Statoil ASA’s (STO - Analyst Report) second-quarter 2013 adjusted earnings of 60 cents per ADR missed the Zacks Consensus Estimate of 65 cents. The quarterly results were however above the year-earlier adjusted earnings of 59 cents per ADR, attributable to lower prices for both liquids and gas as well as weak trading results.
Adjusted net income after tax came in at NOK 11.3 billion (US$1.9 billion) in the second quarter versus the year-earlier level of NOK 11.5 billion (US$1.9 billion).
In the second quarter, total revenue dropped 26% year over year to NOK 148.3 billion ($25.0 billion), mainly due to decreased volumes and lower prices for both liquids and gas.
In the reported quarter, both equity and entitlement production decreased 1% annually owing to production decline at existing fields. Ramp-up of production on various fields and production start-up on new fields, partly offset the decrease.
Total oil and gas equity production averaged 1.967 million barrels of oil equivalent per day (MMBOE/d) in the second quarter compared with 1.980 MMBOE/d in the year-earlier period. Of the total quarterly output, 59% was oil and 41% was natural gas.
Total oil and gas entitlement production averaged 1.768 MMBOE/d during the quarter (56.4% oil and 43.6% natural gas) compared with 1.786 MMBOE/d in the year-earlier quarter.
The company's realized oil prices averaged $93.9 per barrel, down 5% year over year, while natural gas price realization averaged NOK 1.98 per standard cubic meter, down 11% from the year-earlier level.
During the quarter, Exploration expenditure (including capitalised exploration expenditure) was NOK 5.1 billion, unchanged from the second quarter of 2012. For the reported quarter, operating cash flow was NOK 46.5 billion. Net debt to capital employed ratio increased from 10.7% to 19.7%, mainly due to an increase in net interest-bearing debt.
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, expected within 2016−2020, would likely lead to a CAGR of 3% to 4%. For 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.
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 #5 (short-term Strong Sell rating). However, there are other stocks in the oil and gas sector – VOC Energy Trust (VOC), Niska Gas Storage Partners LLC and Memorial Production Partners LP (MEMP - Snapshot Report) – which hold a Zacks Rank #1 (Strong Buy) and are expected to perform better.