted net income after tax came in at NOK12.0 billion (US$2.1 billion) in the first quarter, higher than the year-earlier level of NOK16.8 billion (US$2.9 billion).

In the first quarter, total revenue dropped 16.5% year over year to NOK 161.7 billion ($28.0 billion), mainly due to decreased volumes and lower prices for both liquids and gas.

Operational Performance

In the reported quarter, equity and entitlement production increased 6% and 16% annually, respectively, based on production ramp up at existing fields. 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 1.998 million barrels of oil equivalent per day (MMBOE/d) in the first quarter compared with 2.193 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 1.805 MMBOE/d during the quarter (52% oil and 48% natural gas) compared with 1.970 MMBOE/d in the year-earlier period.

The company's realized oil prices averaged $99.43 per barrel, down 10% year over year, while natural gas price realization averaged NOK 2.01 per standard cubic meter, down 11% from the year-earlier level.

Financials

During the quarter, total capital investment was NOK 26.6 billion. For the reported quarter, operating cash flow was NOK 38.3 billion. Net debt-to-capitalization ratio was 13.3% in the reported quarter versus 12.4% in the preceding quarter.

Guidance

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 2013 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.

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.

Outlook

Though 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.

Statoil holds a Zacks Rank #3 (short-term Hold rating). However, there are other stocks in the oil and gas sector – InterOil Corporation , Tesco Corporation and EPL Oil & Gas, Inc. –  which hold a Zacks Rank #1 (Strong Buy) and are expected to perform better.

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